Happiness and wealth, again

On an earlier post on life satisfaction and wealth, Rizal -- by way of Kahneman -- argued that the two are positively, and quite strongly, correlated. I recalled the Economist wrote two articles on the related issue their 2006 end-year edition. According to those articles, the positive correlation between happiness and affluence is true, but the relationship seems to be non-linear, with a negative second derivative.

Said the first article:

Happiness, as measured by national surveys, has hardly changed over 50 years. The rich are generally happier than the poor, but rich countries do not get happier as they get richer. The Japanese are much better off now than in 1950, but the proportion who say they are "very happy" has not budged. Americans too have remained much as Alexis de Tocqueville found them in the 19th century: So many lucky men, restless in the midst of abundance."

And why is that so? Here's the explanation in the second article:

The science of happiness offers two explanations for the paradox. Capitalism, it notes, is adept at turning luxuries into necessities—bringing to the masses what the elites have always enjoyed. But the flip side of this genius is that people come to take for granted things they once coveted from afar. Frills they never thought they could have become essentials that they cannot do without. People are stuck on a treadmill: as they achieve a better standard of living, they become inured to its pleasures.

Capitalism's ability to take things downmarket also has its limits. Many of the things people most prize—such as the top jobs, the best education, or an exclusive home address—are luxuries by necessity. An elite schooling, for example, ceases to be so if it is provided to everyone. These "positional goods", as they are called, are in fixed supply: you can enjoy them only if others do not. The amount of money and effort required to grab them depends on how much your rivals are putting in.

I remember an old friend used to say, "The rich may not necessarily be happy. But the poor are definitely not." Well, apparently he's not wrong.

That may explain why some people still seems to think that we Indonesians are not better off than 20-30 years ago, while the truth is we are better off in absolute term. In relative terms, i.e. how do one compare with the others, well, of course it's relative.

P.S. This is interesting. Bre Redana of Kompas praised today's Hanoi, which he described as the portrait of Jakarta in the early eighties, as much better than today's Jakarta (also today's Indonesia). The reason, he implied, was the "spirit of socialism." Read here and here. Ironically, Kompas is the most obvious product of capitalism, of course.

On inequality and globalization, again

I saw an op-ed piece in Kompas this morning, written by a friend of mine Herry Priyono a.k.a. Romo Herry. The title was "Doubting Globalization."

He quoted the ADB'S Key Indicators 2007 that reported Asia's widening inequality. He rephrased the conclusion as:

... Asia's growing inequality is "not the tale of the rich getting richer and the poor getting poorer, but the tale of the rich getting rich faster than the poor."

Fair enough. But there are two things I'd like to note. First, in his article the main culprit is, of course, globalization. In other words, he blamed globalization for making the rich getting rich faster.

Unfortunately, this claim is at best only partially true. If you see the graph in this post (which I quoted from the report), it's hard to claim that "the rich getting rich faster" is the phenomenon of the most globalized countries. Come on. Is Nepal more globalized than Thailand? Is Lao PDR more globalized than Indonesia?

The report did say that globalization explained some of the story. But the other part of the inequality story lies on the domestic institutions (bad governance, race or gender-related inequality).

Second, as I implicitly argued in this post, whether the situation described in the report is a good or bad thing is hardly straightforward. True, in China for example, the consumption growth of the richest 20% is twice as high as that of the poorest 20%. In Thailand and Indonesia, on the other hand, the consumption growth of the poorest 20% is slightly higher than that of the richest 20%.

But if you focus only at the consumption growth of the poor, it is 3.4% in China, versus 2.35% in Thailand and 2.09% in Indonesia. That means, even though the rich in China gets rich much faster than the poor, still China's poorest grow faster than in Thailand and Indonesia.

Tricky situation, isn't it? (This is a more diplomatic version of Aco's remark in our private conversation, by the way).

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Inequality: some trivia

All of these questions are a matter of personal taste, so no obvious answer for each question.

Question 1:
Do you prefer to be a rich person in a poor country, or a poor person in a rich country? (Note: this question is courtesy of Dani Rodrik. To compare your answer, see the facts here).

Question 2:
Do you prefer to live in a relatively equal country (in terms of personal income or expenditure), or in a relatively unequal one?

Question 3:
Which country do you prefer: Country A where the income growth of the richest 20% is twice as high as that of the poorest 20%, or Country B where the income growth of the poorest 20% is slightly higher than that of the richest 20%?

Question 4:
Which country do you prefer: Country X where the poorest 20% have the ability to experience income growth of 3.4% over a period, or Country Y where the income of the poorest 20% only grows at 2.09% over the same period?

Question 5:
What if Country A = Country X (let's name it 'China'), and Country B = Country Y (let's call it 'Indonesia'). Which one do you think is better for the poor? To visualize it, see the graph at the bottom of this post.

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Testosteronomics

All men are created equal
But some men are more equal then the others

OK, I admit. That was a twist of George Orwell's Animal Farm (which was itself a twist of the Declaration of Independence).

What I want to say is this study argued that some men - those with higher level of testosterone - prefers to be equally poor than being a bit richer while the other men become a lot richer. (If you don't want to see the whole paper, see the Economists' review.)

The researcher run an experiment using a series of ultimatum game, played by some Harvard students who have taken microeconomics. After the experiment, he took saliva samples from the students and compare their testosterone levels. The result: responders who rejected a low final offer had an average testosterone level more than 50% higher than the average of those who accepted.

The implication of this study, is as The Economist wrote:

... what people really strive for is relative rather than absolute prosperity. They would rather accept less themselves than see a rival get ahead. That is likely to be particularly true in individuals with high testosterone levels, since that hormone is correlated with social dominance in many species.

In other words, the more masculine someone is, the less important is money. It's how your position compared to the other.

However, i was informed by Tirta about a very important caveat. Read also the first comment to the post.

Nevertheless, this study was a valuable additional literature to a debate on inequality I encountered somewhere (read my summary here and here, and a relevant discussion here).