The View | These Nobel laureates tinkered with ‘health’ and other ideas to help win the war on poverty

Professor Angus Deaton won the Nobel Prize in Economics this year for his work on consumption, poverty and welfare. I have always greatly admired his work and I use his book, The Great Escape, in my freshman course that takes a close look at poverty.

Deaton’s work has three critical elements for understanding poverty and welfare in both developing and developed countries.

First is that income is not the only thing that matters in determining the well-being of individuals and households. By implication, the obsession in both rich and poor societies with using income to measure welfare is incomplete and could be misleading for our understanding and policy design to tackle poverty.

Time free from work is a non-income measure of well-being. Increases in productivity lead to higher incomes but also reduce the amount of time a person spends at work. Time not spent in work is not idle or wasted. It is often spent investing in human capital (including studying, training, exercising and sleeping) and in play.

Increases in life expectancy due to better health have also greatly increased well-being. A better measure of well-being therefore must also include the additional time available to an individual when productivity, health and income increase.

To appreciate the significance of this, consider the consequences of recognising health as an element of well-being. A general empirical observation is that the rich have better health than the poor, and people in developed nations on average have better health than those in developing countries, as reflected in longer lives, fewer sick days, taller body heights, and other measures of health robustness.

These indicators are strongly correlated with income across individuals, across countries, and over time. But the correlation is not perfect. It cannot be reduced only to income effects.