Harcourt

HOW TO BE HAPPY

Paul Frijters – QUT-econ\fin + RSSS / ANUCo-authors: Andrew Clark (Paris) and Michael Shields (Melbourne)

Content

Some stylised findings on happiness and economics

What is the broad relation between economic institutions and happiness?

Discussion.

Does the economy matter at all?East-Germany

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FIGURE 2: Life Satisfaction and Real Monthly Income in Russia, 1994-2001

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Summary of main findings:

Main benefit of income growth occurs at low levels of income.

Happiness is highly relative and adaptive: its not about being rich, but being richer than the neighbour.

People are risk-averse and want to see their income profiles go up in life (no demotions!).

The main ‘economic’ input into happiness is a positive attitude and a belief that things will work out.

People will think more positively about their situation if they believe they chose it themselves.

So what is the aim of a happy economy?

To achieve a situation whereby individuals do not go ‘backwards’ in life and are not in fear of being poor, but yet where each person feels positive and

thinks things will work out for him/her as a result of their own choice.

What’s the problem?

A market economy mainly operates by harnessing the power of fear, i.e. by rewarding entrepreneurial risk-takers and allowing ‘the losers’ to go bankrupt.

This means a trade-off between stability and growth.

What can you on the aggregate level do?

Choose for stability at the expense of social dynamism (EU): social welfare institutions that

limit risks plus strong workers’ right and workers’ organisations that limit the activities of the bosses.

This is happiness through the economy

Choose for greater economic dynamism but equip the population with an iron belief that

they are going to succeed (US): limited social welfare institutions and cut-throat competition.

This is happiness through religion and beliefs

Bottom line: the EU has perfected the disappearance of poverty and risk. The US has perfected the language of choice and destiny.

Non-economic institutions to improve happiness: where to look

- Happy personality building at school? Best guess: tell the kids they are going to be fine and that god loves them no matter what happens.

- Happy geriatrics? Best guess: give them what they really need.

- Bottom line: economics has only a little to do with happiness. Its more about personality, a belief in choice, and religion.