How Should Economists Measure Happiness?

by Ivan S

The theory of relative happiness, highlighted by the Easterlin Paradox, has led many to question the efficacy of macroeconomic variables in measuring happiness. This essay uses data collected from the World Bank GINI coefficient list, CIA inflation database and the World Happiness Report to help dispel this uncertainty. Through the comparison of these variables, this essay finds that the Easterlin Paradox is incorrect, and that happiness is not entirely relative. This essay then proposes that the use of macroeconomic variables in partnership with non-economic variables, such as marital status, education and health could provide an increasingly accurate measurement of well-being.

Excerpt

The success of macroeconomic variables in measuring well-being does not mean that they have to be used alone. As Carol Graham states, they should be used in partnership with variables such as marital status, health and education (48). Things such as divorce and unemployment have a significantly greater effect on individual well-being because, as Fredrickson and Losada have found, people are influenced more so by losses in their lives than gains. Fredrickson and Losada state that in order to overcome negative affect, the immediate precognitive response to a negative situation, positive experiences must greatly outnumber negative experiences. Oswald’s findings on the positive correlation between suicide rates and unemployment, as well as the difference in survey responses in those who have been unemployed for an extended period of time compared to the employed, support their findings (1825). This and the fact that inflation is negatively correlated to well-being may be due to the fact that although increased inflation means that everyone is worse off, what matters is whether or not they are worse off than they were before. This would mean that people are not basing their well-being as a comparison between their own status with others, but rather their own previous status. This means that using variables such as marital status and unemployment rate in unison could paint a much more accurate picture of the state of well-being within a country than GDP by itself, which Oswald found to be less effective (1821).

Works Cited

Fredrickson, Barbara L., and Marcial F. Losada. “Positive Affect And The Complex Dynamics Of Human Flourishing.” American Psychologist 60.7 (2005): 678-686. Web. 1 August 2014.

Graham, Carol. “The Economics of Happiness.” World Economics 6 (2005): 41-55. Web. 1 August 2014.

Oswald, Andrew J. “Happiness And Economic Performance.” The Economic Journal 107.445 (1997): 1815-1831. Web. 1 August 2014.

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