Happiness Economics

Happiness economics is the study of a country's quality of life by combining economists' and
psychologists' techniques. It relies on more expansive notions of utility than does conventional
economics. Although its usefulness is yet to be determined, it has become a subject of interest and often
a measure of comparison with the traditional forms of measuring market health such as GDP and GNP. This
field of studies is also called " The economy of happiness".


Happiness and GDP

Easterlin paradox
Typically market health measures, such as GDP and GNP, have been used as a measure of successful policy.
Although on average richer nations tend to be happier than poorer nations, some studies have indicated
that beyond an average GDP per capita of about $15,000 (most of the world's nations have less than this),
the average income in a nation makes little difference to the average self-reported happiness.





What makes people happy? — Determinants of happiness

Given its very nature, reported happiness is subjective. It is difficult to compare one person’s
happiness with another. It can be especially difficult to compare happiness across cultures.However,
happiness economists believe they have solved this comparison problem. Cross-sections of large data
samples across nations and time demonstrate consistent patterns in the determinates of happiness.

Abraham Maslow theorized that human happiness is the outcome of meeting a set of needs. He listed these
in order of priority, leading to a pyramid called Maslow's hierarchy of needs. The set of needs includes
physiological, safety, love/belonging, esteem, and self-actualization needs. These needs can be used as a
basis for evaluating the overall happiness level of individuals.



Money correlates with happiness, but the rate diminishes with more money. One study, when corrected for
social status, showed no correlation between income and happiness. However, the amount of spare time
people have, as well as their control over how much spare time they have, correlates with happiness.

More generally, there is a significant correlation between feeling in control of one's own life and
happiness levels. Losing one's job can be a great source of unhappiness.

The idea that happiness is important to a society is not new. Thomas Jefferson put the “pursuit of
happiness” on the same level as life and liberty in the United States   Jeremy Bentham believed that
public policy should attempt to maximize happiness, and he even attempted to estimate a "hedonic
calculus".  Many other prominent economists and philosophers throughout history, including Aristotle,
incorporated happiness into their work.

Several countries have already developed or are in the process of developing a gross national happiness
index (GNH).  His Majesty King Jigme Singye Wangchuck of Bhutan, is credited with creating the
first such index.  In 1972, the King was concerned about the problems afflicting other developing
countries which were focused on economic growth.  While a work in progress, the example set by Bhutan
is starting to catch on in other parts of the world.  Bhutan’s index has led that country to limit the
amount of deforestation it will allow and to require that all tourists to its nation must spend  US$200  Allegedly, extensive tourism and deforestation lead to unhappiness.

After the military coup of 2006, Thailand also instituted an index.  The stated promise of the new
Prime Minister Surayud Chulanont is to make the Thai people not only richer but happier as well.  Much
like GDP results, Thailand releases monthly GNH data.  The Thai GNH index is based on a 1-10 scale
with 10 being the most happy.  As of May 13, 2007, the Thai GNH measured 5.1 points.  The index
uses poll data from the population surveying various satisfaction factors such as, security, public
utilities, good governance, trade, social justice, allocation of resources, education and community
problems.

Australia, Canada, China, France and the United Kingdom are also coming up with indexes to
measure national happiness.
Ecuador's and Bolivia's new constitutions state the indigenous concept of "good life" ("buen vivir" in
Spanish, "sumak kawsay" in Quichua), and "suma qamaña" in Aymara as the goal of sustainable development.

Goals of Happiness Economics

The goal of happiness economics is to determine from what source people derive their well-being.
Historically, economists have said that well-being is a simple function of income. However, it has been
found that once wealth reaches a subsistence level, its effectiveness as a generator of well-being is
greatly diminished.  This paradox has been referred to as the Easterlin paradox and may result
from a "hedonic treadmill." This means that aspirations increase with income; after basic needs are
met, relative rather than absolute income levels influence well-being.  Happiness economists hope to
change the way governments view well-being and how to most effectively govern and allocate resources

given this paradox.  However, other research suggests that no paradox exists, and happiness is
linearly related to the logarithm of absolute (real, PPP-adjusted) income, with little or no relative
income component.

Criticism of Happiness Economics

Some have suggested that establishing happiness as a metric is only meant to serve political goals.
Recently there has been concern that happiness research could be used to advance authoritarian aims.

As a result, some participants at a happiness conference in Rome have suggested that happiness research
should not be used as a matter of public policy but rather used to inform individuals.
In addition, survey findings can lead to subjective interpretations. For example, a happiness study
conducted in Russia during the 1990s  indicated that as unemployment grew, the well-being of both
those employed and unemployed rose. The interpretation of this could be that it resulted from diminished
expectations and respondents who were less critical of their own situation when many around them were
unemployed, or it could be interpreted as being the result of everyone benefitting from the unpaid
work that the unemployed were able to do for their families and communities with their increased time
resource.