Friday, September 28, 2012

Happiness and Security

Richard Easterlin writes about happiness in China in the NYT. Massive growth in the last twenty years has not produced any increase in happiness.

It is startling to find that Chinese people’s feelings of well-being have declined in a period of such momentous improvement in their economic lives. After all, most policy makers would confidently predict that a fourfold increase in a people’s material living standard would make them considerably happier.

And yet, piecing the surveys together, we found a U-shaped pattern of happiness over time, with life satisfaction declining from 1990 to the first part of this decade, and then recovering by 2010 to a level somewhat below the 1990 value. What explains the “U” at a time of unprecedented economic growth?

Before free-market reforms kicked in, most urban Chinese workers enjoyed what was called an “iron rice bowl”: permanent jobs and an extensive employer-provided safety net, which included subsidized food, housing, health care, child care, pensions and jobs for grown children. Life satisfaction during this period among urban Chinese, despite their much lower levels of income, was almost as high as in the developed world.

Reform meant loss of security, in a country with no welfare safety net. Aso, people naturally do not like risk and change, which means disruption to their lives and expectations. We've talked extensively before about Maslow's hierarchy of needs, in which a need for security is the first thing people want after basic survival needs. The psychology of risk and security is far more complex an most policymakers understand.

The feeling of insecurity also meant the average Chinese person saved an enormous proportion of their wages, which in turn led to the huge savings imbalances in the world, which in turn was a major underlying cause of the great 2008 crash.

All the same, I would imagine Chinese happiness was far higher in 1990 than it was at the depths of the cultural revolution or amidst the famines of the Great Leap Forward. Mediocre happiness is much better than mass starvation and misery.

The fact is happiness does not increase much with wealth - the "Easterlin paradox" he first wrote about thirty years ago. But security can also turn into rigidity. We also see in the West that too much of a welfare state is destroying government finances and sapping vitality. Too much security is as damaging as too little.

As in so many things, the essential requirement is to strike a balance. The trouble is this is obscured so often in our policy discussions because we are primed to look for impersonal, universal rules, rather than judging situations.


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