By Winton Bates, on June 1st, 2011
I am not sure the OECD’s better life index is meant to be fun. But I have had some fun playing with it. The index is interactive. The fun comes from giving different weight to 11 different criteria (or topics as they are described by the OECD) and then observing how this affects rankings of well-being of OECD countries.
The criteria used in the index are: housing, income, jobs, community (individuals’ perceptions of the quality of their support networks), education, environment (air pollution by tiny particulate matter), governance (voting and transparency), health, life satisfaction, safety (assaults and homicide) and work-life balance (working mothers, total hours worked and leisure).
Under the default setting, with all criteria being given equal weight, the countries that come out on top are Australia, New Zealand, Canada and Sweden. If you suppress all criteria other than income, Luxembourg is a long way ahead of the field, followed by the United States and Switzerland. The income measure used in the study (reflecting household financial income and wealth) has Australia in 14th place and New Zealand in 25th place.
The substantial difference between the outcomes of these weighting systems is interesting. In a previous post I observed that all well-being indicators tend to tell similar stories about well-being levels in different countries. The two observations are actually consistent. My research covered a larger number of countries, including many poor countries as well as the wealthy democracies of the OECD. Well-being indicators tend to tell a similar story when wealthy countries are compared with poor countries, but can tell different stories when wealthy countries are compared to each other.
Equal weighting of a range of indicators and a focus on income alone seems to me to be equally arbitrary approaches to well-being comparisons. Well-being is obviously affected by factors other than income, but it would be difficult to argue that all relevant factors are equally important. Value judgments have to be made to determine appropriate weights. An appropriate weighting system might be derived by conducting surveys to obtain weights reflecting the values of people in different countries. Alternatively, surveys could be used to obtain weights reflecting the values of people with different political views in particular countries, or across the whole of the OECD.
In the absence of such survey evidence, I have looked at the rankings for three somewhat extreme political groups drawn from my own imagination: Scrooges, Socioholics and Warm Fuzzies. As I imagine them, all three groups perceive governance and safety as being important to well-being. The Scrooges add income as the only additional factor. The Socioholics add housing, jobs, education and health in addition to income. The Warm Fuzzies exclude income and all the additional factors added by the Socioholics, but replace those factors with community, environment, life satisfaction and work-life balance.
So, which countries come out on top of the welfare rankings according to the values of these three political groups?
Scrooges: The countries that come out on top are Australia, Luxembourg and the United States. New Zealand is placed about 8th, behind Sweden, Austria, Canada and UK.
Socioholics: Australia and Canada come out on top, followed by New Zealand and the United States.
Warm Fuzzies: Australia, Denmark and Sweden are on top, followed by New Zealand, Canada and Norway.
What do I get out of this? My main observation is that Australia seems to come out fairly well, whatever coloured political lenses you use. The well-being of New Zealanders also looks fairly good, particularly if you adopt either a Socioholic or Warm Fuzzy perspective.
Having had some fun, the more serious question that comes to mind is whether a focus on the OECD’s well-being indicators (and other similar constructions) is likely to distract political attention away from much-needed economic reforms to improve the economic strength of some economies. For example, if well-being indicators suggest that people in some lovely country (New Zealand comes to mind) tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government of that country to become complacent about establishing conditions more favourable to further improvement of living standards.
By Winton Bates, on March 4th, 2011
This charming little video provides some history of the concept of Gross National Happiness and its application in Bhutan.
It is amazing how much passion has been aroused by Gross National Happiness outside Bhutan. In August last year Jeffrey Sachs, a distinguished development economist, suggested that western countries should follow Bhutan in adopting Gross National Happiness as a national objective. His concern is that trends toward ‘hyper-consumerism’ have accelerated in the United States in recent decades and that this is destabilizing social relations and leading to aggressiveness, loneliness, greed, and over-work to the point of exhaustion. It is not self-evident that Sachs’ claims are true – and he provides no evidence in support of them. More importantly, it is not clear how he thinks adopting Gross National Happiness as a national objective in western countries would lead to better outcomes. I fear that the remedy he has in mind for alleged hyper-consumerism is additional paternalistic interventions by governments to further remove from individuals the responsibility to control their own lives.
On the other side of the canvas, Julie Novak, a free market liberal whose views I normally respect, has described Bhutan’s adoption of the GNH objective as a failed experiment. Julie’s reasoning seems to be that the experiment must have failed because Bhutan has a relatively low per capita GDP level and its ratings on various social indicators are also relatively low. However, I doubt whether many people would claim that adopting GNH as an objective can immediately lift the average well-being of people in a low-income country like Bhutan to a level comparable to that attainable in the most affluent countries. That would be just as silly as claiming that an increase in economic freedom can convert a low-income country immediately into a high-income country.
It makes more sense to compare Bhutan’s performance on various economic and social indicators with that of other low-income countries. The comparison I made between Bhutan and India, here, suggests that Bhutan has performed reasonably well. For example, Bhutan’s average economic growth rate of around 8 per cent per annum over the decade to 2007 was substantially higher than that for India.
It seems to me that it is far too soon to come to a judgment about Bhutan’s GNH experiment, particularly since it is only in recent years that a serious attempt has been made to measure GNH and there is little evidence to suggest how this information will actually be used in policy development. I concluded my research on this topic for APEL by suggesting that it is not yet clear to what extent the judgments implicit in the methodology reflect the values of the people of Bhutan on such matters as the dimensions of well-being that are important and the weighting that should be given to each dimension. One of my concerns is that the weight that people living in urban centres may wish to give to resilience of cultural traditions may differ substantially from that of people living a traditional rural lifestyle. It would not make sense to claim, for example, that the happiness of any individuals can be enhanced by forcing them to adopt traditional lifestyles if they would prefer more cosmopolitan lifestyles (or vice versa).
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By Winton Bates, on July 8th, 2010
‘Contrary to both those who say money is not associated with happiness and those who say that it is extremely important, we found that money is much more related to some forms of well-being than it is to others. Income is most strongly associated with the life evaluation form of well-being, which is a reflective judgment on people’s lives compared with what they want them to be. Although statistically significant, the association of income with positive and negative feelings was modest’ (Ed Diener, Weiting Ng, James Harta and Raksha Arora, ‘Wealth and happiness across the world …’, Journal of Personality and Social Psychology, (99:1), 2010, p. 60. Media reports: here and here.)
In my view this recent article makes an important contribution to understanding of the relationship between wealth and emotional well-being by attempting to disentangle the determinants of life satisfaction and positive feelings. The article, based on data from the Gallup World Poll, suggests that while satisfaction with standard of living has a substantial impact on satisfaction with life as a whole it has little impact on positive or negative feelings (emotions experienced ‘yesterday’).
The study uses satisfaction with standard of living and a measure of whether people own luxury conveniences (TV, computers etc) as proxy measures of fulfillment of material desires. The basic idea is that people learn to desire material goods because of their social situation (including the influence of advertising) and the fulfillment of these desires leads to feelings of well-being. Some groups (e.g. the Amish) seem to be reasonably happy without much income because they have relatively low aspirations for material goods.
The authors link their findings to the distinction that Tibor Scitovsky made between comfort and pleasure (‘The Joyless Economy’, 1978). They suggest that ‘it may be that’ comforts increase life evaluations whereas pleasures increase reports of positive feelings:
‘Comfort comes from having one’s needs and desires continuously fulfilled, whereas pleasures come from fulfilling unmet needs and from stimulating and challenging activities. One source of pleasure according to Scitovsky is social stimulation, which he suggested lies largely outside the realm of economics. Novelty and learning can be sources of pleasure too. Thus, Scitovsky’s reasoning is in accord with our findings that wealth predicts life satisfaction, and social relationships and learning new things predict positive feelings’ p.59 .
I found that passage fairly challenging, but reading it didn’t give me positive feelings. I don’t have too many problems with the idea that being satisfied with your standard of living is closely related to comfort, but there other factors related to economic activity – such as a sense of achievement – that may make an important contribution to life satisfaction.
A couple of years ago I attempted to identify how necessary various domains of quality of life are to high satisfaction with life as a whole using data compiled by the Australian Centre on Quality of Life (reported here). The criterion used was the percentage of respondents with high satisfaction with life as a whole among those with low ratings on particular domains of quality of life. The percentages were follows (ranked in order of importance of each domain): personal relationships 10.8%, achieving in life 11.8%, standard of living 12.8%, future security 15.6%, health 15.9%, community connectedness 19.0% and safety 20.3%. The results suggest that ‘achieving in life’ is more necessary to high life satisfaction for Australians than is ‘standard of living’.
I do not claim that working for money is the only way that people can obtain a strong sense of achievement, but it would be very surprising if achievement is unrelated to economic success.
By Winton Bates, on October 1st, 2009
The idea of governments collecting data on our subjective well-being might seem slightly Orwellian to many people. It could bring to mind images of officials from the government statistics office knocking at your front door and telling you that they are from the government and they have come to help you by collecting information about what is going on in your mind.
However I don’t think anyone needs to worry a great deal about the implications for their personal liberty of proposals for government collection of subjective well-being data, such as in the recently published book, “Well-being for Public Policy” by Ed Diener, Richard Lucas, Ulrich Schimmack and John Helliwell. As discussed in an earlier post, such data would be unlikely to increase the influence that paternalistic interventionists may have on the policy making process.
The important issue is whether the collection of this additional information is warranted in terms of its potential contribution to discussion of policy issues.
In their concluding chapter the authors ask themselves whether enough is known about subjective well-being for government agencies “to initiate systematic programs for measuring it”. This is how they summarise their reasons for answering “yes”:
“The measures are sufficient to reveal some of the groups in society that are suffering, and they also tell us which groups are thriving. The measures already provide strong clues about the characteristics of nations that lead to the experience of a satisfying life for citizens, along with those that predict the opposite. The measures give clear clues about the activities and circumstances that tend to lead to ill-being and well-being. And when national accounts of well-being are instituted our understanding of these issues will only grow.”
Do we really need systematic programs for collection of information on subjective well-being to tell us about such matters? The measures of subjective well-being generally tend to confirm what we know already from information on incomes and other objective indicators of the quality of life. It seems to me that the important issue is whether collection of more data on subjective well-being would add reliable information that is not available from other sources.
The book discusses the potential contributions of subjective well-being measures in providing new information that could be relevant to discussion of policy issues relating to externalities, non-market goods, taxation, setting fines and compensation for lost welfare. Some specific examples caught my eye. It is possible that information on the extent of misery caused by different diseases could result in better allocation of public funds for medical research (p 134). Some research findings suggest that effects of airport noise on well-being of people in affected areas may currently be under-stated by its effects on residential land values (p 147). Subjective well-being information may help in assessing the value of public facilities such as parks to residents of cities who have access to such facilities (p 155).
The critical issue in considering the contribution that subjective well-being data can make to public discussion is whether this information is reliable (yields consistent results) and valid (actually measures well-being). My assessment of the relevant literature (in my draft paper on Gross National Happiness) is somewhat less optimistic than the view presented in this book. Despite all the noise in this data, however, I think the authors may be correct that enough randomness washes out in large samples to make the responses to single item questions sufficiently reliable for the purpose of creating national indicators (p74). Multiple item questionnaires such as those suggested by Ed Diener and Robert Biswas-Diener to measure “psychological wealth” (in their recent book, “Happiness”) could provide much more reliable information.
I think the authors make a fairly strong case that the surveys are measuring an aspect of well-being although I think it is an over-statement to claim that “the measures behave as they would be expected to behave given widely accepted ideas about what well-being is” (p 93). For example, the measures show a decline in well-being when people have children, despite the widely accepted idea that having children has something to do with well-being.
There is a risk that subjective well-being measures will cloud public discussion of policies rather than shed additional light on relevant issues if they come to be viewed as definitive measures of overall well-being. In interpreting these measures it is important to bear in mind that it is quite possible for people to make rational decisions to sacrifice some of their current satisfaction with life, in order to improve their own future well-being or that of their families.
By Cheryl Grey, on October 8th, 2008
One of the fundamental concepts in economics is utility, which, in the cant of the profession, means whatever works for you. Utility is a need, a preference, a source of satisfaction; if it improves your physical, spiritual or emotional well-being, then it’s said to give you utility.
Many people assume that utility is associated with money or wealth. While that can be true, the term covers much more ground than that and, in fact, can be expansive.
Utility: The Measure of One’s Satisfaction
In the excellent primer Naked Economics: Undressing the Dismal Science , author Charles Wheelan presents the example of a can of tuna. For some people, utility is contained within the inexpensive generic brand found on the bottom shelf. For others, it’s worth the additional cost to purchase the name brand that advertises itself as “dolphin and turtle friendly.” For hungry people in disadvantaged regions of the world, it’s whatever brand they can get.
This example points out one of the underlying principals of utility: it’s different for everyone and can change over the span of a lifetime, usually in conjunction with one’s political views. What comprises a person’s utility varies according to income and educational levels. However, we all want as much of it as we can get, and economic theory is based on the fact that people do what maximizes their utility in the same way that companies maximize their profitability.
And therein lies the problem.
Utility without Happiness
Maximizing utility isn’t necessarily the same as finding happiness or contentment. To again borrow from Wheelan, immunizations give us utility because they prevent us from dying of a preventable disease; however, few people actually enjoy being stuck with a hypodermic needle.
Other notable examples of utility trumping happiness include waiting at traffic lights, paying taxes and staying in a high-paying job that you detest. Some of these examples are part of the sacrifices we all make toward the greater good; however, some of the choices we make, or feel we are forced to make for financial reasons, give us utility but not happiness.
It is true that the citizens of rich nations tend to self-report themselves as happier than those of poor nations. However, studies performed within both categories show that, as long as per capita income in a nation is sufficient to provide for the basic necessities of life (currently around US$15,000), the level of happiness claimed isn’t directly correlated with the level of wealth owned, meaning that money really doesn’t buy happiness, at least not according to these researchers. When the number of lottery tickets sold diminishes, we’ll know people believe them.
The Study of Happiness
Enter the new field of happiness economics, a fascinating but uneasy blend of economics and psychology, which seeks to measure not merely a nation’s gross domestic product but also the level of emotional well-being among its citizens.
Measurements for these criteria include the Satisfaction with Life Index, which comes right out and asks people how happy they are. There is obviously an issue here with subjectivity, but when measured internationally and plotted on a map, as shown in the image at the beginning of this article, the results tend to support the concept of money buying, if not outright happiness, then at least the basics required to survive so that a person can pursue it. On the illustration, green equals most happy, then blue, purple, orange and finally red equals least happy, while grey means the data weren’t available.
Other indices used by happiness economists lean less on subjective self-reporting and more on somewhat harder data. These include:
- Happy Life Years, which blends self-reported happiness with life expectancy;
- the Happy Planet Index, which branches out from human happiness to also include a nation’s ecological impact; and
- Gross national happiness, an index proposed by the King of Bhutan in 1972 which seems to depend less on any strict definitions of anything and more on his own personal preferences.
The true problem with the concept of happiness economics is that happiness is not only difficult to define, it’s also difficult to compare across cultures. The wild joy the Western world believes to be the ultimate in happiness has little appeal for more spiritual nations, where the goal is a Buddhistic calm.
The danger here lies in the political ends to which a happiness index can be turned. Bhutan remains dependent upon subsistence farming with 32% of its population living in abject poverty. But it’s the happiest nation in Asia.
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