Economics in pursuit of happiness

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By Neeraj Kaushal

Neeraj KaushalDoes money buy happiness? Are people living in rich countries

happier than people in poorer countries? Does economic growth lead to happiness? Is it possible to measure happiness or well-being? There was once a time when such questions were left to

philosophers to understand.

Quantifying happiness was out of question; attaching a money value to it was blasphemy. And then entered in this field the scientist.

Economics of happiness is now a growingly large field of research. Social scientists have begun to question the age-old assumption that all economic activity is in the pursuit of happiness to

maximise what in economics jargon is called ‘utility’.

Economists have started measuring happiness, conducting statistical analysis to investigate the factors

that ‘determine’ happiness and if money happens to be one of them. The Great Recession in Europe and the US and its painfully slow demise has led politicians to join the search for more

appropriate measures of national well-being and happiness. The age-old metric of economic activity — the gross domestic product — is felling out of favour with many western governments. In

September 2009, on the first anniversary of the collapse of Lehman Brothers, French President Nicolas Sarkozy asked other nations to drop their obsessions on GDP and a adopt measure of

‘well-being’ as the metric of progress.

A year later, the British Prime Minister David Cameron asked the Office of National Statistics in the UK to produce an

index to gauge the general wellbeing of the people by assessing their psychological and environmental well-being. A number of other countries, including Canada and Australia, are also considering

developing such a measure. Cameron, however, wants to go a step further.

He wants to use the new measure to steer public policy. The concept of measuring

progress with happiness and not economic activity is not entirely western. The former king of Bhutan coined the term gross national happiness about four decades ago and the Bhutanese government has

developed detailed surveys to measure it. American politicians, of course, have a greater faith in the market than fellow politicians across the Atlantic or up north in Canada.

But they too are finding it hard convince the American public that GDP growth reflects prosperity of all. The US economy is in what seems to be a long phase of jobless

(read: joyless) recovery with stagnating wages. The growth in GDP for the past few quarters, therefore, does not reflect the plight of the families most hit by the recession. Economists and

psychologists are devising ways of measuring happiness and well-being.

Alan Krueger, former assistant secretary for economic policy and chief economist of the US

department of treasury, and psychologist Daniel Kahneman and colleagues have developed what they call the ‘national time accounting’ (NTA) — as opposed to national income accounting, which is

used to measure income or GDP. NTA is based on surveys that involve asking respondents to keep a diary of their daily activity and record their feeling about each of the activity on an ‘enjoyment

scale’.

Based on their survey, Krueger, Kahneman and colleagues found that while people who earned very low incomes were somewhat more likely to have spent

their day in a bad mood, people with higher incomes devoted relatively more of their time to work, shop, childcare and other ‘obligatory’ activities, which the respondents associated with

‘higher tension and stress’ and less time in passive leisure activities. Based on their findings, the researchers concluded that the link between income and happiness is exaggerated.

Others have investigated the association between happiness and riches across countries. The evidence is mixed and very controversial. In the mid-1970s, economist Richard

Easterlin wrote a seminal paper, Does economic growth improve the human lot? He did not find that people in richer countries were necessarily happier. He found that at any point in time, within

countries richer people were in general happier than those with less income. But over time, even within a country economic growth did not lead to more happiness. This phenomenon has come to be

known as Easterlin Paradox.

Evidence from more recent surveys appears to echo this paradox. In 2007, the Pew Global Attitudes survey also found little link

between GDP of countries and the self-reported levels of happiness of their residents. In general, people in Latin American economies were found to be more likely to report that they were happy

with their lives than people in East Asian economies.

The link between riches and self-reported life-satisfaction was even more bizarre. Mexicans, the survey

found, were somewhat more likely to report that they were satisfied with their lives than Americans, even though the per capita income in the US is four times higher than that in Mexico. Over the

years, many others have studied this issue. Some have debunked the link between riches and happiness; others have debunked the Easterlin Paradox. Some have pointed that over time, comparison of

happiness data are often flawed since the language on the question on happiness has changed over the years.

Economist Angus Deaton’s research shows that life

satisfaction increases with per capita GDP, when GDP is measured on a logarithmic scale (proportional increase) rather than increase in absolute terms. Life satisfaction, however, is not the same

as happiness, and neither seems to be adequate in capturing quality of life.

Neither life-satisfaction nor happiness fully capture the progress that mankind has

made over the past say 100 years in terms of lowering infant mortality, morbidity, raising life expectancy, and other indicators of the quality of life. While it is true that obsession with GDP

growth creates an illusion of progress even while there is none, obsession with a single metric of progress – self-reported happiness, self-reported life satisfaction – is not the answer. Perhaps

governments should use more than a single metric to measure progress and well-being.

(Dr. Neeraj Kaushal is

Associate Professor of Social Work, and Research Associate at the National Bureau of Economic Research in Columbia University . She is also a Research Fellow at IZA – the Institute for the Study of

Labor, Bonn, Germany.  She is a labor and health economist, and her research focus is on how policies and events affect the well-being of low-income families with special emphasis on immigrants.

)

(Sourced from Economic Times, June 23, 2011)

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