The Happiness Index

For what’s money without happiness?

Or hard times without the people you love?

-J. Cole, Love Yourz

No, this is not a discussion of some hip new ETF that I have found. Instead, I wanted to bring to your attention some recent research that may change the way we quantify happiness, which has all sorts of implications, even for you and your own Freedom goals.

The #FIRE community was borne out of a call-to-action to the middle class to reconsider the things they value most and to come to terms with the fact that a rich life was measurable by so much more than simply money. Bloggers like Mr. Money Mustache and Early Retirement Extreme preached logical frugality, simple indulgence, mindful and constant skill development and a consideration of the impact our actions have on others and the planet itself. It was a call to wake up from our sleep-walk towards endless economic growth at all costs no matter how unhappy and unhealthy it makes us and to re-direct our resources in order to allow ourselves to become the master of our own domains again.

A lot of this sentiment still exists within the community, but in some corners – and perhaps in those that overlap somewhat with the more traditional world of Personal Finance – it has simply become a collection of affluent middle class people telling stories of how well their ETFs and Index Funds have been performing (during the best 10 years in history for such investments mind you) and then reporting their net worth to each other on a monthly basis. A lot of it is hardly meaningful, and seems to have let go of the ‘why’ of it all. I see very few to zero ‘Charitable Givings’ or ‘Ecological Impact’ reports provided to summarize their social and natural capital gains or losses alongside their ‘Net Worth Update’ articles reporting their financial capital.

There seems to be virtually no discussion of how minimizing consumerism can not only save you money and allow you to quit work early, but can also make the world a better place in general by reducing inequality and reducing our ever-increasing environmental impacts. In many ways, the FIRE movement itself is blind to many of the hypocrisies that have become embedded within its hide, and is guilty of many of the things the original FIRE bloggers were busy critiquing in western society as a whole. Currently, even the most frugal #FIRE bloggers lives’ are currently very unsustainable, myself included.

Is it the qualitative aspect of happiness, health, peace and sustainability that makes it so much harder for us to consider in our decision-making process? Is it because it is a feeling and not a value in a spreadsheet that it is that that much more difficult to track and therefore that much easier to ignore?

Bhutan infamously introduced the GNH metric in 2008 to measure the nation’s Gross National Happiness alongside economic production (GDP). Many other governments are increasing their use of “national happiness” data.

Currently, in order to measure ‘happiness’, researchers are left to basically ask people to rate their happiness on a scale (i.e. from 1 to 10). However, this is clearly very subjective and in most cases only available from 2011 onward. However, some recent research aims to improve this, and also produced the first look at historical happiness.

It has previously been shown that people’s moods can be gleaned from the things they write and say. Using the Google Books Corpus, researchers analyzed 8 millions books and millions of newspaper articles all the way back to 1820. Words were given ratings as to how emotionally charged they were, and in which direction (negative, positive, or neutral emotion). This data helped to create an ‘Index of Happiness’ back to 1824 for 4 Western Countries – Germany, Italy, United Kingdom and USA.

When this index is correlated to historical events often thought to have caused much anxiety and unhappiness, it tracks quite well. In the USA and the United Kingdom, for example, the Index dips strongly around the World Wars. This also occurs alongside the USA’s civil war of the 1860s, and the Great Depression in 1929.

Interestingly, just before the stock market crash in 1929, there is a huge surge in The Happiness Index. Not only was the depression bad, but in comparison with times recent, it was especially bad, which likely heightened the struggles even further.

It’s important to keep in mind, as I mentioned, this relationship is not causal. The point is to find a correlation between real historical events and the Happiness Index, in order to test or proof the Index itself for application in other areas, including the present and future

The Happiness Index, of course, is not perfect. The results of the study indicate that in places where censorship is high, it may not be reliable. For example, in both Germany and Italy, happiness surged through to the end of World War II, even when defeat was imminent. The researchers believe this to be an artifact of the censorship of the fascist propaganda machines, and that any negative or critical press at the time would have been suppressed, leaving the researchers’ methods to analyze a very skewed set of data in these areas at these times.

What can also be observed is that money is but one aspect of happiness, something the FIRE community remains mostly aware of and that large swaths of society seem to have completely forgotten. As has been well-documented and discussed, money does make one happier when it lifts them from poverty into the middle class. However, that same amount of increase in income does not increase happiness the same magnitude when applied to a wealthier subject. For societies just like for individuals, the poorest have the most to gain by an increase in wealth.

But in developed societes, and indeed overall, health is far more important than wealth. For example, a one-year increase in longevity seems to evoke the same amount of Happiness from the Index as does a 4.3% annual increase in GDP, which would only occur in the most booming economies, and virtually never in a sustained way. In America and other places that provide sub-par public health care, the value of health is observed all the time as people frequently give up their life savings to rectify an unexpected health issue of theirs or a loved one’s.

Security is also far more important than wealth. Going from a state of peace to a state of war would require a GDP increase of 30% to offset the dip in happiness associated with living under the threat of violence. That’s a huge gain by any investor’s definition. How much would someone have to pay you to move to a warzone?

Put another way, if you are healthy and don’t live under the threat of persecution or violence, you are just as happy as you would be if increasing your net worth by almost 35% every year! Like I’ve been saying, you’re already rich before even getting started, but you have to understand what it means to be rich, and to consider your social and natural capital alongside your financial capital.

I feel this myself sometimes. When I am at home, passing my days doing things I love like surfing, writing, taking photos, eating well, learning new things and seeing people that I care about, I am content as a cucumber. However, if I am injured and unable to surf, or sick and unable to see friends, it only takes a few days before things become suddenly much less bright than they were when my body was in top shape and allowing me to live according to my own terms. I haven’t had yet to cross that bridge, but I already know it will not be easy to lose that freedom as I currently watch my grandmother – now in her nineties – struggle with the loss of her mobility and thus, independence and freedom. I can only hope to make it that long as well, but even then I can see that it is a huge physical and emotional challenge.

Professor Thomas Hills, one of the authors of the research said, “…Our national happiness is like an adjustable spanner that we open and close to calibrate our experiences against our recent past, with little lasting memory for the triumphs and tragedies of our age.”

That is to say that, at least on a national level, happiness depends mostly on today’s reality in relation to our recent reality, not on some objective measure of overall happiness based on time or economic conditions. It’s more about our expectations, which are usually driven by our recent experiences. Indeed, despite our significant technological and economic advancement of the last 100 years, and considering the associated environmental degradation that has occurred during that time, we are not obviously happier than we were prior to all of this wheel-spinning.

Hills continues, “Aspirations seem to matter a lot: after the end of rationing in the 1950s national happiness was very high as were expectations for the future, but unfortunately things did not pan out as people might have hoped and national happiness fell for many years until the low-point of the Winter of Discontent (UK).”

When leaving this world, almost no one wishes for more money. Instead, they wish for either more life, love or peace, demonstrating just how valuable social and natural capital are, and how much we have come to under-account for them in our net worth calculators – at least until we really need them most.

Journal Reference:

  1. Thomas Hills, Eugenio Proto, Daniel Sgroi, Chanuki Seresinhe. Historical Analysis of National Subjective Wellbeing using Millions of Digitized BooksNature: Human Behaviour, 2019 DOI: 10.1038/s41562-019-0750-z

3 thoughts on “The Happiness Index

  1. Matt

    I’m going on the record as saying this is the best blog on the internet. The last two posts were heavy hitting and impactful, bien hecho. Preach Hermano! Thanks again for continued quality writing. Matt

  2. Pingback: Health Management is Wealth Management - FREEDOM 33

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