Can Money Buy Happiness?

How Should We Measure Happiness? Why does Objective Metrics Fail to Predict Happiness?

Is GDP per capita a good metric for measuring happiness? This research question has been debated for decades, and the two opposite camps have been soliciting empirical evidence and sound arguments. Thus, there are different indices of happiness, either measured by objective metrics, including GDP per capita, or by subjective metrics, such as simply asking how happy you are.

Happiness is one of the most subjective perceptions, which can hardly be quantified. However, asking people how happy they are may not be useful because different people can have a different level of happiness at different times, and different people can have a very different interpretation of the level of happiness. Summarising their responses by an average figure may not be meaningful. That is why objective metrics are more commonly used in academics.

For example, the World Happiness Index is estimated by weighted averaging six objective metrics, viz. 1. Log GDP per capita, 2. Social support, 3. Healthy life expectancy at birth, 4. Freedom to make life choices, 5. Generosity, 6. Perceptions of corruption. It is compiled by renowned scholars John F. Helliwell, Richard Layard and Jeffrey D. Sachs (2019). Figures 1 and 2 show the top and bottom Ranking of World Happiness from the 2019 Report.

Figure 1 Top 17 Ranking of Happiness 2016–2018. Source: Helliwell et al. (2019)
Figure 2 Ranking 138–156 of World Happiness Index 2016–2018. Source: Helliwell et al. (2019)

Similarly, the World Happiness Index also includes GDP per capita sub-metric (the dark brown bars in Figures 1 and 2). The Regression results show a highly significant and positive effect of GDP per capita on Happiness, as shown in Figure 3.

Figure 3 Regression Results of World Happiness Index. Source: Helliwell et al. (2019)

However, the effects of GDP on happiness are intriguing, as it is found to be valid cross-sectionally, but invalid longitudinally, without knowing why. That is the Easterlin Paradox. It states that “at a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow.” (https://esrc.ukri.or)

On Nov 26, I met Professor Richard Easterlin who gave a keynoted speech at a seminar organized by the Business School of the University of Auckland, titled Shaping Futures: The Wellbeing Economics Panel Discussion. The panel members debated about whether GDP per capita can measure happiness accurately or not, and most of the members disagreed with the statement!

Hopefully, I will have more chances to chat with Professor Easterlin in New Zealand soon as both of us will stay there for a while. New Zealanders are well known to be caring about well beings and got a very high ranking in the World Happiness Index 2019 (it ranks no. 8 as shown in Figure 1), and the GDP per capita of New Zealand is also very high (It ranks 21 in the IMF 2018 GDP per capita index). New Zealand seems to be a perfect example supporting the hypothesis that GDP per capita is a good metric for happiness.

However, the recent social unrest in Hong Kong is a very strong case that refutes it! It is a very important case study that I would recommend scholars who are interested in studying happiness to study the Hong Kong case. Before the Anti-extradition Bill Movement in June 2019, almost all commentaries and global rankings of Hong Kong were favorable and promising. Hong Kong ranks the top 10 in GDP per capita (number 8 in the IMF 2018 ranking), and life expectancy in Hong Kong is one of the longest in the world. The city has been praised as the freest economy in the world for 25 years by the US think-tank the Heritage Foundation. People of Hong Kong are generous in general, and got a very good ranking in the corruption perception index (HK ranks no. 14 and NZ ranks no. 2 in 2018). According to the 6 objective metrics, Hong Kong people must be very happy if these metrics are correct.

However, Hong Kong ranks much lower (no. 76 in 2016–2018) in the World Happiness Index. Figure 4 shows the scores in the 6 components. It shows that all the 6 components (the first 6 bars) are relatively longer the counterparts, the only component that is much shorter is the Dystopia + Residue (purple bar). I interpret it as the errors of the measurement. In other words, there are some important missing variables in explaining the happiness reported.

Figure 4 Ranking 55–76 of the World Happiness Index 2016–2018. Source: Helliwell et al. (2019)

I think the 6 components in the World Happiness Index only measure the current status of the country or city as a whole, without taking into account the future perspective. That is the difference between objective and subjective metrics. Objectively, we can only measure what had happened. But we can never measure something to happen in the future. That is UNCERTAINTY!

Yet, people in a country would form a common perception of the coming future based on the past trend and the latest information. When people cannot see a prosperous, healthy, free and meaningful future, they can become very unhappy even though they are rich at present. In a nutshell, happiness is not about the past and present, it is about the future.

In 2017, my team published a book titled “Choosing the Future: An Alternative Proposal to the Hong Kong 2030+” (In Chinese). I wrote a preface to foretell “The Six Coming Crises in Hong Kong” (Yiu, 2017). Unfortunately, it did not cause public concerns. My predictions have also been repeatedly criticized by the HK Government as alarmist and are therefore ignored. However, a year and a half later, some of the forecasts come true.

  1. Recession Crisis: Even though the GDP per capita of Hong Kong was seemed to be high, the prospect was gloomy. Since 2018, Hong Kong’s interbank interest rates have risen, money is flowing out, imports and exports are diminishing, negative prospects have emerged in various sectors of the economy due to the US-China trade war and the global recession. Finally, Hong Kong has recorded 2 consecutive quarters’ negative growth in GDP in the Q2 and Q3 of 2019, and a recession crisis has been confirmed;
  2. Real Estate Crisis: Housing price in Hong Kong is notorious to be highly unaffordable and has increased several folds. Yet, since the U.S.-China trade war that has caused capital to flow away. Then since July this year, Hong Kong property prices have recorded annual negative growth. Coupled with political instability, the real estate crisis seems to be coming true soon;
  3. Environment Crisis: Hong Kong people are so rich that they are consuming the resources that require 4.7 Earth to supply. Tackling global warming is not a top priority in the city and the extreme climate was considered very remote. However, two years ago, Hong Kong was attacked by two super typhoons “Tiange” and “Mangosteen”, which proved that the extreme weather was powerful and paralyzed the city instantly! It is a signal of the coming environmental crisis; and
  4. Social Crisis: Hong Kong was well known to be one of the safest and richest cities in the world, and the government was complacent with her performance. The Central Government has praised the governance of the HKSAR Government continuously in the past 22 years. But the reality is winners take all, and the income inequality, as well as the wealth gaps, are exacerbating. The Gini coefficient in Hong Kong has been rising above the alarming threshold of 0.5, which the UN has made warnings of a coming social conflict. It is a city of sorrow, with a very high suicidal rate, and a very low fertility rate (1.125 in 2017). It is also one of the most expensive cities with very high living costs, and people are working the longest hours in the world. It reflects that many people are struggling and the anger can explode at any time. Then in June 2019, when the government had tried to forcibly pass the Amendment to the Fugitive Offenders Ordinance, it triggered an escalation of social conflicts, the number of injuries and deaths among citizens has suddenly increased, and the number of arrests, beatings, and injuries has soared. In addition, traffic was largely suspended and the city is in a de-facto curfew. The police’s brutality and the use of unproportionate forces to crackdown the protestors have resulted in even more conflicts. Hong Kong has become a very unsafe city with no protection of life and property, and citizens are dissatisfied with government governance. It confirms the prediction of a Social Crisis.
  5. Government Fiscal Crisis: Currently, the HKSAR Government is one of the richest governments in the world, with very low debt and a very large amount of reserve. However, with the expenditure on infrastructure has been increasing from about HK$20 billion per year to more than HK$100 billion a year, it is more and more difficult to sell enough land to pay for the costs. It also explains why the government has a strong incentive to keep the high land prices. Along with the recession, land prices have started to drop, and some pieces of land could not be sold. Yet, construction costs for the infrastructure have to be paid continuously. It may lead to a “fiscal outburst”
  6. Natural Resources Crisis: Hong Kong is perceived as a city of materialism. The city is an “exemplary” in the high consumption and high growth rate model. Sarcastically, Hong Kong is a place where very few natural resources are available. Almost all resources have to be imported. But we even do not care about natural resources. Water supply, energy supply, and food supply are all highly reliant on imports in a very expensive way. We even do not care about recycling and food saving. The extravagance and the high level of wastage have already resulted in a shortage of landfills. A natural resources crisis is inevitable with this unsustainable living style.

With such a gloomy future, it explains why people in Hong Kong are so unhappy even though they are rich. All the objective metrics of happiness cannot predict it and all the international organizations cannot foretell the crisis in Hong Kong are probably because of the fact that most of the information and figures are produced by the government or pro-establishment organizations. They have their strong intentions to tell the goods and cover the bads, as it is reflecting their performance.

Interestingly, the subjective metric of happiness seems to be the best predictor of the Hong Kong crisis. People tell you that they are unhappy, but all your measurements show that they should be happy. Then your measurements must be wrong!

References

John F. Helliwell, Richard Layard and Jeffrey D. Sachs (2019) World Happiness Report 2019, UN. https://s3.amazonaws.com/happiness-report/2019/WHR19.pdf

Yiu, C.Y. (2017) The Six Coming Crises in Hong Kong, a Preface in the “Choosing the Future: An Alternative Proposal to the Hong Kong 2030+” (In Chinese), April, Land Education Fund. https://goo.gl/nIqmNM . Website: https://www.facebook.com/Dareyoumakehistory/

ecyY — easy to understand why, easy to study why. Finding the truths scientifically is the theme.