Uwe Reinhardt and Angus Deaton on Wealth, Health and Inequality

From Uwe Reinhardt’s highly favorable Review of Angus Deaton’s The Great Escape: Wealth, Health and Inequality:

The book demonstrates that assessments of income inequality are basically meaningless without the backdrop of the origins of a prevailing inequality in income and wealth…. Deaton asserts that economists routinely apply Pareto’s principle too narrowly, overlooking that the wealthy in societies with highly unequal distributions of income and wealth may capture the country’s systems of governance… rig market processes in their favor or to exploit taxpayers through what economists call “rent seeking”…. This causal flow from wealth to politics and thence a perpetuation of wealth has been noted by others–among… Simon Johnson… in his “Quiet Coup” and… Luigi Zingales [in his Capitalism for the People)]….

Professor Deaton… comes to… the… conclusion [that “we often have such a poor understanding” of what the poor in the poor countries need or want, or how their societies work, that our clumsy attempts to help on our terms do more harm than good.” A great deal of foreign aid to poor countries derives from economic or political special interests… has propped up corrupt governments… hinders the development of the social and political institutions that are the sine qua non of economic growth…. A better approach, Professor Deaton says, is for donor countries to remove trade policies that obstruct economic development…. better to take the money disbursed as foreign aid and fund more research on diseases afflicting people in poor countries or on enhancing agricultural yields…

The idea that inequality poisons our politics to such a great extent that it makes obtaining a good society overwhelmingly difficult is a very uneasy one for me to contemplate. The point of this exercise we are undertaking here, after all, is persuasion: a point of view according to which the money deployed by rent-seekers and plutocrats exercises a kind of Gramscian hegemony over the minds of the voters and makes reasoned technocratic persuasion impossible is either a counsel of despair or a plea for a kind of politics I really do not like. And, similarly, the idea that all those of us in the rich industrial core can do for the people of what are now called “emerging markets” is to stand ready to buy the stuff they make is similarly depressing. So we are going to proceed as if the right approach to take is what I call “We are the 100%”: that we all have a common interest in full employment, high capacity utilization, and general prosperity, and those in the 1% who are willing to take the long view have an enormous interest in substantial inequality of result, for their descendants will not all be members of the 1% for long.

The problem, alas, is that Deaton’s dismal-scientific judgments might be true…