Hurriyet South Weekly Editorial: The pursuit of happiness by economists

I just wrote another editorial, aka The Southbound, for Hurriyet Daily News Economic Review's weekly supplement South Weekly, which appeared in today's issue.

I wanted to forgo the cheesy and equally mysterious titles for this week, so the title summarizes the article, as you can see (or rather read):

The most common New Year’s wish, as epitomized by the phrase “Happy New Year”, is happiness. It turns out economists have a thing or two to say about happiness.

Although the Fab Four once said, “Money can’t buy love,” it can certainly buy happiness, at least according to most economists. In the basic economics model undergraduates are introduced to in their first semester of economics, an individual’s utility function, which measures her satisfaction, depends on consumption. And it is not just a simplification for college kids: It is probably one of the most common frameworks in economics.

So philosopher Tyler Durden was right after all: The things you own end up owning own you, at least according to economists. But with economics, there is never a definitive answer, and as early as 1974, economist Richard Easterlin found that while there was a relationship between income and happiness within a country, it disappeared when looked across countries and through time.

Although the so-called “Easterlin Paradox” has been shown to be largely an artifact of data paucity by more recent research, it has paved the way to questioning the dependence on Gross National Product, or GNP, for measuring national welfare. Bhutan measures Gross National Happiness, or GNH, and France launched a commission in 2008 to go beyond GNP.

Like most ideas in economics, this one is not new, either. Economist Simon Kuznets, who devised the first comprehensive GNP measures for the United States, warned as early as 1934 that "the welfare of a nation can scarcely be inferred from a measure of national income.” Bob Kennedy noted in 1968 that GNP “measures everything in short, except that which makes life worthwhile.”

But the shortcomings of GNP for measuring wellbeing should not mean that it should be discarded, just that it should not be given any more responsibility than what it measures, which is the market value of all goods and services produced by the citizens of a country. For well-being, there are already plenty of other indicators such as inequality, poverty and health.

Besides, measuring happiness is not without problems, either. The perception of happiness may differ between countries. For example, in the 2001 Eurobarometer survey, 64 percent of the Danes, in contrast to just 14 percent of the French, said they were very satisfied with the life they led.

Tim Harford of the Financial Times, who brought this interesting statistic to my attention, finds it “tempting to question how much the survey really tells us about the relative well-being of France and Denmark.”

But it does tell something about the French and Danes: My days in Paris, the capital of melancholy and depression, lit up considerably in the summer of 2001 after I started going out with a Dane. Good science is good observation, after all.

Joking aside, problems in measuring happiness have urged economists to more sophisticated methodologies, summarized by Tim Harford in the same article. While these are sure to lead to more accurate measures of well-being, they should nevertheless be used as a supplement to, not replacement of, the hard data. Otherwise, they are bound to fall into the very same trap they were supposed to avoid.

Surf and turf is equally stomach-upsetting: Combining objective statistics with subjective measures of well-being to come up with measures of GNH would only lead to confusion and subject the statistics agency (and of course the government) to accusations of manipulation of data.

I wish you a belated Happy New Year!

*** Emre Deliveli is a freelance consultant and columnist for Hürriyet Daily News & Economic Review and Forbes as well as a contributor to Roubini Global Economics. Read his economics blog at http://emredeliveli.blogspot.com.