Tuesday, 27 June 2017

On The Easterlin Paradox

Those of you who are readily interested in the social sciences may have heard of a paradox associated with economist Richard Easterlin called the Easterlin Paradox, which is basically a hypothesis that at an individual level higher incomes make people happier, but a nation full of people with higher incomes does not make a happier nation.

I've written before about how cautious we ought to be with notions of measuring happiness, and even posed the occasional interesting thought experiment about the nature of happiness, and Easterlin himself received criticism regarding the nature of the data and analysis he posited.

Personally I'm quite sceptical about the validity of trying to measure people's happiness in terms of how happy they say they are. How would one know whether on a scale of 1 to 10 a Belgian cattle farmer in 1974 was happier than an Israeli Rabbi in 1990 if they both answered 8/10 in a happiness survey? It's a matter I talked about before in a previous Blog post, but it bears repeating here:

"If the average Brit rates their happiness as 7.4, then how does that compare to the 7.4 variant in, say, Sweden or Sudan? Perhaps a personal rating of 9 in Sudan would only be equivalent to a 6 in Sweden. Sweden is a more prosperous country than Sudan – so maybe a Sudanese person's happiness is measured without knowing how happy they could be in a more prosperous country.

Maybe in some cases the opposite is true - perhaps some Sudanese people see European modernisation as being full of unenviable plights (depression, addiction, binging, celebrity worship, lack of spirituality, etc). Maybe Swedes are more developed because they are less naturally content than Sudanese people. Who knows? The point is, nobody knows, because one's own personal interpretation of people’s reported happiness says almost nothing about actual happiness as a quantifiable state.

That a plighted Sudanese man might rate his own reported happiness as scoring higher than the average Swede or Brit will strike some people as strange - not because it should be assumed that the Sudanese man should be less happy, but because the criteria by which people measure their self-proclaimed happiness cannot be contained by any objective metric, irrespective of whether we are comparing nation to nation, or century to century.

To show this, let's use two objective qualities as an illustration - height and weight. If you compared the average Brit today to the average Brit 100 years ago, you'd find that the average Brit today would be a few inches taller and quite a few pounds fatter than their century old counterpart. So asking a man today 'Are you tall?' or 'Are you fat?' doesn't tell you anything about historical trends or comparable data, nor would the answer given provide us with any clue about an objective identification without recourse to other statistics. A 5ft 9, 12 stone man probably would have answered 'yes' to both questions in 1914 and 'no' to both questions in 2014.

Similarly, people might on average be happier now, or they might have been happier in 1914, but simply asking 'Are you happy?' brings no light to the measure of happiness at all. This is because all self-proclaimed accounts of happiness, fatness or tallness depend on how you feel in comparison to others in your society. If happiness has increased, it won't show up in reports of happiness because our perceptions adapt to the changes in society. In other words, if we expect our happiness to increase, then our happiness rating won't necessarily change in value (because the value is measured against perception of our peers) but it will increase in absolute value, just as being in the median in height doesn't change your relative position, even if you are a few inches taller than someone in the median range in 1914.

Because we rate these things in comparison to others in our society, it means that if on average everyone in UK societies gradually gets happier (as they have fatter and taller) the members of the UK will rate happiness as unchanged. Despite these significant changes, most people when asked would tend towards a report that places them somewhere near the median. It isn't the number of people who class themselves as a 7.4 on the happiness scale that changes (same goes for fatness and tallness scales) it is the happiness levels of the 7.4 that changes."

There is another factor that could be at play too. The measuring of happiness can also change in accordance with the standard of the measuring. By which I mean, a happier society may well have standards of questioning that raise the bar for minimum standards of happiness. For example, having a 44 inch TV and a mobile phone would have contributed more to someone's happiness a few decades ago than today, where most people have those things. If we expect more these days, then relatively speaking we may not climb up the happiness ladder relative to our material gains. It's Adam Smith's linen shirt all over again.

Moreover, there is another reason why increased prosperity may not climb at the same pace as increased happiness. And the reason may be that people very much measure their situation relative to others in their country, so even substantial material gains may not greatly increase individual happiness if their status is making little or no gains relative to others in their peer group. I suspect - and I've always been impervious to this feeling myself - but I suspect that having a phone that is the flashiest in your social circle gives individuals more intrinsic pleasure than that same phone when everyone else has one too.

Ask a 12 year old whether they'd rather have a penny doubled every day for 30 days or £1 million and if they had to answer within 5 seconds they'd probably choose £1 million. But a penny doubled every day for 30 days yields around £10.7 million - it's just that humans unaccustomed to the size of exponential growth struggle to get to grips with this at first.

Remember, humans have by a long way advanced more growth in the previous 250 years than the previous 250,000 before that. Exponential growth has given rise to a great progression-explosion that, if it continues, will see future growth, prosperity and luxury beyond what we can easily imagine.

A physicist called Tom Murphy once declared that there is futility in exponential economic growth in that if our energy consumption grows at 2.3% per year then we'll all suffer from raw material blitzkrieg within about four hundred years. His confusion - much like the confusion of Thomas Malthus over population growth - is that economic growth is not so closely correlated with energy consumption growth, far from it.

I don't have the statistics to hand, but can remember them roughly from when I did, and in recent decades as technology has increased its capability exponentially, humans have nearly doubled their economic growth but their energy inputs have risen by under a quarter (and because of how technological advancements exponentiate, that gap is only going to widen). And if you take out developing countries from the equation and include only the most advanced two dozen countries, you'll find that economies have grown but energy consumption rates have flattened, and in some cases declined.

Economic growth happens alongside, and because of, technological progression - the progression from paper to laptop, from fuel to electricity, from high energy to low energy lighting, and so forth. Even though from an aerial view, cities like New York, London and Tokyo look like they are powerhouses of energy output, they have, in fact, a lower energy consumption rate per person than the national average of those countries.

I have a hunch that as our technological capacities continue to exponentiate, we'll eventually evolve into creatures of pure thought, where we master the ability to live disembodied virtual reality lives, retaining our thought through computer simulated brains. Having said that, the transition from where we are now to where we'll be then may well involve some pain along the way.

On a timescale of 1 to 100, if where we are now is 1 and where we'll be in our virtual reality luxury is 100, there will possibly be a period of time, perhaps around the 80 to 90 mark where we'll encounter an international crisis, whereby a large proportion of the world's population may be unable to add enough economic value to the world to earn a living. That might occur if the proportion of working humans is vastly outstripped by the proportion of robots able to do the jobs more efficiently than them (however, as I've argued before, there are reasons to believe this may not happen).