Mis measuring our lives Stiglitz 2010

Preface
The preface introduces the significance of metrics in shaping societal priorities and policies,
emphasizing that what we measure affects what we strive for as a society. It criticizes the
overemphasis on increasing GDP without considering broader well-being indicators, highlighting the
need to align metrics with factors contributing to quality of life.

Appointed by Nicholas Sarkozy, President of France, the International Commission aimed to reassess
metrics of economic performance and social progress, particularly those based on GDP figures.
Chaired by Professor Joseph E. Stiglitz, the Commission included experts from various countries and
organizations. Its objective was to identify the limitations of GDP, explore additional relevant
information, and assess alternative measurement tools.

The final report, publicly presented in September 2009, featured contributions from panel members
and comments from international organizations and French ministers, reflecting widespread interest
in the Commission's findings and recommendations.

National Income Accounting Goes from the Province of Technicians to a Subject of Public Discourse
The shift of national income accounting from a technical matter to a topic of public discourse reflects
the growing recognition of its significance in shaping societal policies. While previously considered
the domain of experts, it has now become subject to public debate as societies seek to understand
what constitutes good societal performance. Our perspectives are influenced not only by ideologies
but also by the statistics we use to gauge economic activity. While GDP per capita is a commonly
used metric, other indicators may provide a different picture of societal well-being. For example,
despite rising GDP per capita, declining life expectancy in Russia suggests underlying issues. Similarly,
in the United States, despite GDP per capita growth, many individuals experienced declining incomes,
particularly due to increasing income inequality. This disparity underscores the limitations of relying
solely on GDP metrics to assess societal progress.

Metrics Shape Our Beliefs and Inferences

Metrics significantly influence our beliefs and inferences, shaping the theories we develop and the

hypotheses we test. Social scientists often rely on easily accessible metrics like GDP without fully

considering their limitations and biases. Flawed or biased statistics can lead to incorrect conclusions.

For instance, prior to the crisis, many in Europe focused on higher GDP growth rates and sought to

emulate the American model. However, had they considered other metrics such as median income

or adjusted for factors like increased household indebtedness in the US, their enthusiasm might have

been tempered.

Economists often draw policy conclusions by comparing metrics over time or between countries.

However, if these metrics are imperfect, there's a risk of biased and distorted inferences. For

example, measurement errors in public sector output may lead to biased conclusions about the

sector's impact on overall economic performance. Unfortunately, much of the empirical work making
such cross-country comparisons fails to adequately address these limitations, potentially leading to

flawed policy recommendations.

Metrics and Policy

Metrics are crucial for shaping policy decisions, especially for political leaders, as they guide

economic policies. Inadequate metrics can lead to flawed inferences and affect economic policy

outcomes. Metrics often overlook environmental concerns, which are increasingly important to

citizens. Ignoring these concerns can be risky for political leaders.

Political leaders face the challenge of balancing economic performance with other aspects of well-
being, including environmental quality. While traditional metrics may suggest trade-offs between

economic growth and environmental preservation, a more comprehensive measure of well-being

could reveal that improving the environment enhances overall well-being. The work of the

Commission has attracted attention from civil society for its potential to provide more

comprehensive metrics that align with citizens' broader concerns beyond economic growth.

Statistics and Information Theory

Statistics and information theory are fundamental to modern decision-making, heavily influencing

economic and political choices. Joseph E. Stiglitz's research has emphasized the impact of

information on these decisions. Our statistical systems are integral to how we perceive and analyze

the world, forming a critical part of our information framework.

When metrics don't align with people's perceptions, it can lead to distrust in government,

undermining its ability to address public concerns effectively. Despite the importance of policy

implications, the Commission focused solely on reforming the statistical system. Despite the

complexity, there was a remarkable degree of unanimity among Commission members regarding the

need for statistical reform.

Why Reconsider Metrics Now?

The reconsideration of metrics is prompted by various factors that have made the limitations of GDP

accounting more concerning.

Firstly, increasing income inequality has led to a disparity between average income and median

income, highlighting the need for metrics that capture such nuances.

Secondly, as government expenditures in OECD countries have significantly increased over the past

50 years, accurately measuring non-market government services has become increasingly important.

Thirdly, assessing the quantitative importance of quality improvements, especially in services, poses
challenges that traditional metrics may not adequately address.

Globalization has exacerbated differences in well-being among citizens within countries, highlighting

the inadequacy of metrics like GDP, which primarily focus on production.

Moreover, when considering issues like environmental sustainability and globalization, GDP metrics

may be misleading. For example, a country's GDP may increase due to selling polluting resources, but

the well-being of its citizens may decrease.

The Crisis as an Opportune Moment

President Sarkozy's initiative, timed amid a global crisis, was significant due to heightened awareness

of economic and environmental sustainability issues. The crisis underscored the limitations of GDP

metrics, particularly in evaluating long-term sustainability and economic performance.

Advances in Research

Advancements in research across disciplines have highlighted deficiencies in traditional metrics,

emphasizing the need for more comprehensive measures of well-being. Criticisms of traditional

metrics were already prevalent, with changes in economic structures and growing concerns about

sustainability.

A Single Metric or a Dashboard?

The purposes of statistical systems vary, and a single metric may not suffice to capture the

complexity of societal progress. Traditional metrics like GDP were originally designed to measure

market activity but are now seen as inadequate for assessing societal well-being comprehensively.

Changing Objectives

National income statistics evolved to provide insights into market-based economic activity and were

later expanded to reflect societal well-being. However, there is a growing demand for broader

measures of social progress that go beyond market metrics, reflecting societal values and objectives

more accurately.

The Need for Multiple Metrics

A single indicator cannot capture the complexity of society. To assess societal well-being adequately,

a set of metrics is necessary, covering various dimensions such as income distribution, poverty,

environmental sustainability, and economic debt.

Global Resonance and Global and National Dialogues

President Sarkozy's initiative resonated globally, reflecting widespread concerns about traditional

metrics' inadequacy. The Commission's work spurred discussions worldwide about societal values
and the need for better metrics to reflect those values accurately.

Unfinished Business

The Commission's work is viewed as part of an ongoing effort to improve statistical systems globally.

Despite progress, challenges remain, including data availability and the need for continued reforms

to adapt to changing economic and societal landscapes.

Personal Notes

Commission members, including Amartya Sen and Joseph Stiglitz, had long been advocating for

reforms in statistical systems. Their involvement in the Commission provided an opportunity to push

this agenda globally and address societal challenges comprehensively.

This Volume

This book presents the non-technical report of the Commission's findings, aiming to engage a

broader audience in discussions about societal values and objectives. It sets the context for

discussions on metrics and societal progress, reflecting the Commission's interdisciplinary approach.

Acknowledgments

The Commission acknowledges the contributions of scholars and organizations in advancing the

understanding of societal progress and well-being. Special thanks are extended to President Sarkozy,

the commissioners, and supporting institutions for their dedication and commitment to the

Commission's work.

Additionally, amidst the crisis of global warming, solely focusing on material aspects of GDP may be

inappropriate. Should a country be penalized for prioritizing leisure over consumption, especially in

light of the need for sustainable development? These complexities underscore the necessity of

reevaluating metrics to ensure they accurately reflect societal well-being and progress.

EXECUTIVE SUMMARY

Why Has This Report Been Written?

The report was commissioned in response to dissatisfaction with the current state of statistical

information regarding the economy and society. It aimed to identify the limitations of GDP as an

indicator of economic performance and social progress, considering problems with its measurement

and the need for additional information. The importance of accurate statistical indicators for policy

design and assessment was emphasized, as they influence societal progress and economic market

functioning. However, there's often a gap between standard measures like GDP and public

perception, which can undermine confidence in official statistics and impact policy discourse.
Reasons for this gap include imperfect measurement processes, debates about concepts, and the

failure to capture important phenomena like inequality or environmental degradation. The report

suggests the need for a better understanding of appropriate measurement tools and broader

concerns about using GDP as a sole measure of societal well-being. It argues that focusing solely on

economic indicators like GDP neglects other dimensions of well-being, including environmental and

social aspects, indicating the need for more comprehensive metrics.

Why Is This Report Important?

The report is crucial because it addresses the urgent need for reform in measurement systems,

particularly in the context of the current economic crisis. The commission members argue that the

crisis caught many off guard partly due to failures in measurement systems and a reliance on

inadequate indicators such as GDP. They suggest that better metrics could have provided early

warnings and a more cautious view of economic performance, potentially mitigating the severity of

the crisis. Moreover, the looming environmental crisis, particularly associated with global warming,

underscores the need for economic performance measures that incorporate environmental costs.

The report emphasizes the importance of accurate measurement for guiding economic and societal

decisions, likening decision-makers to pilots navigating without a reliable compass when metrics are

flawed. Despite the report's focus on measurement rather than policies, its implementation could

significantly impact the way societies view themselves and design, implement, and assess policies.

The commission calls for continued efforts to improve statistical measurement, suggesting avenues

for enhancement across various domains. Overall, the report aims to influence future statistical

policies and international standards to better reflect economic, social, and environmental realities.

To Whom Is the Report Addressed?

Political Leaders: The commission aims to influence political leaders during a time of crises,

advocating for a shift towards a measurement system focused on the well-being of current and

future generations rather than solely on production-oriented metrics. This emphasis on broader

measures of social progress is seen as essential for guiding societal direction.

Policymakers: Policymakers are targeted to provide them with insights into available indicators for

designing, implementing, and assessing policies aimed at improving well-being and fostering social

progress. The report highlights both the richness and limitations of existing data and stresses the

importance of significant investments in developing reliable statistics and indicators.

Academic Community, Statisticians, and Intensive Users of Statistics: The report addresses this group
to remind them of the challenges in producing reliable data and the assumptions underlying

statistical series. Academics are encouraged to be more cautious in their reliance on certain statistics,

while statisticians may find valuable suggestions for further developments in specific areas.

Civil Society Organizations and the Public: Civil society organizations, as both users and producers of

statistics, are targeted to enhance their understanding of available statistical data and indicators,

including their strengths and limitations. The report aims to empower the public, regardless of

socioeconomic status or nationality, to better assess societal problems. It also serves journalists and

media organizations by providing them with the information needed to inform citizens about societal

trends, ultimately contributing to the functioning of democracies. Overall, the report emphasizes

that information is a public good and aims to improve understanding and awareness among all

segments of society.

What Are the Main Messages and Recommendations?

Shift from Production to Well-Being Measurement: The report emphasizes the need to move from

measuring economic production to assessing people's well-being, considering sustainability. This

requires a pluralistic approach encompassing various dimensions of well-being.

Improvements in Economic Performance Measurement: There is a need to adapt measurement

systems to reflect the structural changes in modern economies. Capturing the complexity and quality

change in products and services is vital for measuring real income and consumption accurately.

Consideration of Individual and Collective Services: The report stresses the importance of measuring

government output accurately, especially in providing individual services like education and

healthcare. Traditional measures based on inputs need to be adjusted to capture productivity

changes.

Emphasis on Household Perspective: Trends in citizens' living standards are better followed through

measures of household income and consumption rather than focusing solely on aggregate economic

indicators like GDP.

Integration of Income, Consumption, and Wealth: Income and consumption measures should be

considered alongside wealth to assess sustainability accurately. Balance sheets for countries,

reflecting assets and liabilities, are crucial for measuring sustainability.

Importance of Distributional Measures: Average income, consumption, and wealth measures should

be accompanied by indicators reflecting their distribution to provide a comprehensive view of living

standards.
Broadening Income Measures to Non-Market Activities: Recognition of non-market activities like

household production and leisure is essential for a comprehensive understanding of economic

activity and living standards.

Accounting for Leisure: Leisure time should be considered when comparing living standards over

time or across countries, despite the challenges associated with its valuation.

These recommendations aim to improve economic measurement systems, moving beyond

GDPcentric approaches towards more comprehensive assessments of well-being and sustainability.

Well- Being Is Multidimensional

Multidimensional Definition of Well-Being: Well-being is defined across multiple dimensions,

including material living standards, health, education, personal activities, political voice, social

connections, environment, and insecurity. Conventional income measures often miss many of these

dimensions.

Objective and Subjective Aspects of Well-Being: Both objective conditions (such as health and

education) and subjective evaluations (such as life satisfaction) are essential for assessing well-being

accurately.

Quality-of-Life Indicators: Quality-of-life indicators should assess inequalities comprehensively across

various dimensions, including income, education, health, and social connections.

Integration of Quality-of-Life Domains: Surveys should capture the interlinkages between different

quality-of-life dimensions for each individual, informing policy design in various fields.

Aggregate Indices for Well-Being: Statistical offices should provide information needed to construct

composite indices summarizing well-being across multiple dimensions.

Incorporation of Subjective Measures: Measures of both objective and subjective well-being should

be incorporated into surveys conducted by statistical offices to provide a comprehensive

understanding of people's quality of life.

Approach to Measuring Sustainability: Sustainability assessment requires a dashboard of indicators,

focusing on variations in different stocks of capital that matter for future well-being.

Physical Indicators for Environmental Pressures: Environmental aspects of sustainability should be

monitored separately using physical indicators, particularly for critical issues like climate change and

depletion of natural resources.

These recommendations aim to improve the measurement and assessment of well-being and

sustainability, recognizing the multidimensional nature of human welfare and the importance of both
objective and subjective indicators.

What Is Next?

Global Debate: The report encourages a global debate on the issues and recommendations

presented. This debate should encompass societal values and what society prioritizes in terms of

well-being and progress.

National Round-Tables: At the national level, stakeholders should convene round-table discussions to

identify and prioritize indicators that reflect societal progress and sustainability. This process should

involve a diverse range of perspectives.

Ongoing Research: The Commission hopes that the report will stimulate ongoing research into the

development of better metrics for assessing economic performance and social progress. This

research should focus on refining existing indicators and exploring new approaches to measurement.

Overall, the goal is to continue the dialogue, engage stakeholders at various levels, and advance

research efforts to improve our understanding and measurement of well-being and sustainability.

A good life for all within planetary boundaries Daniel W. O’Neill

The abstract and article provided delve into the intricate balance between human well-being and
planetary sustainability. Here's a summary:

Challenge Overview: Humanity faces the daunting task of providing a high quality of life for over 7
billion people while ensuring that our actions do not destabilize critical planetary processes. The
study aims to quantify the resource use associated with meeting basic human needs and compares
this with planetary boundaries for over 150 nations.

Safe and Just Space Framework: The research utilizes the Safe and Just Space (SJS) framework, which
combines planetary boundaries with social objectives. This framework envisions a space where
human needs are met without exceeding planetary boundaries.

Biophysical Boundaries and Social Outcomes Analysis: The study evaluates seven biophysical
indicators (e.g., CO2 emissions, land use) and 11 social indicators (e.g., nutrition, education) for
nations worldwide. It finds that no country currently meets basic needs within globally sustainable
resource use levels.

Current Status: While physical needs like nutrition and access to energy could potentially be met
sustainably, achieving qualitative goals such as high life satisfaction would require resource use levels
significantly higher than sustainable levels.

Challenges and Strategies: Achieving sustainability and equity will require fundamental changes in
provisioning systems, including a focus on sufficiency in resource consumption, transitioning to
renewable energy, reducing waste, addressing income inequality, and enhancing social support
systems.
Policy Implications: The study underscores the tension between universal human development goals
(e.g., the Sustainable Development Goals) and the need for sustainable resource use. It suggests that
shifting economic models toward sustainable and equitable human well-being is crucial for ensuring
a good life for all within planetary boundaries.

In essence, the research emphasizes the urgency of transforming societal and economic systems to
ensure that human needs are met while preserving the health of the planet.