Princeton economist Angus Deaton (born 1945) writes that the financial crisis that began in the summer of 2008 “brought harm to many, but it is a boon to researchers on subjective well-being, for whom it provided an unparalleled opportunity to examine how these events affected the standards of living, the emotional experiences, and life evaluations of those who lived through it”.
That is from page 2 of his paper, delivered as The Hicks Lecture at Oxford University on May 16th, 2011. He found that even large macroeconomic shocks produce only “small and hard to detect effects” on measures of subjective well-being (SWB). Here is the abstract of the paper:
The Great Recession was associated with large changes in income, wealth, and unemployment, changes that affected many lives. Since January 2008, the Gallup Organization has been collecting daily data on 1,000 Americans each day, with a range of self-reported well-being (SWB) questions. I use these data to examine how the recession affected the emotional and evaluative lives of the population, as well as of subgroups within it. In the fall of 2008, around the time of the collapse of Lehman Brothers, and lasting into the spring of 2009, at the bottom of the stock market, Americans reported sharp declines in their life evaluation, sharp increases in worry and stress, and declines in positive affect. By the end of 2010, in spite of continuing high unemployment, these measures had largely recovered, though worry remained higher and life evaluation lower than in January 2008. The SWB measures do a much better job of monitoring short-run levels of anxiety as the crisis unfolded than they do of reflecting the evolution of the economy over a year or two. Even large macroeconomic shocks to income and unemployment can be expected to produce only small and hard to detect effects on SWB measures. SWB, particularly evaluation of life as a whole, is sensitive to question order effects. Asking political questions before the life evaluation question reduces reported life evaluation by an amount that dwarfs the effects of even the worst of the crisis; these order effects persist deep into the interview, and condition the reporting of hedonic experience and of satisfaction with standard of living. Methods for controlling these effects need to be developed and tested if national measures are to be comparable over space and time.
Angus Deaton, “The financial crisis and the well-being of Americans“, Oxford Economic Papers, January 2012, pp. 1–26 (free access).
The paper is interesting throughout. Here are two segments that caught my eye:
[A]cross countries, average ladder [life satisfaction] scores are linearly related to the logarithm of per capita GDP. There are large differences across countries, from Togo, Benin, and Chad, with average ladder scores between 3 and 4, to Denmark, with an average ladder score around 8. An Increase of 1 in the log of per capita GDP is associated with an increase in the average ladder score of 0.84, and the simple correlation is 0.83. ….
In contrast to life evaluation, the average hedonic experiences of countries are only weakly related to per capita GDP. The fraction of the population that reports a lot of happiness yesterday is only mildly related to national income, essentially because of a few outliers such as, at the bottom, Togo, which is notably unhappy and, at the top, the US, where the pursuit of happiness is constitutionally guaranteed. Otherwise, there are happy and unhappy countries at all levels of GDP per capita. Hence, as far as self-reported happiness (the affect) is concerned, the data support Sen’s argument that even the poorest people in the world are often happy, although when we look at life evaluation, poor people generally recognize that their lives are going badly. That the hedonic and evaluative components of well-being have such different correlates implies, not only that they are different concepts that reflect different parts of human experience, but that we must consider each separately in assessing what happened over the financial crisis. A single broad measure of “happiness” will not do. From now on, I shall use the term “happiness” for happiness proper, referring to the hedonic experience of being happy, and I shall keep life evaluation for the judgment of life as a whole, as in the Cantril ladder. [p. 5]
There are many unresolved challenges before well-being measures become a standard part of macroeconomic monitoring, however useful such measures are in and of themselves. The measures have proved themselves in the cross-section across different groups, for example for looking at the effects of life circumstances, such as ill-health, divorce, or unemployment. They still have a long way to go in establishing themselves as good time-series monitors for the aggregate economy. In a world of bread and circuses, measures like happiness that are sensitive to short-term ephemera, and that are affected more by the arrival of St Valentine’s Day than to a doubling of unemployment, are measures that pick up the circuses but miss the bread. [p. 14]