Life: What’s It All About?

Since 2007, capitalism within advanced countries has faced a growing crisis. The long-term neo-liberal prescriptions of the 1980s and 1990s appear to have stopped working: deregulation, privatization and globalization have all lost the ability to sustain an expected 2 to 3 percent rate of economic growth. Moreover, faced with a stalled growth engine, policy makers have been unable to put their economies back on an expansionary track though either the use of super loose monetary policy or large government-backed fiscal injections.

I would argue that demographics, a decline in technology-led productivity and growing resource constraints make the goal of achieving past levels of GDP growth all but unattainable. But it gets worse. Current policy is not only focusing on an outcome that cannot possibly be achieved (substantial and sustainable GDP growth), but also is worsening a whole range of other socio-economic measures that are arguably much more important than GDP.

The OECD’s 2011 publication “How’s Life? Measuring Well-Being” provides a good starting point for studying what has gone wrong. From the introduction:

Everyone aspires to the good life. But what does a “good” (or better) life mean? In recent years, concerns have emerged that standard macro-economic statistics, such as GDP, which for a long time had been used as proxies to measure well-being, failed to give a true account of people’s current and future living conditions. The ongoing economic and financial crisis has reinforced this perception and it is now widely recognized that data on GDP provide only a partial perspective on the broad range of factors that matter to people’s lives.

The report then goes on to stress that continued economic difficulties should not be an excuse to abandon any considerations other than GDP:

Even during times of economic hardship, when restoring growth matters for the achievement of many of many well-being outcomes, such as having a good job or access to affordable housing, at the core of policy action must be the needs, concerns and aspirations of people and the sustainability of our societies.

So what are the OECD’s favoured measures of well-being? They provide us with 11 metrics, divided into two categories

Material Living Conditions

  1. Income and wealth
  2. Jobs and earnings
  3. Housing

Quality of Life

  1. Health status
  2. Work and life balance
  3. Education and skills
  4. Social connections
  5. Civic engagement and governance
  6. Environmental quality
  7. Personal security
  8. Subjective well-being

The figure below shows the feedback loops between these metrics, implications for sustainability and the interaction with GDP (click for larger image).

How's Life Figure 1.2 jpeg

I find the OECD’s approach uplifting since it makes GDP a means to an end, not an end in itself. Surely, it is time that every political party from the left or right takes this fact onboard and makes well-being a central plank of their policy platform? We occasionally pay lip-service to non-growth goals, but this is not enough. Growth is not a goal in and of itself!

Moreover, policy-makers in developed countries are utterly failing to achieve their false god of GDP growth, and in the process are degrading what should be the true goals of improved living conditions and quality of life for the average citizen. Indeed, the fruits of any growth that can currently be squeezed out of the system are being funneled toward an ever-narrower section of society.

Nonetheless, I have a major problem with the OECD’s methodology. Just as GDP is a means toward improving material living conditions and quality of life, so material living conditions and quality of life are just means toward better subjective well being—in other words, ‘happiness’. In short, the category ‘subjective well-being’ has been relegated to one category among many. It’s proper place is at the apex of society’s needs and goals. Both ‘quality of life’ and ‘material living conditions’ should  be subservient to ‘happiness’.

Of course, ‘happiness’ itself is a slippery concept. The OECD report limits itself to two categories: 1) positive and negative affect, which we can think of as feelings like joy, and 2) life satisfaction, which is an evaluation of how happy we are through reflecting on our current life.

For this post, I will limit myself to a quick look at the OECD’s findings on self-reported measures of life satisfaction using the Cantril Ladder, pioneered by the psychologist Hadley Cantril. The OECD’s Cantril ladder approach is based on data taken from the Gallup World Poll (here), who in turn ask this question:

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

From the results of the Gallup World Poll, the OECD reports the following graph of life satisfaction by country:

Cantril Ladder jpeg

And the even more intriguing graph showing only a weak relationship between life satisfaction and GDP per capital:

Life Satisfaction versus GDP per Capita jpeg

Out of which comes the “Easterlin Paradox”. This paradox, in the words of the OECD, is that “a higher rise in personal income leads to higher subjective well-being for that person, but that a rise in average incomes for a country does not give rise to a corresponding increase in the country’s average subjective well-being.”

Against this background, I feel that the burgeoning field of ‘happiness studies’ could provide us with some theoretical tools to tackle the neoclassical economic crisis, deepening resources constraints and the looming threat of climate change. Indeed, I think such studies could provide us with a framework for a fresh political movement that goes beyond neo-liberalism and 1950s and 60s style socialism. I will return to this theme in future posts.

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