Tuesday, January 3, 2012

It's no longer the economy, stupid!

The Problem:
Before governance, the Hobbesian state of nature prevailed. There was war of all against all, there was fear, solitude and violent death. One beautiful morning, Mancur Olson's sedentary bandit passed by on his black horse and established security. A new paradigm was born: People don't mind that you steal half their income, if you protect them from worse bandits. Until the invisible hand of Adam Smith tapped the sedentary bandit on the shoulder and gestured that people want to have more: Markets can create surplus that allows people to buy their basic needs and when they earn a little more, they can buy themselves some fun. A tectonic shift in purpose of government takes place from providing security to stimulating economic growth. More money really seems to make people happy, up to a point. And that point has been established to be 75K USD. (Rather high if you ask me, but the conclusion remains the same.)

(Chart is from Philip Spagnoli)
More than 25% of all US citizens have already reached this Nirvana. The median US income is about 45K USD, the average income is much higher. Like the US, many countries are well on their way to reach the point where more income does not result in more happiness. Improving our governance system (democracy) to create even more wealth is pointless because it will not make us happier! (Caution: A better distribution of wealth can still make many people a lot happier.) So what should our governments be aiming for?

The Solution:
The answer is simple but I am not sure what it actually means. We have invented our expensive and intrusive government to serve us, so it should help us achieve what we want. Since we no longer only want to be rich, people list a whole array of goals when asked what they want. The demands no longer fits into a neat box like wealth or economic growth. So I am afraid that governments' purpose can only be defined as: Making everybody (beyond only citizens) as happy as possible. Future blog are needed to operationalize the vague concept of happiness into something practical. 

The Transition:
The United States Declaration of Independence states that the pursuit of happiness is an unalienable right, but little has been done to translate this right into daily practice. 
The only government that has translated its goal of happy people into policies and measurable indicators is Bhutan. (Details will be discussed in a future blog.) And Bhutan did not wait until they reached an income of 75K per person (They have about 5K per person PPP now)
There is certainly no shortage of research into happiness and indicators exist for most countries, they are just not being used. 
Yet! Things are changing. Japan has recently unveiled its happiness index and the UK, France, Australia and Canada are working  on their own version. 

The indices might be part of political jockeying for now but since the idea is partially driven by Joseph Stiglitz and Amartya Sen, there is enough momentum to expect something serious from these announcements.
And what gets measured gets done... though this is where the real challenge is because progress towards happiness will need a redefinition of our economic model against a well oiled corporate lobby.