Is Economic Growth Causing the Chinese to Become Discontented or Just More Optimistic?

In my last post I suggested that the reasons why rapid economic growth has not resulted in increased average life satisfaction in China over the last couple of decades have more to do with rising aspirations than with increased income inequality. In this post I want to consider those issues further.

My first point is that in recent years the Chinese have been about as satisfied with life as people in most other countries with comparable income levels. This shows up clearly in charts in Angus Deaton’s article, ‘Income, health and well-being around the world’ (“Journal of Economic Perspectives”, 22 (2)).

Second, survey evidence is not consistent with growing discontent caused by rising inequality – or by anything else. According to recent Gallup data about 66 percent of Chinese are satisfied with their standard of living and 83 percent say that their standard of living is getting better. A paper by Nicole Naurath show that in 2008 over 80 percent of Chinese claimed that economic conditions were getting better in the city or area where they live and that it was also getting better as a place to live.

Third, there is evidence that life satisfaction in China is more strongly influenced by satisfaction with income growth (i.e. satisfaction with income now compared with income in the past) than with either absolute or relative incomes. The results of a study by Lina Song and Simon Appleton do not support the view that dissatisfaction with relative income is a major cause of social discontent in China (“Life Satisfaction in Urban China”, IZA DP: 3443, 2008).

Fourth, Andrew Deaton found in his cross-country study, cited above, that while level of per capita income has a positive effect on life satisfaction, economic growth has a negative effect. His results suggest that it would be normal for the negative effect of economic growth to outweigh the positive effects of increases in income levels in countries that are experiencing rapid economic growth (see Table 2 in his article). Deaton argues that his results are consistent with life satisfaction responding to the long-term average income, as in a permanent income model of life satisfaction.

Fifth, the ratings that the Chinese give to the quality of their lives five years ago and five years into the future suggest that large upward revisions are occurring in their aspirations. The Gallup data for 2008 indicates that the Chinese rated their lives five years ago less highly than just about every country in the world outside Africa. The rating they give to their lives five years ahead is higher than that in some western European countries. When they appraise their current quality of life in five years time they will realize that they still have somewhat further to go before attaining “the best possible life”. But they are not likely to become discontented while they continue to experience the economic growth they have come to expect.

I think the lesson to be learned from consideration of the relationship between average life satisfaction and rising per capita incomes in China is that the failure of life satisfaction to rise with income does not necessarily imply discontent with the consequences of economic growth. Those who suggest that economic growth has led to widespread discontent in China are mistaken. Economic growth has merely cursed the Chinese with great expectations.

Alan Kohler – Gold Hater

One to bookmark and shove in his face when gold is $5000. From Gold fever looks incurable by Alan Kohler:

But underlying demand is weak and getting weaker, and supply is on the rise – big time.

Gold is the commodity of craziness.

… gold investors are that unique breed of incurable optimists who don’t want to be paid any income on their capital

… it is not a currency. I can’t go into JB Hi-Fi with a lump of it and buy a TV.

It’s just a commodity they [central banks] got stuck with because it used to be a currency a long time ago and will never be again.

So gold is also the commodity of confusion: is it an investment safe haven or just a commodity? Answer: it’s whatever everyone thinks it is, and right now it’s a haven.

Confidence Spike: Consumers, Small Business, Builders, Investors


Wednesday saw significant spikes in confidence from four important market groups:

1. The Consumer: On Wednesday the Rasmussen Consumer Index, which measures consumer confidence on a daily basis, rocketed to its highest level in exactly one year.

2. Investors: Also on Wednesday, the Rasmussen Investor Index spiked to its highest level in over a year. Investor confidence is up 28 points since Jan 1.

3. Builders: Confidence among U.S. home-builders rose in September for the third straight month. The National Association of Home Builders/Wells Fargo confidence index bounced to it’s highest level in 16 months.

4. Small Businesses: Economic confidence among small businesses leaped to its highest level in 18 months in August as more owners expressed faith in U.S. economic recovery. According to the latest Discover Small Business Watch, their small business index rose 7.7 points from July, reaching the highest level since February 2008.

It is no wonder 2009 growth is coming on strong and the stock market might just be poised for a major leg up.