Wednesday, December 8, 2021
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Functional Welfare: The Economics of Happiness


It’s believed that it’s difficult to quantify what we feel. Even when asked to rank it on a scale of 1 to 10, it’s still pretty hard to choose from limited options. The very nature of our emotions is subjective, depending largely on the wealth of experience we have accumulated with time and our personality/behavior/outlook, call it what you may.

In short, the possibility of finding common ground to actually compare them seems impossible, right? Fear not, because we live in a world where things are made possible. (Even if most of it is questionable)

And hence, I present to you Happiness Economics.

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Now most of us have not heard of the term, or aren’t even aware something like this exists (the funny thing is, the term itself can be saddening for avoiders of economics and abbreviations like GDP, GNP, etc.)

Here’s how the economics of Happiness came into being –
Step 1: Economics was taken.
Step 2: Sociology was added, along with a dash of Psychology
Step 3: Seasoned well, it just kept on growing.

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So much so, that Bhutan in 2012, became the first and so far only country to have adopted Gross National Happiness instead of Gross Domestic Product as the main indicator of development. Interestingly, GNH was a concept introduced by the King of Bhutan in 1972.

Here’s the down low on this interesting concept:

To define, Happiness economics is the quantitative and theoretical study of happiness, positive and negative affect, well-being, quality of life, life satisfaction and related concepts. This field has grown substantially in the 20th century, with several countries coming up with their own indices to measure happiness and well-being.

3 (6)HOW:

Even though the survey to collect data on happiness should ideally just have a single yes/no question, turns out there are A LOT of factors happiness economics takes into consideration. Even though happiness is undoubtedly subjective and differs across nations and people, some happy scientists believe that they have decoded both an objective way and subjective way to find happiness out. By observing our brain’s joy center, that is. Just imagine, how terribly difficult would that be, to conduct nationwide.

Economists have figured, that there is a lot that makes up an individual’s happiness. Happiness supposedly is dependent on – individual income, work and employment, social security, relationships and children, leisure, health and even in fact, the nation’s GDP. Thus, most of the surveys and reports play on a permutations and combinations of these basic factors to come up what I’m terming, happiness data.

Now comes the million dollar question, WHY:
In a world with scarce resources, where developing countries struggle to feed their population, is it really necessary to have such evaluation methods that seek to quantify something that fundamentally differs from each and every person? Or rather, what is the end use of such analysis?

In a famous speech, Robert F. Kennedy once said,
“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…It measures everything in short, except that which makes life worthwhile”
So can we view the economics of happiness as a step towards a more holistic evaluation of welfare?

According to economist Betsey Stevenson it turns out that GDP and happiness are highly correlated, so despite its theoretical limitations, GDP continues to be a pretty good barometer of social progress.

Happiness research does tell us what we feel, as a nation towards public policy and towards welfare conditions of which happiness is considered to be a normal consequence. With the right evaluation methods, this data could be useful in policy formulation. Because isn’t the ultimate aim, to have a nation full of happy people?

So far, pretty positive!

However this approach faces its fair share of criticism.


We shouldn’t rush to abandon our GDPs and GNPs, replacing it with the much more appealing National Happiness Indices, because evaluation methods aren’t fool proof, and survey findings can lead to subjective interpretations.

Another question that pops up is, assuming a difference between happiness in the moment and a more long term satisfaction, what is it that policy seeks to maximize? Are we trying to maximize a number of little moments, or people’s satisfaction with their life?

These questions further bring to light the need for more acceptable and objective methods.

But let’s not negate this approach completely. There are not a lot of people who would say happiness is not of importance in our lives. However, it shouldn’t be considered as the only thing of value (or assigned value, really). Better evaluation methods of life satisfaction, and increased objectivity would allow us to give this data more weight in policy deliberation. Even if it’s about the little moments or the bigger picture, it’s actually quite heartening to know that ways are being found to maximize happiness on a national and global level.

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Like the legendary Pharell Williams said, “Clap along if you feel that happiness is the truth”



By Manvika Athwani


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