For Good Measure Read online

  FOR GOOD

  MEASURE

  AN AGENDA FOR MOVING BEYOND GDP

  EDITED BY

  JOSEPH E. STIGLITZ, JEAN-PAUL FITOUSSI, AND MARTINE DURAND

  This report is dedicated to the memory of Alan B. Krueger.

  Alan played a central role in the Commission on the Measurement of Economic Performance and Social Progress and in the High-Level Expert Group, especially through his work on subjective well-being and the ways it links to other life domains.

  Brilliant academic, dedicated public servant, valued colleague, and dear friend, he helped transform the understanding of labor markets, showing (with David Card) that an increase in minimum wage does not have the adverse employment effects previously claimed. He brought his deep economic insights, combined with his strong focus on data, into the realm of policy when he served as Chairman of President Obama’s Council of Economic Advisers, where he advocated for policies that promote equality and opportunity.

  Alan understood the power of economics to transform our society—to reduce human suffering and to improve societal well-being. He dedicated his life to these lofty goals.

  We will sorely miss him. He was more than a brilliant mind; he was above all a good person who sincerely cared for people.

  CONTENTS

  Introduction by Joseph E. Stiglitz

  Editors’ Note

  Preface

  1. Overview

  Elizabeth Beasley

  2. Sustainable Development Goals and the Measurement of Economic and Social Progress

  Ravi Kanbur, Ebrahim Patel, and Joseph E. Stiglitz

  3. Measuring the Distribution of Household Income, Consumption, and Wealth

  Nora Lustig

  4. Horizontal Inequalities

  Carmen Diana Deere, Ravi Kanbur, and Frances Stewart

  5. Inequality of Opportunity

  François Bourguignon

  6. Distributional National Accounts

  Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman

  7. Understanding Subjective Well-Being

  Arthur A. Stone and Alan B. Krueger

  8. Economic Security

  Jacob S. Hacker

  9. Measuring Sustainability

  Marleen De Smedt, Enrico Giovannini, and Walter J. Radermacher

  10. Trust and Social Capital

  Yann Algan

  High-Level Expert Group on the Measurement of Economic Performance and Social Progress

  INTRODUCTION

  While news media constantly report on what’s happening to GDP—the measure of the total value of the goods and services produced within a country—few today believe that number provides an adequate picture of how well an economy or society is doing. In the aftermath of the Great Recession of 2007 to 2009, as the upbeat GDP numbers reported by the US government seemed to show a recovery, some suggested that government employees must be lying. If only a tiny part of society benefits from growth while the vast majority sees conditions worsen, people are not going to believe triumphant reports on the economic situation. But the government was accurately reporting what the measure said. The problem was with the measure itself. In the US, a closer look at the numbers showed that some 91% of the increase in national income went to the top 1% in the years between 2009 and 2012, so for nearly all Americans, there was no recovery. That’s why the GDP number was misleading—and it misled some policy-makers into thinking the economy was well on the mend.

  Even before the Great Recession and the euro crisis, some economists, politicians, and policy-makers were not happy with GDP as a measure of economic performance. That’s what motivated President Nicolas Sarkozy of France in 2008 to organize an international Commission on the Measurement of Economic Performance and Social Progress, which I co-chaired with Jean-Paul Fitoussi, a distinguished economist at Sciences-Po Paris. Nobel Prize winner Amartya Sen served as an advisor. The Commission’s report, issued in 2009 and published in 2010 in the US under the title Mismeasuring Our Lives: Why GDP Doesn’t Add Up, had enormous impact (including thousands of academic citations). It also strengthened a global academic and civil society movement sometimes referred to as the beyond GDP movement that focuses on all the dimensions of well-being, including inequality, insecurity, and sustainability, which are largely ignored by GDP metrics.

  The OECD had long tried to improve our statistical base for assessing economic performance. Indeed, in 2004, well before the formation of the Commission on the Measurement of Economic Performance and Social Progress, the OECD held its first World Forum on Statistics, Knowledge and Policy in Palermo, Italy, which focused on key indicators of success. Enrico Giovannini, then Chief Statistician for the OECD and a member of both the Commission and, later, the High-Level Expert Group hosted by the OECD, was the driving force behind the conference.

  In 2011, under the leadership of its new Chief Statistician, Martine Durand, the OECD launched its Better Living Initiative, presenting in a flagship report entitled How’s Life? Measuring Well-Being, a much broader set of indicators of economic performance and social progress, and enabling individuals to build an index of economic and social performance (the Better Life Index) based on their own values, weighing different dimensions of what makes for a good economy and society.

  Then, in 2013, the High-Level Expert Group (HLEG) hosted at the OECD was established to continue the work of the Commission—in particular, to pick up on some of the many important subjects the Commission had suggested required more work. The OECD provided enormous institutional and intellectual support, without constraining in any way the work of the Commission, and for that we are very grateful. The group was chaired by Martine Durand, the chief statistician of the OECD, Jean-Paul Fitoussi, and me.

  We decided to expand our membership beyond the distinguished group of academics that had constituted the Commission to include heads of some of the key national statistical offices around the world, to increase the chance that our ideas would be both implementable and implemented.

  And rather than attempt to write a consensus report, we decided to publish our results in two forms, a chair’s summary (in a companion volume entitled Measuring What Counts: The Global Movement for Well-Being1) and the chapters of this volume, which present research results in some of the key areas discussed by the HLEG and written by one or more members of the group, often together with some of their colleagues.

  The importance of the areas explored by the HLEG, and the deficiencies in GDP, should be obvious. Four of the chapters deal with different aspects of inequality, a key issue of the day. My earlier remarks highlighted the importance inequality plays in assessing economic performance: GDP can be going up even while most individuals in society can see their incomes stagnating or declining. This kind of economy is not a well-performing economy, and unfortunately it didn’t just happen in the aftermath of the Great Recession. In the US, it’s been the case for more than a quarter century.

  Agreeing on precisely what’s going on turns out to be difficult, partly because of the kind of measurement problems the HLEG focused on. Measuring income is difficult enough, but any assessment of well-being needs to take into account goods and services received from the government (health and education benefits, for example), often received in kind. These are hard to value. For instance, because prices in health care in some countries (such as the US) have, over long intervals, gone up far faster than prices in general, government spending on health benefits for the poor, for example, could have gone up significantly and yet the real benefits received decreased.

  Chapter 3 tackles some key aspects of measuring the distribution of household income, consumption, and wealth; Chapter 4 focuses on what are called “horizontal inequalities,�
� that is, inequalities among different groups in society or within families; while Chapter 5 centers on the challenges in measuring inequalities of opportunity, which many have argued should be of more concern than inequalities in outcomes. Chapter 6 addresses the difficult issue of reconciling data on the distribution of income with standard data on national incomes through what are called distributional national accounts. A variety of advances in both methodology and technology have provided us with better tools with which to do this. Most importantly, we have been able to collate data from different sources, including administrative data (such as tax records) and from surveys.

  The Great Recession and the euro crisis highlighted another critical issue that had been festering for years: economic insecurity. The austerity that followed in many countries led to cutbacks in systems of social protection, including pensions and government expenditures, leaving many feeling far more vulnerable. The measures were supposed to aid in economic recovery. Even conventional GDP measures suggested they did not. But many of the costs of austerity were not well captured in GDP statistics, most importantly the increase in economic insecurity. There can be no reasonable policy analysis of “reforms” in social protection that do not assess the consequences for economic security. That’s why developing metrics for insecurity is so important—the subject of Chapter 8.

  Still another consequence of the Great Recession was the erosion of trust, both in our institutions and in our political leaders. It wasn’t just that the economic system was not as robust as its advocates had claimed and that the media did less than they might have to warn us of an impending disaster (most of the talk was about the wonders of the New Economy and the Great Moderation, suggesting business cycles were a thing of the past); but in the aftermath of the crisis political leaders seemed to pay more attention to rescuing the banks than to anything else. Little of the hundreds of billions of dollars that were spent went to those losing their jobs and homes. Survey data reflected what many people intuitively felt: a growing weakening of trust, which may help to explain the results of several political elections since the crisis on both sides of the Atlantic. This ebbing trust engendered a robust research agenda. Were there different kinds of trust, each of which could be affected differently, and each of which might have different effects on multiple dimensions of economic performance? Trust was important for itself—there is a difference between living in a society in which there is generalized trust and in which there is not—but a lack of trust also undermines economic performance. Chapter 10 illuminates the key issues surrounding the measurement of trust and its economic consequences.

  Since the publication of the Commission’s report there have been two important developments. One is the global agreement in September 2015 on a set of norms for what the world should strive for, in the form of the Sustainable Development Goals (SDGs), applicable to all countries, developed and less developed. These goals were accompanied by a large set of metrics—in the view of the authors of Chapter 2, too many metrics—of how we might assess performance in achieving them. The Commission had earlier addressed the question of achieving a balance between simplicity and comprehensiveness—no single number could adequately reflect the many dimensions of concern in assessing even narrowly defined economic performance; but too many numbers could be perplexing, making it difficult to identify important deficiencies or strengths. That’s why the Commission had recommended a dashboard of indicators—a small number to be chosen carefully, perhaps differing across societies depending on their circumstances and their stage of development. Chapter 2 extends these insights into a discussion of how the SDGs can best be incorporated in a system of judging national performance.

  The second important development is climate change. It has been three decades since the threat of climate change was first widely recognized. Matters have grown worse faster than was initially thought. There have been more extreme events, greater melting of glaciers, and greater destruction of natural habitats. Again, in response, the world came together in Copenhagen in 2009 and then in Paris in 2015 to commit to limit the extent of global warming. The goal was to keep temperature increases to no more than 2 degrees Celsius in comparison to pre-industrial levels. This has highlighted the broader issue of assessing the sustainability of economic policies, and Chapter 9 provides a framework for measuring sustainability, with an emphasis on the need for a “systems approach” and for identifying the important role of capital accounts in assessing sustainability.

  All of these efforts are directed at trying to derive better assessments of societal well-being. An important contribution of the earlier Commission report was to provide impetus for ongoing research by economists, psychologists, and other social scientists into measures of subjective well-being: how individuals perceive their own state of well-being. As in many of the other advanced areas explored in this volume, like security and trust, it turns out that there are replicable ways to assess subjective well-being, metrics that can be explained in part by objective indicators and can themselves help explain other objective indicators. As Chapter 7 notes, since the earlier report of the Commission, there have been significant advances both in methodology and in the general acceptance of the importance, relevance, and use of such metrics.

  Angel Gurría, Secretary-General of the OECD, wrote in his foreword to the companion volume to this book: “It is only by having better metrics that truly reflect people’s lives and aspirations that we will be able to design and implement ‘better policies for better lives.’”

  He also wrote: “I very much hope that the views expressed in this book, and in the companion volume [the volume being published here] … will have the same significant influence in the economic and statistical community as those of the 2009 Stiglitz-Sen-Fitoussi Commission.”

  This has been the inspiration of the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress and the two volumes that reflect its deliberations.

  In concluding, a few acknowledgments: I want to add my personal thanks to the members of the High-Level Expert Group for their hard work and deep intellectual contributions, which should be evident in the following pages; and to those who made the work of the HLEG possible (listed in the Editors’ Note below). To these, I need to add a few more: to Andrea Gurwitt, Debarati Ghosh, Sarah Thomas, and Caleb Oldham, who helped manage my own contributions to this effort; and to Marc Favreau and Emily Albarillo of The New Press. The New Press’s publication of the Commission’s report under the title of Mismeasuring Our Lives: Why GDP Doesn’t Add Up, played an important role in disseminating the ideas of the Commission,2 and I am confident that its publication of this and the companion volume will play a similarly important role in disseminating the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress.

  Joseph E. Stiglitz

  Notes

  1. Published originally as Stiglitz, J., J. Fitoussi and M. Durand (2018), Beyond GDP: Measuring What Counts for Economic and Social Performance, OECD Publishing, Paris, https://doi.org/10.1787/9789264307292-en.

  2. I should also acknowledge those who have published the Commission’s report in other languages, in particular Odile Jacob in French, Xinhua in simplified Chinese, Etas in Italian, Dongnyok in Korean, and RBA in Spanish.

  EDITORS’ NOTE

  The OECD-hosted High-Level Expert Group on the Measurement of Economic Performance and Social Progress (HLEG) was created in 2013 to pursue the work of the Commission on the Measurement of Economic Performance and Social Progress convened by former French President Nicolas Sarkozy in 2008, the so-called Stiglitz-Sen-Fitoussi Commission, whose final report was published in September 2009. This book contains a collection of chapters written by members of the HLEG on topics that were the focus of the Group’s work. A companion volume, Measuring What Counts: A New Dashboard for Well-Being, presents the Chairs’ overview of the issues discussed by the HLEG over the past five years and sets out a number of
recommendations on what needs to be done next.

  Significant progress has been achieved in the agenda of “going beyond GDP” since the 2009 Stiglitz-Sen-Fitoussi Commission’s report. This is the case, in particular, of subjective well-being and of different kinds of inequality measures. In a broader context, the Paris COP21 climate agreement and the UN 2030 Agenda (with its 16 Sustainable Development Goals, SDGs) demonstrate the extent to which the 2009 report’s call to go “beyond GDP” when assessing progress has influenced the international policy agenda. At the same time, the SDGs’ 169 targets and over 200 indicators illustrate the difficulties in balancing completeness and clarity. The HLEG recommends using a more limited dashboard of indicators that countries can design to suit their own priorities.

  The authors of the ten chapters collected here provide an in-depth overview of the thinking that should underpin new approaches to measurement in a crucial set of fields, as well as the technical and organizational questions that have to be answered. These contributions underline the importance of integrating different scales of analysis (that of the individual, the household, the country, and the world) to produce a realistic picture of how societies are doing, and highlight the centrality of aspects that traditional approaches have neglected because of conceptual limitations, technical difficulties, or lack of data. Sustainability, for example, is a systemic global issue, but many of the actions that influence it happen at the level of each community. The health of a community is itself determined by the objective conditions and subjective experiences of all its individual members. The life chances of these individuals, in turn, are shaped not just by their personal attributes, but also by the different socio-economic groups they belong to, their ethnicity, gender, and so on.

  We need to develop data sets and tools to examine the factors that determine outcomes for people and for the places where they live. The economy is, of course, a major influence, but the most used economic indicators concentrate on averages, and give little or no information on well-being at a more detailed level, for instance, how income is distributed within households and not just among them. One overall conclusion from this report is that we need more granular data. We also need to complete and make more timely the data sets we do have, both by integrating administrative and other types of data that already exist and by redesigning national accounts to incorporate distributional aspects.