Nobel Prize Winner Angus Deaton: Economic Inequality Can Highlight Progress as Long as Opportunities Exist for All

In front of a capacity crowd in Colombia, Nobel Prize-winning economist Angus Deaton offered some controversial thoughts. “Many people seem to think inequality is just a bad thing and it should be reduced,” said Deaton. “I think that is much too simple a way of thinking about it.”

At the Asobancaria 2017 financial conference in Cartagena last month, the 71-year-old Scotsman was speaking solely in economic terms and followed up his hair-raising comments with a nuanced exploration of how the rich get rich.

Economic inequality is very problematic, he declared, when it comes from an exploitative elite doing damage to the working and lower classes. But it can also simply be the harmless result of an advancing society.

Deaton, who won the Nobel Memorial Prize in Economic Sciences in 2015 for his work on consumption, poverty, and welfare, framed his discussion around the inevitable race to the top that occurs after a society overcomes great barriers.

Photo: Nobel Prize-winning economist Angus Deaton speaks about inequality and progress at the Asobancaria 2017 financial conference in Cartagena, Colombia. (Credit: Loren Moss)

Throughout the world, progress that we now take for granted — in health, education, safety, fairer governmental rule, and simple convenience — has advanced so far over the past century. Though at different times, more and more countries have seen the majority of their people able to leave behind the proverbial Hobbesian life that is poor, nasty, brutish, and short.

“So many places around the world have made this escape — this Great Escape — and this, in some ways, is the transition that Colombia is making today,” said Deaton from the stage in Cartagena. “It’s a long way there already. Now, I want to talk about inequality in this context. And when I talk about this, many people resist this. But I think no one should resist this. There’s a very intimate, close link between progress and inequality.”

His perspective is rooted in the long view and high-minded principles. Deaton has forged this mentality over decades teaching at both Princeton University in the United States and England’s University of Bristol. His outlook comes from recognizing the advances that “have taken mankind from the destitution, ill health, and premature mortality” to “much higher material living standards than our grandparents or great-grandparents could have imagined.”

On that journey, it’s only natural that some would advance more quickly when the opportunity for a better life appears. “Progress creates inequalities — sometimes enormous inequalities — and because you’ve got the leaders who go first and you have the laggards who are slower, [inequality] opens up space between them,” he said. “And many people say, ‘well, that’s terrible — we should make everybody go along together.’ Well, that would be nice, but that’s not the way it happens. It’s not the way progress happens over time.”

As a modern example of benign economic inequality, Deaton used the tech-world example of Facebook founder Mark Zuckerberg. “If some entrepreneur like Mr. Zuckerberg … makes us all better off, we don’t really hate him for that. We don’t think that’s such a bad thing,” said Deaton. “But if someone else comes along and persuades the government to give them special favors — or to give them a monopoly or to steal stuff or to eliminate other voters — those are things that we really do care about.”

Unfortunately, unlike Zuckerberg or Warren Buffet, those who profit first from progress have, in many cases, not welcomed others up along with them. They have instead tried to salt the earth behind them to remain the sole beneficiaries of the gains.

“The concern is that those who succeed first erect barriers to stop those who are coming along from behind them doing as well as they’ve done themselves,” said Deaton. He added that, “I think what people see as unfair is not inequality itself, but they care how the inequality came about.”

These barriers and unfair behaviors are what he calls procedural inequalities — and they are much more harmful than economic inequality. Economic inequality can be a good sign or a troubling sign. But the procedural inequalities are inherently harmful.

So rather than lumping both together, he believes it would be wise to aim our condemnation where it belongs. Though the outcome of economic inequality can often be seen as the result of unfair procedural inputs, it will do more good for the institutions and leadership of any society to prioritize a level playing field that will offer those who did not escape the brutish past originally all the opportunities possible to join those who already did.

“Those,” he said, “are things that we can do something about … The key here is to make sure that those who have not benefitted from the ‘Escape’ in the first place do indeed catch up — and that we do everything that we can to ease that progress.”

Deaton looked at two locations in particular, Colombia and the United States, as places where people feel as though the opportunities to progress have been narrowed significantly, if not shut off altogether. And this is the time when the concept of inequality — not an evil unto itself — becomes a massive drain on any nation.

“I think that a lot of the inequality in the U.S. — and from my reading, a lot of the inequality in Colombia — comes about through that source,” he said. “People don’t think that they have a fair chance and that people are getting rich by their influence on the government, by vote-buying, by corruption.”

In Deaton’s eyes, Colombia would be wise to work to root out its procedural inequalities. And from there, a more just economic landscape will follow. “It’s very relevant in both the United States and Colombia … Not everybody in Colombia has access to the modern economy, and that in itself is an important inequality that needs to be addressed.”