Standards of Living and Happiness

It sometimes seems that the world is going down the drain and that all is lost. Global environmental problems, major financial crises, wars, poverty, depression, divisive and dirty politics, government debt, inequality, unemployment problems in many countries, eternally-increasing production and consumption that “can’t work” with 7+ billion humans, and more. Our crazy world. Actually, on aggregate, things ARE getting better... but there are cracks in this beautiful picture. Read to the end to get the scoop.

We have this diffuse intuition that things “were better before.” Before what I don’t know, but “before” something. The “good ol’ days.” There is some truth to that. Between approximately 1950 and 2000, the Western World was in post-war peace and quite isolated from the rest of the planet, especially in North America. No Internet. No cell phones. Plenty of jobs and job creation, income security. Government spending without too much issues. No aging population problems. No debates over immigration. A cozy bubble. The simple life. Never mind that racism was still chronic, world poverty and famine were extreme and that two large empires were fighting proxy wars to stop the expansion of competing ideologies, with all the horrors that come with such a geopolitical context.
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Beyond our perceptions, the world is more peaceful and safe now than it ever was – yes, you read that right. The global poverty rate has never been this low. The world murder rate (including deaths from war) and crime rate are at historical lows. The condition of women has never been this good (even if much still needs to be done). Famines have decreased to historical lows. Slavery is no longer widespread as it has always been for thousands of years. Rule of Law has spread more than ever before. Blacks and women are heads of State. Inter-ethnic marriages are more and more common. Gays and lesbians can live their sexual identities freely more and more. Freedom to express your opinions and to do what you want with your time, your life, and your money is at a historical high (except we have more taxes, but that is another subject). Although maybe recently stagnating or dropping in the USA, socio-economic mobility is much higher now than it ever was. Things that were unthinkable only 50 or 100 years ago are everyday normal stuff today. Life expectancy at birth has almost doubled relative to only 250 years ago. People read, write, and vote more than ever before. Public debate is allowed and widespread. The largest information source in world history (Internet) is freely available to all. Many major viruses have almost been eradicated… and the list goes on…

There are indeed considerable issues with the environment, population growth, and population migration, but on many aspects, the world is slowly “improving”, believe it or not. We have this romantic view of life “somewhere else” or “in another part of the world” that is distorted by perceptions. Feel free to go back to the Roman Empire or to pretty much any other time and place in History – you’re gonna find it quite brutal, trust me. But the beauty of the general prosperity and freedom that has spread across the world is that if you WANT to live the “simple life on the land”, you are free to do so: buy a land in some place far from big cities and just tend to it and live in quasi autarky. I have friends who are so passionate about rock climbing that essentially all their time and energy goes into that lifestyle – they are poorer than they otherwise would be, but they are generally quite happy individuals. You are a free individual in a free society. With freedom comes responsibility. Since we can’t force billions of people to revert to living in the wild or living on farms in quasi autaky, we must deal with reality as it is, as imperfect as it may seem.

Some people might say that they know that things were hard and brutal before and that this is not their point. They just feel that things “could be better than they are currently” and they readily propose solutions. I absolutely agree that things could be better, but since we do not have a system of "wise"-dictators-for-life who decide everything without debate, we are in an imperfect and “slow” system called (imperfect) "democracy" within a free and decentralized society and economy. Sometimes this whole slow-moving and very imperfect system sucks, but it is better than other “mass population organization” systems of the past. Some would like more taxes and redistribution, some would like less. This is democracy, and if you want your “system” to be applied, participate in the debate by bringing forth your arguments in an informed and rigorous way so that others can make up their mind, and get involved in mass-society-changing spheres: business, politics, causes, etc. There are indeed considerable issues of “special interests” on all sides of the ideological spectrum who seek to “keep the gains” of their current context and past victories, whether the process was fair or not, but the world is indeed “slowly getting better” – don’t trust me on this, check the data yourself.

But all is not well and good. Not at all. There are modern issues that require serious thought and debate, among these are inequality, automation, offshoring, wage stagnation, economic and financial insecurity for individuals, mental health problems, and many more. We know there are environmental challenges, a subject that is widely explored in the economics profession, but our focus for now is the stress on the middle class. When we look at indicators of crime, anxiety, and depression rates, there seems to be serious problems in the USA. All this growth and wealth creation is obviously not helping the masses to relax, chill out, and enjoy life. Perhaps it has little to do with globalization and technology, perhaps it is “simply” generational, but some indicators are worrisome enough to step back and ponder the situation and the future.

Happiness
When all is said and done, what really matters is to be “happy”, whatever that means for you. This is not cheezy tree hugging bs, it is indeed every individual’s quest to find purpose and fulfillment between birth and death. Happiness is a complex and philosophical subject that I will not discuss in detail here, as I am no psychologist or philosopher. It seems fair to ask the question: are we “happier” with all this modern prosperity? (please don't pull out Justin Wolfers!).

This is a hard question to answer, because the very definition of “happiness” is different between individuals, cultures, religions, and is tainted by life experiences and social circles. For example, in the “World Happiness Report” from the United Nations, you will discover that GDP per capita is a major driver of happiness based on a survey to people themselves. Other major drivers of happiness are “social support”, “freedom to make life choices”, “generosity”, and “perceptions of corruption.”
Of course, one problem is that these are all interconnected: on average, freedom is higher and corruption is lower in high-income countries. The other issue is that declared “life satisfaction” is heavily influenced by culture. For example, the French are notoriously cynical, while Latinos are warm and welcoming, and that influences the answers in the surveys and the results.

The teams who conduct these surveys and analyze the results do a good job at “disentangling” the elements and extracting lessons from the responses, even with all the issues we just briefly explored.
The fact is that perceptions of fairness influence happiness, as does the material standard of living and the perceived relative positioning in the socioeconomic ladder. Since a growing proportion of people in rich countries carry feelings of frustration and perceptions of corruption and unfairness, there are growing ranks of people stuck with stagnating real wages and economic insecurity asking for a change, and that change could be good, but it could also end up being worse than before. The post-change result is determined in large part by the process during the change and the “new norm” that emerges on the other side, and as History teaches us, not all revolutions and major social changes were “positive” for the very people wanting them so badly.

For whatever reason, considerable portions of large countries are feeling worse and worse about their lives and their country, which shows up in exploding mental health problems such as depression and anxiety. Note that there are complex “identification challenges” when speaking of the epidemic of mental health (and obesity): is it “really” due to hard economic times, financial risk, and labor market pressure or is it caused by information overload and toxic “brain stimulation” from notifications, social networks, emails, texts, calls, and “shocking news” with spectacular images? Or maybe it’s sendentarity and obesity? Maybe it’s too much TV? Too much news? A dislocated social fabric in which we feel “alone”? Or just bad eating? Or a general lack of purpose for an entire generation?

It is not easy to disentangle the web of potential causes to explain the observed phenomenon of deteriorating mental health, but it seems clear to me that “something” is wrong because most high-income countries (especially the USA) have increasing rates of depression, burnout, anxiety, and suicide over the past 20 years, yet GDP per capita has increased tremendously over the same period, although mostly for the upper income brackets, as we know. Again, as previously discussed in my blog  (and in my upcoming ebook), this may all be perfectly “fair”, but globalization, technology, and inequality seem accompanied by many disturbing trends in terms of well-being for most of the population.

With its impressive material standard of living, the USA has an off-the-wall incarceration rate, with more than 6 times more people per 100 000 population in prison than the northern neighbour, Canada, and orders of magnitude higher than all other high-income countries. This could partially be explained by the fact that the USA has a border with Mexico and has a past of slavery that created generations of out-of-the-loop blacks with higher crime rates, but it still seems difficult to fully explain and is certainly disturbing. The USA systematically ranks in the top 3 of the high-income world for antidepressant consumption and murder rates. With all its power and wealth, the USA has THE highest daly-standardized depression rate in the WORLD, and it's not just because Americans declare it more than in all other countries. Something doesn’t work and nobody of importance seems to care, including economists.

​The “broken social contract” that was made clear after 2008 may be exacerbating the issue with the message that the labor market simply does not need you and that you must “prove your worth” more and more to have a shot for a spot under the sun. Meritocracy is admirable in many ways, of course, as it eliminates class-based privileges, but it also adds pressure and stress on people, and it becomes unfair when the odds are stacked against the everyday Bob stuck with a stagnating income and ever-higher prices in important markets such as education, health, and housing.

The hollowing out of the labor market is like a pressure cooker: at one point, the pressure will be too much and the valve will pop. Although innovation, growth, and prosperity are very important, it seems ridiculous that we simply ignore the issues of mental health and well-being. We need to aknowledge the phenomenon and explore the ins and outs of it to see how things can turn out so that we avoid the worst-case scenarios.

​“Aggregate analysis” is now pointless. Saying that “GDP per capita is increasing” is of zero value if all the income gains keep going to the top 10% all the time (even if it is all fair and normal) while the masses of the “bottom 80%” in the USA only see increasing economic and financial pressure from wage stagnation, globalization, automation, immigration, and offshoring with a perception of being ignored by elites and facing the reality of being priced out of important markets. To my humble opinion, this issue is urgent and has been ignored for too long by leaders, economists, and policymakers. Like, comment, and share!