Wednesday, December 15, 2010

Economics of Happiness

“For 60 years, Gross Domestic Product, or GDP for short, has been the yardstick by which the world has measured and understood economic and social progress. However, it has failed to capture some of the factors that make a difference in people’s lives and contribute to their happiness, such as security, leisure,income distribution and a clean environment–including the kinds of factors which growth itself needs to be sustainable.."
- Joseph Stiglitz, “Progress, What Progress?” (March, 2009)

I'm not going to belittling GDP nor GNP as an important measures of an economy, but I should remind us, including me myself that we sometimes forget that once again Economics is never about a profit maximization nor production maximization science, it is a utility maximization science.

I always dreamed to go to NZ, admiring its beautiful landscapes, winds and cattles. And then I realize, the urges came from my expected happiness, that believes the following:

1. Money do affect happiness, at least to a certain point / cut-off value.

Beyond a certain level of income, money has little relevance with my happiness, in
fact giving me more money will give me negative happiness ?

Why ? Because more money will make me worry of economic jealousy from neighbours that will attempt to seize my money/assets forcefully even if I make my own fortune painstakingly, thus giving me an overall negative happiness.

2. Money doesn't buy me relationship, health, leisures and freedom.

Although consumerism gives people a short-run happiness to some extent, but the same economic activities that support the consumerism, drains many happiness, for example excessive work cause divorce, bad health from pollution or overworking, reduced leisure and creative activity and globally it reduce freedom (long-run happiness). This is subjective but it still can be quantified through social metrics, such as number of marriage and divorce, mental and physical health disorder records, leisure sector activities, specific crime rates, ecological deteoriation, etc.

3. Unimportant activities disallocated Resource required for sustaining life.

Why do I need to cut down forest, killing all the animal in the process, just to build a timber processing plant, where it produces carbon emission, polluting surrounding environment, just to provide woods for exported furnitures.

4. Happiness is difficult to measure, but it is not impossible.

I know that GDP/GNP is easier to calculate, convert and compare, thus it is portable statistics to make analysis of, and Happiness is subjective and can be used as political tools by the government to strengthen their legitimacy. But isn't it better to calculate something vague using imprecise tools rather than using wrong tools. it's like using GPS (precise tools to measure position) to approximate temperature (applied to measure the wrong subject) ).

Happiness Snapshot from Russia :

And also there are growing concerns among big countries to apply and incorporate Gross National Happiness (GNH) or GDH or whatever it will be called, into their national target, something that Bhutan had already done since 1972. According to Associated Press, Nov 15, 2010:

  • "There is growing international recognition that to measure national well-being and progress there is a need to develop a more comprehensive view, rather than focusing solely on gross domestic product"- Jil Matheson, UK.
  • French President Nicolas Sarkozy ... two years ago asking two Nobel prizewinning economists to devise ways to measure quality of life factors in addition to simply economic factors when France it studying its policy options.

And also some facts that although GDP have increased, happiness is decreasing :

  • American Journal of Psychiatry the rates of depression across almost all demographic groups have risen in the United States over the past 10 years, with major depression rising from 3.33 percent of U.S. adults in 1991-1992 to 7.06 percent in 2001-2002: In other words, it has more than doubled.

So.... Does Money still "Granger Cause" your Happiness ?

1 comment:

  1. Mantap man...
    Tapi memang sudah ada kan yang namanya Gross National Happiness (GNH)? Sayangnya tidak digunakan dalam perhitungan eonomi suatu negara karena mungkin sangat subyektif (atau lebih obyektif?).
    Pada teori mikroekonomi neo klasik yg kita pelajari, happiness ini di disetarakan dengan utility. Dan dasar dari utility adalah "revealed preference". Dan revealed preference ini adalah hasil pilihan rasional seseorang terhadap berbagai alternatif pilihan.
    Kita pilih kerja atau leisure, pilih keju atau singkong itu hanyalah as a matter of choice...
    Jadi utility kini bukan lagi di dasarkan pada sebanyak apa kita bisa mengkonsumsi atau sebanyak apa kita bisa memperoleh profit.

    Eh nyambung ga ya?