HOW TO BE HAPPY
Paul Frijters –
econ\fin + RSSS / ANU
QUT-
Co-authors: Andrew Clark (Paris)
and Michael Shields (Melbourne)
Harcourt
Content
Some stylised findings on happiness and
economics
What is the broad relation between economic
institutions and happiness?
Discussion.
8000
6
7000
Life Satisfaction
4.5
RealIncome
6000
4
3.5
5000
3
2.5
4000
2
1.5
3000
1
0.5
0
2000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
FIGURE 2: Life Satisfaction and Real Monthly Income in Russia, 1994-2001
1.8
7000
Life Satisfaction
Real Monthly Income
1.6
6000
5000
1.2
1
4000
0.8
3000
0.6
2000
0.4
1000
0.2
0
0
1994
1995
1996
Year
1998
2000
2001
Real Monthy Income
Life Satisfaction (0-1)
1.4
and Russia?
Real Income (DM)
5.5
5
Life Satisfaction
Does the economy
matter at all?
East-Germany
7
6.5
Summary of main findings:
 Main benefit of income growth occurs at low levels of income.
 Happiness is highly relative and adaptive: its not about being
rich, but being richer than the neighbour.
 People are risk-averse and want to see their income profiles
go up in life (no demotions!).
 The main ‘economic’ input into happiness is a positive attitude
and a belief that things will work out.
 People will think more positively about their situation if they
believe they chose it themselves.
So what is the aim of a happy economy?
To achieve a situation whereby individuals do not
go ‘backwards’ in life and are not in fear of being
poor, but yet where each person feels positive and
thinks things will work out for him/her as a result of
their own choice.
What’s the problem?
A market economy mainly operates by harnessing
the power of fear, i.e. by rewarding entrepreneurial
risk-takers and allowing ‘the losers’ to go bankrupt.
This means a trade-off between stability and
growth.
What can you on the aggregate level do?
Choose for stability at the expense of social
dynamism (EU): social welfare institutions that
limit risks plus strong workers’ right and workers’
organisations that limit the activities of the bosses.
This is happiness through the economy
Choose for greater economic dynamism but
equip the population with an iron belief that
they are going to succeed (US): limited social
welfare institutions and cut-throat competition.
This is happiness through religion and
beliefs
Bottom line: the EU has perfected the disappearance of poverty and
risk. The US has perfected the language of choice and destiny.
Non-economic institutions to
improve happiness: where to look
- Happy personality building at school? Best
guess: tell the kids they are going to be fine
and that god loves them no matter what
happens.
- Happy geriatrics? Best guess: give them
what they really need.
 - Bottom line: economics has only a little to
do with happiness. Its more about personality,
a belief in choice, and religion.