GDP and Happiness by Jolito Ortizo Padilla

Traditional economics states that the fundamental economic problem occurs because human wants are infinite but resources are only finite. Economic growth helps this problem because it allows more human wants to be satisfied. Economic growth leads to rising living standards and, by implication, greater happiness.

Economists have long recognized that the quantity of goods that consumers can buy is only one part of the measurement of the standard of living. Factors such as the social and cultural environment and political freedom contribute to the standard of living.However,there is an implicit assumption that GDP remains one of the most important components of economic welfare.

Economists using psychological surveys, though, presents a more complex picture. Using surveys from across the world (cross sectional surveys), they have found happiness and income are positively related at low levels of income but higher levels of income are not associated with increases in happiness. The idea that increases in GDP do not lead to increases in happiness is called Easterlin Paradox, after Richard Easterlin, an economist, who identified this problem in 1974 research paper.Using Southeast Asia survey data  suggests that life satisfaction in the Southeast Asia has actually declined since 2000 despite a more than 70 percent rise in GDP. All the survey evidence for the USA and Japan also concluded that there has been no increase in happiness in those countries over the last 12 years.

The conclusion from research is that an increase in consumption of material goods will improve well-being when basic needs are not being met, such as adequate food and shelter. But once these needs are being met, then increasing the quantity of goods consumed makes no difference to well-being. Having a new LCD television, or a new car doesn't increase your well-being in the long run.

There is a number of factors which have been identified which contribute to happiness from survey evidence.

• Relationships- Friends and family have a very important role to play in happiness. In 2010 research paper, the economist Nattavudh Powdthavee gave estimates of the monetary value of different types of relationships.Meeting friends and relatives just once or twice a month had a monetary value of $31000 per year per capita. This should be compared with average real annual household income per capita of $9800. Talking to neighbors most days was worth $40800. Being married was worth $68400. On the other hand , being divorced lead to a negative monetary value of $21600 per year. It is possible to dispute the exact size of the figures. However, the casual observer can see that individual placed a high value on relationships. Friendship are prized. Partners in marriage give up well paid jobs for the sake of their marriage. Most divorced people seek to remarry.The high point of consumerism in today's world , Christmas , is one where people give gifts to each other and spend time together as families. Being alone, cut off from friends, family and even casual day to day encounters, is associated with low esteem, depression and mental illness.

• Work- work provides income and satisfaction .However, research also shows that aspects of work depress happiness. Long commuting journeys, tight work deadlines, lack of control over how a job is done and housework have all shown up in surveys as being negative correlated to happiness and well being. Overall, the survey evidence suggests that workers in high income countries would be happier if they had lower incomes but more leisure time. As for unemployment, in the same survey was calculated to have a negative happiness value of $66400 per year.

• Health- Having good health has a very high monetary value in terms of happiness. The valuation put on excellent health is $303000 per year. Surveys suggest that health and happiness are correlated. Countries with above average incidence in high blood pressure are those with the lowest happiness scores. Good psychological health leads to happiness.Mental ill health has a large negative impacts on happiness. There is some evidence that mental health problems in rich countries have been increasing over time, possibly due to the increasing fragmentation of society and increased stress in the workplace.

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The Economics of Happiness - The first of the series by Jolito Ortizo Padilla

"Solidarity and Economics"- Bahrain's Road To Progress and Happiness

One branch of this new type of economics is called the Economics of Happiness or Happiness Economics.One of the most often quoted comments about economics is that it is a dismal science. This came from Thomas Carlyle writing in 1849; " Not a gay science ", I should say ,like some we have heard of, no a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science." Thomas Carlyle was a famous writer and social commentator of the time. He was contrasting some of the negative predictions of economics of his age with a "gay science" which at the time referred to "life enhancing knowledge".

Jeremy Bentham was a philosopher who put forward the theory of utilitarianism.This stated that human being should act in a way that would cause "the greatest happiness of the greatest number". This was a philosophy which should guide the individual : should I spend $500 on a holiday for myself or should I use it to pay for the tuition fees of my child at university? It was also a philosophy which could guide government policy: should the government increase taxes on high income on high income earners to pay extra spending on health care stay the same?

An assumption of utilitarianism is that happiness can be measured in the same way that the weight of a loaf of bread can be measured. If happiness cannot be measured, then individuals, governments and other decision makers cannot make the calculations necessary to ensure "the greatest happiness of the greatest number". The whole theory then becomes useless as a basis for decision making. Following Bentham's death,the consensus view in neo-classical economics came to be that happiness could not be measured. Economics could say nothing about the happiness or value that one individual puts on consuming a good or taking a job compared to another individual.

Another criticism of utilitarianism was that happiness is not the only the only goal in life. There are many other goals that human beings might have. They might prefer to be rich and famous rather than happy. Their goal might be to uphold the honor of the family. Status, power, possessions, control and sex are other possibilities.People's goal differ from culture to culture and it is is arguably too simplistic to reduce everything to happiness.

The economics of happiness refutes these problems and argues that happiness can indeed be measured and that happiness should be seen as the most important goal of individuals whatever their culture.

• Surveys can validly be used to ask people about the extent to which they are happy. With a survey large enough to be statistically valid , survey results produce reliable evidence about states of happiness and satisfaction. Such survey methods have been used in psychology for decades.They are backed up by neuroscience. During the 1990's,it was discovered that happiness was associated with measurable electrical activity in the brain. This could be picked up by MRI scans. So it is possible to tell physiologically whether or not someone is telling the truth when they say they are happy.
• Looking across cultures, philosophies and religions, and using evidence form sociological and psychological studies, it is clear that happiness is a goal of human beings. It is true that happiness might be given different names such as well-being, satisfaction, fulfilment or utility. But for the economics of happiness , these different names are all pointing to the same goal. Happiness can then be argued to be the same important goal. If asked,"why do I want to be wealthy or powerful?", most people would say "because it leads to happiness".Wealth, power or status are not ends in themselves. They are stepping stones to happiness.Think too of the reverse questions: "Is the goal of life to unhappy?" Or "Does it matter that people are unhappy?"Few people would argue that they wanted to be unhappy and that it didn't matter whether their relatives and friends and other people were happy or not.

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