1 Puzzles and Paradoxes

Puzzles and paradoxes: a life in applied economics Angus Deaton Starting out My father believed in education, and he liked to measure things. He grew up in a mining village in Yorkshire, between the first and second World Wars. He was bright and motivated, but the school system was designed, not for education, but to produce workers for the “pit,” and only one child in each cohort was allowed to progress to high school. Not my father, who got in the line to be a miner, then was drafted into the army in 1939, and drafted out again with tuberculosis before war’s end. In the easy labor market of those days, he got a job with a firm of civil engineers. The managing partner was impressed by my father’s skill with a slide rule and a theodolite, and was prepared to ignore his lack of formal education. My father went to night school at what is now the Heriot-Watt University in Edinburgh, graduating after very many years as a civil engineer. He married my mother, the daughter of a carpenter. She did not share her spouse’s view of education; she found it hard to see me with a book when I could have been using my hands. But my father was determined that I should be educated properly, and set his heart on sending me to Fettes College, a famous public school (in the British sense) in Edinburgh, whose annual fees were well in excess of his salary, even once he became the water supply engineer for the county of Roxburgh in the Scottish borders. Then, and perhaps even now, there were schoolteachers in the Scottish state schools who were prepared to coach a bright kid for a scholarship that would take him away, and to do so in their own time. So I went to Fettes at 13, as one of two scholarship boys in my year—Sir William Fettes had left his fortune to give a public school education to the children of the poor, but there was only this remnant of the intent (and the original endowment) by 1959. Fettes had all of the resources to provide a great education, and in those days, sent most of the graduating class to Oxford or Cambridge, as did, for example, Lawrenceville Academy to Princeton in the United States. I was one of the Cambridge lot, I played the piano, the pipe organ, and the double bass, I was a pretty good second row forward—which is how I got into Cambridge (“Fitzwilliam needs second row forwards, Mr. Deaton,” the senior tutor told me at my interview)—and I was a mathematician of sorts in my spare time. But I had no idea what I wanted to be or to do; the rugby at Cambridge was serious and brutal, and the mathematics was appallingly taught, in huge classes by ancients in mildewed gowns whose sinecures depended only on their never publishing their yellowed notes. I quickly drifted away from both rugby and mathematics, tried to become a philosopher of science, but was refused by my college tutor, and instead adopted into a largely pointless student life of card-playing and drinking. Eventually, my college, losing patience with my aimlessness, told me that I could leave, or stop pretending to study mathematics. What to do? “Well, there is only one thing for people like you. .economics.” I should have preferred to leave—but doubted that I could explain to my father, who already felt that I was not making enough of the opportunities that I had, and that he had lacked—so I accepted the inevitable, and set off for the Marshall Library, where the aimlessness came to a surprised and delighted end. 1 I found economics much more to my taste than mathematics. I was helped by the little mathematics that I had learned, though it hardly got me through David Champernowne’s econometrics course in which the first (French) edition of Malinvaud was the sole text, or indeed the mathematical economics exam in which Jim Mirrlees set all of the parts of Diamond and Mirrlees that neither he nor Peter had been able to figure out1, most of which were ill-posed and insoluble. But lectures at Cambridge were like the books in the Marshall library, varied, sometimes interesting, but entirely optional, and the important thing was reading and writing essays, which were regularly read and discussed by college-appointed supervisors. I found that the material was interesting—Samuelson’s Principles was terrific— and I found that I could write, indeed that I could write with clarity and with a good deal of pleasure, a lasting benefit of the one-on-one teaching at Fettes. That single year of (involuntary) undergraduate economics, reading Modigliani and Brumberg on life-cycle saving, Hahn and Matthews on economic growth, Meade on trade, Kuznets on patterns of consumption, and summarizing what I’d learned for discussion and criticism, provided a template for learning, thinking, and writing that I have had little reason to revise. I understood that economics was about three things: theory that specified mechanisms and stories about how the world worked, and how things might be linked together; evidence that could be interpreted in terms of the theory, or that seemed to contradict it, or was just puzzling; and writing (whose importance is much understated in economics) that could explain mechanisms in a way that made them compelling, or that could draw out the lessons that were learned from the combination of theory and evidence. The two Modigliani and Brumberg papers—both on the consumption function, one on time- series, and one on cross-sectional evidence—have always stayed with me. They were written when the topic was in a mess, with dozens of unrelated and incoherent empirical studies. Modigliani and Brumberg provided a rigorous statement of a simple theory of behavior that, with careful statement and manipulation, could provide a unified account of all of the evidence, and that provided a framework that has dominated thinking ever since. In recent years, I have come to think of those mechanisms as incomplete, and in some places even wrong, but the principle of the thing has stayed with me, that a good theoretical account must explain all of the evidence that we see, in this case cross-sectional patterns of consumption and income, time-series patterns of consumption and income, and then—albeit some years later—international patterns of income and saving. If it doesn’t work everywhere, we have no idea what we are talking about, and all is chaos. Kuznets’ work on consumption, and more broadly on modern economic growth, was another early influence that has lasted. This is much less theoretical, more historical, much more data driven, starting from careful empiricisms, and cautious induction, always with great attention to problems of measurement and the quality of the underlying data. Underlying everything is historical measurement, considered and qualified, but leading to generalizations of great 1 Peter Diamond, in this volume, refers to the same incident, but notes that he and Jim Mirrlees had not yet begun their collaboration at the time that Mirrlees set the exam. The exam was still close to impossible, if only because reading it took most of the time that was allowed. 2 scope and subtlety and with significance beyond the topic at hand. Modigliani started from behavior, and used it to interpret the evidence, while Kuznets mostly worked the other way round. To me as an undergraduate, and to me now, the order matters not at all. What is important is a coherent behavioral or institutional account that provides broad insight into understanding the present and the past, and gives us some hope of predicting the future. I had studied economics only to escape from mathematics, and to complete my degree, but after graduation now needed to work, so I went off to the Bank of England. I think I accepted the job because the interview had been really tough, and because the job offer came on letterhead that was engraved like a high denomination bank note. But the institution was in flux, it had traditionally not employed university graduates, and they had no idea what to do with me or the small cohort of graduates who entered with me. So I went back to Cambridge where I could be with my bride, Mary Ann Burnside, a writer and teacher, born in Topeka and raised in Evanston, who was studying psychology at Cambridge. I was a research assistant on a project measuring national wealth—directed by my college economics tutor, Jack Revell, who felt sorry for me, and wanted to help me live in the same town as my wife. So, just as I had drifted into economics as an undergraduate, I drifted into it as a profession though, at the time, it was just something to do. Revell soon left Cambridge for a Chair in Wales, leaving me funded but without anything much to do. I soon fell in with the Cambridge Growth Project, directed by Richard Stone. The project had begun as what was then known as an “indicative planning model,” centered around input-output analysis, though it was being developed into something more like a large-scale Keynesian macroeconomic model, albeit with a lot of industrial and commodity detail. Like my fellow researchers, I was assigned to work on one of the model’s components, in my case consumption and demand, though the time commitment was not large, and once again, I was left free to work on anything that seemed interesting.

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