More to life than GDP?

Happiness economics is a topic very much in vogue at the moment, and this year’s edition of Social Trends has clearly paid homage to that fact by including a measure of subjective well-being: Satisfaction with standard of living and financial prospects [Table 5.5]. The data made no attempt to debunk the Easterlin paradox: while household income has increased by over 60% and household wealth has more than doubled, satisfaction with standard of living has remained constant at around 85%.

(Source: Social Trends 2008)

The policy implications of this are enormous. We’ve always doggedly followed GDP as our guiding measure to maximise, but if richer doesn’t mean happier, should we instead be looking towards our Gross National Happiness instead? Unfortunately, despite our satisfaction measure being more easily computable than Bentham’s felicific calculus, it still doesn’t bring us any closer to the truth.

At the forefront of the joy division leads chief proponent Lord Layard, whose 2006 book Happiness: Lessons from a New Science revived this jolly subject amongst economists. The data from his research is solid, and his theories cemented some of the basic principles of happiness, namely it being based on expectations, perceptions and relativity.

However, the policy implications which he concludes with are rather dubious: since relativity is a zero sum game, should we stop competing? Since people tend to work and consume more than that is necessary for optimal happiness, should we design the taxation system in a way to prevent people from working or consuming “too much”? Happiness, therefore, seems to justify paternalism.

On the other side, Paul Ormerod is the principal defender against happiness being used as a target for public policy. His monograph Happiness, Economics and Public Policy reveals that the current happiness indicators we have are extremely insensitive to any other variables: we don’t get happier with improved life expectancy, government spending, depression rates, sexual inequality or unemployment. And it appears that happiness and crime are positively correlated! And though policymakers justify income and wealth redistribution by saying it leads to a general increase in happiness, happiness has no correlation with the increasing Gini coefficient.

Geoff has already touched upon the subject of Bhutan here, but it has relevance once again since it is the only country to use GDH in public policy. Considering that this is a country which bans advertisements, has a national dress code and practises ethnic cleansing, we’re left wondering “is ignorance really bliss?”

Suggestions for further reading:

BBC: Richer, healthier but not happier

The Guardian: International surveys: there’ll be another one along shortly