Q2 2021: The use of data to improve human lives

In our Q1 2021 research article we discussed how to structure policy analysis in order to improve human lives. Part of our proposed framework was creating a dashboard of economic and social indicators that allows policymakers to produce data and values-driven policies. The idea is that the trends observed in the data should form the policy strategy of the government - thereby increasing transparency and accountability, as the government is clear from the outset with regards to what they a looking to achieve.

The link between the governments policy strategy and the policies that get put into practice is that the strategy should inform where resources are spent and attentions are focussed. The individual policies will look to generate the optimal allocation of resources with respect to the the governments overarching policy strategy. The strategy will also help to lock in formal objectives for the government and the dashboard will show how the government is performing against these objectives.

The aims of this approach are multi-faceted. In particular the emphasis in this article is towards increasing trust in public institutions. Countries with higher levels of trust in the governments tend to have happier citizens, all else equal. We also saw that countries with higher levels of trust performed better during the recent COVID-19 pandemic. In some advanced economies, such as the US, trust in government has been steadily declining for some time. 

In the paper we look to outline guiding principles for how to structure a framework for using data to form a governments policy strategy, as well as principles for building the dashboards too. These are briefly outlined below, and explained in more detail in full article.

The slides from the presentation in the video above are available here. Or, to read the full research article, please click on the link below.

Q1 2021: Policy analysis to improve human lives

The COVID-19 pandemic has shone a spotlight on how governments formulate their policies and has led to a widespread discussion about the social contract and what really matters. Increasingly, people are keen to know what and who is being considered when the government makes policy decisions that affect the lives of its citizens. In addition, there have been a number of calls from social scientists more recently to place wellbeing at the centre of policy analysis.

Traditionally, policies will be considered using cost-benefit analysis. Put simply, this is the process of measuring the benefits of a policy relative to its costs. This includes costs and benefits that are easily measured directly in monetary units, as well as less tangible costs and benefits, such as nature or health, which are then converted into monetary units where possible. Policies with the best benefits to costs ratios are the ones that are chosen to be put into action.

Most policymakers will agree that the objective of public policy is to maximise human welfare across the population. Since this is the case, measuring wellbeing more directly in policy analysis is likely to an improvement as compared with more traditional approaches which essentially look to proxy welfare . The new methods being proposed focus on producing a metric to measure how we can live long, healthy and happy lives. This combines life expectancy with measures of subjective wellbeing to produce wellbeing-adjusted life years (either known as WELLBY’s or WALY’s). In this way cost-benefit analysis can be used in very similar ways to the current approaches, except with wellbeing units playing the central role.

Both the current approach and the new wellbeing approach are not without their challenges. We outline these in detail in the paper but we briefly summarise some of the challenges below:

+ Methodological challenges in policy analysis

• Valuing statistical lives: Since policies affect human lives, it is necessary to try to value each persons life. Depending on the method used, the valuation figure can vary widely.
• Equality: Policies will impact different groups of society unevenly and it is important to capture this in the analysis.
• Sustainability: Policies may impact both current generations and future generations. It is a challenge to consider the extent to which this should be considered in the analysis. For example, a policy could reduce wellbeing today, in order to reap wider wellbeing improvements in future years.
• Isolating impacts: Often, a policy change will impact wellbeing across a number of dimensions that might be inter-related. It is important to isolate the individual impact of each of these dimensions on wellbeing, to avoid double-counting in the analysis.
• Uncertainty: Due to uncertainty about the future, often, assumptions need to be made in the analysis, and forecasts may prove to be inaccurate. These inaccuracies could significantly impact the policy proposal and lead to unintended consequences that weren’t considered in the analysis.

We conclude our article by giving our views on how best to structure policy analysis in order to improve lives. We split this into three categories.

+ A new policy framework for improving lives

The policy strategy

We believe that a dashboard of economic and social indicators should be created, which will require the government to form a policy strategy that is both values and data driven. The data production would be managed by the national statistical office, and governments would be required to create transparent objectives for policy, based on the trends in the data. This would need to be updated periodically, in order to respond to changes.

How to structure policy analysis

We believe that the following filtration process should be used for sorting policies (in order of preference).

1. First, where the wellbeing effects can be estimated, this should be used above any other approach. This should be considered the gold standard in policy analysis.

2. Second, where wellbeing effects are difficult to estimate, but we are confident that the monetary approach accurately captures the welfare effects of a policy, then we should use this method instead.

3. Third, where neither approach is adequate, this should be flagged as a future area of wellbeing research. We support the recent suggestion to create a wellbeing policy agency that will help to generate new evidence to be used in policy analysis.

+ Creating an environment for progress in policy

Outside of the policy analysis we believe there are a few ways that should help to create an environment for progress in policy.

• Effective transparency: Public officials should be transparent about the indicators and method that is used when making policy decisions. Effective transparency matters in a world of increasing information. This means layered information for different audiences and being clear aboutwhere the uncertainties lie.
• Evaluation and feedback: The policy process should produce a discussion paper where experts are able to comment on a policy action before it is put into place. This will reduce the likelihood of unintended consequences and refine the quality of the proposal.
• Diversity: The group of people who produce policy proposals should be as representative of the population they are producing these proposals for as possible. Greater diversity of thought, background and experiences will help to create more sophisticated, balanced and fair policy proposals.

+ Facing methdological challenges

• The question of valuing statistical lives is a difficult one. Current approaches using wellbeing units better match the observed valuation that can be inferred during the pandemic. These methods will need to be refined further however. Importantly, we believe that valuing Life years is a more proportionate and fair approach than valuing lives. This view is supported by the general public.
• We believe that the empirical approach during the policy analysis process should be adjusted for instances where investments today have large impacts on future generations (e.g. climate change). In these cases, the discount rate should be near to zero.
• Regarding distributional concerns, it is our view that these should be included within the empirical framework of the policy analysis where it is possible to do so. In cases where this is not possible, it is important that these remain considered qualitatively within the analysis. For example, in a case where a policy only has a small net social welfare benefit but is likely to negatively effect a marginalised group in society, this qualitative analysis could shift the policy to be rejected.

The slides from the presentation in the video above are available here. Or, to read the full research article, please click on the link below.

Q2 2020: Responding to COVID-19 by prioritising sustainability and wellbeing in the recovery

With thanks to Maximilian Magnacca Sancho for his help with this article.

The COVID-19 pandemic is changing the way that we live our lives. As time passes it is becoming apparent that even once the lockdown policies have been eased and some level of normality has been resumed, the new world that we live in will be different to the one we knew before. This article focuses on emerging trends that have largely taken place as a result of COVID-19, or in some cases the pandemic has simply accelerated a trend that was already occurring. We then look to offer a range of public policy solutions for the recovery period, where the overarching objective is to increase wellbeing in society in a sustainable way.

But first, before we get to the policy solutions, briefly, what are the main economic and wellbeing effects that we have seen as a result of COVID-19? In 2020, it is expected that the fall in overall economic output is going to be larger than during the financial crisis in 2008. Much of this is due to the level of decline in economic activity as a result of the UK governments lockdown policy. This was a necessary decision in order to reduce the spread of the virus and ensure the NHS still has capacity to treat those that have unfortunately caught the disease. However, it has led to a significant income shock for both households and businesses. Levels of consumer spending have declined rapidly, and large portions of the labour market are now out of work. Alongside sharp falls in measures of economic performance, measures of wellbeing have declined rapidly as well. Increases in measures of uncertainty have mirrored increases in anxiety. While, social isolation policies are having a large impact on measures of happiness.

The UK government responded to the shock posed by COVID-19 with a range of policy interventions to provide funding to those that have been most impacted. At a macro level, the long-lasting effects of this crisis will be more pertinent if economic activity does not respond quickly after the government’s schemes have ended. Large portions of UK businesses have limited cash reserves to fall back on in a scenario where demand remains subdued for some time. However, even if the recovery period is strong there will still have been some clear winners and losers during this crisis. Younger workers, those on lower incomes and those with atypical work contracts are the ones that have been most heavily impacted. Whilst those on higher incomes, that are more likely to be able to work from home, have increased their household savings during this period, due to less opportunities to consume.

The policy solutions outlined below aim to be complementary of one another and look to amplify observed trends that are positive for wellbeing and to provide intervention where trends have been negative for wellbeing:

1.      Climate at the centre of the response: This is less a policy recommendation and more a theme for the response. However, our message here is that increased public spending projects, focused towards green initiatives should be combined with a coherent carbon tax policy which influences incentives and helps to support the UK’s transition to a low carbon economy.

2.     Labour market reforms: The government should look to develop a centralised job retraining and job matching scheme that supports workers most impacted by COVID-19, helps to encourage structural transformation towards emerging industries and increases the amount of highly skilled workers in the UK workforce.

3.     Tough decisions on business: Some businesses will require further assistance from the UK government in the form of equity funding, rather than the debt funding seen so far. This should be done on a conditional basis, requiring all these businesses to comply with the UK’s climate objectives and should only be provided to businesses in industries that are expanding or strategically important to the UK economy.

4.     Modernising the regions on a cleaner, greener and higher level: Looking to build on the governments ‘levelling up the regions’ policy to reduce regional inequalities, our policy consists of government funded infrastructure spending that includes green investments for regions outside of the UK’s capital.  

5.     Harbouring that rainbow effect: Building on the increased community spirit that has been observed during the pandemic, this policy solution looks to increase localised community funding to maintain social cohesion and support those with mental health issues. 

Lastly, as the policy recommendations focus on expanding public investment to support the recovery, it is important to consider what this means for public debt sustainability in the UK. The conclusion is that as a result of the low interest rate environment, the most efficient way out of this recession is to borrow and spend on projects that will increase resilience to future shocks and support the UK’s transition to a low carbon economy.

Please click on the link below to read about this in more detail. Comments are welcome.

Responding to Climate Change

As of March 2019, 195 UN members have signed the Paris Agreement. The long-term goal of this agreement is to keep the increase in global average temperatures to well below 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. 

This paper shows that if we continue with our current policies we can expect temperatures will rise to between 3.1-3.7 degrees Celsius by the year 2100. And even if we put in place all of the national pledges that countries have committed to recently, temperatures are expected to increase to between 2.6-3.2 degrees Celsius - far above the “well below 2 degrees Celsius” target.

There are now currently ongoing discussions between policymakers as to what is the most effective way in which policies should be designed to achieve the goals set out in the Paris Agreement. The two main policies being discussed is a carbon tax or a range of targeted infrastructure government spending projects combined with regulation, such as the ‘Green New Deal’ that is being proposed by Democrats in the US. 

The carbon tax is an efficient way to create a reduction in pollution and force firms and individuals to develop more environmentally friendly alternatives to carbon. It’s not only this; it’s very difficult to foresee what could be the full economic benefits of the tax due to the billions of knock-on effects it will have across the economic system. For example, it may encourage people to use greener modes transport such as cycling or walking which will lead to health benefits that go beyond the reduction in pollution. 

The main criticism of this policy is that firms’ production may simply shift to countries that don’t have carbon taxes. Therefore, until all of the countries in the world adopt the tax, it’s not likely to work. In addition, the cost of adopting such a tax has the potential be quite expensive (depending on how it is designed), reducing its efficiency. Related to this, there are lots of questions surrounding the optimal design for this tax, how do you determine the correct tax rate? Do you tax every carbon emitter in the country or only the largest producers of carbon? How do you prevent tax evasion from carbon production in an efficient way? 

Then for the alternative policy: from an ideological perspective, this policy is based around large government injections into the economy in order to structurally shift towards a green and renewable based economic system. The benefits are clear from developing a policy framework under this goal; the criticism is that current plans in this area have been vague and its highly likely to be a large political challenge to gain widespread support for this due to the lack fo tangible benefits today from implementing these policies.

Before we offer our view in this debate, we’d like to briefly just explain why as an organisation that focuses on happiness economics research we are discussing this topic in the first place. From a happiness economics perspective there is no greater pressing issue than climate change at the moment. Improvements in quality of life, development and wellbeing all fall second in line to risks faced by not acting now to protect the future of the planet.  This is not an overdramatic or pessimistic statement; it’s a realistic one based on the facts – the diagram in Figure 1 in the article below shows this quite clearly.

In terms of a policy response our view is that both a carbon tax and a targeted infrastructure plan should be put in place, in as many countries as is feasible. The carbon tax should be a starting point and should be implemented swiftly – the optimal design of this policy could be debated for decades, it will never be perfect, but its implementation will represent a large step in the right direction. Then in terms of the infrastructure spending plans, this should be done by taking the revenues from the carbon tax (and additional government spending, where possible) to change the structure of high-carbon producing economies to become green and renewable based.

Our view is that the best way that this can be implemented is through a top-down approach with government co-ordination with industries to find intelligent solutions for facilitating these structural changes. For example, governments should put in place overarching targets (similar to the ones in the Paris Agreement) and then show how they plan to reach these targets through sub-targets for reductions in greenhouse gas emissions across a range of important industries in that country. This needs to be a well-defined co-ordinated plan that is publicly accountable, such that should participants fail to meet their targets they will be publicly named and there should be financial disincentives should participants fail to meet targets several times.