Measuring the unmeasurable

1. Angus Deaton UN Forum on Official Statistics February 27th, 2012 Measuring the unmeasurable

2. Measuring well-being • Old friends: GDP and family • Newer friends: • International comparisons • Global inequality • New and less familiar friends • Happiness • Life evaluation • Emotions • For lack of time, some friends uninvited today • Measuring hunger and poverty

3. National accounts • Remain as central as ever • Pillars on which everything else depends • New frontiers exciting, but much remains to be done with the old • We must not neglect • Refocusing towards well-being • GNP and NNP better than GDP • Drilling down: not only aggregates but who received what • Rethinking imputations • Tension between comprehensibility and completeness • Examples: FISIM and “actual” consumption • Lots of work to be done here • Extensions to what we have now • As well as improving NAS in many countries where they are weak

4. International comparisons • For comparing living standards, purchasing power parity exchange rates are essential • Need price level in each country • Lower in poor countries, e.g. PPP 20 rupees per $ in India versus ER of 50 rupees per $ • After 1993 round, ICP greatly streamlined and professionalized • 2005 best ever: 146 countries, consistent methods • 2011 in progress now: 186 countries, other improvements • Yet there are deep unresolved conceptual issues • Are PPPs measuring the un-measurable? • In some cases where the countries are very different • Uncertainty is not always well recognized

5. Congo, DR Large upward revisions for many low income countries Sao Tome & Principe 2.5 Cape Verde Guinea Lesotho Burundi Ghana 2 Togo Cambodia Revisions down for oil producers and high oil prices in 2005 Guinea Bissau Bangladesh China Namibia Ethiopia Philippines Tonga India Fiji Ratio of new to old PPP for 2005 1.5 Vietnam 1 Bolivia Tanzania Angola Nigeria Gabon Kuwait .5 Yemen Congo, R Lebanon 6 7 8 9 10 11 Logarithm of per capita GDP in 2005 international $

6. Why the revisions? • Improvements in procedures • Terms of trade effect are differently handled in ICP and National Accounts • Local price indexes are very different from international price indexes • Tension between comparability and representativity limits the range of goods and services • Perhaps we are not capturing the rise in the price level that we would expect in fast growing countries, except at benchmarks • India and China might be growing less rapidly in real international $ than we typically think • Major implications for the degree of inequality in the world

7. Gini coefficient for per capita GDP, weighted by population .6 WDI 2008, 2005 prices PWT 6.2, 1993 prices .55 WDI 2007, 1993 prices .5 PWT 5.6, 1985 prices .45 1960 1970 1980 1990 2000 2010 year

8. Gini coefficient for per capita GDP, weighted by population .6 WDI 2008, 2005 prices PWT 6.2, 1993 prices .55 WDI 2007, 1993 prices .5 PWT 5.6, 1985 prices .45 1960 1970 1980 1990 2000 2010 year

9. 2011 ICP eagerly awaited • Perhaps not resolve these issues • Will certainly cast more light on them • Will it show a further upward jump in global inequality? • A major unresolved intellectual issue • How to update between rounds and while awaiting new rounds • Impossibility theorems lurk • How to best square the circle • And measure the unmeasurable!

10. Happiness • If we could measure happiness, would we want to? • YES • Happiness is the ultimate aim of all human activity, the proper object of public policy, and the only valid measure of how people and societies are doing • NO • The hopeless beggar, the precarious landless laborer, the dominated housewife, or the over-exhausted coolie may all take pleasures in small mercies, and manage to suppress intense suffering for the necessity of continuing survival, but it would be ethically deeply mistaken to attach a correspondingly small value to the loss of well-being because of this survival strategy • A person who is ill-fed, undernourished, unsheltered, and ill can still be high up in the scale of happiness or desire fulfillment if he or she has learned to have `realistic’ desires and to take pleasures in small mercies

11. Can we measure it? • If we take the YES answer, or believe that adaptation may not be very important, still the question of whether actual questions reveal anything about the sort of happiness we might be interested in • Life evaluation questions • Imagine a ladder with rungs marked 0 to 10 where 0 is the worst possible life for you and 10 is the best possible life for you, where are you right now? • Emotional or hedonic questions • Did you experience a lot of happiness yesterday • Did you experience a lot of stress yesterday • Or sadness, anger, worry, pain • All different, they have different correlates and it is not obvious which, if any, is the right one for policy

12. Denmark 8 Norway Panama Finland Costa Rica Mexico 7 Singapore Brazil Guatemala Venezuela Germany Argentina Colombia 6 Japan India Thailand Bangladesh Russia Korea Average ladder score 5 Mozambique Hong Kong Hungary Liberia Lebanon China Pakistan Angola 4 Kenya Georgia Burundi Benin Congo Afghanistan Sierra Leone 3 Togo 800 3,200 12,800 51,200 GDP per capita, 2005 international constant $

13. 100 80 Percentage of population experiencing a lot of happiness 60 Denmark Algeria Italy Iraq Burundi Estonia Burkina Faso Russia Ukraine Congo Georgia Lithuania 40 Madagascar Belarus Togo 20 800 3,200 12,800 51,200 GDP per capita, 2005 international constant $

14. Emotions or life evaluation? • Life evaluation perhaps closer to what we think of as well-being • Rather than fleeting emotional states • Especially states that are not close to deprivation • Yet stress and worry are important to people too • Arguably should be taken into account in policy • Very attractive to have people’s own assessments rather than those imputed to them by statistical or economic “experts” • Can people answer the question in a useful way?

15. Useful findings • Strong negative effects of unemployment • Health is very important for well-being • So is marital status, friends, family • Money and education important for life evaluation • Money satiates for emotions, but not for life evaluation • Education has no effect on emotional life • Problems too!

16. Lehman collapse 7.5 Election day Inauguration 7 ??? 6.5 6 01 Jan 08 01 Jan 09 01 Jan 10 01 Jan 11 Interview Date

17. 7 Form 2 6.8 Transition question added 6.6 Obama approval retained Satisfaction with the way US is going removed 6.4 Inauguration 6.2 Political questions dropped from F2 Form 1 6 01 Jan 08 01 Jan 09 01 Jan 10 01 Jan 11 Interview Date

18. Very large context effects • Ask people about whether they think America is going in the right direction • If they say “no” • Huge negative effect on their life evaluation report • No such effect if they are not asked the question, even if they think America is doing badly • People reinterpret the question as being about the US, not about them • Their life evaluation is not very firmly anchored, or not sure what the question means • We can add a buffer question that reduces but does not eliminate the context effect • These things need to be better understood before these questions can be endorsed and safely included in official surveys • NB Problem is tracking over time, not comparing people

19. Finally • It is an exciting time to be an official statistician or and economist interested in measurement! • Thank you