Angus Deaton analyzes the correlation between health and wealth in light of the economic origins of inequality worldwide.

Angus Deaton analyzes the correlation between health and wealth in light of the economic origins of inequality worldwide.

Angus Deaton (2015)

 

The great escape: health, wealth, and the origins of inequality

 

Nobel Laureate Angus Deaton analyzes the correlation between wealth and health both across countries and over time. Deaton strives to empirically find out whether income growth contributes significantly to better health worldwide. His simple and intuitive answer is no: saving lives is inexpensive in most poor countries, and there are numerous episodes of substantial public health improvements in the absence of income growth. The cross-country correlation between health and income arises from substantial variation in institutional quality. Over time, parallel improvements in wealth and health have been a natural result of advancing knowledge worldwide. Deaton embeds health and wealth in a conceptual framework of economic welfare, and he discusses how most people define and measure this concept. Deaton also addresses some other measurement problems such as international comparisons of both income and wealth as well as the construction of poverty thresholds. After all, it is quite plausible for poor countries to substantially lift public health standards as these countries continue to catch up with the rich countries in terms of economic growth, employment, and capital investment accumulation.

Deaton focuses on the economic welfare of those people who tend to be financially worse off in poor countries. As the source of the book title, the macro metaphor is the fresh insight that the great escape of humanity from most material deprivation and premature death has been due to economic inequality. At first only a few can escape from the downward spiral of both subpar health and wealth, and many are left behind. This analysis has profound policy implications for long-run public health and economic prosperity.

 

There is an econometrically significant correlation between health and wealth both across countries and over time.

Parallel improvements in cross-country health and economic growth have much in common in terms of their geographic origins and root causes. Charles Jones (2002) and Robert Lucas (2000) empirically show that the growth rate of economic output per capita has been about 2% per annum in America over the last 150 years. In a similar vein, Oeppen and Vaupel (2002) report that life expectancy has increased linearly at the pace of 3 months per year in most rich countries since 1840. In each case, the long-run steady headline results of both health and wealth reflect ferment beneath the surface. For economic growth, greater investment rates in human and physical capital accumulation, massive structural reforms, demographic transitions, technological advances, and so on have netted out to constant overall income per capita growth. For life expectancy, ages, diseases, and generic health conditions etc serve as most other control covariates. Whether we can extrapolate these key mysterious linear trends to the distant future remains an important policy issue that can cause substantial changes in the economic welfare of residents in most OECD and non-OECD countries.

Deaton focuses on the notable relation between health and wealth in cross-country data. Preston (1975) first identifies the positive nexus between life expectancy and net income per capita. The Preston curve fits well in the cross section. In particular, the positive correlation between logarithmic GDP per capita and life expectancy is 84% when the econometrician weights many countries by population. This Preston curve is quasi-linear as GDP per capita doubles in association with an increase in life expectancy of 5 years. There is also a significant relation between income and health within countries. The World Bank collects data from both demographic and public health surveys for 56 rich countries. The empirical analysis fits quite well the wealth gradients for several public health indicators. For instance, the key mortality rate for children under 5 years old varies by a factor of almost 2 from 135 to 73 per thousand as we shift focus from the bottom to the top income quintile. In America, the Congressional Budget Office empirically finds that mortality probabilities tend to decrease with life-time income per capita across almost all demographic groups. For example, men and women who are in the age range of 50 to 64 in the top real income quintile experience about 50% lower mean mortality probabilities than their counterparts in the bottom real income quintile. Deaton offers the fresh economic insight that it would be reasonable for several poor countries to apply cost-effective preventative vaccines and other medications for specific diseases such as cholera, malaria, yellow fever etc. The resultant increase in life expectancy and several key public health indicators would not arise as a result of economic development. This fresh economic insight demonstrates that correlation cannot imply causation in the positive relation between health and wealth in the cross section.

 

Correlation cannot imply causation in lieu of the conceptual nexus between income growth and health worldwide.

The Preston curve is quite stable over time, but the positive relation between health and wealth cannot indicate a positive causal effect of real income on public health. If diseases of poor countries are indeed diseases of poverty in the sense that these diseases vanish if many governments strive to reduce poverty, direct public health interventions would be less important than economic development policies. In this specific context, economic growth would bless humanity twice because higher real income increases material standards and further improves public health standards. In stark contrast, Deaton dismisses this optimistic view because correlation cannot imply causation in lieu of the positive relation between health and wealth worldwide. The Achilles heel arises from the fact that there are inexpensive and cost-effective medications for governments to save lives in several poor countries. Both vaccines and many other medical advances diagnose, cure, treat, and even prevent specific diseases in most poor countries. It is therefore quite plausible for poor countries to substantially enhance public health and life expectancy via foreign aid or economic welfare assistance.

The vast majority of declines in mortality from several infectious diseases can take place well before the deployment of both medical treatments such as vaccines and drugs on the one hand, and numerous public health measures such as clean water and nutrition on the other hand. Deaton indicates that we can decompose the rise in life expectancy into the part due to higher income and the other part due to smart transformation in medical diagnosis, treatment, and prevention. The former reflects a positive movement along the Preston curve, and the latter represents a parallel shift in the Preston curve itself. At any rate, real income gains cannot be the single source and primary root cause of public health improvements worldwide.

Deaton puts less weight on clean water and nutrition and much more on knowledge. Specifically, Deaton focuses on the gradual improvements in health knowledge of both disease control and prevention. This better health knowledge represents the greatest improvement in life expectancy. In the Deaton narrative story, no scientific advance is more important than the germ theory of disease. In practice, the germ theory of disease allows for the introduction of effective public health infrastructure, especially clean water, as well as other behavioral changes in both the control and prevention of infection. Several other vital pieces of health knowledge include cost-effective treatment regimens for dealing with high blood pressure and several other cardiovascular diseases, oral rehydration therapies for diarrhea, cholera, malaria, and yellow fever etc, and medical rehabilitation therapies for tobacco and alcohol overdoses in association with diabetes, tuberculosis, and cancer. The substantial gains in health knowledge often lead to the gradual synchronization of declines in mortality across both OECD and non-OECD countries that run at different stages of economic development.

The knowledge-driven model of health improvements therefore serves as a natural explanation for the temporal covariation between health and wealth. In light of this knowledge-driven model, Deaton understates the partial role of economic growth in producing the health knowledge that can be instrumental in saving lives in poor countries with cost-effective medications. Key economists who study technological progress would emphasize at least 2 other channels that permit income growth to produce better public health knowledge. These 2 channels include better scientific tools and new public health discoveries. For instance, the major scientific discovery of antibiotics such as penicillin turns out to be an enormous technological advance for medical doctors to treat numerous bacterial infections. In this positive light, the knowledge-driven model of generic public health improvements provides a natural explanation for the upward parallel shifts of the Preston curve, especially in recent decades when governments develop the public health infrastructure worldwide for spreading new medical advances from rich countries to poor countries. At least in its purest form, health knowledge can serve as a good explanation for recent cross-country differences in health outcomes today.

Deaton offers the empirical evidence against the conventional wisdom that income growth tends to cause better public health conditions. Instead, Deaton emphasizes that it would be quite inexpensive for governments to adopt new medical advances and public health improvements in order to save lives in most poor countries. Many recent episodes of rapid health improvements often arise from good political will to address public health issues and problems instead of economic output expansion. These episodes emerge in Bolivia, China, Honduras, India, Nicaragua, Sri Lanka, and several sub-Saharan African countries.

If uniform causation from wealth to health cannot explain cross-country differences in public health conditions and improvements over time, the ubiquitous application of public health knowledge helps substantially reduce mortality rates. Turning the germ theory of disease into clean water, nutrition, and sanitation takes time and so requires both fiscal stimulus and state capacity. Public health education serves as a major determinant of both health conditions and improvements because this core education allows people to apply knowledge in their own lives. This positive health effect often manifests in the form of new pieces of generic health knowledge over time. The widespread acceptance of the germ theory of disease helps dramatically reduce mortality rates, especially for children, young adults, and senior citizens etc. The germ theory of disease states that many micro-organisms such as germs and pathogens can lead to infectious diseases. Such small organisms often tend to be too small to see without magnification and thus invade humans and other animals. The rapid reproduction of germs can cause diseases in their hosts. Germs refer to bacteria, fungi, and viruses. Germs and pathogens can cause infectious diseases in poor countries. Even when both germs and pathogens result in specific diseases, environmental and hereditary factors can often influence the severity of infectious diseases regardless of whether the hosts experience exposure to these germs and pathogens. In this scientific view, Deaton states that human capital accumulation must include not only labor supply and domain knowledge but also general health, nutrition, and access to medical care etc.

The vast majority of diseases of poverty that are the main killers in poor countries today are overwhelmingly not due to poverty. As a corollary, the best solutions for disease control and treatment focus on direct health improvements, but not poverty reductions. As Deaton indicates in his primary thesis, income must be important in some ways and at some times. Income is an important determinant of health in the specific cases where public health improvements require richer nutrition, cleaner water, and better sanitation. In the form of fiscal stimulus, governments often need money to enhance these public health standards and conditions over time.

 

Deaton has no active interest in reverse causality from health to income growth.

Although Deaton takes seriously the idea that income affects health, he pays little attention to the possibility that causality runs from health to income. Either Deaton thinks the positive effect of reverse causation from health to wealth is quite small, or he maintains an active interest in the determinants of both health conditions and improvements (rather than the determinants of economic growth). However, it can be plausible for good health outcomes to result in economic productivity gains over time.

One of the famous proponents of the alternative view, Jeffrey Sachs, suggests that improving the health and longevity of the poor is an end in itself (i.e. a fundamental goal of economic development over time). Also, public health improvements serve as a means to achieving the other economic development goals in association with poverty reductions. In this alternative view, it is important for economists and public health experts to consider the conceptual relation between health and wealth. The burden of disease from sub-Saharan Africa to some other low-income regions now stands as a stark barrier to economic growth. Many governments should therefore address this policy issue frontally and centrally in any comprehensive development strategy.

In promoting better health conditions and improvements, government capacity can show up in many dimensions. First, the government can often help organize large public health projects in order to invest in clean water, fresh air, nutrition, sanitation, and access to medical care. Second, the government can initiate public information campaigns to encourage better private health behaviors such as condom use and body-mind balance. Third, the government can further regulate harmful behaviors such as tobacco and alcohol overdoses. In the provision of community-level health services, the government can supervise private health providers from time to time. In a positive light, both state capacity and institutional quality can collectively serve as the major determinants of better public health standards (in addition to greater economic output and income growth over time). In terms of reverse causality, good health conditions and improvements can often help enhance economic productivity gains and technological advances over time.

 

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