Tag Archives: happiness

… And Does Happiness Lead to Wealth?

Poverty may beget poverty. And happiness, happiness. According to the Los Angeles Times:

People who express more positive emotions as teenagers and greater life satisfaction as young adults tend to have higher incomes by the time they’re 29, according to a study published Monday by the Proceedings of the National Academy of Sciences.

The study asked teenagers about their life satisfaction, and later looked at their incomes at age 29. The happiest teenagers  were making an average of $8,000 more than the gloomiest by that time. According to the article, “Deeply unhappy teens’ future incomes were 30% lower than the average, while very happy teens earned 10% above average.”

 

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GDP as an End in Itself

A friend of mine was telling me today that Europe is a basket case, past its prime, beyond hope. I should point out that my friend was talking about the economies of Europe, and he tends to view things as pretty black and white.

I lived in Europe for 7 years, and I like Europe. Sure, it has its problems, but it’s no basket case. Okay, some of southern Europe is a basket case, but most of Europe would be doing pretty well right now were it not for the debt ailments of the south and the austerity treatments intended to cure them.

What my friend was really saying was that the Gross Domestic Products (GDPs) of European countries are probably not going to grow as quickly as the U.S.’s GDP will in the future.

This may or may not be true. I probably could come up with evidence in favor or against. No one can predict the future with any certainty, and my guesses aren’t much better than anyone else’s. But I’m not going to argue that issue one way or another.

My problem is with using GDP growth as the end-all only-thing-that-counts gauge of how a country’s doing.

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I’ve written before about problems with Gross Domestic Product. GDP is the total amount of goods and services produced by a country in the course of a year. Growth in real GDP is the single best measure we have for economic progress, but there are so many problems with it that focusing on it to the exclusion of all other factors does more harm to a country than good.

GDP isn’t an end in itself, or at least shouldn’t be, any more than we earn our incomes just to roll around in piles of cash. People earn money in order to live and try to be happy. A country produces GDP so that its people can live and try to be happy. GDP is just a means to an end, a way for the people of a country to try and try to be happy.

Increases in GDP can be great for quality of life. GDP includes everything from MP3 players to heart transplants, an everything in between. That covers a lot of stuff that can make our lives richer and fuller and more rewarding, giving people more opportunities and chances for that happiness that we all crave.

But you want to know a little secret? Increasing GDP doesn’t necessarily mean the people are better off. There’s an old economist joke. Actually, there are thousands of old economist jokes. But one comes to mind:

Two economists are walking home together after work. The first one says to the other, “I’ve had a horrible day, and I’m very angry. I really want to punch someone in the face. Tell you what – I’ll give you $500 if you’ll let me punch you in the face.”

The second economist thinks about it for a second. He could use some extra cash, so he takes the deal. The first economist punches him in the face and gives him $500.

“There!” says the first economist. “I feel much better now.”

The second economist says, “But now I’m angry and want to punch someone in the face. Tell you what. I’ll give you your $500 back if you’ll let me punch you in the face. Deal?”

The first economist is now in a great mood and so agrees. The second economist punches him in the face and gives him the $500 back.

They continue walking along, and the first economist says, “Now I’m in a bad mood again. We’re back where we started, only now we both have sore faces.”

The second economist says, “Yeah, but look on the bright side. We’ve increased GDP by $1000!”

Unfortunately there’s a little too much truth for comfort in this joke. Technically, the two had increased GDP by $1000, though it’s unlikely that the Bureau of Economic Analysis would ever find out about it and include it in their figures.

The point is that increasing GDP doesn’t necessarily make anyone better off. It’s just a number, a measure of economic activity. Nothing about it says that economic activity is actually good.

Don’t get me wrong. Holding all else constant, increasing GDP is better than not increasing GDP any day of the week. But the problem is, all else is never constant. Things are never that simple.

So I take issue with the idea that Europe is a basket case, or beyond hope, or in any generalizable way destined for future failure or insignificance.

Yes, Europe generally has higher and more progressive taxes than we do in the U.S., and that has implications for future GDP growth Europe. But that’s hardly the end of the world.

GDP for the sake of GDP is not just misguided. It’s silly, wasteful, and counter-productive, just like money for the sake of money. It’s time we move past this obsessive focus on GDP as an end in itself, and start thinking about what GDP is for and why we want it to grow.

You Can’t Always Like What You Want: Recent Neuroscience Research and Economics

Desire isn’t what it used to be.

Recent research [*]  has found that the neural circuits related to “wanting” are different from those for “liking”. In other words, the regions, processes, and pathways in our brains involved with wanting things are not the same of those related to actually enjoying them.

This potentially has big implications in economics. Much economic theory is predicated on the idea that people most want what they will most enjoy. If humans err when choosing what to buy — if they consistently desire things that they won’t actually like — that would undermine this basic economic premise.

We already know of many instances where humans – or at least many humans – make consistently biased  decisions. People tend save too little for the future and later regret it. People tend to charge much more than they can afford to on credit cards, causing them long-term financial and personal problems. People with various forms of addiction cannot help themselves from gambling, or consuming dangerous drugs and alcohol.

In fact, the list of situations and circumstances in which humans intentionally take actions that will make themselves worse off is long and growing. It’s to the point where it’s hard to defend the assumption that people normally act rationally.

In other words, it’s getting easier to argue that individuals’ well-being often could be improved through the right type of government involvement in certain markets.

We’ve know this for some time, of course. The U.S. started the Social Security program in 1935. This wasn’t based on some grand theory of human economic behavior; they simply wanted older Americans to have enough to live on. Since then research in behavioral economics and psychology has found that humans tend to not save enough for the future. We’ve even identified neural circuits that are responsible for this failure. Research has justified the need for Social Security.

And we continue to find more situations where humans don’t act as rationally as economists might like.

None of this can justify unlimited government interference in the economy, of course. This isn’t a blank check for the well-intended policy. Government involvement in any market always has a cost in terms of efficiency, and invariably has unintended and unanticipated effects.

But the more we learn about human behavior and the human brain, the clearer it is that humans are not the perfectly rational and sensible beings that economists once believed they were. And the more it opens up the potential that the right type of government incentives and policies in the right areas could make people better off than they would otherwise be.

[*]  Kringlebach and Berridge, “The Joyful Mind” in Scientific American, August 2012. Click here to view graphic from article.