angus deaton princeton university october 2010. self-reported well-being asking people how they...
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HAPPINESS AND GROWTH
Angus DeatonPrinceton UniversityOctober 2010
Self-reported well-being
Asking people how they feel, about their lives, their emotions, etc. (SWB) Lots of different questions
Attractive because it is the respondent’s own experience Not poverty (say) as filtered through PPP
conversions, World Bank’s choice of a poverty line, and many other “expert” judgment
Is there really an expertise in the judging of poverty?
The argument
SWB measures have cast doubt on the value of higher income, especially in rich countries Doesn’t make people happier And happiness is what matters
I will outline the main arguments And then try to persuade you that they are
wrong That growth is GOOD, even in rich countries
None of this is settled ground, and these are MY opinions Which, of course, are correct
An argument against SWB
“A person who has had a life of misfortune, with very little opportunities, and rather little hope, may be more easily reconciled to deprivations than those raised in more fortunate and affluent circumstances. The metric of happiness may, therefore, distort the extent of deprivation, in a specific and biased way. The hopeless beggar, the precarious landless laborer, the dominated housewife, the hardened unemployed or the over-exhausted coolie may all take pleasures in small mercies, and manage to suppress intense suffering for the necessity of continuing survival, but it would be ethically deeply mistaken to attach a correspondingly small value to the loss of their wellbeing because of this survival strategy.” Sen, Economics and ethics, 1987, 45-6.
Is this right?
It is an argument about adaptation Or of “False consciousness”
But it is in part an empirical question about SWB measures
If SWB does what Sen says, should abandon it.
But perhaps it does not behave this way? Or perhaps some measures do, and
others do not I will return to this issue at the end
SWB versus growth
Easterlin paradox is the grand-daddy (1974) Countries do not get happier as they get richer People should stop being materialistic, and
become. . . . [insert favorite alternative] Within countries, richer people are happier
Argument is that this shows that relative income is important
So high taxes on earnings will not make us worse off Over time, either relative income too, or other things
are getting worse World is going to hell in a hand-basket But no empirical evidence for this, rather the reverse
More SWB against growth
Adaptation is also a possibly important Stuff makes you happy, but not for long People never understand this, and keep
being fooled Across countries, income matters only in poor
countries Beyond some level of GDP, no relationship
between income and happiness Once basic needs are met, income doesn’t
matter Going to argue these arguments are all
problematic Start with this last
HAPPINESS AND GDP:IN THE EYE OF THE BEHOLDER?
34
56
78
0 10,000 20,000 30,000 40,000
USA
Denmark
Russia
China
India
Pakistan
BrazilMexico
Korea
JapanUK
Finland
TogoBenin
Chad
Venezuela
Costa Rica
Hong Kong
Saudi Arabia
BulgariaGeorgia
Puerto Rico
Kuwait
Singapore
Taiwan
Emirates
GDP per capita in 2003, 2000 PPP chained dollars, PWT 6.2
Mean
lif
e s
ati
sfact
ion
Argentina
Czech Rep.
Spain Italy
Greece
Norway
34
56
78
0 10,000 20,000 30,000 40,000
USA
Denmark
Russia
China
India
Pakistan
BrazilMexico
Korea
JapanUK
Finland
TogoBenin
Chad
Venezuela
Costa Rica
Hong Kong
Saudi Arabia
BulgariaGeorgia
Puerto Rico
Kuwait
Singapore
Taiwan
Emirates
GDP per capita in 2003, 2000 PPP chained dollars, PWT 6.2
Mean
lif
e s
ati
sfact
ion
Argentina
Czech Rep.
Spain Italy
Greece
Norway
STRAIGHTEN UP AND FLY RIGHT!
The law of diminishing marginal utility of money
34
56
78
Ave
rage
ladd
er
0 5000 10000 15000
Income (BC transform=1)
34
56
78
0 200 400 600 800 1000
Ave
rage
ladd
er
Income (BC transform=0.6)
34
56
78
20 40 60 80
Ave
rage
ladd
er
Income (BC transform=0.3)
34
56
78
6 7 8 9 10 11
Ave
rage
ladd
er
Log Income (BC transform=0)
34
56
78
6 7 8 9 10 11
Ave
rage
ladd
er
Log Income (BC transform=0)
34
56
78
6 7 8 9 10 11
Ave
rage
ladd
er
Log Income (BC transform=0)
34
56
78
0 10,000 20,000 30,000 40,000
USA
Denmark
Russia
China
India
Pakistan
BrazilMexico
Korea
JapanUK
Finland
TogoBenin
Chad
Venezuela
Costa Rica
Hong Kong
Saudi Arabia
BulgariaGeorgia
Puerto Rico
Kuwait
Singapore
Taiwan
Emirates
GDP per capita in 2003, 2000 PPP chained dollars, PWT 6.2
Mean
lif
e s
ati
sfact
ion
Argentina
Czech Rep.
Spain Italy
Greece
Norway
34
56
78
6 7 8 9 10 11
Ave
rage
ladd
er
Log Income (BC transform=0)
34
56
78
6 7 8 9 10 11
Ave
rage
ladd
er
Log Income (BC transform=0)
Easterlin paradox
Betsey Stevenson and Justin Wolfers have argued that it is not as clear as you might think At least, If you look at the data carefully
I will let Justin speak to that
Relative income
Do we really care about our neighbor’s income? To the extent that we are indifferent between
increasing our own income and decreasing our neighbor’s?
I do not have time to deal with this today My belief is this is largely a technical problem Mistaking local income for permanent income What is really adaptation is mistaken for
comparisons Adaptation is still an issue
But you can’t tax people into dealing with it Taxing externalities is OK, internalities not
A possible resolution
Not all SWB are the same: terrible confusion in much of the literature Hedonic measures of emotion
Laughing, smiling, sad, happy (proper), angry, stress
Higher at weekends, no relation with education Life evaluation
If 0 is the worst possible life, and 10 is the best possible life, where are you now
Same at weekends, strong relation with education
Living and experiencing your life versus thinking about it (Kahneman)
Kahneman and Deaton (2010) Use Gallup 1,000 a day poll to look at the
difference with respect to income And other circumstances 2008 and 2009, about 450,000 observations
after deletions Ladder is measure of life evaluation
“thinking about your life” Positive affect, negative affect, and stress
“a lot of yesterday” “living your life”
.7.7
5.8
.85
.9
.2.3
.4.5
.6
10,000 20,000 40,000 80,000 160,000
Annual household income, ($)
Fract
ion e
xperi
enci
ng
neg
ati
ve a
ffect
. Str
ess
, an
ger
negative affect
stress
positive affect
Fract
ion e
xperi
enci
ng
posi
tive a
ffect
5.5
66.5
77.5
10,000 20,000 40,000 80,000 160,000
Ladder of life
mean life e
valu
ati
on. Sca
le f
rom
0 t
o 1
0
Annual household income, ($)
More on money
Being poor, even in the US, is really bad for you
Life circumstances, like being divorced, being alone, or having asthma Are correlated with low hedonic affect The size of the effect is much larger for the
poor than for the non-poor Even the improvement in affect that
comes at weekends Lower if you are poor
Best summaries
From many hundreds of press reports
Le Monde reminded us “Money is better than poverty, if only for financial reasons” (Woody Allen)
“Science proves poverty sucks” (gawker.com)
A conjecture
If we had ladder data over time, it would go up along with rising real incomes Very limited adaptation Possibly even a measure of capabilities or
functionings Hedonic measures are subject to adaptation, and
largely reset to personality–determined levels Do not increase as the economy grows
Empirical evidence for Easterlin is largely on the latter, or former with strong hedonic components We have a few shreds of evidence on this, but
too early
It’s too early to write off growth
Even in the “rich” countries Where there is much money-based
suffering Let alone in poor countries, just
because they are beginning to show symptoms of rich country problems Like chronic disease
India v the West
In India, successful old men, world weary, become sadhus, give up their worldly possessions, take up their begging bowls, and head for Varanasi
In the West, successful old men (Lord Layard, Richard Easterlin, Derek Bok) tell other people to give up their worldly possessions!