Wellbeing Report seminar series: Wellbeing, Stress, and Economic Policy

Caralee McLiesh:

[speaking in te reo Maori] Tēnā koutou katoa. Ngā mihi ki a koutou, kua hui mai nei i tēnei rā, e tautoko ana i te ako. Ngā mihi nui ki a Professor Joseph Stiglitz te kaikōrero o te rā. Tēnā koe. Nau mai, haere mai ki Te Tai Ōhanga.

My greetings to you all. Thank you all who are joining us here today in support of learning. Many thanks to Professor Joseph Stiglitz, who's today's speaker. My name is Caralee McLiesh, I'm the Secretary of the Treasury and it is my great pleasure to welcome everyone. It's just wonderful to see so many of you online join us to hear from today's speaker in our Wellbeing Seminar Series. And if you have been following this series, as I know many of you have, you'll be aware that back in April, we announced and launched the work programme for the Treasury's first wellbeing report. It's called Te Tai Waiora and it's one of our four stewardship documents, which will be published later in November. It's going to report on the state of wellbeing in New Zealand, how that has changed over the years, and risks to, and sustainability of wellbeing.

We've had some really terrific speakers so far in this seminar series and that's informed our work towards Te Tai Waiora. Hearing about new ideas, research from the real experts is important for provoking our thinking here at the Treasury and it's also been promoting some really good discussions, some exchanges amongst our participants in these seminars. And we hope, and I'm sure we'll have the same this morning. We still do have a number of seminars planned over the rest of this year and early 2023 with participation of some leading international and also domestic wellbeing experts. But today is a really special occasion, we are absolutely honoured to have Professor Joseph Stiglitz with us. The Professor needs really no introduction, but it is worth taking a moment to reflect on his prestigious career and his work, which has inspired and informed the work of many around the world and certainly here within the Treasury and our work on the Living Standards Framework.

Professor Stiglitz is a Professor at Columbia University, where he founded the Initiative for Policy Dialogue, which is a think tank on international development. He is also a co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD and the chief economist of the Roosevelt Institute. Professor Stiglitz, as you would know, was awarded the Nobel Prize in Economic Sciences in 2001. He's a former senior vice president and chief economist of the World Bank and a former chairman of the US Council of Economic Advisors.

He's known for many pieces of pioneering work, particularly on asymmetric information, and his research focuses on income distribution, climate change, corporate governance, public policy, macroeconomics, and globalisation among other topics. He's the author of numerous books. He has also chaired the Commission on the Measurement of Economic Performance and Social Progress, co-authored with Amartya Sen and Jean-Paul Fitoussi, which back in 2009 gave a huge impulse to the discussion on the limits of GDP as a reliable metric of economic and social progress.

And since that publication, it's been a highly influential document in wellbeing policy across the world and including here in New Zealand. And in 2011, Professor Joseph Stiglitz was named by Time magazine as one of the hundred most influential people in the world. So we really are honoured to have you here, Professor Stiglitz. Thank you so much for joining us. Today, Professor Stiglitz will share his insights and reflections on the sources of social stress and how economic and social policies can impact that stress and therefore influence our wellbeing. They’re such topical issues here in New Zealand and right across the world. The COVID-19 pandemic has really put a spotlight on the importance of social cohesion here in New Zealand. It was a central part of our response to the pandemic and we also saw pressures on social cohesion as the pandemic stretched out. We've certainly seen intense pressures on social cohesion around the world.

Cohesion is one of the four aspects of wealth in our Living Standards Framework. It plays a critical role in our wellbeing today and into the future. So we're really grateful to have the opportunity to hear from Professor Stiglitz on such an important issue. In terms of logistics, Professor Stiglitz will present for around 45 minutes and then we'll have the remainder of the time for questions and answers. As our speaker presents, please feel free to enter any questions that you might have in the chat bar and I will ask them, ask for Professor Stiglitz to answer them when we turn to the Q&A time. You're also welcome to vote on the questions that you'd liked and that way we can make sure we have a number of comments and questions, but that can help to prioritise our discussion. So once again, thank you Professor Stiglitz and welcome again and over to you.

Joseph Stiglitz:

Well, it's a real pleasure and thank you for inviting me. This is not the first time I've talked to the New Zealand Treasury about this subject. I came to New Zealand, I think it must have been 10 years ago, soon after we had finished the Sen-Fitoussi-Stiglitz Report, our first international Commission on the Measurement of Economic Performance and Social Progress. And I was very pleased that both the Treasuries in New Zealand and Australia were very interested in our results, and I'll come back and talk about that. But since then, it spread to more Treasuries, but not enough. And so I hope when you come and talk to other Treasuries around the world, you can persuade them that this is, I think, a very important and useful approach. So let me begin with a few general remarks and then I'll narrow in on the particular subtopic that you've identified.

So I've long argued that GDP was not a good measure of wellbeing. I think everybody sort of understands that. And even Kuznets, when he first introduced GDP, recognised that. And I've long been concerned with policy and recognised that what we measure affects what we do. It affects, shapes policy. And therefore, it's important to develop measures that reflect the things that we care about and in particular that reflect wellbeing and not just GDP. And when I talk about wellbeing, I'll come back to this, I mean sustainable and shared wellbeing. So as I said, I really welcome the fact that Treasury such as that of New Zealand are beginning to focus on this. In a very obvious sense, wellbeing should be central to resource allocations. They should be central to the budgeting process. And that's why the notion of sometimes called wellbeing budgeting becomes very important.

It's not just a matter of economic philosophy of what we think is entailed by wellbeing. It's really a question of how we allocate scarce resources and how do we design policies. So, in our early reports, in particular in this Sen-Fitoussi-Stiglitz Report, we emphasised the need for a dashboard that you couldn't consolidate, describe anything as complex as our economy or let alone our society into a single number. And I illustrated that by, if you were driving a car, there are two numbers that are really important, how fast you're going and how much gasoline, how far you can go before you run out of gasoline. If you add those two numbers together in any way, you goose - you have no information. You can't parse out either your speed or how far you can go before you need gasoline. So you really need, if you're driving a car, a dashboard that both tells you your speedometer and your fuel gauge. And the same thing is true for an economy. Deciding what is to be in a dashboard and how you measure it is, I think, a very central issue.

Also critical, what are the weights that you should assess to various components? How important they are, relative important, one should have on the various components of the dashboard. To me, this discussion of what goes into the dashboard and how you weigh it is an important part of the democratic process. And in fact, having discussions on this, where when sharing perspectives can help, I think, build it a kind of social solidarity, a sense of consensus if there's at least enough agreement on that. Now, economists of course always talk about trade-offs. For instance, increasing the GDP number risk lowering another aspect of wellbeing, the environment. But focusing on that highlights that there may be ways of increasing GDP that does not increase pollution, does not have adverse effects, and directs our attention to policies that reduce or eliminates the source of that kind of trade-off.

So it encourages us to think about innovations that allow us to have more GDP per unit of pollution or a tonne of carbon. It encourages us to think about restructuring our economy, restructuring behaviour, moving away from... I know I shouldn't say this in the context of New Zealand, moving away from beef or lamb to more vegetarian diets might enable one to have a higher GDP, a higher standard of nutrition without increasing the carbon footprint. So recognising that there may be trade-offs, but there are ways of mitigating or even eliminating those trade-offs is an important part of what I would call the dashboard approach. But I also think that economists sometimes under-emphasise important complementarities. For instance, by reducing insecurities that I'll talk about later, we actually can increase productivity and increase GDP. So those are two elements of the dashboard. Insecurity, form of stress, and GDP, where if we have good policies that reducing security, they will enhance productivity and GDP.

So there are a whole range of policies that have impacts on different elements of the dashboard, sometimes in a conflicting way, sometimes in a complimentary way. Let me just give one more example of a conflicting way that I think many Treasuries have ignored. One of the things that those focused on budgets, particularly looking into the future, have centered their attention on reforms in pension schemes. And they've worried that the pension schemes represent a risk to the budgets in the future. But they forget that many of the reforms that have been proposed leave individuals much more insecure. And that insecurity has an adverse effect on productivity.

Just about 10 days ago, I came back from Chile where they had a very big set of pension reforms under the influence of Milton Friedman in the heyday of neoliberalism during the dictatorship of Pinochet. And they privatised their public pension schemes, and it didn't work very well and left the Chileans with a much higher level of insecurity. 30, 40 years later, it is a major issue of public discussion. One of the sources of protests that broke out in 2019 was the sense of insecurity about their pensions.

Now, one of the things that our Commission emphasised in constructing the dashboard were some of the egregious emissions, things that were left out by a focus on GDP. And there are three things I want to focus on, I'll develop some of them more later. One of them is inequality. GDP per capita is an average. And that average can go up, say in the United States it goes up if Jeff Bezos and Warren Buffet and Bill Gates get wealthier, but average income can go down or at least stagnate. And if you look at a chart giving what's happened to the top 1% income, it soared over the last 40 years. But if you look at a chart of what has happened to the income, average income of the bottom 90%, I didn't say the bottom 20% or the bottom 50%, the bottom 90%, it looks like a flat line, almost at the horizontal axis. It takes a microscope to see any improvement in standards of living. And those are, the bottom half have actually seen things get worse.

Income is only one aspect of wellbeing and there are many others. And again, what has been happening... Things that several members of our Commission were particularly concerned with were deprivations and the lack of food, the lack of healthcare, the lack of education, particularly at the bottom. And the focus on deprivation suggested to some that we might... the label ‘wellbeing’ may not be the right description. Wellbeing sort of sounds like happiness and that you're focusing on happiness. And some people say, "Well, that's not our concern, that's psychological." But when we look at really what is going on in our economies and our societies, large fractions of the population are suffering significant deprivations. Deprivations that make it impossible for them to live up anywhere near to their potential.

An example, I think, that could be viewed as a deprivation is the fact that the life expectancy of Americans have been in decline even before the pandemic. And with the pandemic, it's really fallen. And it's not because we don't have good research, we've done, in the United States, some of the most important research extending life expectancy, really basic research that has been enormously useful in finding out how people can live longer. But our healthcare system and our nutrition system is such that large fractions of Americans do not have access to adequate healthcare and life expectancy is declining. And a lot of this has to do with stress. I’ve come to influential book called “Deaths of Despair”, where people's sense of frustration, lack of expectation was such that they were dying in large numbers.

When I was Chief Economist at The World Bank, one of the most interesting projects that we undertook was one that was called the Voices of the Poor. We asked the question of tens of thousands of poor people, what aspect of poverty, of being poor, was most troubling? I mean, obviously we knew part of the answer was going to be not having income, not having food. That was an obvious part of the, that we expected. But there were two things that came out, just as important was. The first was the sense of insecurity, a sense of vulnerability. And the second was the lack of voice.

The lack of voice combined with this sense of insecurity meant that too much of their life was out of their control. And out of their control in ways that had a negative potential impact, without the upside that you would've hoped. So these are a couple of the things that, as we discussed the broader agenda of wellbeing, we thought were particularly omitted from our, broad omission from the GDP framework. And finally, sustainability. And back when we were a dozen years ago, everybody knew about climate change, but the consequences of global warming, climate change had not reached the point that they have since then. And the fact that we are living off the future should be of concern and something that we ought to measure, and GDP doesn't do an adequate job in that. It doesn't in any sense measure the vulnerability of the planet. It doesn't measure the extent to which we are living within our planetary confines. And it doesn't measure other dimensions of sustainability, political and social sustainability, all of which have become more important in the last decade as we see the kinds of conflicts that are arising in many countries, including my own, which really put it into question the sustainability of the economy. Can you sustain an economy in which there is the degree of political gridlock and political tension that we have?

Well, my focus today is on one of the key aspects of wellbeing that has been particularly exposed by the pandemic, which is stress. Economic policies can either aggravate or ameliorate such stress. And, in the discussion below I'm going to explore several of the dimensions of this stress and how policies can be addressed to alleviate, mitigate this stress. Again, let me emphasise the complementarity of this focus on stress with other aspects of what I identify as the dashboard. It affects wellbeing. It affects productivity. I'm going to try to draw on some examples around the world.

There are some real difficulties and we will have to go beyond the standard economic policies as they are narrowly defined.

So, the first is something that the high-level expert group at the OECD did a considerable amount of work on and those are the stresses associated with vulnerability and a lack of adequate safety net social protection. And, I prefer the language of social protection. Safety net seems to be a language that says, "Okay, we'll protect you at the very bottom when you're... From the worst of deprivation." But, that's not adequate in a modern society. People feel vulnerability if they are just falling down significantly in their standards of living and I think it's important to have this broader sense of social protection.

In our work on vulnerability, we highlighted a couple things, that the importance of both subjective and objective measures. That is to say individuals can subjectively feel vulnerable but we can also look at the data which describes the likelihood that they go down in their standard of living by, say, 25%. We can describe the statistics of probability that they lose a job, that they have a significant health incidence that will leave them bereft of income. So, there are both objective and subjective measures of vulnerability.

The research that we looked at suggested that actually there was a very high correlation between subjective and objective. But, that's not always the case and I'll give an example before I end where the subjective and objective may be different. And, I think policy has to address both, both elements, both the subjective and the objective. And, let me say that, as I say, both the subjective and the objective aspects of vulnerability can have significant effects on vulnerability, on GDP, on productivity, and other aspects of wellbeing.

When we think about the broad agenda of vulnerability, one aspect of this is obviously health care. When we look in the United States at the data, one of the main reasons that individuals fall into bankruptcy is that they have a health care incident. You know, something that forces them to have to go to the hospital, force... And the way that our system works means that if they don't have health insurance, the likelihood... There's a high likelihood that they may wind up in bankruptcy.

And, interestingly, Elizabeth Warren, who while she was an academic, one of the areas that she did work in was in bankruptcy and understanding bankruptcies in the United States. And one of the reasons that she's become such a strong advocate of the reform in our health care system was that she saw the role that the inadequate health care system had in leading to that kind of stress.

So, let me just for a moment here praise the New Zealand system because it is so much better. My wife had a problem. She had to go to get health care when we were in one of our trips to New Zealand. And the way she was cared for within the New Zealand system was just the most impressive that we've seen anywhere. So, that is something, an area where you've done I think very well. But, there are problems in even good health care systems and getting it delivered to poor people. There are kinds of barriers that if you look at, even if it's free, those who are better educated may be better able to manage their way through a system, know what their rights are, know how to get access to it. And so, one of the areas that social research has shown is that even free health care is not... There is inequality in access, and trying to understand why that is the case I think is important.

Another important source of stress for individuals is, I mentioned already, retirements. People live longer and they ask the question. How will I be supported in my old age? One of the things that we were talking just before we began here was the success in New Zealand has been in keeping people in the labour force beyond 55, beyond 65. There are reforms in our economic system that can reduce the stress by not only having better pension schemes that mitigate inequalities within generations and across generations and mitigate the stress of, associated with how well the capital markets are doing, stock markets are doing, in a particular moment, and provide better retirement benefits by reducing transaction costs.

There are other things that I've argued for in my book recently “People, Power and Profits”, that we make more use of what I call the public option. We know that private annuities charge... have very high transaction costs. None of them have a provision dealing with the inflation which is on everybody's mind right now. And, I've suggested that allowing people to buy into the national public pension scheme, that I could get, say, more income when I'm retired if I contribute more voluntarily to our Social Security System. I call it the public option. So, I think this is an example where we can enhance retirement security, reduce retirement stress.

But, a couple... And, I want to again praise New Zealand for trying to create a labour market that enables those who are older to continue to participate in the labour force if they want to. Doesn't force them, but if they want to, and I think many people do, work is a meaningful part of life for many individuals. So, designing a better retirement programme is important as we look forward to our old age.

But, one of the things that's very interesting that it was highlighted to me in my visit to Chile was that many younger people were facing stress because they were worried about their parents and that the inadequacies of retirement programmes led to stress in those in the working population. And, we live... you know, neoliberal economics, much of our economics doesn't talk about family structure and how our interdependencies that go across generations. I'll come back to that a little bit later. But, in fact, what happens to parents affects us just like what happens to children affects us.

Another aspect of stress that's really important are jobs. Jobs are important for income, for a sense of worth. And, almost all of us, unless we choose the right parents and wind up with a large trust fund, are dependent on work and we want to work and yet our economic system in many countries doesn't provide for that. And, that's particularly true if you are in one of the minority groups. You know, everybody's been talking about the low unemployment rate in many countries. The United States, it's a little under 4%. But, what they forget is that the unemployment rate of African-Americans is twice that and the unemployment rate of African-American men is four times that. So, the unemployment rate for African-American men is around 16%.

And, when you callously say, "Oh, we're going to increase the unemployment rate to get the inflation down. We're going to just increase it a little bit from four to five or six percent." If you get to 6%, that difference sounds small but what that means is for African-American men, it's likely to be almost one in four. And, you could imagine what that does to that community. So, that is a real deprivation. And we have to understand the complexity of our labour market is such that there's not a simple dial. If we change the overall unemployment rate, we have enormous deprivations on some subgroups within our population. That's true of everything that I've been talking about.

When I was talking about health and the decrease in the life expectancy of the average American, I should have mentioned the life expectancy of the average, average Native American is lower than in any country in the Western Hemisphere other than Haiti. And, that shows the inequalities in the access to health and nutrition and other aspects of wellbeing in the United States.

So, I've argued that a policy to respond to this anxiety is a guaranteed work. Not a guarantee income. Not a UBI, universal basic income, which is never universal because we don't want to share. We don't never propose sharing it with people in poor countries. But, what is really important is guaranteeing people a job. If we get our macroeconomics right, we won't have to actually worry about it. But, if the government fails in macroeconomic policies, either monetary or fiscal policy, then it should be part of our social obligation to guarantee people employment so they get rid of this stress.

I want to think... A second source of stress is going beyond the safety net or social protection and thinking about our children. Most people worry about their children one way or another, even if they're well-behaved children, and one aspect of that is will they be able to afford giving them the education that will enable them to live up to their potential. And, again, I may be harping too much on problems that are not a problem in New Zealand because these are problems in the United States, but I think they are still important to know because they help focus attention and there are segments even of the New Zealand population where they are important.

In the United States, a major source of stress is financing this education for one's children. And for the children who've gotten the education, who've gone to college, a major problem today is student loans. They've burdened the student loans in aggregate somewhere between $1.6 trillion and $2 trillion. Average of somewhere upwards of $40,000 is a source of stress for these young people for the rest of their life. And, that's where the approach that Australia has taken, Bruce Chapman has pioneered, are income contingent loans is really important and I've argued that that framework is one that other countries ought to consider.

For most young Americans who do not grow up in a family that is well off, they feel themselves caught between a rock and a hard place. If they go to school, they have to take out huge loans and then it'll be a burden. If they don't go to school, they know that their life prospects are very limited. And, this is an example that I mentioned before, that there are many instances where doing well in one element of the dashboard can help in other elements of the dashboard. So, enhancing the educational opportunities of these young citizens will enhance productivity because so many of them are not able to live up to their potential.

And, let me just emphasise. Education is not just a means to an end. It's not just an instrument. We should view it as one of the objectives, as Amartya Sen emphasises, enhancing capabilities is a value, a fundamental value in its own right.

One more aspect of stress I want to emphasise because it was brought home so forcefully to me and I've seen it in America so strongly are the stresses associated with discrimination. A couple weeks ago, I made a visit to one of our historically black colleges in Tennessee and the dean and so many of the people there talked about the stress in growing up in America's South, never knowing whether you would be attacked and knowing that if you were, there was nothing you could do about it. You know, we have... I don't... Crime is not in quotation marks “which is called driving while black”, that if you're an African-American historically if you're driving you know you're at risk of being pulled over and we've seen in the videos of the last few years only because we have new technology, we've seen the manifestations of police brutality.

So, it seems to me that an objective... A key objective of economic policy, social policy, should be to eradicate, do as what we can to eliminate discrimination, understanding that it's not only morally wrong but it actually creates enormous stress in those who suffer it. And, that of course reflects the broader sense of stress caused by crime and violence. The first responsibility of the state is maintaining law and this is an area where I think much more research needs to be done, which is the links between the economic environment and violence, crime. Clearly, I think that the inequalities and the deprivations that I talked about that we see in the United States create a fertile field for this kind of... for violence.

The final economic stress that I want to talk about is one that is being experienced around the world, is the economic stress of inflation. I mentioned a few minutes ago the disparity, that there are objective and there are subjective metrics, and that on average they tend to be highly correlated but there may be times when they're not. And this is partly true in the context of inflation. People perceive price increases more than they perceive wage increases. And so when real wages, when nominal wages go up in tandem with prices, they will still feel the effect of prices without understanding the effects on wages. So there is this fundamental problem of perception. Now, what has been happening in much of the world today is that wages have not been keeping up with prices, reflecting the fact that they are not the primary source of inflation and they're not even likely to perpetuate, the gap between wage increases and price increases is so large that there will be a dampening force and inflation will be brought down. I'm talking more about in the United States than in maybe other countries.

But as we think about the economic stress of inflation, in some sense there are policies that can address the objective aspect and there are policies that can help mitigate some of the subjective. On the objective, I spent a lot of time this fall in Europe, and one of the key problems there is that their electricity regulatory system has resulted in the price of electricity being linked with the price of gas and going up enormously, generating huge profits for the electricity companies and even more for the electricity traders, and giving rise to a lot of stress because of a sense of inequity. There's a war in Ukraine, some people are making a lot of profits and some people are on the ropes. And so this is an example where changing the electricity regulatory system would mitigate some of that stress. But also having windfall profits taxes would I think help a sense of social solidarity of saying there's no war profiteering going on, and that the revenues that one can obtain from that could be used to help address the real stress felt by some individuals, many individuals, particularly at the bottom.

There are a couple more sources of stress that I want to, one more that on the economic side, and then I want to talk about just a couple on the political side. And I noticed my time is running up, so let me go a little faster. One source of stress I've hinted at a couple times already arises from intergenerational inequalities. And in particular is, arises in many countries including the United States and I gather New Zealand, from the unaffordability of housing. Young people somehow feel like they can't get on the ladder, and they have to be dependent on their parents if they have parents that can't help them. But if they don't, there is this grave inequity.

Let me say to a large extent, let me first say, I think the measurement of intergenerational inequalities is really important. It's an aspect of inequality that we haven't talked about enough. And what is so interesting is in so many areas of attitudes, values, views, there are generational divides. And so not recognising that those in the twenties and thirties may be very different in many ways from the people in their sixties, seventies and eighties, and treating everybody as if they're all the same is a mistake. They have different views of the world and they faced different problems.

The problem of housing is I think a problem that has been made by policy. That is to say policies of low interest rates, we've had low interest rates now for 14 years, super low, close to zero in many countries. Deregulation that led to low collateral requirements naturally gave rise to soaring real estate prices. Some of this will be corrected as central banks normalise the interest rates and that will create a whole new set of problems. But the public policy that I'd like to advocate in addressing this intergenerational inequality that we ought to do a better job of measuring is providing better mortgages. When I say better mortgages, what do I mean? Well, I talked a little bit earlier about income contingent student loans, and I talked a little bit before about retirement products with low transaction costs. Well, the government is in position to provide income contingent loans, mortgages that have more flexibility than anything provided by the private sector. They should be made accessible if you pay taxes, a basic right of citizenship. And the transaction cost of doing that based on publicly available data would enable younger people to get more access to housing.

Now I'm going to make a few remarks about what can be done in some countries, and I just don't know whether these are applicable to New Zealand. I do know in New York that our real estate prices, and also true in London, are inflated because of money laundering. And by the fact that New York and London have become safe haven for oligarchs. We have empty buildings in spaces that are very, very valuable. We don't recognise the externalities that are associated with people actually living there. And we had a little regulation require a little bit of disclosure of in New York City in Manhattan to reduce the scope for money laundering, and it was quite noticeable that the price of many of our multimillion dollar apartments did come down. So there is evidence that this plays a role, and policies trying to reduce the scope of money laundering and safe havens for oligarchs and for other wealthy people from other countries might help bring down those prices, as well as increasing capital gains taxes and making housing more affordable for young people.

Let me in the final few minutes talk about some of the political sources of stress. I mentioned earlier in the work that we did at the World Bank on the Voices of the Poor, that the importance that the poor associated with having voice. I think there are stresses associated with a lack of voice in the decisions that affect one's wellbeing. One sees the world out of one's control and that is always going to be a source of stress.

There are also stresses associated with a lack of social cohesion and a lack of trust in the economic, political, and social system. These are stresses that we have been seeing very vividly in the United States. The implication of these is that it should reinforce our commitment to democratic values and voices. One part of dealing with that is something again that New Zealand has been at the forefront and that is how to deal with mis- and disinformation. That has become one of the main source, the social media has become a major source of stress for many people and one aspect, but only one aspect is related to mis- and disinformation, how to handle this, how to measure it within a framework that's consistent with values of freedom of speech and freedom of the press. I think that we can do a better job of regulating virality. I think the initiatives that Europe has taken under the Digital Service Act, the DSA, are important steps in the right direction.

Well, what I hope I've done in these few minutes is to outline the broad agenda. It's a very large agenda. It has many dimensions. I hope I've tried to emphasise how they're interrelated. And just in concluding, let me once again commend you for undertaking this broad agenda. It is critical for budgeting, but it's critical for in a much broader sense for every element of economic and social policy.

Caralee McLiesh:

Thank you so much Professor Stiglitz. It's been a really fascinating and very relevant talk. And as I highlighted earlier, your focus beyond GDP to a broader view of wellbeing, it's just been a major influence in the Treasury's work for more than a decade. One of the messages that particularly resonates from today's discussions, just that idea of taking a much more comprehensive view of wellbeing to a dashboard of approach, not single indicators, and that there are often trade-offs, but we need to look beyond the trade-offs also to complementarities of different dimensions of wellbeing. It's kind of like a broad concept of productivity. How does the allocation of all of our resources, whether they're financial or natural or human or social resources, and the innovation and how we use them, lead to higher wellbeing across those multiple dimensions?

It's a very broad concept of vulnerability or stress as well. And I think you really highlighted the importance of looking at distribution and understanding deprivation and the distribution of wellbeing averages, masks and pretty significant variances in people's experiences. And that includes intergenerational distribution, which is very much an issue that we're focused on in our research on wellbeing right now.

We have a lot of questions in the chat and please do keep them coming in for those in the audience. We'll try and cover as many as we can. I grouped up a few, and there are range of questions. Might start off with first of all a range of questions around dashboards of indicators. So we'll start with one. What do you think about the argument that wellbeing dashboards have just too many indicators to be realistically used in policy making and therefore we really should try and focus on one metric, which is self-reported wellbeing? And if not, how would you think about weighting when there are trade-offs between the indicators? So how do you think about single measures versus weightings of different indicators? And we'll take a few more on the dashboards too.

Joseph Stiglitz:

Yeah, so I think one is too few. The number of indicators that the SDG, which is I think 273, is too many. And somewhere between one and 273 is a right number. We actually advocated something like five to 10. I think one can grasp five to 10. There is a trade-off between parsimony, having relatively few, and the SDGs, Sustainable Development Goals, went to 17. I think they probably went... even that was too far, I think would've been better if they had narrowed it down. But what one saw in that process was how many things different groups feel very intensely about.

One of the things that we've done in our discussions around the world, for instance, in South Africa, we've encouraged countries to sort of identify for themselves what are the five to 10 things that they think is most important at this moment of time. And so at this moment of time, certain things may be more important than another moment of time.

So this, it's not like there's an immutable set. You can continue to measure, to look at these numbers. It's important for comparability to know... You probably will keep as one element the GDP. You'll probably want to keep as one element life expectancy. You want to keep as one element some metric on inequality. But in South Africa employment, where they have 25% unemployment rate, is obviously a very important metric of economic performance. So my answer is very much, there needs to be a broad discussion of what are the issues that are at the centre of societal debate.

Caralee McLiesh:

Thank you. Thank you. And just building on that, you made the point about the importance of interlinkages between the different elements presented on dashboards. Do you think that our current systems are able to adequately understand those interlinkages and therefore inform the nature of trade-offs? If not, what do you see as some of the biggest limitations? And I guess, yeah, picking up that idea of how do you make a dashboard practically useful? Also, the question about distribution, you talked about the importance of understanding the difference between averages and then that experience of deprivation, and so how can we get better at understanding distribution in our dashboards? Regional, ethnic, gender, territorial authority, age differences, without making dashboards overly cluttered? So I guess that trade-off between getting something that's comprehensive but also simple.

Joseph Stiglitz:

Yeah, and let me say, in the Treasury you have to focus at a fairly high level. But when you go down to various ministries, the Health Ministry if you have one called a Health Ministry, but it's going to be focusing on health. And so they will want to break down health into what is going on in different age groups and in different ethnic groups. Geographically they'll get a sense of where the big issues are. If you have a society without ethnic breakdown differences, then ethnicity is not important. But if you're in America, and certain issues in New Zealand, those issues are very important.

So that goes back to, it has to be context specific. There are some countries in Europe where ethnicity would not [indistinct] even within the Health Ministry. So it seems to me that what level of analysis, if you're the high level like Treasury, you have to focus on the big picture. But when you go down to various particular ministries, part of their burden is to really understand where's the action, and then report back to you where they think the marginal benefit is the highest of spending money. And if you're lucky, there won't be much differences across groups, but I bet there will be. And so that will say, look, if we spend, there's such deprivations that spending money at those areas where deprivation is significantly likely to lead to bigger results.

One of the reasons I like the focus on deprivations is that it's understandable. The norms are more easily defined. There are many measures of inequality, but we can all understand some of the key deprivations when a group's life expectancy is 10 years below that of the average of society, something, there's a problem there. When children do not get a basic level of nutrition, there's something that needs to be addressed. And so this helps to focus attention.

One more thing let me just mention, the OECD Better Life index is interesting. They have 11 indicators I believe, and you can look at them. Different people can focus on different things, and that's one of the whole important aspects of this, you might say exercise. Treasury may decide to focus on a particular cluster, a particular set of elements in the dashboard, but researchers may want to look at other aspects of a broader range. Some researchers may want to go into detail about impacts on different age groups. And if they discover in that process that there are marked problems in a certain age group, they would call it to your attention. And then that would be something that you would want to begin to focus on.

Caralee McLiesh:

Thank you. Thank you. And that really highlights the importance of taking that sort of dashboard approach at different levels. Treasury might have one level, but agencies may have another level. Researchers may look at a different lens. I guess we've got another question here that kind of builds on that theme, when we have a variation in what people value in their wellbeing across individuals, and then how you take that to policy. So yeah, this one question got a lot of thumbs up. So in 2016, the New Zealand Treasury conducted a survey that estimated preferences of New Zealanders, and it found that there was considerable diversity in those preferences. For example, in how much income people are willing to give up for an additional year of life. And when there's this amount of diversity in preferences, is it feasible to design programmes that increase the options available to people in a meaningful way? So for example some countries allow people to choose the age in which they get the pension and trade off the size of the pension that you can get and so do we need to think about that in other sectors as well? Could we do that in healthcare, for example? But how do we incorporate just the diversity in what individuals value into our policy?

Joseph Stiglitz:

That's a great question. One of the things I emphasise, I talked about a number of points was the public option and that's giving people choices and when I mentioned for instance, the public option in retirement, I would have allowed beyond a certain level of retirement income people to choose whether they want to put their additional money into a safer asset like a government bond or into a broad stock market index. So that would reflect differences in risk preferences. But there are certain things that are basic societal norms that we have to recognise even if different people have very different attitudes. For instance, no matter what your attitude about your retirement income when you're young, society is not going to allow somebody to be in extreme deprivation in their old age. They may say I don't care. Let me suffer in my old age. It's my decision and I want to enjoy my life now and just let me have my suffering in my old age. Well, no humane society can do that and therefore that's one of the reasons we have compulsory mandatory old age pensions.

We know that we cannot allow people to go without healthcare, to go without a basic standard of living. So as we think about that, even though individuals may have different preferences, we as a society have certain basic norms and that, hopefully we can agree broadly once we recognise this and say, okay, everybody is going to get a certain level of healthcare. They don't have to have a private room. But we are not going to let them die because they can't afford it and the same thing for pensions. So I think one of the things that we need as a society to do is to figure out how we can make sure that we can get an agreement about that minimum and then provide for optionality in the choices in the other dimensions. But by the way, some of the key issues like are we going to address climate change are public goods where there has to be an agreement. I mean, in a sense whether the Earth burns or not, if you say I don't care, we can't allow that preference to determine. The fact is we share a same planet and we are going to have to reach a global view on that issue.

Caralee McLiesh:

Yeah. Of course, climate change is a really significant question on intergenerational equity, which you spoke about and just want to pick up a related question here. How do we support a longer term policy perspective, particularly given the short term nature of electoral cycle and how do we convince the public that this matters?

Joseph Stiglitz:

That's a good question. That's part of the broader issue of, you might say, public education, public understanding of public policy and there is no easy answer except I think these kinds of issues ought to be important part of basic education, in other words, the elementary and secondary school with an understanding that how it is that we as a society function, the collective action, the important role of the long term. We want children to understand the long term. I mean, of course as parents, it's one of the things, the famous marshmallow experiment. We want ... to begin to think it's not just instant gratification. But you have to make investment. Sacrifice now to have a little bit better. That's one of the things as parents we do and our education system needs to do more of that long term thinking.

In the private sector, there are important reforms like I think the kind of economic policies that were encouraged by Milton Friedman and a shareholder value maximisation where it was the share price today was absolutely bad economics and encouraged that kind of short-term thinking. And if we pass legal frameworks that say for instance, long-term shareholders get more voice than short-term day traders, if we say long-term capital gains get favourable treatment rather than short-term capital gains. I think we need to create, you might say, a culture of long-term thinking. Now one of the good things about climate change is I think the younger generation has by and large gotten this important aspect. They see climate change and they know it's going to be affecting them in the future. I haven't met very many young people who haven't grasped this reality. A lot of older people haven't. But I haven't met any younger people who have not. So I think the climate change may forcibly bring long-term thinking to the fore.

Caralee McLiesh:

Thank you. I'm going to pick up a question here about the positive. Do you see any positive effects of stress on wellbeing such as helping people to become more resilient or something like the idea of anti-fragility by an author Nassim Taleb? So are there positive elements and how do we think about resilience to stress?

Joseph Stiglitz:

Well, I think the anticipation, the realisation that there is risk is part of that forward looking framework that I just discussed and if you look forward you know that the future is uncertain and one aspect that you want people who are looking forward to realise is that there are actions that they can take that will address the downside risk that they face. Now I think if in fact you have enough control of your future that you can mitigate these risks and make yourself resilient enough, you won't feel the same level of stress. The stress that I emphasise comes to at least a significant extent because there are events that are beyond your control that you can't do anything about to protect yourself, or whose consequences are so severe that whatever you do, you are going to be very severely affected. So to go to the politics that I ended my talk on, the stress of what will happen in the United States if the extreme right take over, we have no ability, you know we can go out and campaign. We can vote. We can write op-eds. We can try to create a better society.

But we know we don't fully control how other people are going to vote and we know that the outcome could be a disaster. So that's a source of stress that many, many Americans are feeling very intensely because there's very limited limitations on what you can do. So the bottom line I want to emphasise is I do agree that uncertainty and forward looking and recognising uncertainty can have a positive effect. Now finally there is one thing in the psychological literature. There are some people who find stress energising. They like the hormones that stress and it leads them to greater productivity. So there are people for whom I think stress can be beneficial. But that tends to be a very contained kind of stress, not the kind of diffused stress that I was just talking about.

Caralee McLiesh:

Thank you. We've got a couple of questions that relate to housing. I'll just group a few together. There's one about, there's types of indicators we have around the distribution of personal wealth as it relates to housing. So in New Zealand, the questioner says wealth inequality seems to be an important source of overall inequities and in the writer's opinion possibly is a bigger issue than income inequality, but doesn't necessarily feel well captured in the dashboards. So how do we think about the indicators that reflect the distribution of personal wealth? But then also on housing, a question got a lot of thumbs up was your earlier work on taxes, do you prefer a land value tax to a capital gains tax for ameliorating the housing crisis and then there are a couple of other questions just about housing security and how to think about policy settings to support housing security. So there are few in there. But your views on housing, its impact on wealth would be terrific.

 

Joseph Stiglitz:

So first let me say wealth inequality I think is important. I wrote about that in my PhD thesis a few years ago and I think in most countries, the standard measures like Gini coefficients of wealth inequality about twice that of the United States [indistinct] significant. And monetary policy, the low interest rates that we had from the period of 2008 on until just now exacerbated wealth inequality because low interest rates fueled increases in the value of equities and equities are overwhelmingly owned by those in the top 10%, top 1%. So that's a good example where insufficient attention to how monetary policy increases inequality was given and I think if there had been a better discussion of the mix of monetary and fiscal policies, some of that huge increase in wealth inequality could have been averted and I already talked about how it increased inequalities and housing wealth with the very large intergenerational consequences. But in terms of wealth inequality, the effect on stocks was much larger than that.

In terms of housing security, the first thing I'd emphasise and I did talk about that in my book “People, Power and Profits” is getting better mortgages. I alluded to that. It's interesting that in the run up to the 2008 crisis, the private sector invented poor market mortgages. The innovations that they said were great were negative, what I would view from a social point of view, negative innovations because what they were, were innovations that enhanced the ability of the banks to exploit ordinary individuals and what they did is they were adjustable-rate mortgages with teaser rates that when economic circumstances changed, people lost their house and all the equity that they had built into it.

They were terrible mortgages and my disappointment is that very few countries have designed what I would call good mortgages And what I would design as good mortgages would be the income contingent mortgages I described before and actually I would modify it by also saying that the interest rate ought to be linked to the real interest rate and the payments be adjusted to inflation and wages with the variable being the maturity of the mortgage and so these are ways that you avoid the stress of payment. You don't have defaults and you have the adjustment on the margin at which individuals are most able to adjust, which is the number of years they take to pay off the mortgage. I'm so disappointed that the private markets have been so inefficient, incapable developing what I would call the kinds of mortgages that would help people have more housing security and that's one of the reasons I'm very strongly in favour of some variant of the public option.

One of the things that has been successful in some countries has been public housing. And I can't quite understand why it has been so successful in some countries and a failure in others. And so I think that's an interesting question for further research to try to understand. I think public housing has the possibility of being a framework for providing housing security for lower income individuals.

Caralee McLiesh:

Thank you and I'm getting conscious of time. We only have three minutes left. I'm going to squeeze in one last one if have the time to answer it. It's about qualitative information and wellbeing. So I'm curious as why we are still focused on numbers and quantitative indicators to help us understand what's going on and haven't moved to innovative processes for integrating the warmer qualitative data as well as sense making about what's going on. That would include different voices and different perspectives and I'll just link into that another question that we had or a comment on, the importance of indigenous perspectives on wellbeing and certainly here in New Zealand, we don't have a lot of good quantitative indicators on some of those perspectives. But we are working hard to explore and bring in those perspectives into our work. But your views on qualitative data and how to integrate that in a dashboard approach?

Joseph Stiglitz:

Well, let me just say first, I do think what ought to bring in qualitative indicators. The argument for doing so should be pretty evident from our critique of GDP and particular numbers that have gone into GDP. What we've said is that number by itself clearly leaves out a lot of important things. So before we developed the various sub-indicators, the various other elements of the dashboards, sustainability, inequality, various measures of inequality, deprivations, insecurity, so forth, it would've been very helpful to have a qualitative discussion of what is left out of GDP. That would've enriched that number and would've told us, well, GDP went up. But look it. There are some things that are not going very well in our society. So GDP is not capturing what we want. So anybody who believes in going beyond GDP has to believe that introducing qualitative discussions is going to be important, necessary and no matter how fine we get, our metrics are not going to comprehend, bring in everything. The world is just too complex and it sort of like the closer we look, the more of the things that we realise we've left out.

So even though we may have 273 SDG indicators, none of them captures even what it purports to capture. So we need language around every indicator that allows us to assess what it does, but also assess what it doesn't do and I think in some cases that kind of discussion will lead to a research programme that will lead to a quantitative measure to say, oh, you left that out. We can actually look at that microscopically and actually quantify it. In some cases we may say we can detect that it's important. We can get subjective measures that confirm how important it is. But the cardinal measurement is going to be at least difficult and not immediate. But even before we have those cardinal measures, we have to begin to take into account those qualitative features that we've identified as important.

Caralee McLiesh:

Thank you and unfortunately we have run out of time and I do now need to bring today's event to a close. But thank you so very much, Professor Stiglitz, for taking the time to share your work and your wisdom, your great expertise and your experience with us. It's just been a fascinating presentation. So many insights and so relevant to our work here, but around the world as well. We're really privileged to have you a part of the Wellbeing Seminar Series, so thank you again.

Joseph Stiglitz:

Thank you.

Caralee McLiesh:

Thanks for everyone online for joining us and for a great set of questions and an engaging chat as well. Please do look out for upcoming events in our Wellbeing Seminar Series. Next week we're going to have Professor Stephen Jenkins from the London School of Economics joining us. And we will be releasing our wellbeing report from the Treasury later in November. So I will finish with a karakia.

[speaking in te reo Māori] Piki te kaha. Piki te Ora. Piki te Wairua. Mauri ora ē.

Thank you everyone for attending. 

[speaking in te reo Māori] Mā te wā.