Possible
solutions to some puzzles in international statistics: Thoughts on the philosophy and theory of
social science
Matt
Berkley
Draft
26
September 2004
Contents
Summary
A.
Introduction
B. Five
suggested axioms for social scientists
C. Two overarching
problems in development economics
D. Ten
confusions in development economics
E. The
real problem is structural bias
F. What
makes the author think that these are serious problems?
G. Four
puzzles in international statistics
H.
Responsibility and accountability of elected officials
I. Four
suggested solutions to world hunger
J.
Economists and prosperity
K. A
personal note
Summary
This
article examines problems in economists' claims about policies and
international poverty.
Such
claims ("policy X reduces poverty"; "the world is on track to
halving poverty by 2015") have been quoted in policy documents and public
pronouncements from the World Bank, the UK Department of International
Development and elsewhere.
The article
argues that the aim of "poverty reduction" is fundamentally flawed,
since in traditional economic theory in a country where the worst-off survive
longer, the economists say that the poor have done "worse"; and that what is measured by economists currently
in countries where most humans live is not poverty.
The
first problem is that in standard economic theory there is no benefit for
people in living longer.
The
second is that there are no estimates of need.
The theory behind economists' large-scale statements as to how well or
badly people have done does not address the question of what people need. The available statistics are therefore not
poverty statistics.
Economists
traditionally treat statistics about the economy as referring to changes for
real people. But if people live longer,
the economists say they have done worse!
Economists have here confused cross-sectional statistics (about the
economy) with longitudinal statistics (about people over time). In philosophical terms, they have confused
"average utilitarianism" with "the greatest good for the
greatest number". The average
falls if you are the worst-off person and someone saves your life.
Economic
theory in the studies also confused inflation with the cost of living (the cost
of living depends on what you need);
and expenditure statistics with consumption (in reality to know about
consumption you would need to look at not only the money but also at food
prices).
These
confusions by economists may help explain several puzzles in international
statistics:
1) why
Cubans, Sri Lankans and Keralans have lived a long time despite economists
saying they were very poor;
2) why
Millennium Goal Indicator 1 has been reported as significantly ahead of most of
the others (we might expect people to eat better if they are getting richer,
and health to improve if hungry people eat better: so why are health indicators not in line with economic
indicators?);
3) why
global health goals are not being met (perhaps the wrong economic policies are
being promoted).
The
article considers questions concerning the accountability of politicians in
their capacities as board members of international organisations, and
responsibility for scrutiny of their actions as such board members.
It also
makes some suggestions in relation to the aim of increasing consumption
adequacy among people who cannot afford enough food.
A.
Introduction
The
author of this document is not an economist.
Two
problems with most economists' recommendations on how to make people's lives
better are:
One,
they leave out the benefit of living.
Two, they leave out the cost of living.
B.
Suggested axioms for social science
Axiom
1: It is not possible to infer the average outcome without knowing how many
people survived the period.
Axiom
2: It is not possible to aggregate outcomes for people during any period
without knowing how many survived.
Axiom
3: It is not possible to infer how much or how well people ate from expenditure
data without knowing food prices.
Axiom
4: It is not possible to infer consumption adequacy without delineating
consumption needs.
Axiom
4a: It is not possible for an economist to infer a poverty trend without
knowing the proportion of children's meals required.
C. Two
overarching problems
Overarching
problem 1: Statistics about the economy
are not statistics about people
The
first problem with economists' claims about global poverty is that it is not
possible to aggregate outcomes for people without knowing how many survived the
period.
Cross-sectional
statistics are statistics about people alive at different times.
Longitudinal
statistics are statistics about people as they go through their lives.
"Poverty
reduction" is ambiguous, since if the number of poor people falls, this
does not mean that the poor people got richer.
In that
respect, economists worldwide have confused not only cross-sectional with
longitudinal statistics, but also "classical utilitarianism" (the
idea of maximising good for the greatest number) with "average
utilitarianism" (the idea of maximising the average at a later date".
The
economists did not realise that in a country where people live longer, the
resources are shared among fewer people during any period. Common sense says that people do better,
other things being equal, if they survive longer. But also in economic terms, people have more use of resources if
they live longer. They are more
prosperous.
There
is no objective solution to the longevity issue, since the relative worth of
life versus money is a matter of opinion.
So the
question of how serious the economists' error has been cannot be answered in a
scientific way, even where survival data are available.
Overarching
problem 2: Claiming to measure poverty without looking at the cost of living
The
second problem is that poverty is a state of need, but the theory behind the
economists' claims failed to define needs.
Whether
or not poverty can be quantified is a reasonable question to ask. It is perhaps equivalent to the question
whether prosperity can be quantified.
What is
perhaps unreasonable is for someone to claim how much better or worse the
poorest people did under a policy without any reference to
a)
survival rates
b) food
prices
c)
other prices
d) food
needs or
e)
other needs
f)
changes in assets
or
g)
changes in debts.
It is
important to understand what economists refer to when they talk about
"income". It is a shorthand word
for something more complex. In respect
of countries where most humans live, the statistics often refer to a)
consumption expenditure and/or b) the monetary value of food eaten.
From
these statistics, economists have claimed "average benefits" of x% with
a policy, or that y number "rose out of poverty".
But
these statistics about money cannot tell a researcher about food. Economists have not yet compiled food prices
for the target group in each country.
Nor have they compiled prices for anything else which the target group
need.
Let us
be clear on this. The fact that someone
spends 1% more does not mean that they bought 1% more.
What
about people who grow their own food?
If the economist sees the money value of their food go up 1%, does that
mean they ate 1% more? No.
Do the
economists have some reason to ignore this inflation problem? Apparently not. The present author found almost no reference in the academic
literature to the fundamental problem that economists have assumed that all
policies affect food prices no differently from other prices equally.
The
economists appear simply to have confused inflation in the economy with
inflation for the target group.
What
seems to be the case is this: No
economist has estimated either food price inflation or any other price
inflation for the poorest people under different policies.
Therefore,
it would seem that economists cannot know which policies resulted in more food
for the hungry or malnourished.
That is
the inflation problem, one part of the general cost-of-living problem.
The
next part of the cost-of-living problem is this. The statistics are per capita statistics - per person. Why is that a problem? Because the proportion of children varies
between countries, and globally it is going down. Adults need more food than children.
Suppose
the FAO are right that the proportion of hungry children is falling per hungry
adult, due to falling birth rates. They
make this assumption for their global hunger reports (which are not very good
for other reasons, including the longevity error).
Other
things being equal, a World Bank dollar per day is not enough in 2004 to feed
people at the same level as in 1990.
The present
author was unable to find any reference to this problem in economists'
discussions of the trend in world poverty up until the end of 2003.
A third
problem with treating inflation as showing the cost of living is this: How much you need does not only depend on
your size. It also depends on the
weather, on your need for rented accommodation, transport, and other
factors.
The ten
statements listed below may appear bold.
But to this author, they appear to be true. They are certainly true of the statements by World Bank
spokespeople to the media during the last few years. It is beyond contention that Chief Economists of the World Bank
have made claims to the media concerning the economic effects of policies on
poor people, and concerning the global progress of poor people, without
reference to survival rates, food prices, food needs, other needs or assets or
debts.
There
are certainly economists who understand that assets are important to
people. Some economists have recognised
their fundamental mistake about longevity.
D. Ten
confusions in development economics
1. To
confuse inflation with the cost of living is standard practice in development
economics.
2. To
confuse "the average went up 1%" with "on average people had
rises of 1%" is standard in development economics, even though the first
is affected in the wrong direction by changes in longevity.
3. To
confuse consumption expenditure (money) with consumption (food) is standard in
development economics.
4. To
confuse the (luxury-dominated) inflation rate with the inflation rate for
hungry people is standard in development economics.
5. To
confuse "poverty reduction" with "poverty alleviation" is
standard in development economics.
6. To
confuse "income rises" with "real income rises" is standard
in development economics.
7. To
confuse "income rose 1%" with "expenditure rose 1%" is
standard in development economics.
8. To
confuse the fall in the proportion of poor people with the degree of benefits to
poor people is standard in development economics.
9. To
confuse expenditure rises with economic gains (while ignoring changes in assets
and debts) is standard in development economics.
10.To
confuse World Bank data on consumption expenditure with poverty statistics is
standard in development economics.
We
might add that there are more dimensions to human welfare than financial. But the point is that the economists have
not even got the financial part right.
E. The
real problem* is structural bias
* in
the financial part of economists' analysis
The
problem with these confusions is not simply that they introduce elements of
unreliability into economists' statements.
The
problem is that they introduce structural biases into the conclusions.
(Note:
These are not problems of data analysis, or data availability.
They
are problems of inaccurate description of research results.)
Logically,
using these methods, an economist would say that a country which keeps luxury
prices low has helped the poor to eat more;
that a country which keeps food prices from rising fast has not helped the poor as much as it really
has; and that a country which helps the
poorest survive looks as if it has "failed to reduce poverty".
F. What
makes the author think that these are serious problems?
Two
things.
First,
the author was unable to find in the academic literature or from conversations
with officials and senior academics reasons why these might be considered minor
problems for economists' policy advice
- or for the perceptions built
up over many years by economists and politicians as to which policies had which
effects on consumption patterns among the poorest people on earth.
In
respect of the longevity error, the leading academics had not written about the
problem at all before the author began raising it with them. The same was true of the children's meal
requirements error. The same appeared
to be true of the food prices error.
Second,
the confusions provide neat, if partial, solutions to:
G. Four
puzzles in international statistics
1) Why
do Cubans, Sri Lankans and Keralans live a long time despite economists saying
they are very poor?
A
partial solution to this puzzle is in the question. In countries where people live a long time, the resources are
shared among fewer people during any period.
Therefore,
they are better off economically, other things being equal, than in other
countries.
In
countries where poorer people survive longer, the average falls because of
this.
In countries
where retired people survive longer, the average falls because of this.
The
statistical effect on the economic figures may be small. But it is undeniable.
Plausibly,
in countries where people live a long time healthy food is cheap and needs are
few: the cost of the necessaries is
low.
It is
important to understand how economic statistics ("gross domestic
product", "average income") are derived. The raw figures are deflated by a price
index (inflation rate). The important
thing to understand is that national inflation rates are disproportionately
affected by prices of luxury goods. It
is the total amount spent on a type of item which determines how influential it
is in the overall inflation rate.
Let us say
that in a small country £1 million is spent on cake, and £1 million on
bread. Even if only a few people eat
cake, cake prices influence the overall inflation rate (and so the
"income" statistics) as much as bread. The inflation rate for bread is not reflected properly in the
overall rate.
If cake
prices fall, the economist says "the poor have got richer!", and the
World Bank says "the policy was good for the poorest!", and the
British Government Target Strategy Paper (2000), or background document for the
White Paper (2000), or the Cabinet Office report "Adding it Up", says
"the policy reduced poverty".
In reality the economists do not distinguish between inflation rates for
people who buy different things. In
respect of people who grow their own food, national statistical offices look at
the food which people eat, then value it in money. The economists then look at the money value and adjust it by the
national (wrong) inflation rate! They
then say that people did x% better or worse.
The original consumption data
- the actual food amounts -
were measured in the surveys, but the economists take the inferred money
values and then infer from the luxury-dominated inflation rate how much food
was eaten!
All
this is really to say that the economists do not distinguish between inflation
for necessary and unnecessary goods. A
flippant person might say that in a country where prices rise for luxury goods
for the minority, the economist worries about inflation more than the people do
on average; and that in a country where prices for basic goods rise for the
majority, the economist worries less about inflation than the people do on
average. Since some goods are more
necessary for survival than others, and governments have different priorities
in respect of keeping people alive, it is not surprising that economic
statistics (as adjusted for the national figures) do not correlate very well
with life length.
GDP
will go up if the government pays people to do useless jobs - such as
economists pretending to have data on poverty when they do not have food
prices. GDP will go up if the
government encourages people to take commuting jobs which increase transport
costs. If you take one of these jobs
and pay a bus fare, the economist counts the bus fare portion of your wages
twice - once as a benefit to you (which it isn't) and once as a profit to
the people running the bus (which it is).
Child care is another example of this kind of extra expense. So is rent, if in the old days people lived
in a village on the family land and now live in the city. (This kind of double-accounting by
economists may help explain not only why income is not well correlated with
life length, but also why people do not always report being happier with more
GDP. We can note also the time-cost of
commuting. Many people may feel that
they have enough money but not enough time).
GDP or
"average income" as adjusted by economists does not take into account
survival
rates
the
trend in prices of goods deemed necessary
food
needs
other
needs
changes
in assets
changes
in debts.
So
there are quite a few areas where economics (at least the economic results as
reported from official sources and the macroeconomists who use similar methods)
cannot reasonably be said to measure economic gains and losses.
Without
looking at prices of basic goods, and needs, and asset and debt levels, an
economist cannot reasonably be said to have measured prosperity even in the
most narrow sense. One reason why life
length is sometimes badly correlated with economists' claims of prosperity is
that prosperity is not what economists measure. If you own your own land, you do not need to pay rent; and you
have something to sell if bad times come.
If you have debts, you pay interest.
Neither of these cases is dealt with by the theory behind economists'
claims from "income" (often in reality expenditure) statistics. It may be that people in countries where
they live a long time have fewer debts.
It may be that landlessness has been prevented, so that people are in
fact more prosperous than they look.
It may be that there is less waste by governments in those
countries.
Other
puzzles which the economists' confusions can explain are:
2) how
the World Bank reports success for the poorest while the Food and Agriculture
Organisation of the United Nations reports failure for the hungry. This is a puzzle because we might reasonably
think the poorest are hungry; and the survey data are similar in origin.
Solution:
The FAO do adjust crudely for food needs of hungry people (see L.Naiken account
of FAO methodology in FIVIMS documentation).
The Bank do not (see Chen and Ravallion documentation).
The FAO
assume that hungry people's needs have gone up, because there are not so many children
per adult: birth rates have gone
down. The Bank (and all economists
making statements about the progress of the poorest people in the world) have
assumed that the food needs of the poorest have been the same throughout
history.
They
cannot both be right.
Note 1:
The FAO are mistaken for other reasons:
they make the assumption that the faster the number of hungry people
falls the better they have eaten, which is wrong.
Note 2:
It may be that the poorest people are living longer or shorter lives than
before.
Note 3:
Strangely, Martin Ravallion of the World Bank co-wrote an article in the Royal
Economic Society's Economic Journal in 1995 which appears to make the point
that economists should remember that adults need more food than children. It makes the point that smaller families are
less efficient per person. Dr Ravallion
ignored his own advice for his statements on global poverty. The fact that this makes the World Bank look
better may be a coincidence.
To
halve the proportion of people under a consumption line is not to halve the
proportion of people under a consumption-adequacy line. And so, even in the absence of other
problems, this World Bank method would not measure a halving of world poverty,
but exaggerate it somewhat. The notion
that the proportion of children among the poorest people will not have varied
between 1981 and 2015 is perhaps implausible given the fact that it is the aim
of UN agencies to reduce population increases and increase birth control.
3) Why
Millennium Goal Indicator 1 has been reported as significantly ahead of most of
the others.
A
puzzle because if the poorest people are eating more, we might expect them to
be more healthy.
As
above; plus perhaps the other
confusions by economists.
4) why
global health goals are not being met (plausibly, both the aims and methods of
lender countries are the wrong ones).
The aim
of "poverty reduction" rather than poverty alleviation is
mistaken; and the methods of economic
policies have been based on misdescription of past statistical trends.
H.
Responsibility and accountability
Responsibility
for errors: World Bank Governors
There
is a common view that the World Bank is unaccountable. But in reality, the policies of the Bank
are in the hands of its Governors. The
Governors from democracies are accountable to their voters for their
actions.
The
institutional structure of the World Bank is such that lender countries have
voting power in proportion to financial input.
The influence of the United Kingdom (with under 1% of the species in
headcount terms) is much more per head of population than, say, India.
Accountability
for mistaken public statements by Chief Economists of the Bank therefore lies
largely with lender countries.
Accountability
for policy decisions also lies largely with lender countries.
The
British Governor of the World Bank is the Secretary of State for International
Development.
The
Alternate Governor is the Chancellor of the Exchequer.
The
British Governor of the International Monetary Fund is the Chancellor of the
Exchequer. He has been Chair of the
IMF's main decision-making body for several years. The Millennium Goals were agreed by the Organisation for Economic
Co-operation and Development, the IMF, the UN and the World Bank.
Note: The Development Assistance Committee of the
OECD is a body for which similar considerations must apply as in the case of
the global financial institutions:
since elected politicians are on the Committee, they are answerable for
actions in the name of their voters.
They are also answerable for inaction.
Responsibility
for reporting errors
It
would seem that responsibility for reporting errors in World Bank statements about
global poverty, and about the effects of different policies on the world's
poorest people to the Bank, lies with the Governors in cases where they have
been informed of the errors.
To know
of errors and not to share that knowledge with other Governors or senior Bank
staff with a view to the errors being corrected would be to fail in a public
duty.
Responsibility
for oversight of British teaching of social science
It
would seem that this responsibility would lie with the Education and Skills
Select Committee of the House of Commons.
Responsibility
for oversight of British board members of international bodies
It
would seem that responsibility for oversight and scrutiny of the actions of the
British Governors of the World Bank and International Monetary Fund must lie
with
a) the
International Development Select Committee of the House of Commons
and/or
b) some
other public body or bodies (such as the Treasury Committee)
or
c)
no-one.
I. Four
suggested solutions to the problem that a self-described intelligent species
cannot, despite the stated intentions of its most powerful elected officials,
feed itself
1. A
new emphasis on survival as a measure of success. Since the statistics with which we measure success are
determined by our aims, this is equivalent to saying that a prime aim of
governments aiming to help poor people would be to keep them alive longer. That is not to say that longevity is the
most important thing.
It is,
however, true that even with the best data on food prices, it is not possible
to infer the adequacy of the food (quantity and quality) without reference to
survival rates.
Without
data on survival rates, economic statistics are of little use in inferring
consumption adequacy.
There
are two parts to the equation for prosperity: the quality of a life, and its
length.
Only
one is measurable.
2. A
dropping of the term "poverty" from the vocabulary of
governments. Without data on:
food
prices,
food
needs,
other
prices and
other
needs, and
changes
in assets and
debts,
economic
statistics are of questionable use in inferring prosperity.
3. A
rapid move towards the correction of past statements concerning the progress of
people described as extremely poor, and the reassessment of policies devised on
the basis of such statements.
Erroneous
statements include many from the World Bank ("400 million rose out of
poverty in China since 1981 [without the Bank compiling data on the price of
rice!; a policy gives "average benefits" to the poor or "average
benefits" to other people of such-and-such percentages, without data on
food prices, or food needs, or asset changes, or debt changes, or survival
rates) and elsewhere.
4. A
rapid move towards replacing the ambiguous language of "poverty
reduction" with clear and specific and meaningful statements about
statistics, described accurately without spin.
Axioms
for the use of economic statistics appear at the beginning of this article.
It is
self-evident that economic statistics without prices of staple foods are not
statistics on extreme poverty.
It is
self-evident that economic statistics without survival rates do not tell a
researcher average outcomes.
In
reality, the source of global statements on the progress of people deemed
extremely poor are survey data on
1)
income and/or
2)
consumption expenditure and/or
3) the
money value of people's self-grown food.
It is
inaccurate to describe these statistics as "income" or
"gains".
It is
inaccurate to describe the economic statistics as referring to longitudinal
trends for real people.
It is
inaccurate to describe the World Bank statistics using an international dollar
as "poverty statistics".
There are no global food prices for the target group for any year; there are no survival rate data for the
target group for any year; there are no
estimates of amounts needed in any year, due to changing food needs, changing
needs for rented accommodation, changing needs for expenditure on debts,
changing needs for savings to offset landlessness, or anything else.
It is
inaccurate to refer to the statistical results of studies of the numerical
distribution of "income" as if they represented consumption amounts,
or consumption adequacy (consumption poverty), or "income poverty"
without estimating necessary expenditure.
It is
the tradition among macroeconomists to confuse income with profit.
It is
inaccurate to describe the target group as "people living below a dollar a
day". The "dollar" here
is a World Bank dollar, not a real dollar.
In national buying power, it is worth a fraction of a real dollar. In buying power for basic goods, its value
is apparently not known to anyone. But
it does not appear to be worth what a backpacker from the United States could
live on with a dollar a day in a target country. A sensible guess might be that it is worth four times less than
that.
A
statement about survival rates is open to misuse in fewer ways than are
economic statistics.
J.
Concluding remarks: economists are wrong about prosperity as well
Many of
the errors above apply equally to economists' and governments' statements about
prosperity among people who are not usually considered poor. The idea that additional items of
expenditure (such as commuting costs) should not be counted against income is absurd. The idea that debts and assets are not part
of economic gains and losses is absurd.
The idea that most people are better off dead is absurd. The idea that no matter how long or short
working hours, people are equally well off is absurd. The idea that money measures, with all these fallacies of
reasoning and misdescriptions of data, can measure human welfare with no
reference to the quality of life is absurd.
Governments
like taxable income, and civil services like to increase it.
The central
idea which many people with money like is the idea that when they get richer,
the poor automatically get richer as well.
This is the idea that politicians like to promote, saying that they have
evidence that it has been true in the past.
Unfortunately, successive Chief Economists of the World Bank, making the
most high-profile announcements in this area, have not realised the difference
between cross-sectional and longitudinal statistics, and the fact that adults
need more food than children, and the fact that if you don't know how a policy
affected food prices you don't know how it affected people who can afford
little else.
The
central idea which governments and civil services like is that when they
receive more money, the people are better off.
People perhaps naturally believe what they see around them, and assume
that things are the same elsewhere. If
there is more money coming into the Treasury, then a government may think that
the people have more money spare. But
that does not follow. Income is not
profit, and inflation does not measure the cost of living. Inflation does not measure the cost of
living, because a) income is not profit (needs for expenditure may rise) and b)
inflation is disproportionately affected by prices of unnecessary goods.
Ultimately
the cost of living is not something which can be measured, since that would
necessitate specifying an equivalent life at another time or in another
place. Since the combined benefits and
costs of climate, culture, working conditions, and various physical, emotional,
intellectual, and spiritual wants are not measurable, all comparative
statements in this general area are laden with subjectivity. The benefit of living longer is not
measurable either.
K. A
personal note
Perhaps
we all try to convince ourselves on occasion that the picture which the world
presents to us at this moment confirms our pre-existing notions of it.
It may
be that the problems which I have identified above in the use of statistics in
social science are minor, in the sense that they do not matter to the happiness
of any human.
Just to
be on the safe side, though, I think that it would be best - if what
governments are aiming at is better lives for people - if governments provided more of the truth
about what their statistics actually represent, and less in the way of
unfounded speculation dressed as science.
...............................................................................................
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