WELLBEING, GROWTH, AND

INEQUALITY: PAST, PRESENT, AND

FUTURE

Angus Deaton

Center for Studies of Public Policy and

Government, University of Alcalá

June 8, 2016

1

Today’s uncertainty, yesterday’s progress

Today the world looks like a difficult and uncertain place

Growth continues to falter, OECD and China

Slow or no recovery from Great Recession

Rapidly rising inequality in many countries

Breakdown of familiar political arrangements

In Europe and the US

Threat of BREXIT

BUT good to start by thinking about today relative to what has happened in the past

Help us think about inequality today relative to the past

And I want to come back to inequality’s role in our current troubles

On wellbeing

Wellbeing has at least two meanings, both of which I want to talk about today

Wellbeing as all of the things that make life worth living, that people have a reason to value

Material wellbeing: income, wealth, goods and services

Health: morbidity, mortality

Education

Civic participation

Direct measures of overall wellbeing

Questions about life satisfaction or life evaluation

Questions about happiness or how people are feeling

These are VERY different things

Progress and inequality

Great episodes of human progress are what I have called the “Great Escape”

From destitution, ill-health, premature mortality

To long life and material living standards

Better governance: democracy is more widespread around the world

Large scale reductions in violence, huge increases in education

Increases in life evaluation/happiness: people know they have better lives

Many of these episodes have allowed only some to escape

Leaving many others behind, so progress has been an engine of inequality

And inequality is itself an incentive to escape

Progress has often been interrupted, sometimes brutally, but has resumed

The Great Divergence

The most famous case of progress and inequality

Sustained economic growth, which began in Northwest Europe between 1750 and 1850

Sowed the seeds of the increases in material living standards and increases in life expectancies

Pulling these leading countries away from their neighbors, and the rest of the world

Modern scholarship has undermined simple view of absolute poverty in all places and all previous times

Most notably in China, e.g. 11th and 15th centuries

But not the existence of the divergence itself

Not just why the West, but why not the Rest?

For the world as a whole, these gaps have changed but never closed

Country by country, gaps in material living standards are still not closing

Even if person by person, global income inequality is falling

Health as well as wealth

Life expectancy began to rise in Britain in the middle of the eighteenth

century

In parallel with the Industrial Revolution

Leading to inequality in life chances

Not just with other countries

But also within Britain

The birth of the health “gradient”

Gradients exist in all countries today: rich live longer than the poor

Progress is about more than money: health is as or more important

Britain before 1850

Dukes and commoners

A long time ago

20

30

40

50

60

1550 1650 1750 1850

Life E

xpecta

ncy a

t birth

General population

(Wrigley et al.)

(After Harris, Soc Hist Med, 2004.)8

20

30

40

50

60

1550 1650 1750 1850

Life E

xpecta

ncy a

t birth

Ducal families (Hollingsworth)

General population

(Wrigley et al.)

(After Harris, Soc Hist Med, 2004.)9

Why?

British enlightenment, experimentation, fundamental move from “being good” to “being happy” (Roy Porter)

We don’t know what caused improvement among the wealthy, but important was

Inoculation for smallpox (not vaccination) from China, Turkey, Africa

Many other innovations that came from abroad: globalization

Chinchona (quinine) from Peru, Ipecac from Brazil (“bloody flux”), Holy Wood from Caribbean (syphilis)

All of these innovations are benevolent, expensive, and later spread more widely

Better if they had been introduced uniformly

But likely impossible to do

Health inequalities indicate later health improvements to come for everyone

10

Around the world

In the last fifty years

30

40

50

60

70

80

0 10,000 20,000 30,000 40,000 50,000

2010

1960

China 1960

China 2010

GDP per capita in price adjusted 2005 US $

Life

exp

ect

ancy

at b

irth

, b

oth

sexes

GDP per capita in price adjusted 2005 US $

Life

exp

ect

ancy

at b

irth

, b

oth

sexes

15

Great progress in the world

But what about at home, within each country?

Where income inequality is rising within many countries

Especially the US: top one percent has 18.9% in 2012

Only modestly in Spain: top one percent from 7.5% in 1981 to 8.2% 2012

Was 9.1% in 2006

Bottom decile actually did better than top decile from mid-80s (OECD)

Gini in Spain is relatively low and falling (OECD)

But widespread increases in many countries: Spain exceptional

Economic growth is slowing decade by decade

Even before the Great Recession

See slides for the US, France, Germany, Switzerland

USA

GERMANY

FRANCE

SPAIN

Slow growth, rising inequality

Means that some people get left behind

High growth, everyone can have something, much harder when growth slows

Fewer people prosper and flourish when growth is low

In the US, there is evidence that a substantial number of people are living on less than $2 per person a day

Poverty line for World Bank’s global counts, Africa and Asia

These people are worse off than people in India or Bangladesh at similar levels of income

And, among white non-Hispanics in mid-life, especially those with low education

Mortality rates are RISING

From suicides, drug overdoses, and alcoholism

Life expectancy fell in 2014 for white non-Hispanic men and women

This is a scandal, a terrible loss for those people, and a danger, especially a political danger, to the rest of the country

FRA

GER

UK

CAN

AUS

SWE

200

250

300

350

400

450

death

s per

100,0

00

1990 2000 2010

year

All cause mortality, ages 45-54

Dea

ths

per

10

0,0

00

USW

FRA

GER

USH

UK

CAN

AUS

SWE

200

250

300

350

400

450

dea

ths

per

100

,00

0

1990 2000 2010

year

All cause mortality, ages 45-54

Dea

ths

per

10

0,0

00

Inequality is implicated in today’s uncertainty

Inequality can reflect productive incentives, as well as successful innovations

Getting rich in the national interest is no crime!

Slow growth and inequality

Unproductive rent seeking and blocking of innovation by successful firms

Increasing concentration: lowering consumer welfare and increasing inequality

Extreme inequality may itself hamper growth

Working people feel that politics doesn’t work for them, any more

In the US, this is made worse by race

Wealth can be used to capture political process, e.g. limiting the provision of public goods

Schools don’t work for those left behind, trapping their children too

Good inequality versus bad inequality

It is not inequality itself, but people being left behind, being excluded

Inequality, danger, and uncertainty

Hirschman’s story:

People accept and like others getting ahead when they see opportunities for

themselves

Good luck to those who have prospered

They get angry when those opportunities never materialize or are shut off

We are in danger of passing that point

White non-Hispanics in the US are an extreme example

But throughout Europe, increasing dissatisfaction among those left behind

Rise of left-wing and right-wing parties

Scapegoating, e.g. of immigrants, or of Europe in Britain over BREXIT

Can we measure it?

Do measures make sense?

Can we use it in policy?

Does it give a different sense of how people are doing?

What about self-reported wellbeing?

Amartya Sen’s doubts on happiness

“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”

“The metric of happiness may distort the extent of deprivation, in a specific and biased way. . .. It would be ethically deeply mistaken to attach a correspondingly small value to their loss of well-being because of this strategy”

If we accept these arguments, happiness may not recognize important deprivations: it is not a suitable summary of well-being

But happiness is good in itself

Well-being comes from “functionings”

Of which happiness is one

Income, health, education, SWB?

But SWB has no special place, and not as the total

“The central issue is not the significance of happiness, but the alleged insignificance of everything else,” Sen (2009).

27

Can we measure happiness?

Perhaps measures can help us decide about these philosophical questions?

Cannot settle the issue, but facts are always useful for thinking

Two concepts (among many possible)

Concept 1: overall evaluation of life, or life satisfaction

Concept 2: momentary affect: feelings of happiness, sadness, anger, stress, etc.

Concept 2 is easier to answer for most people, but evanescent, so people cannot remember

Concept 1 is hard, and requires thought, and may be subject to various biases

Data on happiness

Gallup has been polling 1,000 people every day in the US since January 2nd, 2008

Many questions on well-being

Allows daily tracking for whole population and for subgroups

Gallup’s World Poll corresponding samples for all of the citizens of the world

1,000 people in each country in each year

More than 150 countries now covered, since 2006

Identical questionnaires

Data allow examination of many questions about SWB

Kahneman has been advisor since the beginning of these projects

Use these data here

29

Cantril’s ladder question

Life evaluation measure, like life satisfaction, but hedonically neutral, no mention of happiness

Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally stand at this time?

Can look at this for individuals, or averaged for nations

Particular interest across countries in how it relates to national income

Are richer countries higher on the ladder?

Or does money not matter, at least beyond some point

And some other European countries

Recent measures of SWB for SPAIN

34

56

78

800 3,200 12,800 51,200

GDP per capita, 2005 international constant $

TogoSierra Leone

Liberia

Burundi

Bangladesh

Afghanistan

Hong Kong

Japan

Denmark

Mexico

BrazilGuatemala

Colombia

Congo

Georgia

Hungary

Korea

Angola

Benin

Kenya

Mozambique

Costa RicaPanama

Venezuela

FinlandNorway

LebanonPakistan

India

China

Argentina GermanySingapore

Thailand

Ave

rage

lad

der

sco

re

Russia

Other European countries

Very similar results for

Ireland

Portugal

Greece

USA doesn’t really match

Unemployment v labor force participation an issue?

But very different for Germany

Wellbeing and policy

These measures make sense!

Support the contention that unemployment is bad for wellbeing

More so than the loss of income that is involved

Given that: policy should recognize these harms of unemployment

And of austerity policies

Not just the loss of income that is important

What to do?

Cannot afford to leave people behind when growth is so slow

Both for them, and for those of us who have not been left behind

Some countries, policies may do this

Particularly those that keep opportunities open

Safety nets are important: and weak in the US

Austerity has made everything worse

At a minimum, greater sympathy for those who have been left behind

We may not like their “solutions,” and believe them to be destructive

As in BREXIT, or Donald Trump

But we must recognize the genuine grievance

And do a better job of persuading people that the institutions of the past fifty years can continue to serve them

Otherwise, toxic politics can destroy those institutions

Thank you