The economy of happiness

The economy of happiness
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First Published: Thu, Jan 01 2009. 05 14 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Sat, Jan 03 2009. 10 46 AM IST
Have you ever noticed that your parents are happier than you are? They probably earned far less than you do at the same age, took the bus or train to work, were quite content with the radio and refrigerator at home, spent weekends with the family rather than at an expensive bar. And look at poor you: a well-paid, gizmo-worshipping, pub-crawling, ladder-climbing, miserable corporate animal; or some variant of this species.
Illustration: Jayachandran / Mint
This is not a call to lock away the laptop, throw the BlackBerry in the gutter and buy a yoga mat to learn breathing techniques in an ashram. It is a modest attempt to point out that the link between a good salary and a good life can sometimes be tenuous. It’s not a bad thing to be aware of, as the recession crawls into your life and HR sends ominous notes on the need to cut costs.
Our story begins in 1974. The hedonist explosion of the 1960s is fading away. The hippies are hanging up their beads. America is stumbling into a harsh recession. That’s when an economist named Richard Easterlin lobs a hand grenade in the direction of one of the unquestioned assumptions of modern economic policy: growth and higher incomes inevitably increase human welfare.
Easterlin showed in an influential research paper that this was not necessarily the case. He said that Americans on average did not feel any happier in the early 1970s than they felt in 1946, even though their incomes had shot up. This becomes known as the Easterlin paradox: Happiness in a country can, at least sometimes, be unrelated to income. A 2006 headline in the Financial Times said it: “The Hippies Were Right All Along About Happiness.”
Of course, money does matter. A starving man will be happier when he has the money to buy food. A young girl is better off in a school rather than a stone quarry. The economics of happiness should not be misunderstood as a glorification of the sort of gut-wrenching poverty we see in India. The desperately poor need economic growth on steroids. Global surveys show that happiness levels in India have risen steeply since 1970, as poverty has reduced. But then there comes a point in time when higher incomes do not lead to more happiness. That is the situation that most of the readers of this newspaper will find themselves in.
The Easterlin paradox has not won over everyone. One criticism is about the way happiness is measured. It cannot be quantified the way incomes or production are. Happiness differs from person to person. You can also be happy one day and miserable the next. Economists who study it depend on surveys done by professional pollsters. The interviewer has to tease the information out of the people she meets. A lot depends on the way questions have been framed and asked. The result: Some happiness surveys show that money can indeed buy cheer while others don’t.
A second concern: Some researchers say what matters more is not the average incomes in a country but how these incomes are distributed among different groups of citizens. A person is chugging along happily till his neighbour buys a bigger car or his colleague gets the latest iPhone. Happiness makes way for angst. Linking happiness and inequality within a society can have unexpected consequences. Conservative economists fear such link could lead to policies to flatten the income curve, through heavy taxes and government spending. Technocratic planners would make a grab for power over the individual and damage incentives to work and save.
There are no neat truths here. But the economists who study happiness can boast of one huge achievement: They remind us that the whole point of economic activity is not the production of more cars but the happiness of the individual. The unsavoury alphabet soup of acronyms that our heads are dunked into each day—GDP, M3 and WPI, for example—is only a means to a higher end.
A lot depends on individual circumstances as well. Andrew Oswald of Warwick University shows that people with high levels of education report greater happiness scores than those who have had to make do with a low level of education; unemployment is a sure killjoy (no prizes for guessing why); severe ill health is not great news either; and divorces make people unhappy.
Not all these issues can be tackled with public policy and bureaucratic rules on what to do and what not do. Part of the answer lies with how an individual arranges her life.
John Maynard Keynes wrote a provocative essay in 1930, The Economic Possibilities For Our Grandchildren. Keynes said here that countries such as Great Britain would reach a level of income within a hundred years, thanks to technical progress and the magic of compound interest. Then what? “Now it is true that the needs of human beings may seem to be insatiable. But they fall into two classes—those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still are they. But this is not so true of the absolute needs—a point may soon be reached, much sooner perhaps than we are all of us aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes,” wrote Keynes. “… for the first time since his creation man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeable and well.”
Another economist, Tibor Scitovsky, undertook a later journey into this territory with his 1976 book, The Joyless Economy: An Inquiry Into Human Satisfaction And Consumer Dissatisfaction. The Times of London put it in a 1995 list on the 100 most influential books of the post-World War II era. Scitovsky drew the distinction between two types of consumption: pleasures (such as beautiful scenery or an evening with friends) and comforts (such as a fancy car or the latest gizmo). You tire of comforts but never of pleasures. There are thus joyful and joyless activities to fill your life. The former involve a sense of challenge, the ability to take risks and the idea of accomplishment—aristocratic values that some say Scitovsky imbibed as a young boy in Hungary in the first third of the 20th century. The latter are seeped with the comfort and safety. A joyful economy would require greater commitment of the individual to pleasures rather than comforts.
The argument in The Joyless Economy is more sophisticated than what has been crammed into one short paragraph. But Keynes, Easterlin, Oswald, Scitovsky and the others have sought to show that a good life does not necessarily follow from a higher income. They show that modern life can sometimes resemble a hedonist treadmill—you either run to stay in the same place or you step off the damn contraption and take a walk in the park.
The whole point, Keynes said, is “to live wisely and agreeable and well”.
I just hope my boss is not reading this…
niranjan.r@livemint.com
Niranjan Rajadhyaksha is managing editor, Mint.
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First Published: Thu, Jan 01 2009. 05 14 AM IST