The Higher the GDP, the Happier We Are?

(source: the Guardian)

It is a quite common belief that GDP (or GNP) predicts or estimates how happy we are or how good our life is. But it is an illusion. GDP stands for "Gross Domestic Product", and GNP stands for "Gross National Product". They are indexes that indicate the total value of all final goods produced within an economy over a period of time (by all producers within the economy and by all nationals/residents over the world respectively). This does not only indicate the value of all products, but also the expenditure and total income of the economy.

Money can definitely buy some happiness. When you are in poverty, struggling for food, and I give you US$1,000, you will definitely be very happy. But it should not surprise anyone that there are types of happiness that money cannot buy, and having nothing but only money (which can buy you material goods and services) cannot make someone feel very happy. We are a social animal. (I hope you are not surprised by the fact that we are an animal.) It is our nature that we need to have social connections and relationships. We want people to care about us and we want to care about other people. We want to be respected. We want to be able to apply our skills and talents somewhere, typically our career. We want to be healthy.  We have the desire to live in a society that is fair, safe and free. Money cannot buy you these things (except health, because having money does allow to have access to high-quality healthcare).

Nevertheless, personal income does play a role in our individual happiness (or well-being). But how about national income? How does it tell us whether we, as a society, are happy? The following graph estimates the GDP from 1929 to 2013:


(source: Economic Consequences of War on the U.S. Economy)


There was a significant increase in GDP throughout the period between 1939 and 1945, which is the time of World War II. This is due to the production of weaponry (and the required inputs for that). We definitely would not say this growth in GDP or this war was a good thing, although it directly and indirectly led to some innovation and technological advancement, such as the creation of satellites and internet. But tens of millions of people died.

There are many things that we produce that are not good for our well-being, and those things are calculated into GDP. Tobacco, sugary soft drinks and snacks that lead to obesity, weapons, etc. The more we produce these things, the higher the GDP is.

In the past three decades, more and more economists have come to study happiness. How do we measure happiness? How should we allocate our resources to increase happiness, on the individual level and the macro level? What policies should the government make? This field, Happiness Economics, attempts to bring new insights to the field and challenge mainstream Economics, which tends to make simple assumptions about happiness (or utility).

However, way before the creation of this field, an American politician was already aware of the toxic idea that GDP is a good indicator of our happiness/well-being. Bobby Kennedy, the brother of John F. Kennedy, gave a speech at the University of Kansas. In a small part of the speech, he attempted to draw awareness of the misinterpretation of GDP. He said:

"Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.

It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile."

GDP is very useful in illustrating the economic performance of an economy. But we should not be confused with the role of it: it does not tell us how happy we are or how good our life is. Producing more or having higher purchasing power does not mean more happiness.

(edited on Oct 11, 2018)

Should Money and Markets Always Be Applicable?

                         (Source: Youtube/New Economic Thinking)

For many economists, it is easy to think that all or most things can be put to the markets and let it decide the outcome. Michael Sandel does not think so. He has given a different perspective in his book and some of his speeches about the moral limits of markets for some services and goods. There are things that simply cannot be sold or bought, such as authentic friendship. And he argues, there are just things that technically can be sold or bought, but should not.

One of the examples he gave was about the Canadian government distributing quotas to Inuit people for hunting Walruses. The Canadian government came up with a policy that restricted the number of Walruses to be hunted and gave those quotas to the Inuit people, who were the indigenous people of the Arctic Region of Alaska, Greenland and Canada that had the tradition of hunting them for centuries. Decades later, the Inuit people came up with a proposal. They proposed that they could sell the quotas to other hunters from outside, and they promised they were not going to increase the number of Walruses to be hunted. This would just be like many other common practices that involve quotas in politics.

Another example he gave was about the American government allowing citizens who were drafted to the military to pay someone else to substitute themselves. In the time of Lincoln, (male) citizens would be drafted to join the military. This would be mandatory for them; however, if they wanted to pay someone else to take their place, they could.

These two examples are similar in the way that putting a price tag on the good or service would change the original value or meaning of it. “The market may crowd out values, norms, attitudes worth caring about.” Sandel said. The difference is that the latter one involved the trade of life-threatening risk; the former one involved only the trade for benefits by selling out or buying a right. Whether you think these two goods/services should be up for sale or not, I am sure that there must be things that you do not think should be up for sale.

What other goods/services would be really controversial if they were to be sold? Students paying someone to do their assignments would be one. Of course, this is currently not allowed by lecturers nor universities/schools (based on the code of conduct). But if there would be a debate of whether a university student should be allowed to pay another student/person to do their assignment, up for the public/the members of the university to debate, we can suppose that most would oppose to it (maybe except a few radical students). Why can’t we have a trade for this? Using classical economic thinking, there would be some utility and efficiency in this trade. If I had no time to do this assignment, or this was too difficult for me, or I could gain more utility from something else, then I should be allowed to pay someone who would be willing to do this. Perhaps I would be able to utilize the time for an assignment of another class and do better on that one. Perhaps I would be able to utilize the time for my part-time job. At the same time, someone else, who could do this assignment better than me, would be able to trade his/her service for money. We could both be better off. Then why are we forced to do assignments ourselves?

A student doing an assignment by him/herself is a reasonable duty imposed on them by the University and expected by the society. If we did not do assignments by ourselves, then the purpose of doing assignment, and even the purpose of education, would change. An assignment should be a tool to test our knowledge and thinking to evaluate whether we deserve to pass a class and get the degree. Allowing students to trade it would destroy the purpose/the value of this. There is a good reason that we are not allowed to let someone else do our assignments or take a test for us.

Many economists think they can away from value judgement and leave it to the public/the stakeholders to decide, but sometimes it is just unavoidable, especially if you are a public policy analyst or an adviser.

[ECON 101] Overcooked: Specialization, Cooperation and Productivity

(source: team17)

I was invited by some friends to play a video game called “Overcooked 2”. I was not particularly interested at first but right after I started playing the game, I fell in love with it. It was thrilling and the fulfillment from cooperation was high. For those who do not know what it is, in short, it is a fast-paced video game in which 2-4 players are supposed to cooperate to do different tasks and finish as many dishes as possible.* The best strategy for the group is each player focusing on certain task(s).

This game does not only teach us the importance of cooperation, but also some economic concepts. Specialization is crucial for the operation and development of a firm, an organization, a society or even a family. It allows us to be much more productive. One of the reasons is that it saves us time. In Overcooked, if all 4 players do not cooperate and everyone produces a dish by themselves, then everyone would have to walk more in order to go to different sections and do different tasks. More distance walked means more time needed, and more time needed means fewer dishes made, obviously.

     (Source: Gematsu)

Japanese Legislator: LGBT People Are Not Productive

About a week ago, a Japanese legislator wrote an article and said something like "should we actually spend money on LGBT people? They do not give birth to children, which means that they are not productive." After seeing this, many people criticized and protested against this. They were saying things like "do not discriminate!", "humans' value is not determined based on productivity!", "respect human rights!", etc.

All that is not wrong. But why can't people come out and say that...
- productivity is not based on whether someone or a household has children or not. It depends on whether they are producing goods/services, and the quantity and the quality of the goods/services. (Production of Goods and Services = Productivity)
- regular working LGBT+ people are productive and have been paying taxes so they deserve to use public services by the government.
- if giving birth directly means productivity, then we can finally understand why Uganda is so rich. (Although in Japan, having more children will tend to increase future productivity, that is not necessarily the case. Having a child in a household does not necessarily mean the productivity of the country will increase.)
- if you do oppose the idea of using tax money on people who are not productive, you should support the abolition of the "Public Assistance" program, which is a social security program for the poor. You definitely do not have the courage and that would also be unconstitutional.

Many people are just yelling those slogans but do not/cannot make a criticism based on facts and reasoning. That is one thing that disappoints me.

How can legislators be so ignorant? Oh, democracy. I am so forgetful.