When I interviewed the 2015 Nobel Prize winner in economics Angus Deaton a few days ago, I asked him a simple question: “If you had to give one piece of advice to Latin American countries, what would it be?”
He answered it in four words: “Improve your data systems.”
Indeed, the 69-year-old Scottish-American Princeton University professor, who is best known for his studies on how to measure poverty, says that Latin America has some of the most unreliable poverty statistics in the world.
Countries should spend more money to improve their statistical systems and adopt the world’s best practices for measuring poverty because in order to pursue good public policies you need to have a good picture of reality, he said.
“One of the problems in Latin America is that most of the surveys ask people about their incomes, and that’s not as good as asking people about their consumption, or how much they spend,” Deaton told me.
Deaton conceded that he is not an expert on Latin America, and doesn’t know whether this technical mistake is leading to overestimate or undercount poverty in the region. But other leading poverty experts tell me that Latin America’s flawed poverty statistics most likely lead to overblown poverty figures.
According to the latest World Bank estimates, poverty in the region fell from 41.4 per cent of the population to 25.3 per cent over the past decade, which has helped lift 70 million people from poverty.
But because surveys in many Latin American countries ask people about their income, rather than about their spending, the resulting statistics don’t take into account free university schooling, free medicine, heavily subsidized transportation and electricity services, and government cash handouts to the poor. If such things were accurately counted, poverty figures in the region would be lower, many economists say.
Asked about the US economy, Deaton told me that he is especially worried about US politics. Gridlock between Democrats and Republicans in Congress is paralyzing the economy, he said.
“It seems very difficult for anyone to do anything in Washington, DC,” he said. “Perhaps the most obvious example right now is that we have an enormous amount of decay in infrastructure in this country today, roads and bridges that need to be fixed. The US government could borrow right now at effectively zero interest rates. It’s like a free gift, but the political process does not enable us to do that.”
Asked about the socialist policies advocated by Venezuela, Cuba and other Latin American countries, Deaton said that “I don’t think the Venezuelans are very right. The track record of socialism in reducing poverty has been a catastrophe. The track record of capitalism is certainly much better.” He added, “But capitalism needs to be tamed. You can’t just allow it to run wild, and not pay any attention to the negative side effects. So states have to set up mechanisms that help the poor.”
My opinion: Deaton is right in that Latin America should make it a priority to improve its poverty statistics. Many countries — Argentina and Venezuela are the most striking examples — are subsidizing large numbers of people who are not poor, and who are draining massive state resources.
A century ago, when there were no computers, it made sense for these countries to offer blanket electricity subsidies or free college tuition for everybody. The state had no way of knowing whether you were rich or poor.
But today, with good data collection systems, countries can make sure that you don’t receive electricity subsidies and other handouts if you have a tennis court in your backyard. So Deaton makes a good point that is rarely talked about: The first thing countries should do is improve their statistics, so they can have a better diagnosis to solve their poverty problems.
