Book Nobel prize in Economics “Incorrectly valuing our lives”
Nobel prize winner in Economics Joseph Stiglitz, Amartya sen and French economist Jean-Paul Fitoussi in February 2008 headed the Commission, which was mandated to find out whether GDP is a reliable indicator of economic and social progress. The results of their work were first published in 2010 with the opening remarks of French President Nicolas Sarkozy, to whom belongs the initiative to create this Commission.
This year their work will be published by the Publishing house of the Gaidar Institute, the Russian-speaking reader will be able to know why GDP really does not take into account economic inequality or the effects of economic decisions on the environment. The book describes in detail why GDP must be replaced by a range of concepts, from sustainable measures of economic welfare to the measurement of saving and wealth and “green” GDP. Conclusions the authors of this paper are especially relevant now, when the governments of most countries face global financial and environmental problems.
With the permission of the Publishing house of the Gaidar Institute “Ribbon.ru” publishes an excerpt from the book by Joseph Stiglitz, Amartya sen and Jean-Paul Fitoussi “is Incorrect in assessing our lives: Why GDP doesn’t make sense.”
Quality of life is a broader concept than economic production and living standards. It includes a whole set of factors that influence what we value in life, in addition to its material side. Although the types of enhanced economic statements allow you to include some of the elements that form the quality of life, in the traditional measure of economic welfare, any approach based on resources (or on how people dispose of the goods) remains limited in some important respects.
First, resources are means that are transformed into the well-being of different people: individuals who know how to enjoy life, or endowed with greater ability to achieve success in her valuable areas, can live better even with less resources. Secondly, many of the resources do not go to the market, and if they come out, prices will be different for different individuals, which makes it problematic to compare real income of these people.
Finally, many determinants of human well-being are aspects of life circumstances: they cannot be described as resources with imputed prices, even if people trade with each other. These arguments in themselves enough to understand that resources — insufficient tool for measuring quality of life. What method of measurement should be elected instead of quality of life assessment depends on the chosen philosophical perspective.
Although there is a long tradition of philosophical thought, asked the question of what determines the quality of life, recent advances in research have led to measurements both new and convincing. These studies suggest that the need to go beyond the measurement of economic resources exists not only in developing countries (traditionally located in the center of attention of most jobs about “human development” in the past), but even stronger in the case of the rich industrial countries.
Photo: Konstantin Chalabov / RIA Novosti
These measurements though not replacing conventional economic indicators, provide an opportunity to enrich policy discussions and to affect how people look at conditions in the communities in which they live. More importantly, new measurement techniques now have the potential to move from research to standard statistical practice. Although some of these methods reflect the structural indicators, which are almost not time dependent, but vary systematically across countries, others are more dependent on politics and better suited to monitor changes in a shorter period of time. Both types of indicators play an important role in assessing the quality of life.
Conceptual approaches to measuring quality of life
The attention of the Commission has attracted three conceptual methods that would be useful for understanding how to measure quality of life:
Jean-Paul Fitoussi
Photo: Paolo Giovannini / AP
The first approach, developed in close connection with psychological research based on the notion of subjective well-being. A long philosophical tradition believes that individuals themselves can best judge of your own conditions. This approach is closely linked to the tradition of utilitarianism, but attractive and in a broader sense in valid assumptions, common to many ancient and modern cultures that give people the opportunity to be “happy” and “satisfied” with their lives is a universal goal of human existence.
The second approach is rooted in the notion of possibilities. This approach considers human life as a combination of various “Affairs and fortunes” (funktsionirovanie) and its freedom of choice of these funkcionirovanie (opportunities). Some of these capabilities may be quite elementary, for example, adequate nutrition and the opportunity to avoid premature death, while others may be more complex, such as acquiring literacy, giving the opportunity to participate actively in political life.
The foundations of this approach, firmly rooted in the philosophical notion of social justice, reflect attention to the aspirations and respect the individual’s ability to pursue and realize goals that he or she gave value; the rejection of the economic model of the individual, whose actions aim to maximize their egoistic interest, excluding relationships and emotions; an emphasis on the complementarity between different features and the recognition of the diversity of people, emphasizing the role that in the “good” of society are ethical principles.
Amartya Sen
Photo: Mustafa Quraishi / AP
The third approach, developed within the economic tradition, based on the concept of equitable distribution of resources. The basic idea, which is shared by social economy, is that weighting the various non-monetary aspects of quality of life (beyond the goods and services that are sold on the market) should be subject to the preferences of the people.
This approach requires choosing a particular reference point for each of the diverse non-monetary aspects and information on the current situation of people and their preferences in relation to these positions and allows you to avoid the pitfalls which pose evaluation based on “average” willingness-to-pay, which may disproportionately reflect the preferences of more affluent members of society, and instead focus on the equality of all its members.
Between these approaches there are obvious differences, but at the same time, there are some similarities. For example, sometimes argue that subjective well-being covers all features in the extent that they refer to the attributes and freedoms that people value (implying that the reinforcement of these opportunities will improve the subjective condition of people). However, proponents of the approach also emphasize that the importance is not only subjective States, and that empowerment of people is important in itself, even if it is not manifested in the growth of subjective well-being.
Joseph Stiglitz
Photo: Wang Zhou / Zumapress / Globallookpress.com
Similarly, the approach based on the capabilities approach and on the basis of equitable allocation rely on information about objective attributes of each individual, although are very different in how they weigh and aggregate them. Although the choice of approach ultimately turns out to be a normative decision, they all point to the importance of several features which cannot be reduced to the management of resources. The measurement of these features requires these types of data (i.e. responses to questionnaires and non-market observations of psychological States) that are not transmitted through market transactions.
Subjective measurement of quality of life
For a long time economists have assumed that it is enough to look at the choice of people to obtain information about their welfare, and that those elections will follow the standard set of assumptions. In recent years, however, the bulk of research focused on what people value and how they act in real life, resulting in significant discrepancies between standard assumptions of economic theory and real-world phenomena. A substantial part of these researches was conducted by psychologists and economists on the basis of subjective data on perceptions of well-being derived from the words of the people themselves.
Subjective measures have always been part of the traditional Toolkit of economists and statisticians, as many features of the economies and societies are measured on the basis of replies of people on a standard set of questions. For example, measuring “unemployment” as a rule, rely on people’s answers about whether they worked at least some during a particular week, whether actively looking for work and ready to start working in the near future.
A specific feature of the discussed here is the subjective measurement of quality of life — the fact that it is impossible to find an objective counterpart to what people report here about my life. For example, we can compare “perceived” and “actual” inflation, but only respondents can provide information about their subjective States and values.
Despite this feature, a rich literature on subjective measurements, comes to the conclusion that they are useful for predicting people’s behaviour (e.g. workers who report high levels of dissatisfaction with their work, more likely to escape) and effective against a whole range of other information (for example, people who define themselves as “happy” tend to smile more and more often considered lucky among the people around them; such reports about themselves are correlated with the readings of electric devices that read brain signals).
Photo: Kirill Kallinikov / RIA Novosti
Subjective approaches distinguish between the quality of life and the objective factors shaping them. In turn, the subjective side of quality of life encompass several aspects. First presented in how people evaluate their life as a whole or its various areas, such as family, work or financial conditions. These evaluations imply a cognitive effort on the part of each person, as well as efforts to accumulate and summarize the full set of elements that people value (e.g. their sense of appropriateness, achievement of objectives and how they are perceived by others).
The second aspect is the real people’s feelings, such as pain, concern and anger, or pleasure, pride and respect. When these feelings are reported in real time, they are less susceptible to distortion related to memory and social pressure that is considered “good” in society. In this broad category of human emotions the study of subjective well-being distinguish between positive and negative affects that characterize the human experience.
In order to obtain a satisfactory human life, all these aspects of subjective well-being (cognitive evaluations, positive and negative affects) should be measured separately. Which of these aspects is more important and for what purposes, the question is still open. Numerous facts suggests that people behave in such a way as to get satisfaction from his choice and that the choice is based on memories and evaluations. But memories and evaluations can also lead to bad choices but sometimes it is done unconsciously, not by weighing the pros and cons of different alternatives.
Subjective reports of people on the evaluation of his life and his emotions allow you to track the changes in quality of life over time. Some of these measurements can also reliably be compared across countries. However, apparently, it is more important that these measurements gave information on the determinants of quality of life at the level of each person.
These determinants include characteristics of the environment in which people live and work, their individual conditions, and they vary depending on the considered aspect. For example, activities (such as trips to work, the work itself or the communication) can be more important for affects, while conditions (for example, marital status or the presence of satisfying work) — to assess life.
However, in both cases, these measurements provide information that exceeds the information contained in earnings. For example, in most developed countries younger and older people report higher evaluations of their lives than people in the Prime of life— pattern, a contrast with the level of income of these groups.
One area in which various subjective measures of human wellbeing converge, indicating high costs of unemployment to the quality of life. People who have lost their jobs, have reported a lower rating of their lives, even with lower income, with lower adaptation over time. Unemployed people also report the prevalence of various negative affects (sadness, stress and pain) and lower levels of positive affects (joy). These subjective measures suggest that the costs of unemployment exceed the income-loss suffered by those who lost their jobs, reflecting the existence of non-monetary consequences for the unemployed and the fears and anxieties generated by unemployment in the rest of the society.
Although the initiative of individual researchers and commercial data providers has led to significant developments in the measurement of subjective well-being, in General, data are still limited from the point of view of statistical conclusions that they allow you to do. National statistical systems should increase efforts to incorporate questions about various aspects of subjective wellbeing in their standard surveys. They should also develop panel research, which could become the basis for more compelling conclusions about the role of different factors.
Photo: Lucas Jackson / Reuters
And approach opportunities, and an approach that focuses on equitable distribution, put emphasis on the objective conditions of people’s lives and their choices, differing only in how these features are evaluated and ranked. While these objective features may have instrumental value for subjective well-being, both of these conceptual approaches is attributed fundamental importance to the expansion of human capabilities in these areas.
A range of objective characteristics that must be considered in any assessment of quality of life, will depend on the purpose of this consideration: is it in order to assess the changes in conditions inside the country, or to compare the conditions in countries with different development levels? Some characteristics can be important for a description of the people (e.g. health), while others may reflect how freely people can strive to achieve goals that they value (e.g. political representation).
Although the question of what items are included in the list of objective characteristics inevitably depends on value judgements, in practice most of these points are common to different countries and different groups. Various studies on the measurement of “welfare” and related concepts, broadly in line with each other. Typically, the measurement of all of these objective characteristics emphasize that the organization of society affects people’s lives and that this influence is not fully reflected in traditional indicators of economic resources.
