The Economics of Happiness: Crash Course Econ #35 Video Lecture - World Knowledge

Hi, I’m Adriene Hill, and this is Crash
Course Economics.
So, you want to be happy? Here’s your checklist:
Get a job where you make about $82,000 a year.
Do not get fired from that job. Make sure
your commute is no more than 22 minutes.
And, please, please: you’ve got to stop
looking at your friends’ Facebook profiles.
[Theme Music]
In the U.S., the pursuit of happiness is one
of our inalienable rights;
written into the Declaration of Independence
right along with the biggies — life and liberty.
The self-help industry is worth billions of
dollars.
I mean, some of us hire life coaches.
And for all that, happiness can seem pretty
elusive.
Economic thought over the last couple of centuries
is built on a model that says
we all have unlimited, inexhaustable desires.
More equals better.
And economists believed they could tell what
makes us better-off by
looking at how we spend our money and time.
But in recent years, those assumptions are
being called into question.
Economists and psychologists have discovered a disconnect between how we buy and spend and do,
and what actually makes us FEEL better off.
They’ve realized that sometimes, getting
paid nothing for doing something
can make us feel happier than getting paid.
Like say I cooked a friend a dinner for his
birthday,
and after we finished up the last bite of
birthday cake, he offered to pay me for it.
All of the sudden my gesture of kindness my
warm fuzzy feelings, they disappear.
Economists have discovered a correlation between greater income and greater happiness across cultures.
But in some places the effect is greater than
others.
But, they’ve also found that more money has diminishing returns when it comes to our day to day happiness.
Let’s go to the Thought Bubble.
Say Stan and I are both successful bakers.
Thanks to a combination of my impressive baking
skills and some luck, I've become a star baker.
I make $500,000 a year in cupcake sales and
baking pan endorsements.
Stan, on the other hand, is a masterful, but
not-famous baker.
He makes $50,000 a year selling cupcakes out
of his modest bakery.
Stan and I enter a cupcake contest.
I win $10,000 in the cake category.
Stan wins $10,000 for his icing and decoration.
But that money is going to have very different
effects on our lives and our feelings of happiness.
For Stan, $10,000 represents a significant
portion of his income.
That $10,000 may make him feel a whole lot
more relaxed and better off.
For me, an extra $10,000 is nice and all.
But it’s not going to change much about
how I live my life or what I do with my time.
$10,000. Cool. Whatevs.
Beyond some level of income, the value of
each additional dollar
has diminishing returns in terms of our day
to day well-being.
A 2010 study found in the U.S. it was about $75,000 a year— or about $82,000 when you adjust for inflation.
After that, the researchers discovered, a person’s day to day happiness levels just didn’t change that much.
But, the same researchers also looked at another
form of happiness;
asking people how satisfied people were with
their place in the world.
And there, money mattered.
The study found that there was a difference between the wealthy and super-duper-insanely wealthy
when it came to overall satisfaction with
their lives.
Thanks Thought Bubble! So, we know that some people have a natural predisposition to be unhappy.
And some people seem more inclined to constant
joy. Those people are annoying.
For a long time, psychologists believed that
people have a “set point” for happiness.
And that most big changes — positive or negative — had only a temporary effect on happiness.
But, more recent studies show that economic choices and circumstances can have lasting effects on just how happy we are.
For one, there is a pretty clear relationship
between unemployment and happiness.
Basically, being out of work can make people
out-and-out-miserable.
By some estimates, unemployed people have 5%-15% lower life satisfaction scores than people with jobs.
Studies have found that the negative effects of unemployment are greater in high-income countries.
There’s also research showing that the happiness
of middle-age people is
more negatively affected by unemployment than
older people.
You might be thinking, duh, people without a job aren’t making any money, so of course they’d be less happy.
But economists have found that the loss of
well-being due to unemployment is
greater than can be explained by the immediate
loss of a paycheck.
One explanation is that unemployment makes people worried not just about paying the bills today,
but also about the future.
Economists have also found that moving from a part time job to a full time job makes people happier.
But, the correlation between hours worked and happiness doesn’t continue up and up and up.
At some point,when you’re working ALL THE
TIME, happiness levels start declining.
Imagine it like an upside down U shape.
Kind of like an I’m-working-all-the-time-and-never-get-to-see-my-friends sad face.
Long work commutes make people less happy.
Credit card debt makes people less happy.
And inflation, it turns out, especially unpredictable
inflation, can make people less happy.
We like stability.
And for our savings to hold their value.
It’s not just the ups and downs of what
you can afford that affects your happiness.
It’s also what the neighbors can afford.
There’s something called the reference-income
hypothesis or ranked-income hypothesis.
It says that the satisfaction I get from my
income and consumption level
depends on how I’m doing compared to everyone
else around me.
So, if the wealthy-star baker version of myself
lives around millionaires,
I might be less happy than if I lived in a
middle class neighborhood.
Even if I’m making the same income.
A 2009 study found this is true, to an extent.
Researchers found out Americans were happier when they lived in rich neighborhoods in poor counties.
The authors wrote: “it appears that individuals in fact are happier when they live among the poor,
as long as the poor do not live too close.”
This idea that status matters, maybe more
than absolute income,
brings us around to something known as the
“Easterlin Paradox.”
It’s named after an economist named Richard Easterlin, who, back in the '70s, found that that
as the income level in a country rises, the average level of happiness in those countries doesn’t always follow.
This happens even though we also know there
is, at some level,
a positive relationship between income and
happiness.
So, what’s going on? One explanation is that we derive happiness from status, rather than absolute income.
So when an entire country gets richer, even
if our income goes up,
our status and relative income stays about
the same.
And we don’t get any happier.
Another explanation gets back to the “set
point” of happiness we talked about before.
Some economists talk about the “hedonic
treadmill” or “hedonic adaptation”.
Here’s Rousseau — describing the phenomenon:
“Since these conveniences by becoming habitual
had almost entirely ceased to be enjoyable,
and at the same time degenerated into true
needs,
it became much more cruel to be deprived of
them than to possess them was sweet,
and men were unhappy to lose them without
being happy to possess them.”
I can remember the joy I felt when I got my
first smart phone.
Now I’ve adapted to the point that my phone is kind of annoying, but if somebody took it away, I might cry.
There’s a third explanation out there regarding
the Easterlin Paradox
and that’s that it’s not actually a paradox
at all.
Basically that it doesn’t hold.
There has been some research that shows the paradox is only true for relatively wealthy countries,
where the basic needs of citizens are already
being met.
In lower GDP countries, the studies find, there ARE overall increases in happiness when income rises.
More recently, economists Betsey Stevenson
and Justin Wolfers argued that
average levels of happiness rise in countries where income rises, regardless of how wealthy that country is.
The data, they say, points to a clear relationship between GDP per capita and average levels of well-being.
All of this happiness research matters when
you think about
how governments measure progress and decide
what the right path is for a country.
For a long time economic growth has been at
the center of economic policy.
It explains some of our global fixation on
GDP numbers.
But, if you believe that an increase in income and stuff isn’t going to make people happier and better off,
income growth may not be the best way to mark
or judge the progress of a society.
A focus on GDP and growth might hide and even
exacerbate issues like income inequality
and environmental damage related to increased
consumption.
In the 1970s, the king of the tiny country
of Bhutan proclaimed that
"‘Gross National Happiness is more important
than Gross National Product.’"
Instead of measuring economic progress using
GNP or GDP,
the government tracks GNH — Gross National
Happiness,
which considers the social, physical, spiritual
and environmental health of its citizens.
And it's not just Bhutan.
In 2011, the United Nations adopted a resolution
that calls for member states to give greater
weight to happiness and well-being
when figuring out how to pursue social and
economic development.
But this focus on happiness in addition to
economic growth isn’t a truly new idea.
All the way back In 1968, U.S. presidential candidate Robert Kennedy got up in front of an audience
at the University of Kansas and criticized
the focus on economic output alone.
"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.”
He goes on: “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.”
Well, I don’t think we can write a better ending to the show, or to the series, than that.
Thanks for watching.
It’s been such a pleasure.
Thanks for watching Crash Course Economics, which is made with the help of all these nice people,
who work on the show because it makes them
happy.
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