Economists come in all shapes and sizes. It seems that the theories of economics can also be applied to explain the most varied of topics: from examining why most drug dealers still live with their mothers; how best to master love and marriage; to predicting how many gold medals the US might win in the next Olympic Games. However, for an academic subject known as „the dismal science‟, it seems ironic that economists are currently employed in explaining, measuring and improving happiness.
Americans of course are well versed in the theory of this emotional state. They consider it as one of their constitutional rights, stated in the United States Declaration of Independence: “……that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”.

Only fairly recently have economists turned their incisive academic minds to a quantitative study of happiness, or “subjective wellbeing” (can’t you just feel the joie de vivre with which they are imbuing the topic) and quality of life. Politicians, even the British ones of (usually) a more reserved nature, are looking to have public policy become more influenced by happiness economists.

However, in their haste to announce their pro-happiness stance, politicos have ended up saying, well, not much at all. The UK government’s ‘Action for Happiness’ website states; “Action for Happiness is a movement for positive social change. We‟re bringing together people from all walks of life who want to play a part in creating a happier society for everyone”. I’m not sure who isn’t in that group - it leaves me wondering whether other, rival movements go around campaigning for societal misery with the help of a small and secretive section of the public.

The website also claims that while our incomes have increased for the past fifty years, we are still no happier than we were five decades ago. So then, is it true that „money can‟t make you happy‟? This is a worthy topic for consideration; the problem, unsurprisingly, is that economists disagree on whether higher incomes do really lead to advanced levels of well being.
At the Aspen Ideas Festival a fortnight ago, a couple of highly reputable economists, Justin Wolfers and Robert Frank, had exactly this debate. The former tried to take apart the „Easterlin Paradox‟ which states that within societies, richer people are happier than poorer people but richer societies are not happier than poorer societies. This has given rise to the popular but counter-productive view that for rich countries at least, focusing on growing GDP is akin to treading water. What people really care about is their status relative to others and growth in absolute income for everybody cannot raise everybody’s relative position.

This article represents a personal and lighthearted view from Director, Justin Urquhart Stewart of Seven Investment
Management Limited, and is based on current financial news and events around the world. Its content should not be used
for investment purposes and you should contact an independent financial adviser before making any investment or
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To use an example, this suggests that if you make £10,000 a year more than your neighbour, and during your country’s economic hot streak both of your incomes rise. If you still only earn £10,000 more than your neighbour, then neither you nor your neighbour have increased your relative happiness.

For his rebuttal of the belief that for a rich country, the obsession with growth in GDP is an error, Wolfers turned to considerable data amassed by Gallup surveys of happiness conducted in 155 countries. With a high degree of correlation, he showed that higher incomes really do seem to make people happier. But even here there seems to be an argument for relative happiness. An extra 10 units of money will not increase happiness but a 10 percent increase in income will. It is still income relative to what one was making before.

However, Wolfers’ most important point was that within countries, richer people are happier than poorer people and globally, rich countries are happier than poor countries. GDP growth does exactly what it says on the tin. Intriguingly though, Wolfers left room for the counter-argument put forward by Robert Frank, professing that while he had data to prove that absolute income mattered, he did not possess enough data to convince everyone that relative income didn’t matter.

Frank contended that status mattered too – when people find they can’t keep up with the Joneses, it is natural to be discontent. Moving from a poor nation to a rich one isn't a ticket to happiness if it means having much less than the people around you - leaving you feeling relatively dirt poor. To illustrate he points to East Germany, Berliners on one side of the city could pick up television signals from the West and see exactly what they were lacking.

The truth behind the quest for happiness probably lies somewhere in between Frank and Wolfers’ views. The pursuit of economic growth remains a worthy objective for countries, but perhaps it shouldn’t be the sole measure. How about looking at a combination of both GDP and GNH (Gross National Happiness)?

For pure politicians, this might not appeal - one can’t win votes with charts and tables. The man-in-the-street cares about tangible contentment, not ethereal statistics; and the politician cares (in theory) about the man in the street. Pure economists will have to put up with policy speeches punctuated with trite phrases of “maximising subjective wellbeing” – but they have to do that anyway. In my view, it’s probably a good idea to cut down on campaigning solely on abstract ideas of happiness, hope and „winning the future‟. Just look how well that’s working out for President Obama. We shouldn’t ever abandon these ideals though – after all, they’re a fundamental part of being human.

And finally...... keep those tissues handy because this is the last piece of commentary I will be writing for 7IM on behalf of Justin (who, in case you are wondering, has gone back under the knife this week). It has been an absolute privilege and pleasure to have covered Justin’s column over the years and I shall miss him and the team at 7IM dearly. I wish them all the very best in their future endeavours.

Aparna Ram Investment Manager Seven Investment Management Limited