Thursday, 25 November 2010

Why are we measuring happiness?

There is a misconception that measuring happiness is somehow un-economic. Big Businesses don’t do it, so why should we? Surely we can work out that less police means more crime, and few cleaners in hospitals means dirtier wards?

These are the sort of comments seen in the media and from high profile commentators. If you do understand economics, though, happiness is an integral part of the study. There is an ugly word, utility, that is used to describe economic happiness and it’s factored into a lot of theory.

Granted, a very basic pure free market economics ignores utility in the main, dividing resources down to the most economical outcome without affecting an individual. But I’ve always felt that if you can redistribute a resource that makes one individual slightly worse off, it could be justified if the resource boosts the overall economy by a larger amount

The Laffer curve is an easy example demonstrating personal happiness. It measures labour against pay and appears as a hump or a hill shape. Basically, the more we are paid the more we will work, up until the point where we have the money to enjoy our leisure time and still maintain a good standard of living. Why work 24/7 if you can afford a big house, expensive holidays and a horse to ride?

The demand for goods and services is measured using utility. Why buy filet steak when you can buy sirloin? It is because we enjoy the flavour more and see a stronger demand. Politicians often like to think of themselves as economists, but this is an example of where most get it wrong.

The question is why should happiness values be so divisive and seen as a gimmick? The problem is that utility is very hard to measure, and even those measure that are used can be more trend lead than something you can look at in isolation. On this basis these first figures are not that useful and are merely a first step.

Because they are hard to measure, people haven’t bothered with it and have ignored it. Traditional measures seem to work on the whole so the status quo has continued. Cameron has tried to show that the UK is leading this field. This isn’t true. Several countries have been using these measures like France.

So how does it work? We can also see the economic figures of GDP, RPI and so forth, but we also need to understand about confidence, likes and dislike. The stress of spiralling inflation or interests can affect someone’s state of mind. An individual carries these in to work and they don’t perform as well.

The nation becomes less healthy through poor diet and they again can become less economically useful in certain industries where physicality is an issue. Something like the Olympics can lift the nation. The Ashes might either lift or depress a section of the population. Although financially, a road building problem might seem marginal, the relief of stress on commuters could see a boost to the economy.

It is measured by surveying people about how they feel about aspects of their life. The questions are not yes or no and getting the questions right is key to finding the right answers.

It is the smaller decisions, rather than the big questions, that happiness measures should affect. Equally, it isn’t a question of more of one or less of another. It might be which one of two projects should be cut or which of two is better value.

In a work environment, how would you feel if tea and coffee facilities were removed from your office and you were not expected to leave your desk. Would your work levels increase? Logic might say yes because you are now working for the 15 minutes it takes to brew and drink your beverage.

But another logic suggests the brain might work better after a short pause to clear the mind and set it ready for the task ahead. The workers are happier as well as they can demonstrate community spirit (getting the round in) and chat for a limited period. Now extend that into laws on work time and breaks.

One thing to remember is the measure follows unhappiness as well, so real areas of concern can be highlighted.

If you want to know more about the subject there is a great TEDx presentation that explains it in an even more accessible way from Chip Connley.

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