Happiness Measures as a Guide to Development Policy? Promises and Potential Pitfalls

Transcription

1 Happiness Measures as a Guide to Development Policy? Promises and Potential Pitfalls Presentation at the Annual ABCDE Conference Stockholm, Sweden June 2010 Carol Graham The Brookings Institution 1

2 What can we learn from happiness surveys from around the world Have spent the last 10 years studying the determinants of happiness in countries around the world, as diverse as the U.S. and Afghanistan, Chile and China; new book Happiness around the World: the Paradox of Happy Peasants and Miserable Millionaires Happiness economics a new tool in economics Allows us to study the determinants of well-being as well as to quantify the unhappiness effects of unemployment, divorce, commuting time, and smoking; are Republicans or Democrats happier (and why)? Are happier people healthier? Do they earn more money? What are the linkages between poverty and happiness? Economic crisis and happiness? Departs from traditional economics in its emphasis on expressed versus revealed preferences e.g. can we believe what people say? (no consequences ) Many questions that revealed preferences cannot answer well, such as the welfare effects of institutional arrangements individuals are powerless to change (inequality, macroeconomic volatility) and the explanation of behaviors that are driven by norms, addiction, or self control problems (obesity, smoking) 2

3 What can we learn, continued Most recently, a lot of talk about policy; national well being indicators; the Sarkozy commission, the CDC, the Whitehall office; should we be pursuing happiness rather than economic growth? Surely question is relevant to LDCs; finding metrics of well being that are broader than income can help us better understand the development process, but should we be using happiness as guide to development policies? The pursuit of happiness is in in the US Constitution; should it be a part of the charter of the IFI s? Happiness studies have gone from the fringes of economics to the mainstream; well over 1000 articles in respected, peer reviewed journals, including the flagship publications of the profession The research has also sparked a renewed and major debate over a key relationship in economics and one that is critical to development: that between happiness (or welfare) and income Easterlin paradox, 1975 and now (figure) 3

4 Happiness and Income per-capita (1990s) 4

5 Happiness patterns across the world Happiness and age (figure) Income Health Employment Friendships Gender, religion (less clear) Consistent patterns allow us to explore the happiness effects of things that vary, such as commuting time, environmental quality, the inflation or unemployment rate, the nature of governance, obesity rates, crime and corruption rates, cigarette smoking, exercise, and more To some extent, the world is our oyster! BUT there is also one major complication 5

6 Happiness in Latin America: Age-pattern conforms! 6

7 The Fly in the Ointment: Adaptation Afghans happier than the world average, as happy as Latin Americans, despite objective conditions (smiling yesterday versus best possible life) Guatemalans more satisfied with their health care than Chileans, and Kenyans as satisfied with their health as Americans Obese people less happy than the average, but they are much less unhappy when there are more obese people around them; same goes with unemployed people. People adapt to norms (Figure) Crime and corruption make people less happy, but the effects are much lower when there is a lot of crime and corruption (Tables for LA Africa and Afghanistan findings similar) Freedom and democracy make people happier, but they matter more to the happiness of those that have more of these things Perhaps adaptation is good from an individual psychological perspective, but may lead to collective tolerance for bad equilibrium 7

8 Happiness and Health: The role of norms The base impact of obesity on happiness is 0.57 e.g. white obese people with income in the middle income quintile living in a non-urban area in the East who have not graduated high school are 0.57 standard deviations higher on the depression scale than their non-obese counterparts. 8

9 Effects of Crime on Happiness in Latin America 9

10 Effects of Corruption on Happiness in Latin America Explanatory variables Dependent Variable: happy age (0.000)** (0.000)** (0.000)** (0.003)** age (0.000)** (0.000)** (0.000)** (0.035)* gender (0.014)* (0.014)* married (0.000)** (0.001)** (0.001)** (0.030)* edu (0.000)** (0.000)** (0.000)** edu (0.002)** (0.006)** socecon (0.000)** (0.000)** (0.000)** (0.000)** subinc (0.000)** (0.000)** (0.000)** (0.000)** ceconcur (0.000)** (0.000)** (0.000)** (0.000)** unemp (0.000)** (0.000)** (0.000)** (0.001)** poum (0.000)** (0.000)** (0.000)** (0.000)** domlang (0.000)** (0.000)** (0.000)** (0.001)** vcorr (0.000)** (0.000)** (0.000)** (0.017)* corrresid (0.000)** (0.000)** (0.027)* els (0.000)** Control for gini No No No Yes Control for GDP growth rate No No No Yes Control for lagged GDP growth rates No No No Yes 10

11 Uncertainty Uncertainty is one of the things that people have a hard time adapting to; they seem to prefer unpleasant certainty to uncertainty, even if it is associated with progress Health: mobility versus epilepsy, pain, anxiety Economics: people adapt very quickly to income gains; at the same time do not seem to like the uncertainty and rewards shifts (and at times inequality) that accompany rapid economic growth; thus the paradox of unhappy growth ; at micro level, the happy peasants versus the frustrated achievers [Table] The U.S. economic crisis an example [Figure] 11

12 The paradox of unhappy growth The relationship between income per capita, economic growth, and satisfaction GDP per capita 122 countries Economic Growth Life Satisfaction *** *** Standard of living *** *** Health satisfaction * * Job satisfaction *** Housing satisfaction *** Source: IADB-RES using Gallup World Poll, 2007 OLS regression; dependent variable is average life satisfaction per country, growth rates are averaged over the past five years. N=122 GDP per capita: The coefficients are the marginal effects: how much does the satisfaction of 2 countries differ if one has 2X the income of the other. Economic Growth: How much does an additional % point of growth affect satisfaction The life satisfaction variable is on a 0 to 10 scale; all others are the percentage of respondents that are satisfied. Graham and Chattopadhyay find similar effects for Latin America, based on individual data rather than country averages 12

13 Best Possible Life & Dow Jones Industrial Average Trend (Jan Dec. 2009) DJIA (day end) Dow and Happiness ( ) 01 Jan Jul Jan Jul Jan 10 Date Best Possible Life (daily average) Dow Jones Indus Avg (day end) Best Possible Life (0-10 scale) 13

14 Income Equivalences of Health Conditions in EQ5D In monthly incomes. Comparison income: US$ 93.7 PPP 100 Monthly incomes (logarithmic scale) Usual acts moderate Pain extreme Anxiety moderate Anxiety extreme Source: Authors calculations based in Gallup 2006 and Note: direct equivalences are based on the effect of each health component on life satisfaction. The EQ5 equivalences are based on the effect of changes in the EQ5D index, derived from changes in each health component. Vertical bars represent a 95% confidence interval. 14

15 Conclusions, Take One: On Adaptation There is a lot of evidence of individuals ability to adapt to both prosperity and adversity At the individual level the capacity to adapt to adversity is likely a positive trait, at least from the psychological welfare perspective At the collective level, though, this may result in societies getting stuck in bad equilibrium, such as bad health or high levels of crime and corruption It is very difficult for one individual to challenge or tip these kinds of norms, say by behaving honestly when everyone else is corrupt This also raises a note of caution about applying happiness surveys to policy. This difference in norms and tolerance for adversity means that people can report to be happy in conditions that are intolerable by most people s standards the happy peasant versus miserable millionaire problem Additional unresolved questions pose challenges to the direct application of the results of happiness surveys to policy: 15

16 Conclusions, Take Two: On Policy Happiness surveys as a research tool work because they do not define happiness for the respondent; happiness as a policy objective requires a definition; happiness as contentment (Bentham) versus happiness as leading a fulfilling life (Aristotle)? Cardinality versus ordinality Inter-temporal problems: how do we value happiness today versus happiness tomorrow? Policy reforms, for example, often bring unhappiness today in the hopes of increasing it tomorrow. Despite the difficulty that happiness as a concept poses for both method and economic philosophy, it forces us to think deeply about what measures of well being are the most accurate benchmarks of economic progress and human development Like anything new, we are working to get the science right! 16