It’s not all about the money

Events in the world of finance over the past few weeks have focussed that ‘national conversation’ onto matters economic. Of course, the economy always features heavily in debates surrounding independence, but events have changed the tone and moved the debate up a gear.

In particular, the trouble that Iceland finds itself in has led Scottish Secretary Jim Murphy to jibe about how Alex Salmond’s “arc of prosperity” encompassing Ireland, Iceland and Norway has become an “arc of insolvency”. I also cheekily made a reference to Iceland last week.

Of course, supporters of independence rebut the notion of the “arc of insolvency”. The various arguments surrounding these issues will continue on until the cows come home. Whether it is really wise to compare Scotland to Iceland (being a country with a population of just 300,000) at all, whether or not Ireland will potentially be in similar bother, and so on.

I wonder, though, if too much attention is paid to economic indicators when it comes to the debate on independence. Sure, things like economic growth are nice and desirable in their own way. But they surely cannot be the be-all and end-all.

I’m thinking about happiness economics. This is a slightly controversial field for various reasons. Certainly, being a relatively new sub-field fraught with all kinds of hurdles that other disciplines don’t have to negotiate, its findings are pretty patchy.

A famous concept in happiness economics is the Easterlin Paradox. Part of the paradox is that after reaching a certain threshold, societies as a whole do not become happier as they become richer. What matters, apparently, is your wealth relative to others. So if everyone becomes richer and you stay the same place in the pecking order, you will be no happier. However, more recent research suggests that the Easterlin Paradox doesn’t actually exist.

The Freakonomics blog ran a series of interesting posts on this more recent research earlier this year. Because there is seemingly no easy way to navigate through them all I will link to them here: parts 1, 2, 3, 4, 5, 6.

Despite contradictory findings and the various problems involved in researching people’s happiness, I think it’s important nonetheless for economists to study what makes people better off in broader terms rather than just assuming that well-being is a function of income. Certainly, even the more recent findings suggest that the relationship between happiness and income is far from simple.

A couple of interesting examples are relevant to the debate surrounding Scottish independence because they are both small countries. If you look in part 5 of the Freakonomics series, you will see nine graphs depicting the relationship between happiness and GDP. Ireland (part of the “arc of prosperity”) was very slow to become happier as GDP increased, though it did so, slightly, in the end. Meanwhile, Belgium’s happiness actually went down as GDP increased.

Whatever the pros and cons of studying happiness, it seems reasonable to suggest that there is more to life than just money. Certainly, it is an interesting thought experiment when it comes to considering the case for Scottish independence.

Cabalamat wrote recently on a comment on his blog: “I would probably support Scottish independence if the people calling for it had any coherent idea how to make Scotland richer. But they haven’t.” As you can probably guess from what I have written so far, I think this is a bit harsh.

Even though you probably won’t catch many people saying it, I am sure there are people who would happily accept a (slight) decrease in Scotland’s GDP as long as Scotland was independent. You might criticise these people, but if, as I have posited, life is not all about the money, it is a perfectly valid position to take.

For instance, I have often heard it said (and not just by nationalists) that Scottish people in general have had more confidence, more of a spring in their step, since Labour were kicked out last year. I don’t know whether that is true or not. I can’t say, personally, that I have noticed much difference in people’s behaviour since the SNP came into power. I am certainly not the sort of person who would become more confident just because the Yellow Party is in government and the Red Party isn’t. But if others do, then that is their prerogative, and who am I to judge that?

Similarly, it is often said that independence would have a host of other benefits besides any economic benefits there might be. For instance, some say that the people Scotland as a whole would become more confident, happier, prouder.

Whether or not you agree with that (and I have to say, I have my doubts), you have to admit that these are desirable goals of themselves, just as much as increased GDP is. As such, I would argue that it is reasonable to accept a trade-off in income if it gives you enough happiness to compensate for it. For this reason alone, I think the argument surrounding independence should hinge less on economic factors.

We all recognise this idea in a way. If everyone just focussed narrowly on money, we would all work 24 hour days and 7 day weeks. And while there are some people who like to work more than others, most of us like to have our leisure time which can boost our happiness. In so doing, we lose money by foregoing the wages that we would otherwise earn. And if we spend money on our leisure activities by going out or even by doing something as simple as using electricity, we lose even more money. But because it makes us happier, we do it. Indeed, if someone concluded that it was worth foregoing all of their leisure activities so that they could earn more money, you would probably think they were a bit of a dunce.

It is worth noting that Scotland has its own little Easterlin Paradox. Happiness in Scotland is lower than it is in England and Wales despite the fact that income is not substantially lower according to this paper (PDF link) by David Bell and David Blanchflower (found via Stumbling and Mumbling while searching for posts on happiness economics).

The fact that Scots are still unhappy relative to their neighbours suggests that Scotland’s problem is not just a deficient economy — it is a deficient people. Of course, independence would not let Scotland shed its “sick man” label overnight.

But if independence can contribute to an increase in the happiness alone of Scottish people, then it will have been of benefit. I’m not saying that independence would. But it’s interesting to think about.

8 comments

  1. I posted on this too according to what I could figure out, Scots folk will be happier if:

    # You have a job, preferably a ‘non-routine’ job.
    # You are married, or living as married.
    # You are not in the 35-54 age group.
    # You are in good health.
    # You are not in the lowest income group.
    # You shouldn’t live with children, (but only because it makes you more likely to stay in a job that makes you unhappy.)
    # You do not live in a deprived area are an area where there are big disparities between the richest and the poorest.
    # You do not live on a street with lots of traffic.
    # You have lived in the same place for more than 5 years.

    http://www.adopteddomain.com/blog/2008/9/21/to-health-wealth-and-happiness.html

  2. The possibility of meaningful interaction with the political process will certainly produce a greater degree of happiness in some people, even if it leaves others unaffected.

    In an independent Scotland, the political process will centred around the things that matter most to the people who live here, and they will be able to set the political agenda in a way that is simply impossible at present.

  3. James, the key words are “above a certain threshold”. Of course, people in dire poverty are much more likely to be unhappy. However, it is not so clear that a well-off society becomes happier by becoming better-off.