O2 #2 Perspectives about New Directions for Economic Measurement (via Federal Reserve)

I appreciate the opportunity to speak at a conference with the important theme of
economic measurement. In many spheres of human endeavor, from science to business
to education to economic policy, good decisions depend on good measurement. More
subtly, what we decide to measure, or are able to measure, has important effects on the
choices we make, since it is natural to focus on those objectives for which we can best
estimate and document the effects of our decisions. One great pioneer in this subject
area, of course, is Simon Kuznets, who was awarded the Nobel Prize in 1971 for his work
on economic measurement, including the national income accounts. Over the years many
economists have built on his work to further improve our ability to quantify aspects of economic activity and thus to improve economic policy making and our understanding of how the economy works. The remarkably broad and ambitious research program of this
conference and the impressive expertise that has been assembled illustrate the continued vitality of this field. Evolving technologies that allow economists to gather new types of data and to manipulate millions of data points are just one factor among several that are likely to transform the field in coming years.

As we think about new directions for economic measurement, we might start by
reminding ourselves of the purpose of economics. Textbooks describe economics as the
study of the allocation of scarce resources. That definition may indeed be the “what,” but
it certainly is not the “why.” The ultimate purpose of economics, of course, is to
understand and promote the enhancement of well-being. Economic measurement
accordingly must encompass measures of well-being and its determinants.
In the tradition of national income accounting, economic policymakers have
typically focused on variables such as income, wealth, and consumption. The Federal
Reserve has a statutory mandate to foster maximum employment and price stability,
which motivates our extensive efforts to monitor and forecast measures of employment
and inflation. Substantial research and the development of data collection infrastructures
have, over the years, greatly enhanced our ability to receive timely and accurate measures
of those variables. Aggregate measures, such as gross domestic product and personal
consumption expenditures, are useful for monitoring people’s ability to meet basic
material needs and for tracking cyclical and secular changes in the economy as a whole.
Indeed, the experience of the recent financial crisis and the ensuing recession was
strongly reflected in nearly all of these aggregate measures, indicating the severe
economic stress felt by millions of people and hundreds of communities across the
country.

But, as many of you will discuss this week, aggregate statistics can sometimes
mask important information. For example, even though some key aggregate
metrics--including consumer spending, disposable income, household net worth, and debt
service payments--have moved in the direction of recovery, it is clear that many
individuals and households continue to struggle with difficult economic and financial
conditions. Exclusive attention to aggregate numbers is likely to paint an incomplete
picture of what many individuals are experiencing. One implication is that we should
increase the attention paid to microeconomic data, which better capture the diversity of
experience across households and firms. Another implication, however, is that we should
seek better and more-direct measurements of economic well-being, the ultimate objective
of our policy decisions.

Although the field is still young, there have been interesting developments in the
measurement of economic well-being. In a commencement address two years ago titled
“The Economics of Happiness,” I spoke about the concepts of happiness and life
satisfaction from the perspective of economics and other social science research.


Read the rest of the introduction, from Ben S. Bernanke - Chairman
of the Board of Governors of the Federal Reserve System, to the
32nd General Conference of the International Association for Research in Income and Wealth here: BernankeConferenceResearchIncomeWealth