12 April 2013

Wealth and Well-Being

Yesterday saw the release of the Social Progress Index, a new metric of national well-being that seeks to use non-economic criteria to produce its rankings. Michael Green, executive director of the Social Progress Imperative, a Washington, DC group which with academics from Harvard and MIT helped to produce the ranking, explained:
It is becoming increasingly apparent – particularly in light of the world’s global economic downturn – that GDP is simply too one-dimensional to provide a complete measure of a nation’s progress. The ‘Arab Spring’ of 2011 and the last decade in Mexico show that robust economic growth does not automatically translate into wellbeing among the population.

Countries need a new measure – as a complement to, not a replacement for economic growth – that assesses and quantifies factors that really matter to real people: Do I have enough to eat? Do I have shelter? Can I get an education? Do I have a fair chance to get on in life without facing discrimination? Economic measures, whether it is GDP or income inequality, are mere proxies for wellbeing. We need to measure wellbeing directly.
Efforts to replace GDP as a metric of overall well-being have seen many champions. However, almost all of these efforts have added complexity but little, if any, additional value. So it seems to also be the case with the Social Progress Index.

The graph at the top of this post shows the relationship of the new SPI index with national per capita GDP (2011 PPP $US from The World Bank graphed on log scale). As you can see, there is an exceptionally strong relationship between the two metrics. More than 85% of the variance in the SPI can be explained by per capita GDP, suggesting little practical basis for preferring the SPI to a straightforward metric of wealth as a proxy for well-being.

The lesson? You can try to develop an index of well-being that hides wealth. But it is there nonetheless.

26 comments:

eric144 said...

"You can try to develop an index of well-being that hides wealth. But it is there nonetheless."

LOL !

Yes, absolute wealth is important. In Britain, the distribution of wealth is much more unequal now, but I remember horrifying poverty in the 1960s that doesn't exist now.

Technological progress creates absolute wealth, but today, the system distributes almost all of it to the investors of capital. Thanks to media driven politics.


The Right Wing Professor... said...

Many components of this index look pretty silly. For example, I noticed the US ranks remarkably low in 'ecosystem sustainability', far lower, for example, than the UK, with its recent water shortages, miscellaneous blights, food scandals, loss of species, exhaustion of North Sea oil and coal reserves, etc. And the reason why is the US uses more resources per capita. But, of course, that's because we HAVE more resources. We have far more land, far more freshwater, huge agricultural surpluses, more coal than we know what to do with, and yet an abundance of wilderness, etc. On any real measure of sustainability, the US is in excellent shape.

As usual, the authors decide how they want to rank countries first, and adjust the weighting and methodology to achieve the desired result.

Inkling said...

I'd add social factors that are far more important than almost anything economic, factors such as an intact, happy, two-parent family for a growing child. Without that, their lives are likely to end up a mess, despite housing, food, and access to education.

Garrett W. R. said...

I was wondering why the graph here seemed to show a more direct relationship between well-being and wealth than the others I've seen. Then I realized it was because it uses a logarithmic scale for the x-axis. A standard arithmetic graph of similar data shows a curve shaped like a lower-case 'r' instead of a diagonal line (page 72 of this report is one example: http://www.csls.ca/reports/csls2010-09.pdf).

Do you think that constructing the graph in this way might 'hide' one of the most interesting implications of well-being and wealth research? Namely, that wealth increases a country's well-being greatly if it is poor, but does little for it if it is already rich. This finding makes a strong case for addressing global disparity and implies that rich countries can afford to take hits in economic growth or overall GDP without losing much in terms of well-being.

I agree that the SPI doesn't seem to add much to the research that already exists (other than reinforcing it), but labeling GDP/capita as an effective 'proxy' for well-being seems to imply that GDP/capita essentially equals well-being, which isn't true. Perhaps I'm misunderstanding the underlying point you were trying to make.

Roger Pielke, Jr. said...

-4-Garrett W. R.

Thanks for your comment ... you write: "wealth increases a country's well-being greatly if it is poor, but does little for it if it is already rich."

A related post can be found here:

http://rogerpielkejr.blogspot.com/2013/01/its-time-to-bury-easterlin-paradox.html

Thanks!

Mark Bahner said...

-5 Roger and -4 Garret

Hi,

Roger, I don't think your related post addresses Garrett's comment, which I can see is a very valid comment. That's because your related post also plots income on a logarithmic scale.

Garrett's comment (in my opinion) is essentially making a point that I think is universally recognized...which is that the marginal value of an additional dollar of wealth decreases as wealth increases.

For example, $1 billion of additional wealth doesn't mean much to Bill Gates, but to you or me it would mean a lot.

Or to put it another way, to you or me, $5 a day more in income doesn't mean much, but to a person making $1 a day, it means a lot.

eric144 said...

Inkling

Poverty is a major stressor on the happiness and stability of family life. Long hours in non union jobs with bullying management can take its toll on health and relationships. Hardly seeing your partner during the week, more than anything.

**

Fewer than a fifth of people think they are part of a traditional family, suggests research by a think tank.

A survey found eight in 10 people thought their families did not conform to the stereotype of two married parents with two or more children.

http://www.bbc.co.uk/news/education-16049533

Garrett W. R. said...

I appreciate your other post on the Easterlin paradox, which I hadn't read yet. I guess if we interpret Easterlin as saying 'there is some point of income or GDP/capita where well-being is saturated and beyond which happiness cannot be increased through further wealth' then yes, it's technically wrong.

But the interesting part to me is the observation that well-being still rises much slower at higher levels of wealth (even though it never completely stops rising). This is confirmed by the log scales used both in your post here and in the Sacks et al critique of Easterlin referred to in your other post. Such a relationship between well-being and wealth still has the same implications I point to in my above comment (e.g. global disparity). I remain wary of the use of log scales here, which may 'hide' these implications from people who don't read the graphs critically.

Also, apparently Easterlin published about the paradox again in 2010 with updated data ("The Happiness-Income Paradox Revisited" in PNAS). I don't know if his analysis is any stronger in that article, but there is certainly some engagement with the methodological debate.

Thanks for the reading, though. I certainly find the wealth/welfare debate very interesting.

Mark said...

The logarithmic quibble is a red herring. When a country enters a phase of sustained growth the income of its people does actually grow logarithmically (e.g. take South Korea's GDP growth out of poverty from 1950 to 2000).

A quick thought about how GDP is measure in percent change should be enough to convince the more numerate. Constant percentage increase is a logarithmic progression.

There is no reason at all that the world, both poor and rich, won't continue to increase its wealth in an exponential fashion. To pretend that it will do so linearly is to refuse to accept what history has shown before.

Inside a country the variation is also logarithmic. The median is $1,000 a week in NZ. The poorest 1% cannot earn less than $0. But the top 1% do not earn $2,000 a week. They earn $10,000.

This finding makes a strong case for addressing global disparity and implies that rich countries can afford to take hits in economic growth or overall GDP without losing much in terms of well-being.

Yeah. Except we already do. That's what all those aid programs are. It's why we take refugees.

However they cannot take endless hits, or what will happen is that they will become poor themselves. Their voters won't take it, and even if they would it would be self-defeating anyway – because each dollar given by the West to the poor does not generate an equal income (most often it is merely wasted).

You can argue we could be doing more, but it is specious to argue we are doing nothing. Also, many of us are uneasy about greater aid budgets until the target countries stop wasting most of it.

eric144 said...

My view of wealth inequality is this. It's a power game. The wealthy don't need the money. In the 1960s, it was said that the problem of the future would be idleness and boredom.

This is from a current British perspective with a widely hated government in power.

Ideally, the owner classes would like to see 100 men applying for every job and all of them literally struggling for survival. Make them hungry and they will be grateful for every slice of bread and glad to obey.

Make them fight each other for every scrap from the owner's table. Make those in work so miserable, they despise anyone who doesn't have to work, In Britain, the stigma of benefits is so great, those on benefits oppose benefits more than any other section of society*.

Poverty and degradation weakens their ability to fight back. Make them work so hard they are exhausted, treat them with so much contempt they have no confidence in their own value.

Here in Paisley, Scotland the weavers were famous for their political radicalism. They didn't have to work many hours and they read. Barracks were built at either end of the town and an insurrection put down.

In the long term, the British government solved the problem in its usual free trade fashion by importing cheap labour and goods from elsewhere. That's what caused the Irish and Indian famines. A reluctance to interfere in markets.

http://www.scottishrepublicansocialistmovement.org/Pages/SRSMThe1820Radicals.aspx



***-

Who takes the harshest anti-welfare line? Those on state benefits

I talked to families directly affected by the cuts and many wanted benefits themselves – yet resented anyone else getting them

On a daily basis I spoke to people who were in receipt of tax credits, child benefit, ESA, DLA, income support and housing benefit yet still told me matter-of-factly "we don't claim benefits". Over time I understood that what this really meant was that they were striving to define themselves as something other than the endless media presentations of "scroungers".

http://www.guardian.co.uk/commentisfree/2013/feb/12/anti-welfare-rhetoric-families


AJ said...

Perhaps of relevance here is "The Ten Cannots" by William John Henry Boetcker:

- You cannot bring about prosperity by discouraging thrift.
- You cannot strengthen the weak by weakening the strong.
- You cannot help little men by tearing down big men.
- You cannot lift the wage earner by pulling down the wage payer.
- You cannot help the poor by destroying the rich.
- You cannot establish sound security on borrowed money.
- You cannot further the brotherhood of man by inciting class hatred.
- You cannot keep out of trouble by spending more than you earn.
- You cannot build character and courage by destroying men's initiative and independence.
- And you cannot help men permanently by doing for them what they can and should do for themselves.

http://en.wikipedia.org/wiki/William_J._H._Boetcker

Disclaimer: I agree with most of these cannots, but can't say that I agree with them all. IMHO, many look redundant.

AJ said...

And here's my own made-up eleventh "cannot":

- You cannot create more truth by relying on less truth.

I'm looking at you Grinsted :)

eric144 said...

AJ

Thank you for that American Christian view of capitalism. Those kinds of opinions are neither right nor wrong. They do lead to a particular kind of society. America isn't a nation, it isn't an ideal, it's a psychological type.

Firstly the original British crooks and desperados, then the fleers from oppression, then the financially ambitious. The fear resistant personality. The problem is that America wants to export its pathology to the rest of the world. See the number of serial killers and prisoners. Only the descendant of slaves are 'normal'.

The 'cannots' are now almost irrelevant because there is no freedom, there are no free markets, there are no free elections. Freedom is an illusion created by crooks. It is the freedom to exploit, to inflict pain, to abuse and steal.

That is why the anti trust laws were created. To prevent the rich stealing from the poor (in public view).


Samuel Johnson on Americans

"How is it that we hear the loudest yelps for liberty among the drivers of negroes?"

Here is the face of dumb insolence and evil in modern America. Bank regulators who support the banks and ignore the desperation of those they are supposed to protect. The citizens.


Elizabeth Warren v. Bankers

http://www.youtube.com/watch?v=fKvGXF7pZAc


eric144 said...

I had a discussion with someone who insisted that Americans would never vote for a black president. I said they would vote for whomever had the most television air time.

Story from the Guardian

In the deep south, a woman university professor asked an old lady who she would vote for. She shouted into the house "who are we voting for".

A male voice shouted back "we're voting for the == " . Shocking, but it shows that Obama is obliged to his biggest corporate donors, Goldman Sachs, not the tame voters.

Democracy ? No.

The Right Wing Professor... said...

I think it's entirely appropriate to use a logarithmic scale, since it implicitly acknowledges that happiness is a geometric function of wealth. Doubling your money increases your happiness by a specific increment. It would be ridiculous to think otherwise; I've no doubt Bill Gates is a very happy guy, but I doubt he's 10,000 times happier than I.

The idea that we could redistribute to maximize total happiness fails because redistribution itself has a happiness penalty, at least on the victims, beyond simple loss of wealth. I'm doing my taxes today, and as the little red numbers in the top right corner of the TurboTax window increase, my personal happiness is most definitely decreasing.

Bill said...

Is there any interesting distinction between the countries well above the line versus those well below?

Unknown said...

The New Stylized Facts about Income and Subjective Well-Being

In recent decades economists have turned their attention to data that asks people how happy or satisfied they are with their lives. Much of the early research concluded that the role of income in determining well-being was limited, and that only income relative to others was related to well-being. In this paper, we review the evidence to assess the importance of absolute and relative income in determining well-being. Our research suggests that absolute income plays a major role in determining well-being and that national comparisons offer little evidence to support theories of relative income. We find that well-being rises with income, whether we compare people in a single country and year, whether we look across countries, or whether we look at economic growth for a given country. Through these comparisons we show that richer people report higher well-being than poorer people; that people in richer countries, on average, experience greater well-being than people in poorer countries; and that economic growth and growth in well-being are clearly related. Moreover, the data show no evidence for a satiation point above which income and well-being are no longer related.

http://cama.crawford.anu.edu.au/pdf/working-papers/2013/032013.pdf

Mark said...

Uknown: it is unfortunate that economists have to prove what people already know. Just because some previous idiot had decided he didn't like the answer, so fixed some experiment to give the result he wanted.

Does anyone who has ever watched human beings in action actually believe that they don't enjoy having more money? That the flow-on benefits aren't worth having?

Time and again anti-money counter-cultures have been started, each to fail as miserably as the last. (Note: this does not include Marxism, which was intended to increase personal access to goods, albeit in a levelised manner. Marx was not anti-consumption.)

eric144 said...

The Right Wing Professor...


Elizabeth Warren makes a case for a $22 minimum wage which at least indicates there has been a large redistribution of wealth from poor to rich since 1960.....

Elizabeth Warren: Why Isn't Minimum Wage $22? (1960 base)

http://www.youtube.com/watch?v=mwAQwItEjUo

Mark Bahner said...

"Elizabeth Warren makes a case for a $22 minimum wage..."

I have a really hard time believing that the productivity of minimum wage workers has gone up sufficiently to justify $22 an hour.

So what would really happen if Congress followed Elizabeth Warren's advice would be that unemployment would approach or exceed Depression Era values.

I marvel at the naivete of people who think that members of Congress like Elizabeth Warren, who I doubt has ever run even a small business, should be telling all the businesses and all the workers in the United States what they should be doing.

And of course, as even FDR acknowledged (joked about, in fact) the Constitution does not give Congress the power to set a minimum wage.

n.n said...

eric144:

Why not simply redistribute one trillion dollars to each man, woman, and child, then stand back and watch the natural order cull the population? There is no reason to wait for abortion to take its toll through an elective genocide.

Warren doesn't offer a solution. She is manufacturing a problem, which her kind exploit to advance their political, economic, and social standing. They not only corrupt themselves, but sponsor corruption of individuals, institutions, government, and society.

You cannot devalue capital and labor through dilution of the currency and hope to escape unscathed. The federal government's trick to remove capital from the private economy provides short-term leverage for the government, a convenient deception to ignore the causes of their insolvency, while earning a democratic consensus to continue their dysfunctional behaviors.

eric144 said...

Sorry. My message made it look like Ms Warren is advocating a $22 minimum wage. I am sure she is isn't. She was using the number as an indicator of how those at the bottom have fared since 1960.

There are others.

Over at Visualizing Economics, Catherine Mulbrandon has a whole series of nice-looking charts on wages. Two in particular are worth a closer look.
This one shows how average wages have developed for construction, manufacturing, and mining. All three have taken a big plunge since the 1970s, with manufacturing staying basically flat for decades (this has come at the same time manufacturing has shrunk as a share of employment)

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/21/heres-where-wages-have-been-stagnating-since-1970/


The figures that Reich supplies are simply gobsmacking. In 1978, the typical male US worker was making $48,000 a year (adjusted for inflation). Meanwhile the average person in the top 1% was making $390, 000. By 2010, the median wage had plummeted to $33,000, but at the top it had nearly trebled, to $1,100,000.

http://www.guardian.co.uk/film/2013/feb/02/inequality-for-all-us-economy-robert-reich

eric144 said...

Current Guardian article.

Zero-hours contracts, a system of indenture where the worker is expected to be available even if no work is offered (or paid for), rose by 25% in 2012, to at least 200,000, although there are likely to be far more, as many employees do not understand the term; 23% of large British firms now use them.


It is thought that up to 13% of those working in care homes receive less than the minimum wage; even so, there has not been a prosecution for non-compliance since 2010.


Elsewhere we see working conditions that would disgust tyranny; to disguise it, workers are obliged to act happy, as if they live in an internment camp run by the Mr Men. Amazon's notorious warehouse in Rugeley, Staffordshire, obliges its employees to pass through a scanner daily, like criminals, and measures their productivity to the minute.

http://www.guardian.co.uk/commentisfree/2013/apr/14/hello-zero-hours-goodbye-workers-rights

n.n said...

eric144:

Before we treat symptoms, we need to address causes. Increasing minimum wage is treating a symptom. We need to address the comprehensive causes of progressive inflation and other market distortions.

Mark said...

Elsewhere we see working conditions that would disgust tyranny;

Nice rant! but I suggest you know very little about tyranny. It's not big on disgust.

All these "proofs" of how much worse off we are. At the same time as average living space is increasing, cars are more common (and better), access to communication rockets, travel is more affordable,kids can stay longer in education before needing to work, etc. My parent's generation washed clothes by hand, for goodness sake! Who does that now? Who doesn't own a fridge and a TV?

I'm sorry but there is no way the average person today is worse off than 50 years ago. I'll accept that workers live with less job security, but we definitely have more purchasing power.

It is thought that up to 13% of those working in care homes receive less than the minimum wage;

"It is thought". Anecdotal guesses are not usually considered strong pieces of evidence.

Even if true, what you need to show is that it used to be better. I suspect that such people have always been underpaid, and that it is no worse than previously.

eric144 said...

Mark

I am dismayed, disappointed and disgusted that you took that dreadful piece of writing to be mine. It is from the Guardian :-)

I wrote in the first post that absolute poverty has decreased since the 1960's. There are (at least) three reasons. Automated manufacturing, cheap domestic labour and cheap foreign labour. Clinton's inflation free growth was a 'gift' from the Chinese working class.


The reason I wrote the first message was to pre-empt the usual opinions. All other messages by me including the Guardian article refer to inequality through the worsening of conditions and wages.

Possibly, the most miserable workers I have come across are university lecturers. They now understand that dignity is no longer part of their remuneration package. That is only my anecdotal experience.

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