Explaining Southern California's economy

Rejoice! We live in a (mostly) happier world!

 

The Earth Institute at Columbia University has released the first-ever World Happiness Report, which not surprisingly cites the work of a Los Angeles economist whose pioneering research into...yes, happiness! is gaining increasingly currency. Richard Easterlin is at the University of Southern California and is responsible for identifying the "Easterlin Paradox" (that's him, in a video produced by the very fine economics writer Olf Storbeck). Here's a good definition of what it is — ironically from a Boston.com piece that talks about how the paradox is being challenged by a new generation of economists:

On the one hand, data [studied by Easterlin] showed that making more money makes you happier; at the same time, comparisons amongst nations revealed that richer nations weren't necessarily happier than poorer ones. This paradox, Easterlin suggested, showed that we derive happiness from wealth only in a relative way. From the point of view of happiness, it doesn't matter whether we have one car and an apartment, or two cars and a McMansion -- what really matters is what our neighbors have.

Easterlin's findings are supported by the Happiness Report — but only in the sense that the developed world is on a happiness plateau of sorts, while other countries are still slowly climbing the happiness mountain:

•Happier countries tend to be richer countries. But more important for happiness than income are social factors like the strength of social support, the absence of corruption and the degree of personal freedom.

•Over time as living standards have risen, happiness has increased in some countries, but not in others (like for example, the United States). On average, the world has become a little happier in the last 30 years (by 0.14 times the standard deviation of happiness around the world).

So-called happiness economics — really a merging of psychology/sociology and economics that anyone who knows the work of Noble Prize-winner Daniel Kahneman will be be familiar with — has been gaining A LOT more respect of late, as it's become clear that mainstream economics has become, as John Lanchester recently put it in the London Review of Books, the "study of capitalism." The financial crisis proved that economics had focused itself overwhelmingly on conservative, Davos-friendly subjects, mostly derived from the march of globalization and the liberation of markets, as well as the "freshwater," Milton Friedman challenge to the Keynesian consensus.

The world's major economists — the ones studying capitalism — completely missed the biggest crisis in capitalism in 80 years. Problem guys! No less an exponent of the professional than Paul Krugman summed up the grim state of affairs in 2009 in a piece titled "How Did Economists Get It So Wrong?"

So the alternatives are now getting a hearing. Modern Monetary Theory has provided a stern critique of a too-big-to-fail financial system while outlining a sort of Keynesianism on steroids, under which huge budget deficits are basically irrelevant. Easterlin has been talked about as an economist who has a outside chance at getting the Nobel.

Even the "ecological" or "steady state" economics of Herman Daly are starting to get a more vigorous airing, as we grapple with global warming and question the endless growth model that traditional economics relies on. Umair Haque has gone so far as to propose redesigning the entire global economy, post-crisis, along the lines of a concept he calls "eudaimonics" — the acquisition of happiness.

Heck, even neo-Marxists like Richard Wolff are being talked about! And if you really want to blow your mind, check out the econophysicists, like Didier Sornette, who mashes up economics and...earthquakes!

Economics is far more than the study of markets, trade, finance, and so on. Easterlin's work and the new Earth Institute report (which was overseen by Jeffrey Sachs, himself something of an alt.economist) are proof of that. And in the end, you have to count this as progress. 

Follow Matthew DeBord and the DeBord Report on Twitter.

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