Brookings: Topics - Economics of Happiness

Comments on David Blanchflower, David Bell, Alberto Montagnoli, and Mirko Moro, “The Effects of Macroeconomic Shocks on Well-being”

Carol Graham — Fri, 12 Apr 2013 09:52:00 -0400

Editor's Note: Carol Graham spoke at the Boston Fed's 57th Economic Conference, held April 12-13, on "The Effects of Macroeconomic Shocks on Well-Being" by David Blanchflower, David Bell, Alberto Montagnoli, and Mirko Moro.

For the purposes of full disclosure, I admit to being one of the early outliers that began working on happiness economics and well-being over a decade ago. I am thus continually intrigued by the range of questions that the approach is now being applied to. The latest is in the legal domain, where lawyers are now considering well-being metrics as the basis for contingency valuations – which takes me from intrigue to worry! Perhaps happiness economics has gone too far? In contrast, the question that is the subject of the conference and of the paper by Danny and his co-authors is a natural one for the metrics and the approach, and a good example of the kind of policy question where a new approach can broaden our thinking. Thus my comments reflect my reactions to the substance of the paper, but also an interest in what the approach can contribute to the more general topic.

This is a great paper. It adds new thinking to the standard discussions about macro-economic policy, and at the same time contributes to the literature on well-being in economics. Specifically, it provides a methodological contribution by combining the unemployment rate and the coefficient on individual unemployment together into one measure of the aggregate, societal level costs of unemployment, and adding it to the standard misery index. Most previous work has simply compared the coefficients on the unemployment and inflation rates, holding individual unemployment constant, but has not factored in the relative costs at the individual level into any kind of aggregate assessment. I think this is a very nice innovation.

A central finding of the paper, meanwhile, and also a novel one, is that while most publics in the sample are bothered more by unemployment than by inflation, in a small number of “inflation hawk” countries, where governments and government rhetoric focus much more on inflation (and for the most part unemployment rates are lower), concerns about inflation dominate the well-being effects.

Perhaps not coincidentally, in our work on Latin America in the late 1990’s, a time period when many countries had undertaken serious macroeconomic reforms designed to combat high or hyper levels of inflation, concerns about inflation dominated the well-being effects (our unemployment rate coefficient was insignificant, that on the inflation rate were significant and negative). Public concerns about inflation were heightened due to recent experience in many countries. At the same time, the same countries were characterized by high levels of informal employment, which reduces the relevance of the formal unemployment rate for much of the labor force. In the case of the findings of Danny’s paper, the issue of unemployment is paramount in the public mind in most of the European countries in his sample and time frame, while inflation is an issue (in terms of well-being) only in a small sub-set of better performing economies.

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Carol Graham

Publication: Boston Federal Reserve Bank Conference on Monetary Policy and the Labor Market

Does Access to Information Technology Make People Happier?

Carol Graham and Milena Nikolova — Thu, 13 Dec 2012 10:55:00 -0500

Access to information and communication technology through cell phones, the internet, and electronic media has increased exponentially around the world. While a few decades ago cell phones were a luxury good in wealthy countries, our data show that today over half of respondents in Sub-Saharan Africa and about 80 percent of those in Latin America and Southeast Asia have access to cell phones. In addition to making phone calls and text messaging, cell phones are used for activities such as accessing the internet and social network sites. Meanwhile, the launch of mobile banking gives access to these technologies an entirely new dimension, providing access to financial services in addition to information and communication technology. It is estimated that in Kenya, where the mobile banking “revolution” originated, there are some 18 million mobile money users (roughly 75 percent of all adults). Given the expanding role of information technology in today’s global economy, in this paper we explore whether this new access also enhances well-being.

Neither of the authors is an expert on information technology. The real and potential effect of information technology on productivity, development, and other economic outcomes has been studied extensively by those who are. Building on past research on the economics of well-being and on the application of the well-being metrics to this particular question, we hope to contribute an understanding of how the changes brought about by information and communication technology affect well-being in general, including its non-income dimensions.

Our study has two related objectives. The first is to understand the effects of the worldwide increase in communications capacity and access to information technology on human well-being. The second is to contribute to our more general understanding of the relationship between well-being and capabilities and agency. Cell phones and information technology are giving people around the world – and particularly the poor – new capabilities for making financial transactions and accessing other services which were previously unavailable to them. We explore the extent to which the agency effect of having access to these capabilities manifests itself through both hedonic and evaluative aspects of well-being.

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Carol Graham
Milena Nikolova

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How Can We Most Effectively Measure Happiness?

Carol Graham — Wed, 17 Oct 2012 10:34:00 -0400

Editor's Note: At a Zócalo Public Square* event, several experts were asked to weigh in on the following question: How should we most effectively measure happiness? Here is Carol Graham's response-

We must make it a measure that’s meaningful to the average person

Happiness is increasingly in the media. Yet it is an age-old topic of inquiry for psychologists, philosophers, and even the early economists (before the science got dismal). The pursuit of happiness is even written into the Declaration of Independence (and into the title of my latest Brookings book, I might add). Public discussions of happiness rarely define the concept. Yet an increasing number of economists and psychologists are involved in a new science of measuring well-being, a concept that includes happiness but extends well beyond it.

Those of us involved focus on two distinct dimensions: hedonic well-being, a daily experience component; and evaluative well-being, the way in which people think about their lives as a whole, including purpose or meaning. Jeremy Bentham focused on the former and proposed increasing the happiness and contentment of the greatest number of individuals possible in a society as the goal of public policy. Aristotle, meanwhile, thought of happiness as eudemonia, a concept that combined two Greek words: “eu” meaning abundance and “daimon” meaning the power controlling an individual’s destiny. Using distinct questions and methods, we are able to measure both. We can look within and across societies and see how people experience their daily lives and how that varies across activities such as commuting time, work, and leisure time on the one hand, and how they feel about their lives as a whole—including their opportunities and past experiences, on the other. Happiness crosses both dimensions of well-being. If you ask people how happy they felt yesterday, you are capturing their feelings during yesterday’s experiences. If you ask them how happy they are with their lives in general, they are more likely to think of their lives as a whole.

The metrics give us a tool for measuring and evaluating the importance of many non-income components of people’s lives to their overall welfare. The findings are intuitive. Income matters to well-being, and not having enough income is bad for both dimensions. But income matters more to evaluative well-being, as it gives people more ability to choose how to live their lives. More income cannot make them experience each point in the day better. Other things, such as good health and relationships, matter as much if not more to well-being than income. The approach provides useful complements to the income-based metrics that are already in our statistics and in the GDP. Other countries, such as Britain, have already begun to include well-being metrics in their national statistics. There is even a nascent discussion of doing so here.

Perhaps what is most promising about well-being metrics is that they seem to be more compelling for the average man (or woman) on the street than are complex income measures, and they often tell different stories. There are, for example, endless messages about the importance of exercising for health, the drawbacks of smoking, and the expenses related to long commutes. Yet it is likely that they are most often heard by people who already exercise, don’t smoke, and bicycle to work. And exercise does not really enter into the GNP, while cigarette purchases and the gasoline and other expenses related to commuting enter in positively. If you told people that exercising made them happier and that smoking and commuting time made them unhappy (and yes, these are real findings from nationwide surveys), then perhaps they might listen?

Read other responses to this question at zocalopublicsquare.org »

*Zócalo Public Square is a not-for-profit daily ideas exchange that blends digital humanities journalism and live events.

Authors

Carol Graham

Publication: Zócalo Public Square

Image Source: © Ho New / Reuters

Gender and Well-Being Around the World

Carol Graham and Soumya Chattopadhyay — Mon, 20 Aug 2012 16:49:00 -0400

INTRODUCTION

There is a wide body of research aimed at better understanding differences across gender in welfare outcomes, and the implications of those differences – in particular the extent to which female outcomes are disadvantaged – for economic development. Women’s rights have improved in general in the past few decades, but there are large differences across regions of the world and across countries within them. These differences, in turn, may have implications for the way in which these countries and regions develop.

We aim to contribute to this work by looking at differences in reported well-being across genders around the world. We examine differences across genders within countries, comparing age, income, education, and location (urban versus rural) cohorts, and explore how those same within-country differences vary across countries of different development levels.

The economics of happiness is a relatively new approach which uses surveys of reported well-being to establish the income and non-income determinants of human well-being, as well as to understand the effects of environmental and policy conditions. While happiness is the commonly used colloquial term, well-being is a more comprehensive term implying the many dimensions of human well-being, and is ultimately the subject of our inquiry.

The factors affecting well-being that can be studied include environmental quality, inequality, commuting time, inflation and unemployment rates, trust in local and national institutions such as the judiciary, law enforcement, elections, media, and the quality of governance, among others. Presumably any or all of these could have quite different effects across genders.

The approach is particularly well-suited to addressing questions that standard revealed preferences approaches in the economics literature do not answer very well, such as situations where individual choice is limited, as is in the context of strong gender discrimination. Two sets of questions are the subject of the authors’ ongoing research and are relevant here. The first is the welfare effects of macro and institutional arrangements that individuals are powerless to change. The second is the explanation of behaviors that are driven by norms (including low expectations), or by addiction and self-control problems. As such, the approach may be helpful in exploring differences in well-being across genders, both in the aggregate and in country or region-specific contexts where women’s rights may be constrained or compromised.

Neither of the authors is an expert on gender issues. Our aim is to provide data on gender-specific well-being trends which is novel and hopefully useful to those who are. We build from our earlier work on well-being in general (1-4). Our research is based primarily on data from the Gallup World Poll (2005-2011) and measuring subjective well-being based on Cantril’s ladder of life question. We also discuss our results in the context of the work of other authors based on different surveys.

One of the key themes that runs through our findings here, which is also a theme in our earlier work (1-4), is the extent to which, while well-being is, on average, higher in places with higher levels of per capita income and the associated benefits, the changes in the development process that are associated with achieving those higher levels are not necessarily associated with higher levels of well-being, at least in the short-term. Indeed, those changes are often accompanied by significant public frustration and a resulting in loss of well-being. This theme also appears in some of the work of others that we review here on differences in gender well-being. While, on average, contexts which are more conducive to equal gender rights are typically associated with higher levels of well-being for women, the changes in norms and expectations that accompany changes in gender rights and roles can cause decreases in well-being, at least in the short term.

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Carol Graham
Soumya Chattopadhyay

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The Pursuit of Happiness: An Economy of Well-Being, Paperback Edition

Carol Graham — Wed, 08 Aug 2012 00:00:00 -0400

Brookings Institution Press 2012 164pp.

- A Brookings FOCUS Book -

In The Pursuit of Happiness, renowned economist Carol Graham explores what we know about the determinants of happiness and clearly presents both the promise and the potential pitfalls of injecting the “economics of happiness” into public policymaking. While the book spotlights the innovative contributions of happiness research to the dismal science, it also raises a cautionary note about the issues that still need to be addressed before policymakers can make best use of them.

This paperback edition features a new preface. To purchase the original, hardcover edition, click here.

Praise of The Pursuit of Happiness:

"With great care and judgment, Graham clearly explains the complexities of defining, measuring, and targeting happiness in economic policy while still urging us to persevere. . . . A consummate work of scholarship."
—Jeffrey D. Sachs, director of the Earth Institute at Columbia University

"The book is well written and very accessible, and is immaculately researched, avoiding bias and imbalance. . . . Far from being a 'dismal science,' Graham provides much reason for optimism for those people involved in this burgeoning field of economics."
—World Economics

"As acceptance of social science research on happiness continues to grow, a new question has naturally surged to the fore: Should happiness be a goal of public policy? In this eloquently written celebration of a new science, Carol Graham provides valuable new insight into the pros and cons of this issue."
—Richard A. Easterlin, university professor and professor of economics, University of Southern California

"Since 1776 the 'pursuit of happiness' has been the great world question. Here, reflecting on modern survey techniques and results, Carol Graham drills deeper. . . . [She] is opening up a whole new frontier in economic and social policy."
—George Akerlof, 2001 Nobel Laureate in Economics

ABOUT THE AUTHOR

Carol Graham

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The New Stylized Facts About Income and Subjective Well-Being

Daniel W. Sacks, Betsey Stevenson and Justin Wolfers — Thu, 02 Aug 2012 00:00:00 -0400

ABSTRACT

In recent decades economists have turned their attention to data that asks people how happy or satisfied they are with their lives. Much of the early research concluded that the role of income in determining well-being was limited, and that only income relative to others was related to well-being. In this paper, we review the evidence to assess the importance of absolute and relative income in determining well-being. Our research suggests that absolute income plays a major role in determining well-being and that national comparisons offer little evidence to support theories of relative income. We find that well-being rises with income, whether we compare people in a single country and year, whether we look across countries, or whether we look at economic growth for a given country. Through these comparisons we show that richer people report higher well-being than poorer people; that people in richer countries, on average, experience greater well-being than people in poorer countries; and that economic growth and growth in well-being are clearly related. Moreover, the data show no evidence for a satiation point above which income and well-being are no longer related.

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The New Stylized Facts About Income and Subjective Well-Being

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Daniel W. Sacks
Betsey Stevenson
Justin Wolfers

Hedemonics or Humanomics?: A Response to McCloskey’s Critique of Happiness Economics

Carol Graham — Thu, 26 Jul 2012 10:26:00 -0400

I recently read an article in the New Republic by University of Illinois Professor Deirdre McCloskey on the so-called “creepy new economics of pleasure” with initial interest. However, as I continued to read her article, my interest turned into disappointment.

As one of the economists involved in this field since early on, I am accustomed to criticism and welcome that which helps us advance an effort in the social sciences— which combines the work of economists, psychologists, philosophers, medical doctors and more— to better understand the determinants and causal properties of well-being. Given the depth and breadth of much of Professor McCloskey’s work, I was looking forward to her insights and constructive criticism. But what began with a potentially illuminating historical review of the field turned into a long line of tirades against a number of talented scientists. Even more disappointing, those tirades were based on fundamental errors in her understanding of the underpinnings of the study of well-being. Let me just list a few, based on the central tenets of her article.

First of all, economists and psychologists in the field do not think of happiness as pleasure alone. Indeed, scholars in the field increasingly avoid the open-ended happiness term and focus on measuring and understanding two distinct and better defined dimensions of well-being. The first is experienced well-being – in the “Benthamite” sense of the article (as well as described in my recent book, The Pursuit of Happiness: An Economy of Well-Being). The study of experienced well-being – work pioneered by Nobel Prize winner Danny Kahneman – seeks to assess people’s emotions and experiences as they go through their daily lives. This line of inquiry ultimately aims to improve the quality of people’s lives. The second dimension, evaluated well-being – call it Aristotelian, as I do in my book – seeks to better understand how people evaluate their lives as a whole and how those evaluations link to longer-term behaviors such as investments in health and education, meaningful work, and performance in the labor market. The concept of eudemonia that Professor McCloskey highlights is nothing new to those of us that have been attempting to measure it for a long time.

Secondly, McCloskey raises the conundrum of a poor person in Sudan who reports to be happy, and how that evaluation cannot be assessed on the same scale as that of a respondent in a much wealthier context. Again, those of us involved in the work have thought a great deal not only about what particular scales mean in particular contexts, but also what dimension of well-being respondents are emphasizing. My own research highlights people’s ability to adapt to adversity and to retain their natural cheerfulness and ability to experience simple, daily pleasures. This is in turn linked to their agency (or lack thereof) in explaining the so-called “happy peasant” conundrum. Thus someone in Sudan who has no choice but to adapt may emphasize the simple, daily experience aspect of their existence as they respond. Give the same person the opportunity to leave – and/or to acquire new agencies and capabilities – and they may then focus on their lives as a whole and then appear as unhappy, “frustrated achievers”, at least during a period of migration or change. The process of acquiring agency is not always a happy one. Thus rather than simply and blindly comparing the responses of farmers without choices and opportunities in Sudan with those of economists or doctors in Finland, we take great care to identify which dimension of well-being we are measuring.

Thirdly, McCloskey makes the point that even if the relationship between income and happiness is non-linear, it’s surely better to have $125 than simply $3, as the former gives you more alternatives. PRECISELY! A recent paper by Danny Kahneman and Angus Deaton in the Proceedings of the National Academy of Sciences shows that income and experienced well-being correlate positively in the U.S., but only up to median income. In contrast, income and evaluated well-being correlate all the way up the income ladder. After a certain point, income cannot make you have more positive emotions or enjoy your day more, but it does give you more choices to do what you want with your life. That, in turn, affects how people evaluate their lives as a whole. Income gives people the agency to focus beyond living in the daily sense (but does not guarantee that they will use it). My work with Eduardo Lora in Latin America shows that the most important variables to the well-being of the poor are friends and family they can rely on in times of need; in contrast, the most important variables for respondents with more means are their work and health. The latter provide those respondents with the agency to make choices in their lives as a whole and to achieve, in McCloskey’s own terms, higher levels of eudemonia.

McCloskey concludes by saying that we need humanomics rather than hedemonics or freakonomics. Those of us involved in the new science of well-being are doing precisely that: trying to better understand the causes and consequences of human well-being, an effort which will, in the end, make economics more human and less dismal.

Authors

Carol Graham

Image Source: Reuters

@ Brookings Podcast: The Policy Implications of Happiness

Carol Graham — Fri, 09 Dec 2011 12:34:00 -0500

Along with such classic economic indicators as wages and consumption rates, economists are starting to look at measures of well-being and how they can subtly improve public policy and the general happiness of a nation’s population. Expert Carol Graham says this field of study, still in its infancy, exposes otherwise hidden aspects of public policy that can increase its efficiency and effectiveness.

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Measuring Happiness and Opportunity Around the World

Wed, 28 Sep 2011 15:00:00 -0400

Event Information

September 28, 2011
3:00 PM - 4:30 PM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

In recent years, a number of nations—from Bhutan to Britain, France, China and Brazil —have begun to incorporate measures of happiness into their benchmarks for national progress. Even in the United States— where the Declaration of Independence promises all citizens the right to “life, liberty, and the pursuit of happiness”— policymakers are beginning to consider the merits of measuring happiness. In her latest book, The Pursuit of Happiness: An Economy of Well-being (Brookings Press, 2011), Brookings Senior Fellow Carol Graham explores what we know about the determinants of happiness, across and within countries at different stages of development. She also examines both the promises and potential pitfalls of injecting the “economics of happiness” into policymaking.

On September 28, the Brookings Institution hosted a discussion with Carol Graham on her book and whether happiness can be a new marker for economic progress in the United States and across the world. Panelists included David Brooks, New York Times op-ed columnist; and Brookings Senior Fellow Isabel V. Sawhill. Brookings President Strobe Talbott provided introductory remarks. Carol Lancaster, dean of the Edmund A. Walsh School of Foreign Service at Georgetown University, moderated the discussion.

After the program, the panelists took audience questions.

Participants

Moderator

Carol Lancaster

Dean, Edmund A. Walsh School of Foreign Service
Georgetown University

Panelists

David Brooks

Op-Ed Columnist
The New York Times

Happiness Economics: Can We Have an Economy of Well-Being?

Carol Graham — Sun, 31 Jul 2011 00:00:00 -0400

At this year’s American Economics Association annual meetings in Denver, there were the usual panels on topics ranging from the international exchange-rate regime to the roots of the global financial crisis to trends in the real-estate market in the United States. More unusual was a keynote session on whether happiness measures should replace gross national product. The latter was a standing-room-only event that was written up (rather sceptically) by the Wall Street Journal. As if that were not enough, in the same month there was a panel on the same topic at the World Economic Forum in Davos, Switzerland, with Jeffrey Sachs, the once wunderkind of free markets, calling for happiness as the ninth Millennium Development Goal. That session was written up (less sceptically) by The New York Times.

What is the world coming to? I participated in both of those panels. And other than kicking myself for being at two top skiing destinations in the same month without getting to ski, I was very happy about it. Until five or so years ago, I was one of a very small number of economists studying happiness; now my small circle of happiness researchers has been joined by other economists who are using happiness surveys to understand questions as diverse as the effects of commuting time on wellbeing, why cigarette taxes make smokers happier, and why the unemployed are less unhappy when there are more unemployed people around them.

Read the full opinion piece at Voxeu.org »

Authors

Carol Graham

Publication: Voxeu.org

The Pursuit of Happiness: An Economy of Well-Being

Carol Graham — Wed, 22 Jun 2011 00:00:00 -0400

Brookings Institution Press 2011 164pp.

- A Brookings FOCUS Book -

"Since 1776 the 'pursuit of happiness' has been the great world question. Here, reflecting on modern survey techniques and results, Carol Graham drills deeper. What does happiness mean? For example, is it opportunity for a meaningful life? Or, is it blissful contentment? And why does it vary, as it does, across individuals and around the world? How does the perception of happiness differ in countries as disparate as Cuba, Afghanistan, Japan, and Russia? Carol Graham is opening up a whole new frontier in economic and social policy."—George Akerlof, Daniel E. Koshland Sr. Distinguished Professor of Economics, University of California–Berkeley, and 2001 Nobel Laureate in Economics

In The Pursuit of Happiness, the latest addition to the Brookings FOCUS series, Carol Graham explores what we know about the determinants of happiness, across and within countries at different stages of development. She then takes a look at just what we can do with that new knowledge and clearly presents both the promise and the potential pitfalls of injecting the "economics of happiness" into public policymaking.

This burgeoning field, largely a product of collaboration between economists and psychologists, is gaining great currency worldwide. One of a handful of pioneers to study this topic a mere decade ago, Graham is understandably excited about how far the concept has come and its possible utility in the future. The British, French, and Brazilian governments already have introduced happiness metrics into their benchmarks of national progress, and the U.S. government could follow suit. But "happiness" as a yardstick to help measure a nation’s well-being is still a relatively new approach, and many questions remain unanswered.

The Pursuit of Happiness spotlights the innovative contributions of happiness research to the dismal science. But it also raises a cautionary note about the issues that still need to be addressed before policymakers can make best use of them. An effective definition of well-being that goes beyond measuring income—the Gross National Product approach—could very well lead to improved understanding of poverty and economic welfare. But the question remains: how best to measure and quantify happiness? While scholars have developed rigorous measures of well-being that can be included in our statistics—as the British are already doing—to what degree should we use such metrics to shape and evaluate policy, particularly in assessing development outcomes?

Graham considers a number of unanswered questions, such as whether policy should be more concerned with increasing day-to-day contentment or with providing greater opportunity to build a fulfilling life. Other issues include whether we care more about the happiness of today’s citizens or that of future generations. Policies such as reducing our fiscal deficits or reforming our health care system, for example, typically require sacrificing current consumption and immediate well-being for better long-run outcomes. Another is whether policy should focus on reducing misery or raising general levels of well-being beyond their relatively high levels, in the same way that reducing poverty is only one choice among many objectives in our macroeconomic policy.

Employing the new metrics without attention to these questions could produce mistakes that might undermine the long-term prospects for a truly meaningful economics of well-being. Despite this cautionary note, Graham points out that it is surely a positive development that some of our public attention is going to better understanding and enhancing the well-being of our citizens, rather than emphasizing the roots of their divide.

Additional Praise for the book:

"As acceptance of social science research on happiness continues to grow, a new question has naturally surged to the fore: Should happiness be a goal of public policy? In this eloquently written celebration of a new science, Carol Graham provides valuable new insight into the pros and cons of this issue."—Richard A. Easterlin, University Professor and Professor of Economics, University of Southern California

"The Pursuit of Happiness is a consummate work of scholarship that adds important insights to the worldwide debate on economic well-being. Around the world, governments and citizens are realizing that the Gross National Product is often failing to steer our economies towards desirable ends. The search is on for more appropriate metrics and goals. Carol Graham, a pioneer in the field of 'happiness economics,' builds on a decade of her research to offer clear and careful suggestions for policymakers and scholars who aim to make happiness a central and explicit aim of public policy. With great care and judgment, and consistent clear thinking, Graham explains many of the complexities that will arise in defining, measuring, and targeting happiness in economic policy. Yet Graham urges us to persevere, and her new book will help the world to move forward on this new and promising economic course."—Jeffrey D. Sachs, Director of the Earth Institute at Columbia University, Special Advisor to UN Secretary General Ban Ki-Moon on the Millennium Development Goals

“The book is well written and very accessible, and is immaculately researched, avoiding bias and imbalance. . . . Far from being a ‘dismal science,’ Graham provides much reason for optimism for those people involved in this burgeoning field of economics.”—World Economics

ABOUT THE AUTHOR

Carol Graham

Carol Graham is a senior fellow in Global Economy and Development and Charles Robinson Chair in Foreign Policy at the Brookings Institution. She is also College Park Professor at the University of Maryland's School of Public Policy. Her previous books include Happiness around the World: The Paradox of Happy Peasants and Miserable Millionaires (Oxford University Press, 2010) and Happiness and Hardship: Opportunity and the Insecurity in New Market Economies (Brookings Institution Press, 2001, with Stefano Pettinato).

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The Pursuit of Happiness: Can We Have an Economy of Well-Being?

Carol Graham — Tue, 21 Jun 2011 00:00:00 -0400

At this year’s American Economic Association meetings in Denver, there were the usual panels on topics like the financial crisis and the real estate market. More unusual was a session on whether happiness measures should replace GNP. The latter was written up (rather skeptically) by The Wall Street Journal. That same month there was a similar panel at the World Economic Forum in Davos, with Jeffrey Sachs, the once wunderkind of free markets, calling for happiness as the next United Nations Millennium Development Goal. That session was written up (less skeptically) by The New York Times. What is the world coming to?

I participated in both panels (kicking myself for not skiing at either place). Until a few years ago, I was one of a handful of economists studying happiness and questions as diverse as the well-being effects of commuting time, why cigarette taxes make smokers happier, and why the unemployed are happier when there are more unemployed people around them. We have since been joined by a host of others.

There is also talk of happiness as a policy objective. Remote Bhutan replaced GNP with Gross National Happiness years ago. In 2008, the Sarkozy Commission, chaired by two Nobel Prize winners, called for a worldwide effort to develop broader measures of well-being. Though U.S. conservatives criticized it as a “left-wing attempt to make our economy sclerotic like France’s,” the most recent effort to add well-being indicators to national statistics comes from the conservative Cameron government in Britain. China and Brazil are also considering using the metrics.

This is exciting for scholars. Yet the leap into policy raises a number of unresolved questions. The most important, in my view, is what definition of happiness is most relevant and appropriate for policy?

In my new book, The Pursuit of Happiness, I posit that the definition of happiness that individuals select is partly determined by their capacity to pursue fulfilling lives. In the absence of that capacity—due, for instance, to lack of education and opportunity—people may place more value on day-to-day experiences, such as friendship and religious activities. Those with more capacity are likely focused—and take happiness from—pursuing some overarching objective or achievement. (Think of the scientist trying to cure cancer who sacrifices leisure and relationships in favor of time spent in the laboratory.) Some new research, including my own, supports this intuition.

The need for definitional clarity raises conceptual challenges. For research purposes, we rely on an open-ended question, typically: “Generally speaking, how happy (or satisfied) are you with your life?,” with possible answers on a scale running from “not at all” to “very” happy. We then compare the variance in happiness levels based on the other information that we are able to collect, such as respondents’ income, marital status, age, and employment. The resulting patterns are remarkably consistent worldwide, including in countries of different development levels.

That consistency allows us to test for the effects of variables such as inflation and governance and environmental regimes. We do not ask respondents if these phenomena make them unhappy. Instead, we account for the effects of the standard socioeconomic and demographic variables on happiness, and then compare the variance in scores that is explained by the contextual variables.

Happiness is the most commonly cited dimension of well-being. Yet scholars make finer distinctions, benchmarking happiness results against those based on questions designed to measure specific dimensions of well-being, such as innate character traits (positive and negative affect); comparisons with the best possible life; and life purpose.

Policy, meanwhile, is driven by factors ranging from norms to welfare to culture. Those factors, in turn, influence the definition of happiness. Centuries ago, Jeremy Bentham emphasized the contentment and pleasure of the greatest number of individuals as they experienced their lives—that is, people feeling happy on a day-to-day basis. Aristotle conceived of happiness as eudaimonia: “eu,” meaning well-being or abundance, and “daimon,” meaning the power controlling an individual’s destiny. In the broader life-evaluation sense, this is the opportunity to lead a fulfilling life.

Some societies might be comfortable emphasizing happiness as contentment. Others, such as the U.S, which has the “pursuit” of happiness in the Declaration of Independence and has traditionally emphasized opportunities over outcomes, would likely opt for a eudaimonic definition. Yet promising happiness in this sense requires providing citizens with the agency to pursue it.

There is much to resolve before we can agree on happiness as a policy objective. Yet many countries are already using well-being metrics, and a low-cost experiment for the U.S. would be to add a few tried-and-true questions to our statistics. That in turn would force us to think about our benchmarks of progress; whether we value opportunity or outcomes more; and how much we should emphasize health, leisure, and friendships over productivity and innovation.

Even that would be a bold step. We can compare income across people with consensus on what it seeks to measure. While we have robust measures of the various dimensions of happiness, we do not have the same kind of consensus on the aggregate concept. Happiness is a more complicated concept than income, but also a more ambitious policy objective. The fact that it is seriously on the table reflects what a parameter-shifting moment it is. At a time when our public debates are so contentious, exploring tools for evaluating the well-being of our citizens rather than emphasizing the roots of their divide is a welcome change.

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Carol Graham

More on the Easterlin Paradox: A Response to Wolfers

Carol Graham — Wed, 15 Dec 2010 10:11:00 -0500

Justin Wolfers’ column titled “Debunking the Easterlin Paradox, Again” dismisses Richard Easterlin’s work as just plain wrong. I argue here, as I have elsewhere, that where you come out on the Easterlin paradox depends on the happiness question (and therefore the definition of happiness) that you use, as well as the sample of countries and the period of time.

Richard Easterlin finds no clear country-by-country relationship between average per capita GDP and life satisfaction (among wealthy countries), despite a clear relationship between income and happiness at the individual level within countries. Easterlin also found – and continues to find, based on methods different from Wolfers’ – an absence of a relationship between life satisfaction and long-term changes in GDP per capita.

Different well-being questions measure different dimensions of “happiness”, and, in turn, they correlate differently with income (something they themselves show at the end of their last paper, and admit that the relationship between income and well-being is complex). The best possible life question – which Justin Wolfers and Betsey Stevenson primarily use in the first work, and also in the second – asks respondents to compare their life today to the best possible life they can imagine for themselves. This introduces a relative component, and, not surprisingly, the question correlates most closely with income of all of the available subjective well-being questions. Life satisfaction, which they use in the second work, also correlates with income more than open-ended happiness, life purpose or affect questions, but not as closely as the best possible life question.

Wolfers and Stevenson used the most recent and extensive sample of countries available from the Gallup World Poll, and, as the measure of “happiness”, the best possible life question therein, and challenged the Easterlin paradox. In more recent work, with Stevenson and Dan Sacks (2010), referenced in this blog, the authors look at the relationship between life satisfaction and economic growth, based on the World Values survey and GDP levels and the best possible life question, based on the Gallup World Poll. They isolate a clear relationship between life satisfaction and GDP levels, and their statistical analysis is spot on.

Recent studies by Kahneman and Deaton (2010), and Diener and colleagues (2010), for example, find that happiness in a life evaluation sense (as measured by the best possible life question) correlates much more closely with income than does happiness in a life experience sense (as measured by affect or more open ended happiness questions). This holds within the United States (Kahneman and Deaton) and across countries (Diener et al.).

My own work on Latin America, with Soumya Chattopadhyay and Mario Picon, tested various questions against each other and finds a similar difference in correlation, with affect and life purpose questions having the least correlation with income and the best possible life question the most. My work on happiness in Afghanistan found that Afghans were happier than the world average (on par with Latin Americans) as measured by an open ended happiness question, and 20 percent more likely to smile in a day than Cubans. Yet they scored much lower than the world average on the best possible life question. This is not a surprise. While naturally cheerful and able to make the best of their lot, the Afghans also know that the best possible life is outside Afghanistan.

Thus the conclusions that one draws on whether there is an Easterlin paradox or not in part rest on the definition of happiness, and therefore the question that is used as the basis of analysis. Wolfers and co-authors find a clear relationship between GDP levels and life satisfaction and best possible life – clearly important dimensions of well-being. Yet in the same paper they find much less clear relationships when they use happiness, affect and life purpose questions.

There is also the question of the sample of countries, and whether one is examining cross section or time series data. The most recent debate with Easterlin is about the trends over time rather than cross-sectional patterns. Dropping the transition economies, as Easterlin does, may be a mistake, as Wolfers contends. But it is also important to recognize the extent to which including a large sample of countries that experienced unprecedented economic collapse and associated drops in happiness alters the slope in the cross-country income-happiness relationship (making it steeper). Wolfers also criticizes Easterlin for relying on financial satisfaction data for his Latin American time series sample (because there is not enough life satisfaction data); financial satisfaction correlates closely, but not perfectly, with life satisfaction. Easterlin’s technique allows for the inclusion of a much larger sample of middle income developing countries, a sample of countries that one can imagine is very important to the growth and happiness debate. Wolfers and co-authors use far fewer Latin American countries because comparable life satisfaction data is limited. Either approach is plausible and, as with all work with limited data, is not perfect. But I would not go as far as calling one or the other “plain wrong”.

Finally, there is the simpler question of giving credit where credit is due. We would not be having this debate, nor would we have a host of analysis on well-being beyond what is measured by income, had Easterlin not triggered our thinking on this with his original study of happiness and income over three decades ago (and his patient and thoughtful mentoring of many economists since then). In the big picture of things, Easterlin had the idea.

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Carol Graham

Which Health Conditions Cause The Most Unhappiness?

Carol Graham, Lucas Higuera and Eduardo Lora — Tue, 14 Dec 2010 14:32:00 -0500

Editor’s note: The full version of this paper is published in Health Economics (subscription required).

Abstract —

This paper assesses the effects of different health conditions on happiness. Based on new data for Latin America, we examine the effects of different conditions across age, gender, and income cohorts. Anxiety and pain have stronger effects than physical problems, likely because people adapt better to one-time shocks than to constant uncertainty. The negative effects of health conditions are very large when compared with the effects of income on happiness. And, while higher peer income typically elicits envy, better peer health provides positive signals for life and health satisfaction. Health norms vary widely across countries.

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Carol Graham
Lucas Higuera
Eduardo Lora

Publication: Health Economics

(Un?)Happiness and Gasoline Prices in the United States

Tue, 19 Oct 2010 16:08:00 -0400

Gasoline purchases are an essential part of the American way of life. There were about 250 million motor vehicles in the United States in 2008 – just under a vehicle per person. Americans drive an average of more than 11,000 miles per year and gasoline purchases are an essential part of most households’ budgets. Between 1995 and 2003, gasoline prices in the U.S. averaged about $1.49 a gallon, with average prices rising above $2.00 in 2004. By the summer of 2008, gasoline prices had reached a national average of $4.11 per gallon. At that time, Americans earning less than $15,000 a year were spending as much as 15 percent of their household income on gasoline – double the proportion from seven years earlier. In addition, unpredictable fuel costs make planning monthly household expenditures difficult, which can be detrimental to individual welfare and even to the overall economy.

Gasoline prices fell in the aftermath of the 2009 economic crisis. Prior and during the financial crisis, rising gasoline prices were seen as a symptom of an uncertain economic situation, as well as evidence of the questionable sustainability of our future oil supply. Gasoline prices abated along with the decrease of economic activity that accompanied the onset of the recession, reaching their minimum in late December 2008. A few months later, as the economy entered a gradual recovery phase, gasoline prices also trended upward. In contrast to the previous period of great uncertainty about future oil supplies, however, these price trends were considered more positively as signs of the U.S. economic recovery.

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Soumya Chattopadhyay
James Coan
Carol Graham
Amy Myers Jaffe
Kenneth Medlock III

Some Lessons from Happiness Economics and Quality of Life Research for the Human Development Index

Carol Graham — Mon, 11 Oct 2010 13:19:00 -0400

Abstract

The introduction of the HDI sparked a major debate about the adequacy of income as a measure of development. Perhaps as a result, scholars have developed a number of novel measures of well being. Prominent among these is the use of happiness surveys to study well being in its various dimensions, ranging from well being within persons, to the determinants of well being across individuals, to the effects of contextual factors, such as the environment, political regime, and macroeconomic conditions. Sen’s capabilities approach to poverty, which underlies the HDI, highlights the lack of capacity of the poor to make choices or to take certain actions. Happiness surveys are a means to assess the well being of individuals who are constrained in their capacity to make choices or reveal preferences. This paper reviews what we know about measuring quality of life, based on extensive work with happiness surveys in Latin America, and how that accumulated knowledge can inform the debate the HDI originally sparked. It also discusses how the surveys can contribute to our understanding and measurement of empowerment. It discusses the promises – and potential pitfalls – of directly applying the findings to policy, challenges which are germane to measuring and comparing empowerment across countries.

Read the full report at the United Nations Development Programme » (pdf)

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Carol Graham

Publication: United Nations Development Programme

Brookings: Topics - Economics of Happiness

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Gender and Well-Being Around the World

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Carol Graham

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The New Stylized Facts About Income and Subjective Well-Being

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@ Brookings Podcast: The Policy Implications of Happiness

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Happiness Economics: Can We Have an Economy of Well-Being?

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Carol Graham

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The Pursuit of Happiness: Can We Have an Economy of Well-Being?

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More on the Easterlin Paradox: A Response to Wolfers

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Which Health Conditions Cause The Most Unhappiness?

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(Un?)Happiness and Gasoline Prices in the United States

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Some Lessons from Happiness Economics and Quality of Life Research for the Human Development Index

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