Wonderful World of Economics

The Economics of Happiness

I read this article with great interest... below is just a summary of it. This is something that we will be looking at next year when we learn more about the standard of living...

'People in the West...have in the past 50 years...become much richer; they work much less, they have longer holidays, they travel more, they live longer and they are healthier. But they are not more happy.' (Lord Layard, Lionel Robbins Memorial Lecture, 3/3/03)

Economics has in recent years taken a turn from the dark side. Happiness is seen as legitimate, even a necessary object of study. Yet there are many others who believe economists should confine their studies to the fundamental problems of the economy.

Dr Irwin Stelzer, the influential non-conservative economist says that the study of happiness has a legitimate side of it - that is, off incorporating a measure of externalities like pollution into the costs of growth. But the illegitimate side of it is the nonsense of trying to measure happiness.

Professor Paul Dolan admits that "it is still a crazy part of economics, with soft and woolly data, not like GDP, inflation, unemployment. But is happiness a luxury good, only able to be studies once inflation is tamed? No, I don't think so".

Most economists, whether for or against happiness, agree on three things:
1) the consensus on the best way to run a market economy, leaving economists with time and energy to explore other avenues.
2) vast new data sets now exist, which give information across time on lifestyles, preferences and subjective feelings.
3) the public appetite for this kind of information is now sharper than it has ever been.

Lord Layard noted a common finding among the happiness set: that more money does make you happy - if you are poor. Pointing to data collected from rich and poor states, once a country has over US$15,000 per capita, it's level of happiness appears to be independent of its income per head. For poorer countries however, there is a clear impact of income on happiness...when you are near the breadline, income does really matter.

He and other researchers also find that humans are envious: that even id, they are not happy just because they have more, they are happy when they know they have more than others. A pay rise, in other words, is much more pleasurable if you alone receive it. An experiment conducted with US students discovered that, given a choice between 2 states, students preferred to be poorer as long as they were better off than other people. And that is a very common finding.

The question remains: how do you reach a definition of so essentially subjective definition of happiness? Isn't it different from person to person, or culture to culture?

Mr Murray said so far, the stuff on happiness concerns what he calls a European version of happiness. That is, the purpose of life is to while it away as pleasantly as possible. Whichever country has the longest holidays is best. But what economists don't ask is what constitutes a satisfying life? What you ask that question, people tend to say their vocation, their family, their community. In truth, the consensus among happiness researchers is just that: family, friends and community tend to be the most important thing in life. It may be fairer to ask whether the weight of economic theory is necessary to reveal such a blinding obvious human truth. Perhaps not. But such theories can play a real role in calculating its implications for public policy.

(Adapted from Financial Times,30/4/06)

posted by Fio @ 7:34 AM