Dr. Shane Oliver, chief investment strategist and chief economist at AMP, discusses happiness and the economy is failing us by focusing on GDP and consumption.
Key points:
introduction
On a recent road trip, I was listening to a bunch of Taylor Swift and Andy Williams CDs and what struck me was how different the themes of the songs were. Andy’s covers were much more upbeat (with songs like “Happy Heart” and “For All We Know”), while Taylor has a lot of “Someone Hurt Me” songs. Of course, it’s harmful to generalize, but then I saw a study from the University of Innsbruck that found songs were “darker” and “angrier. “than 50 years ago, which got me thinking about what we’re told about the larger concept of music: happiness.
The pursuit of happiness is at the core of our existence. There’s plenty of evidence that happiness is smart for us: satisfied people live longer, are healthier, more resilient, more creative, are better leaders, and are more sociable. Even though it’s presented as a “depressing science,” economics is actually about happiness. The economic challenge is how to maximize application (or happiness) with limited resources. Therefore, economics can even be thought of as the “art”. of happiness. ” But measures of happiness have remained strong or declining in evolved countries. So what’s going on? Are we failing the economy?It has become a major theme in the 2000s in many books about happiness. Now there’s even a regular “World Happiness Report” that uses Gallup polls to measure happiness.
Unbridled Prosperity
The nineteenth century saw the beginning of immediate global economic growth.
Source: Angus Maddison, AMP
This actually took off in the 20th century, when technological inventions such as electricity, the internal combustion engine, and silicon chips combined to increase productivity. As a result, a true source of revenue or gross domestic product (GDP) consistent with the user has been accumulating globally. This led to a giant build-up in drasy with, for example: giant air-conditioned houses; affordable high-speed travel; varied, high-quality food; a wide diversity of products; A behemoth that’s building up in lifespan as well as instant communication and entertainment.
But happiness stagnated over a few decades
Despite the massive increase in the pros of happiness, there is little evidence that happiness levels in evolved countries have increased over the past fifty years. This is illustrated in the chart below for the U. S. The U. S. Census Bureau, which shows the consistent percentage of other people who say they are happy. “Very happy,” relative to real GDP, according to his son. As incomes have increased over the past 50 years, happiness has decreased.
Source: U. S. General Social Survey, IMF, MPA
The scenario is that of Australia, although we only know about Australian happiness (from the World Happiness Report) for the last 20 years.
Source: World Happiness Report, ABS, AMP
Stagnant or declining happiness is shown through upward trends in crime rates, depression diagnoses, suicide rates, and substance abuse. This is not to say that there is no link between the source of income and happiness. The chart below compares the degrees of source of income and happiness. in all countries. When sources of income are low, an additional source of income can have a huge positive effect on happiness. But for countries above a certain point (about $50,000), the additional source of revenue has little effect.
Source: World Happiness Report 2024, IMF, GPA
That’s not to say that happiness is rarely very high in rich countries. In fact, according to the World Happiness Report for 2024, Finland ranks first among the happiest countries and Australia ranks tenth, while the United States ranks 23rd. Lebanon and Afghanistan are at the bottom 10. al the rankings, at 142nd and 143rd. The thing is, in rich countries, diversification in income sources from one country to another has little effect on happiness. Other findings from happiness studies include:
Some have claimed that most people are on a “hedonistic treadmill” of running harder and harder to achieve wealth, believing that this will make them happier, only to realize that this is not the case, but they work even harder.
From GDP to Gross National Happiness?
Many believe those effects pose a challenge to economists. Economics is about maximizing “utility” or happiness. But because happiness is difficult to measure, economists assume that income source and intake are a smart indicator. If intake is definitely correlated with happiness, then policies aimed at stimulating economic expansion will stimulate happiness. But it’s possible that it simply moves differently. There are two schools of ideas on all this. The first is to argue that economic policy wants to refocus on broader measures of well-being, such as gross national happiness. The moment maintains that it is up to the individual to inform himself to be happy. The first strategy would mean a radical replacement of economic policy with proposals aimed at expanding happiness such as these: imposing excessive taxes on painting (because it does not lead to happiness); redistribute the source of income (because inequalities arouse envy and keep other people on the “hedonistic wheel”); decrease emphasis on festival and rivalry; spend more money on public intelligence, such as parks; refocus on the community; restrict advertising to data to avoid creating demands for things we don’t need; and focus on gross national happiness.
This would have implications for investors, as such policies would lead to less earnings expansion and declining returns on expansion assets.
Legislating for happiness makes no sense
However, there are reasons to be skeptical of government policy proposals aimed at achieving happiness:
This is not to say that governments deserve not to take action to measure and expand social coverage beyond GDP. But there is a danger of legislating for happiness. There is nothing new in the concept that wealth will not lead to happiness. Lasting happiness. Most religions have been pointing this out for a long time. Buddha observed long ago that the greatest human suffering comes from preference and that it will have to be mastered in order to achieve happiness. But the pursuit of happiness and enlightenment is the duty of individuals, not of the state. Perhaps Thomas Jefferson was right when he wrote in the U. S. Declaration of Independence that all other people are entitled to “life, liberty, and the pursuit of happiness,” implying that happiness is anything we can only seek.
Ends
Important note: Although every care has been taken in the preparation of this document, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM), AMP Limited ABN 49 079 354 519 nor any another member of the AMP. Group (AMP) does not represent or guarantee the accuracy or completeness of anything contained therein, including, but not limited to, any predictions. Past functionality is not a reliable indicator of long-term functionality. This material has been prepared with the objective of offering general information, without taking into account the specific objectives, monetary situation or wishes of any investor. An investor should, before making any investment decision, consider the suitability of the data contained herein and seek professional advice, taking into account his or her objectives, monetary situation and wishes. This document is intended solely for the use of the party to whom it is provided. This curtain is not intended for distribution or use in any jurisdiction where doing so would be contrary to applicable laws, regulations or rules and does not constitute a recommendation, offer, solicitation or invitation to invest.
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