Progress is hard to measure

Wellington Regional Council have recently published their Genuine Progress Indicator, which is intended to measure changes in regional well-being. Measuring well-being is very difficult and the technical documentation provided by the WRC shows how hard they have found it to overcome the challenges.

The GPI has been constructed by taking about 100 variables of relevance to well-being, normalising each, and averaging the 100 indices. The Council have declined to weight the aggregation because they recognise that people may disagree over the weighting. They seem to want to avoid arguments over the normative weighting decisions. Unfortunately, weighting everything equally is just as much of a value judgement as any other weighting system. For instance, the council consider the prevalence of smoking to be a negative indicator. Due to the equal weightings, a 1% decrease in smoking in the region would be as good for progress as a 1% increase in incomes, or a 1% decrease in unemployment. With other variables, from access to public transport to dairy farm soil quality, it seems unlikely that many people would agree with weighting them all equally.

There are plenty of other difficulties, too: ensuring comparability of the variables measured and selecting a baseline for normalisation, for instance. What these difficulties illustrate are the importance of value judgments in creating these GPIs, even when the architects try to steer away from making them. Each of us, given the opportunity to choose our own variables and weightings, could come up with a different result for the region’s progress. Because of that it’s hard to take the GPI seriously as a reliable measure of regional progress, except insofar as it is defined by the council’s own preferences.

Public battles are such fun!

If you read this blog you’ve probably heard of Acemoglu, Johnson, and Robinson’s (AJR) work on development economics. You may even have read their magnum opus (minus Johnson), Why Nations Fail, and if you haven’t then I highly recommend it. They’ve also started a great blog to support the book.

But even better than that, they’ve started engaging in public battles with other major names in the field! The thesis of Why Nations Fail is that the prosperity of nations is largely determined by the quality of their institutions. Jared Diamond, of ‘Guns, Germs and Steel’ fame, wrote a largely positive review in the New York Review of Books but made sure to remind us of his own thesis. He spends plenty of time explaining how geography is the underlying determinant of the institutional composition of a nation, thus undermining the work of Acemoglu and Robinson.

They then had a scathing reply to the editor published, which rolls out arguments that they’ve rehearsed many times in their academic sparring with Jeff Sachs. Finally, there is the response from Diamond to their criticisms of his thesis. I won’t ruin it with quotes so click through and read the whole thing for yourself.

Poor migrants

Contrast this new government policy:

Poor migrants who speak little or no English are to be subject to stricter immigration laws… Immigration categories are to be changed in an effort to “reduce the number of unskilled migrants who find it difficult to get jobs and are more likely to get benefit payments”.

to this academic research:

The vast wage differences across countries are a sizeable economic distortion, and offer the possibility of large gains through international migration. From a development perspective, a key challenge is to increase the opportunities for poor, relatively less skilled, individuals to participate in migration.

Read more

Biofuels and food

Good article from the Economist on the impact of compulsory biofuel regulations on food prices.

We commented on this a while back.

Biofuel regulations are an undeniable “structural shock” which will lead to “structurally higher” food prices.  What do I mean?  The price of food relative to other things is likely to stay higher than it would have in the absence of biofuel regulations.

Now, I don’t think these regulations are the main driver of the recent price volatility – that would be droughts and economic conditions.  But we can expect the relative price of food products to stay above historical averages.

How far above is a different, and very difficult, question 😉

UpdateDiscussion on the issue at Anti-Dismal.

Aid vs development

Lant Pritchett comes out strongly in favour of aid agencies that promote economic development on Aid Watch:

There are many ways of providing assistance to people in poor countries that do little or nothing to produce development. While we might all whole-heartedly agree that de-worming is demonstrated to be cost-effective assistance, its impact on development is, at best, tiny.

[A]ddressing a series of important problems for well-being like vaccinations, schools for girls, HIV/AIDS prevention or malaria does not add up to a development agenda.

Development, as accelerated modernization… is the only demonstrated and sustained way to achieve the objectives of increased well-being.

This is particularly relevant in NZ now that Murray McCully wants to make NZAID promote development, rather than poverty elimination. Are his opponents just concerned about political manipulation of aid money, or do they really think that development is the wrong goal for an aid agency? Read more