Research Dept. News
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Monthly Report, num 337 - July-August 2010
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Editorial
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Social welfare, economic progress and happiness
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The pursuit of happiness is a constant in the individual and collective history of human beings and this is confirmed by a wealth of popular refrains and sayings. Even the United States Declaration of Independence placed the pursuit of happiness among the rights of man. 25 centuries ago, Aristotle also established the pursuit of happiness as the aim of his philosophical ethics. But what does happiness consist of? There can be many different answers: pleasure, wealth, fame or power; or an intellectually rewarding life, the practice of virtue or helping others. Or a combination. The menu is long and highly varied and we are therefore faced with a totally subjective concept that is difficult to apprehend.
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That's why it might be surprising that economics, the dismal science as defined by Thomas Carlyle, is also devoted to happiness. Richard Layard, one of the great references in this debate, defines the determining principles of our personal satisfaction or subjective happiness: family relations; a stable, rewarding job; community and friends; health; individual freedom; personal values and, of course, financial situation. Money is one of the components of happiness but it is in no way a determining factor. Of course we are referring to «normal» situations. Privation and poverty are hardly compatible with a satisfactory personal state. But once our basic needs have been met, money becomes secondary; or not, because it can be seen that comparing ourselves with our peers sets off a mechanism that alters our subjective perception of what we take to be «basic needs». If we earn more money or our car is more expensive than our neighbour's, we will probably feel more satisfied, and vice versa. If a country has a higher per capita income than its neighbour, it will also feel more satisfied. Comparisons also have an effect in terms of time. A rise or cut in wages, as well as losing or getting a job, affect individual happiness because we compare them with our previous situation. But the principle of adaptive expectations is also true, i.e. increases in wealth only have a temporary, limited effect on our happiness and we individuals adapt to almost any situation, be it better or worse.
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In any case, comparisons, albeit odious, are also important when evaluating happiness or personal or collective satisfaction. But how can our degree of happiness be measured? One way is by directly asking citizens for their personal, subjective opinion, let's say on a scale of 0 to 10. This provides interesting information but it's difficult to extract applicable conclusions, given the variability between what each person understands as happiness. Another way is to use objective indicators that define what is understood by the state of social welfare, such as life expectancy, level of education, the unemployment rate, etc. But it's complicated to get the right combination of indicators for the desired purpose, bringing us back to the initial situation of subjectivity. What would make it a lot easier would be if one of the macroeconomic indicators, in particular gross domestic product (GDP) per capita, could give us an adequate view of the state of social welfare. This idea is rejected, often vehemently, because GDP does not include aspects such as health, air purity or joy of living. However, it's also true that, in general, GDP has a close correlation with the objective variables of social welfare, and that economic progress plays a key role in improving this. Money isn't everything but, as the saying goes, it certainly helps.
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