Beyond GDP

   (Project Syndicate)

Just under ten years ago, the International Commission on the Measurement of Economic Performance and Social Progress issued its report, Mismeasuring Our Lives: Why GDP Doesn’t Add Up.The title summed it up: GDP is not a good measure of wellbeing. What we measure affects what we do, and if we measure the wrong thing, we will do the wrong thing. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.

We were more than pleased with the reception of our report, which spurred an international movement of academics, civil society, and governments to construct and employ metrics that reflected a broader conception of wellbeing. The OECD has constructed a Better Life Index, containing a range of metrics that better reflect what constitutes and leads to wellbeing. It also supported a successor to the Commission, the High Level Expert Group on the Measurement of Economic Performance and Social Progress. Last week, at the OECD’s sixth World Forum on Statistics, Knowledge, and Policy in Incheon, South Korea, the Group issued its report, Beyond GDP: Measuring What Counts for Economic and Social Performance.

The new report highlights several topics, like trust and insecurity, which had been only briefly addressed by Mismeasuring Our Lives, and explores several others, like inequality and sustainability, more deeply. And it explains how inadequate metrics have led to deficient policies in many areas. Better indicators would have revealed the highly negative and possibly long-lasting effects of the deep post-2008 downturn on productivity and wellbeing, in which case policymakers might not have been so enamored of austerity, which lowered fiscal deficits, but reduced national wealth, properly measured, even more.

Political outcomes in the United States and many other countries in recent years have reflected the state of insecurity in which many ordinary citizens live, and to which GDP pays scant attention. A range of policies focused narrowly on GDP and fiscal prudence has fueled this insecurity. Consider the effects of pension “reforms” that force individuals to bear more risk, or of labor-market “reforms” that, in the name of boosting “flexibility,” weaken workers’ bargaining position by giving employers more freedom to fire them, leading in turn to lower wages and more insecurity. Better metrics would, at the minimum, weigh these costs against the benefits, possibly compelling policymakers to accompany such changes with others that enhance security and equality.

Spurred on by Scotland, a small group of countries has now formed the Wellbeing Economy Alliance. The hope is that governments putting wellbeing at the center of their agenda will redirect their budgets accordingly. For example, a New Zealand government focused on wellbeing would direct more of its attention and resources to childhood poverty.

Better metrics would also become an important diagnostic tool, helping countries both identify problems before matters spiral out of control and select the right tools to address them. Had the US, for example, focused more on health, rather than just on GDP, the decline in life expectancy among those without a college education, and especially among those in America’s deindustrialized regions, would have been apparent years ago.

Likewise, metrics of equality of opportunity have only recently exposed the hypocrisy of America’s claim to be a land of opportunity: Yes, anyone can get ahead, so long as they are born of rich, white parents. The data reveal that the US is riddled with so-called inequality traps: Those born at the bottom are likely to remain there. If we are to eliminate these inequality traps, we first have to know that they exist, and then ascertain what creates and sustains them.

A little more than a quarter-century ago, US President Bill Clinton ran on a platform of “putting people first.” It is remarkable how difficult it is to do that, even in a democracy. Corporate and other special interests always seek to ensure that their interests come first. The massive US tax cut enacted by the Trump administration at this time last year is an example, par excellence. Ordinary people – the dwindling but still vast middle class – must bear a tax increase, and millions will lose health insurance, in order to finance a tax cut for billionaires and corporations.

If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role in helping us achieve these crucial goals.



The Economics of Soaking the Rich

What does Alexandria Ocasio-Cortez know about tax policy? A lot.

I have no idea how well Alexandria Ocasio-Cortez will perform as a member of Congress. But her election is already serving a valuable purpose. You see, the mere thought of having a young, articulate, telegenic nonwhite woman serve is driving many on the right mad — and in their madness they’re inadvertently revealing their true selves.
Some of the revelations are cultural: The hysteria over a video of AOC dancing in college says volumes, not about her, but about the hysterics. But in some ways the more important revelations are intellectual: The right’s denunciation of AOC’s “insane” policy ideas serves as a very good reminder of who is actually insane.
The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance. (Although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.
To be more specific, Diamond, in work with Emmanuel Saez — one of our leading experts on inequality — estimated the optimal top tax rate to be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent.

Where do these numbers come from? Underlying the Diamond-Saez analysis are two propositions: Diminishing marginal utility and competitive markets.
Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.
What this implies for economic policy is that we shouldn’t care what a policy does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want.
So why not tax them at 100 percent? The answer is that this would eliminate any incentive to do whatever it is they do to earn that much money, which would hurt the economy. In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.

But here’s where competitive markets come in. In a perfectly competitive economy, with no monopoly power or other distortions — which is the kind of economy conservatives want us to believe we have — everyone gets paid his or her marginal product. That is, if you get paid $1000 an hour, it’s because each extra hour you work adds $1000 worth to the economy’s output.
In that case, however, why do we care how hard the rich work? If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay.
Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.
And that’s something we can estimate, given evidence on how responsive the pre-tax income of the wealthy actually is to tax rates. As I said, Diamond and Saez put the optimal rate at 73 percent, Romer at over 80 percent — which is consistent with what AOC said.
An aside: What if we take into account the reality that markets aren’t perfectly competitive, that there’s a lot of monopoly power out there? The answer is that this almost surely makes the case for even higher tax rates, since high-income people presumably get a lot of those monopoly rents.
So AOC, far from showing her craziness, is fully in line with serious economic research. (I hear that she’s been talking to some very good economists.) Her critics, on the other hand, do indeed have crazy policy ideas — and tax policy is at the heart of the crazy.
You see, Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests on research by … well, nobody. There isn’t any body of serious work supporting G.O.P. tax ideas, because the evidence is overwhelmingly against those ideas.

Look at the history of top marginal income tax rates (left) versus growth in real GDP per capita (right, measured over 10 years, to smooth out short-run fluctuations.):

Top tax rates and growthCreditTax Policy Center, BEA

Top tax rates and growthCreditTax Policy Center, BEA
What we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well.
Why do Republicans adhere to a tax theory that has no support from nonpartisan economists and is refuted by all available data? Well, ask who benefits from low taxes on the rich, and it’s obvious.
And because the party’s coffers demand adherence to nonsense economics, the party prefers “economists” who are obvious frauds and can’t even fake their numbers effectively.
Which brings me back to AOC, and the constant effort to portray her as flaky and ignorant. Well, on the tax issue she’s just saying what good economists say; and she definitely knows more economics than almost everyone in the G.O.P. caucus, not least because she doesn’t “know” things that aren’t true.


Paralysée par la montée des populismes, l’Europe impuissante face au drame des migrants

A bord du « Sea-Watch-3 », près des côtes maltaises, le 4 janvier 2019. Ce navire, affrété par une ONG allemande, a secouru des migrants au large de la Libye avant Noël.
A bord du « Sea-Watch-3 », près des côtes maltaises, le 4 janvier 2019. Ce navire, affrété par une ONG allemande, a secouru des migrants au large de la Libye avant Noël. DARRIN ZAMMIT LUPI / REUTERS

Editorial. Le Monde
Alors que la Méditerranée est devenue la voie de migration la plus meurtrière du monde, les Etats européens semblent incapables de mettre sur pied une politique commune d’accueil.

Editorial du « Monde ». Des hommes, des femmes et des enfants se noient en fuyant leur pays. Quels que soient les risques encourus, ils continuent de périr en tentant de rejoindre l’Europe. Trois ans après l’arrivée massive de migrants et leur accueil notamment par l’Allemagne, le continent est pourtant devenu un eldorado de plus en plus inhospitalier. Des routes ont été fermées, des murs érigés, des frontières cadenassées, faisant de la Méditerranée la voie de migration la plus meurtrière du monde.
Selon le Haut-Commissariat de l’ONU pour les réfugiés (HCR), qui a publié son bilan le 3 janvier, 2 260 personnes sont mortes en mer en 2018 entre l’Afrique et l’Europe. Même si c’est un millier de moins qu’en 2017, cela reste une honte absolue pour une Europe qui a décidé l’an dernier, selon les Etats, de fermer ses ports, comme l’Italie ou Malte, ou de ne pas accorder de pavillon à un bateau de secours en mer, tel l’Aquarius, forcé de suspendre ses activités humanitaires.
La pression migratoire est pourtant en baisse constante depuis la ruée vers l’Europe de 2015. Ainsi, 150 000 migrants sont arrivés à destination en 2018, selon Frontex, l’agence européenne de coopération aux frontières (115 000 selon le HCR), loin du pic de 1 million de 2015. La première porte d’entrée est désormais l’Espagne, à la suite des accords passés par l’Italie avec la Libye pour empêcher les départs en mer.
En dépit de cette baisse drastique, les politiques européens, tétanisés par la montée des nationalismes et de la xénophobie, continuent à ne pas trouver de politique commune et humaniste face à ces voyageurs prêts à tout pour fuir la misère et la guerre.

« Record de la honte »

Des ONG de défense des droits de l’homme ont dénoncé, vendredi 4 janvier, un nouveau « record de la honte » alors que 49 migrants, dont des enfants en bas âge, secourus en mer au large de la Libye, restent ballottés depuis deux semaines dans une mer houleuse près des côtes maltaises à bord de deux navires ayant récemment pris le relais de l’Aquarius, le Sea-Watch et le Sea-Eye.

Article réservé à nos abonnés Lire aussi Les ONG de sauvetage de migrants sont de retour en Méditerranée
La Commission européenne négocie leur débarquement en appelant les Etats à « plus de solidarité ». Seuls l’Allemagne, les Pays-Bas et la France se sont portés volontaires pour accueillir « une partie des migrants ». Reste à trouver un port de débarquement, ce qu’aucun pays à frontière maritime ne propose pour le moment.
L’accord européen conclu en juin 2018 sur la création de « plates-formes de débarquement » et de « centres contrôlés » n’a toujours pas été mis en application. A quelques mois d’élections européennes où chaque pays redoute une nouvelle montée de l’extrême droite, la paralysie est totale. La seule « efficacité » de l’Europe semble être, vu la chute des arrivées, les accords conclus avec des pays de transit tels que la Turquie et la Libye. Une efficacité discutable, sinon morbide, quand on connaît les conditions de survie dans un pays en guerre comme la ­Libye. Le HCR appelle les pays européens à « sortir de l’impasse ».
Fait nouveau, il y a une seconde mer où les migrants se jettent désormais à l’eau dans de frêles embarcations, en dépit des flots agités et des températures hivernales : la Manche. Londres estime que 539 migrants ont tenté cette traversée depuis la France en 2018, dont 80 % durant les trois derniers mois de l’année. Un navire britannique de patrouille a été envoyé dans la zone. L’Europe doit tout faire pour empêcher que celle-ci ne devienne, après la ­Méditerranée, un second tombeau marin sur les ruines de nos valeurs d’hospitalité et d’humanité.

Lire aussi Migrants traversant la Manche : Paris et Londres conviennent d’un « plan d’action renforcé »

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