Chapter 2: Does Money Buy Happiness?

2.1 The Rat Race for Making More Money

Almost everyone is eagerly engaged in the rat race for making more money. And almost every nation is eagerly engaged in the rat race for increasing its per-capita income. If money does not buy happiness, people and governments must be quite mad or stupid. So, the answer seems to be that money does buy happiness. But does it really?

Studies by psychologists and sociologists show that, both within a country and across nations, the happiness level of people increases with the income level, though not very significantly. For example, using regional and cultural classifications, the Northern European countries with high income score top on happiness, followed by the group of English-speaking US, UK, Australia, and Ireland. Central and South-American countries including Brazil come next, followed by the Middle East, the Central European, Southern and Eastern European (Greece, Russia, Turkey, and Yugoslavia), the Indian Sub-continent, and Africa which does not, however, come last. Southern and Western European (France, Italy, and Spain) score significantly lower than Africa. And the last group is East Asia, including the country that leads in income, Japan. Singapore has an income (per capita) level 82.4 times that of India. Even in terms of purchasing power parity instead of using exchange rate, Singapore is still 16.4 time higher than India in income. However, the happiness scores of both countries are exactly the same, both significantly higher than that of Japan. (See Cummins 1998. The low happiness scores of the East-Asian regions despite their high incomes and high rates of growth, dubbed the East-Asian happiness gap by Ng 2001b, is further discussed in the last chapter.)

While there are notable cases like Japan and France that are far off the regression line, a statistically significant positive relationship between happiness and income exists cross-nationally globally. This is due mainly to the inter-group difference between the high-income and high-happiness advanced and free countries and the others. The analysis by Schyns (1998) shows that there is no positive relationship between income and happiness within either of these two groups. (Professor Veenhoven assured me that, in a recent study, a positive relationship for the poorer group of countries was shown.)

We presented the above results in a seminar at our university. A colleague said, ‘Cross-national relationship between income and happiness is affected by cultural differences. The relationship should be stronger within the same country.’ In fact, the relationship between happiness and income level intertemporally within the same country (at least for the advanced countries which have such data) is even less encouraging in terms of giving a positive relationship. For example, from the 1940s to 1994, the real income per capita of the US nearly trebled. However, the percentage of people who regard themselves as very happy fluctuated around 30%, without showing an upward trend; another measure of average happiness fluctuated around 72%. (Blanchflower & Oswald 2000 noted a slight decrease in the happiness level in the U.S. from 1972 to 1998, but Hagerty & Veenhoven 1999 show a slight increase.) Over the similar period, the income level in Japan increased by a much larger multiple. However, its average happiness measure fluctuated around 59%, also without an upward trend. (See Diener and Suh 1997; Frank 1997; Kahneman, et al. 1999; Myers 1996, p.445; Oswald 1997; Veenhoven 1993.)

Within a country at the same time, it is true that income is positively correlated with happiness, though only marginally. However, it seems that no income group is contented with their income level, as judged from the answers to the following question by the Americans in 1980: ‘What would be the smallest income … your family would need to make ends meet?’ (US Bureau of Labor Statistics 1986). As Lebergott (1993, p.71) comments, ‘the more one has, the more one wants. Families with incomes below $5,000 felt that $7,822 would suffice. Families with incomes from 5,000 to $10,000 felt $10,139 was needed. Those who averaged $44,837 knew that almost three times that sum was absolutely necessary’.

When you are starving, eating is important. Thus, income matters more for happiness at very low levels of income. Without exception, researchers after researchers find that income either does not matter or only matters slightly in happiness, at least after a certain biologically minimum standard of living is reached. Millionaires are only slightly more happy than the average person (Diener, Horowitz and Emmons 1985). Taken together, the evidence suggests that income matters more for happiness at very low levels of income but it still accounts for less than 2% of the overall variance in individual happiness (Diener, et al 1993). In fact, all objective factors combined seem to contribute little to happiness. Thus, Campbell, et al (1976) found that demographic factors (including income, age, gender, race, education, and marital status) explain less than 20% of the variance in happiness. Andrews & Withey (1976) find that these factors account for only 8% of the variance in happiness or well-being. If we take away marital status (which correlates significantly with happiness), other objective factors are very unimportant indeed.

Many people spend a lot of money and time in buying lottery tickets. However, there is evidence that lottery winners are no happier than non-winners (Brickman, et al 1978). True, they are delighted after winning. However, their happiness levels fall back to the original levels within weeks. (A recent result of Frederick & Loewenstein 1999 shows a quick decline back to a level slightly above a control group.) Their original expectation of having a much happier life after winning is not fulfilled. It is thus not really worthwhile to spend say $10 per week plus the time and trouble when the expected return is only $6, unless you get a big kick in daydreaming about the nice time of spending the big win. In other words, you mainly just buy a hope. We would rather put our hope elsewhere.

2.2 Why the Rat Race if Income Does Not Really Buy Happiness?

The positive relationship between income and happiness for any given year and the lack of the relationship over time may be explained by the importance of relative-income effects (Easterlin 1974). The concept of relative-income effects was discussed by economists including Rae (1834), Veblen (1929), Duesenberry (1949), Hirsch (1976), Akerlof (1976), Frank (1985, 1999), and Ireland (2001),. After a certain biological minimum level, people’s satisfaction from consumption is explained less by the intrinsic usefulness of goods but by the relative levels of income or consumption. One may have enough nourishment, accommodation, and has a car to move around. However, he may still be unsatisfied if others consume more and have more luxurious cars. A seminar speaker, an economist, disagreed with our view that money is no longer for happiness, saying, ‘I would certainly be happier with a BMW.’ Our reply was, ‘The BMW may make you happier, but it will make others less happy.’ Hence, lower income-groups are less satisfied and higher income-groups are happier. Thus, money buys happiness in this sense. (Even so, money only buys small amounts of happiness; there are many other factors that correlate more significantly with happiness than money.)

However, an increase in the relative income of one person means that the relative incomes of some others must decrease. For the whole society, the relative incomes of people on average cannot increase. This may thus partly explain why happiness does not increase with higher incomes over time, yet people are still engaged in the rat race for making more money. We said ‘partly’ because the small amounts of higher happiness associated with higher incomes (even assuming the causal relationship all goes from income to happiness) do not really justify a fierce race for making more money. There must be other explanations.

The most important explanation is that people (ourselves included) are ignorant and irrational. This is a remarkable, if not ‘courageous’ (in the sense used by Sir Humphrey in ‘Yes, Minister’), statement by economists. Many economists may regard this statement as a sufficient proof that we are not competent economists. Economists typically assume that an individual tries to maximize their stable objective function subject to feasibility constraints. They pride themselves by being able to explain behaviour involving apparent changes in preferences as really caused by changes in such economic factors as incomes and prices. They are really quite skilful in such analysis which is very useful for many problems. Due to this focus, they hardly discuss changes in preferences, not to mention ignorant choices and irrational behaviour. Economists take people’s preferences as given. Apart from logical consistency, economists do not question the rationality of people’s preferences. (Among very few exceptions is Scitovsky 1976.) By saying that people have irrational preferences (worse, as will be seen later, we regard some of their preferences as simply ‘incorrect’), we prove ourselves to be not competent economists. Or so might many economists believe.

The above view of many economists has some rationality. First, if you can explain certain things without resorting to the assumption of preference changes, ignorance and irrationality, it may be nicer. Secondly, almost anything can be explained by some forms of preference changes, ignorance and irrationality. Despite this, the fact remains that preference changes do happen in the real world and people are not perfectly free of ignorance and irrationality. Perhaps it is a little extreme and not quite nice to say that people are ignorant and irrational. So, let us agree to change it into saying that people (ourselves included) are not fully informed and not perfectly rational.

By being fully informed in, say, the consumption choice, one does not have to know everything including quantum mechanics. It does mean that one knows the relevant prices, qualities and effects of the relevant goods and their substitutes. Even with this sense of being fully informed, it is clear that most consumers are not fully informed in most of their choices. However, in most cases, the extent and/or effects of the imperfection in information are small. They should be neglected. The more significant cases may justify such measures as government inspection and regulation of food, drugs, and other goods and services. In the US, there are such government bodies as the Consumer Product Safety Commission, the Food and Drug Administration, and the Federal Deposit Insurance Corporation to protect buyers. However, even in these areas, economists argue that ‘markets can provide for the regulation of quality standards without any government involvement. … regulations through firms in the private market is likely to be superior to government regulation for two reasons. First, firms have more of an incentive to be effective regulators. Second, individuals will be more likely to check the quality standards that are being regulated rather than assuming that the government is taking care of them’ (Holcombe 1995, p.103). We find Holcombe’s arguments persuasive at least in certain important aspects. Yet we are not sure whether we should leave everything to the market. Nevertheless, most people would agree that there is scope for the removal or simplification of some unnecessary regulations in some areas.

Economists are even more reluctant to say that people are irrational (even in the mild sense of being less than perfectly rational) than that they are not fully informed. Yet, there are good reasons to suggest and good evidence to show that people are far from fully informed and/or fully rational. At the end of Section 2.1, the case of wasting much money and time on buying lottery tickets has already been discussed. Ignorance and/or irrationality is likely to be involved as winning a large sum of money does not really bring a lot of happiness.

Most people believe that, rather than becoming disabled (losing both legs or both eyes), it is better to be killed in an accident. We have taken shows of hands at classes and public lectures, the answers are consistently about 2-3 to 1 in favour of being killed (i.e. about 2.5 times more people choosing being killed than those choosing being disabled). We would then tell them, ‘your preferences are incorrect!’ Studies show that quadriplegics are only slightly less happy than healthy people (Brickman, et al, 1978). After a period of adjustment, the happiness levels of seriously disabled accident victims are restored to levels close to the pre-accident levels. They are then glad that they were not killed in the accidents.

In the last section, it is also mentioned that, the more income people have, the more money they think they need to make ends meet. At any income level, people feel the need and urge to have more. They believe that the additional income will make them significantly happier. However, once they have the additional income and are accustomed to it, they become no significantly happier than before. Instead, they then think that more money is needed to make them happy. Most people ignore or underestimate the negative effects of current consumption/enjoyment on future happiness and the positive effects of current abstinence/suffering on future happiness (Headey and Wearing 1991). The failure to take adequate account of the adaptation effect and the influence of the ‘market culture’ are also used by Lane (1993, 2000) to explain why people think that money is more important than it really is.

In fact, there is evidence that the more materialistically inclined are less happy. People whose goals are intrinsic, i.e. oriented towards self-acceptance, affiliation, and community feeling, are happier than those whose goals are extrinsic, i.e. oriented towards some external rewards such as financial success, popularity, and attractiveness. (See Kasser & Ryan 1993, 1996, 1998; Richins, et al 1992, Ryan, et al forthcoming, Wright & Larsen 1993). ‘Materialism, a preoccupation with economic well-being, is negatively correlated with SWB [subjective well-being], and especially so in those that believe that more money would make one happier’ (Offer 2000, p.20, reviewing Ahuvia & Friedman 1998, p.154, 161). Yet, people continue to be or even become more materialistically inclined.

A specific example may illustrate the high happiness costs of materialism. As reported in Ming Pao Daily (a reliable leading daily in Hong Kong) on 23.3.97 (p. A11), a man in Tienjin was sent to a hospital after he fainted while cycling. Further investigations revealed that he decided to buy a mobile phone costing more than RMB-9,000, despite having a monthly salary of only about -600 and a life saving of only -5,000. He thus cut down on all his expenses including food. After more than four months of semi-fasting, he managed to buy the mobile phone with a loan of another -2,000 from relatives. The phone was not for any business or other essential use. Rather, he used it to show off to his friends, cycling from one house to another, ending up in the hospital. Maybe he was ignorant of the possibility of fainting. However, even if he did not faint, we do not think that the happiness he would obtain from showing off his phone would be more than his welfare loss from spending more than -9,000, including making himself rather unhealthy from semi-fasting. His desire to have the phone is likely to be irrational.

People want to be happy; so why do they have irrational desire and do certain things that reduces their happiness?

2.3 A Biological Explanation of Irrationality

While people are largely rational and want to be happy, they are not perfectly rational, if for no other reason than the fact that they are also biological organisms. The importance of relative standing may have, at least partly, a biological explanation. After reviewing biological and non-biological evidence, Frank (1999, p. 145) concluded that ‘concern about relative position is a deep-rooted and ineradicable element of human nature’. Individuals compete for survival and in reproductive fitness. For an individual (and natural selection works mainly at the level of the individual) and beyond the absolute minimum standards for survival, reproductive fitness is determined largely by relative standing, especially for the male members. In the animal kingdom and in our long history of evolution, it is/was the dominant male that has/had the almost exclusive access to a whole harem of females. The (mainly male) fetishism on sports competition may also partly be traced to this biological factor of the ‘winner takes all’ in male competition (Deker & Scotchmer 1999). The male dominance in spheres where aggressive competition to get to the top is important (e.g. chief executive officers in business) may also be partly explained by the same factor. Of course, the biological inclination may also be reinforced by nurture, especially in our society that values competition and materialistic achievements. (On the biological basis of behaviour, see Wilson 1975, Dawkins 1989, and Robson 2001.)

In nature, species and individual organisms have to compete with other species and individuals for scarce resources and the opportunity to mate. Those individuals not performing well in the competition will not be able to pass their genes on to the next generation. Thus, characteristics that make individuals good in the competition for survival and reproduction will be selected naturally. Thus, in nature, the ultimate forces are survival and reproduction, not happiness. This is the fundamental reason why even individuals in the most rational species, Homo sapiens, us, are still not fully rational. (We define irrationality as preferring, choosing, or doing something against one’s own happiness not due to ignorance or a concern for the welfare of others. We define welfare as happiness. At the ultimate level, we certainly regard our welfare as certainly nothing more or less than our happiness.)

When there were only relatively few and simple species, the environment was relatively simple. Some simple strategies like orienting towards light may be adequate for survival. With the evolution of more and more species (from random mutation and natural selection) and more and more complex species, the environment became more and more complex. This made the use of more complicated strategies more important for survival. This created an evolutionary pressure for complexity. The existence of more complex species also made the evolution of even more complex species possible. Evolution was largely through gradual changes, even though there might be some occasions of ‘punctuations’ (relatively sudden changes) in the dynamic equilibrium.

When the environment became more complex, the number of alternative behavioural responses for different circumstances quickly exploded into astronomical magnitude. This made programming all the optimal behavioural responses through hard wiring in the genes very costly. This created a selectional pressure for the evolution of consciousness. A conscious organism may use its consciousness to size up the situation and make choices like ‘fight or flight’ on the spot, relieving the necessity to pre-program all the responses for astronomical number of alternative situations. How consciousness is possible and how it actually evolved are unexplained. (Perhaps, such ‘world knots’ may never be explainable.) However, it is clear that, once consciousness did evolve, it bestowed an enormous advantage. This explains its survival despite its high costs. (It is known that our brain, while accounting for only a few percentage of our bodily weight, consumes a disproportionately high percentage of our total energy requirement.)

We may define a second concept of rationality (distinguished from the first by being written in italics). A species A is more rational than another B, if the behavioural responses of A is determined more (than B) by conscious choices than by hard-wired programs. The evolution of more and more rational species then made the environment more and more complex and made the evolution of even more rational species more selectable. This created a virtuous cycle in favour of complexity and rationality, cumulating in the emergence of Homo sapiens. (See Ng 1996b for details.) This virtuous cycle partly explains the spectacular speed of this evolution, a speed questioned by creationists. (Of course, all this only partly explains the evolution theory as a possible hypothesis; they do not prove that consciousness was not created by God. Thus, on such fundamental problems, one must maintain some degree of agnosticism. The argument below is based however on the presumption that the evolution hypothesis is valid.)

Conscious choices could be selectable only if the choices made were largely consistent with survival and reproduction. God (or evolution) solved this problem by endowing the conscious species with a reward and punishment centre(s). Thus, activities like eating nutritious food when hungry are rewarded with pleasure; injuries to the body are penalized with pain. This makes (survival and reproductive) fitness-consistent choices largely also conducive to happiness. However, the consistency is not perfect. Since evolution is largely fitness-maximisation and the happiness-enhancing aspect is only indirectly to enhance fitness, some divergence between our behaviour and our happiness is unavoidable. For example, traits that incline individuals to produce a number of offspring larger than that dictated by happiness maximisation may be selected (Ng 1995).

Apart from the ex-post reward and penalty, evolution also programmed us to have certain biological or psychological drives to propel us to do certain things that enhance our fitness for survival and reproduction. An obvious example is the strong sex drive which propels especially young people to engage in careless sex, resulting in unwanted pregnancies and the contraction of AIDS and other diseases. Obviously, such activities may be happiness reducing in the long run. While this is partly due to ignorance, the role of biological drives cannot be denied.

A biological drive that is particularly relevant for our purpose here is the accumulation instinct. It is clear that the hard-wired instinct to store/bury food by ants, mice, squirrels, etc. is fitness enhancing, as it reduces the probability of dying from starvation. In times of scarcity, our inner urge to accumulate increases both our fitness and our happiness. Since scarcity was the rule in our thousands of generations of evolutionary history, our accumulation instinct is still present. In this age of plenty (at least for rich countries), our accumulation instinct still propels us to make more and more money even if that no longer increases our happiness. We end up in an affluent (Galbraith 1958) but joyless (Scitovsky 1976) economy. Many people are prepared to cheat, to harm others, and to risk losing good friends, family members, and even their own freedom and lives in order to make more money that does not really increase their own happiness. Like careless sex, this is clearly irrational. Only if one can see through the stupidity of such happiness-reducing quests for money that one may regard one as truly ‘having no illusions’. (Confucius said, ‘I became independent at thirty, had no illusions at forty, knew the mandate of Heaven at fifty, ….’. The first author tries to have no illusions but without complete success. Thus, in the signature of his emails, he adds, ‘Though I have long known the mandate of Heaven, I still have illusions.’)

Chapter 4 Private Consumption or Public Spending?

Except for poor countries, increases in income and consumption can no longer increase happiness appreciably. However, this does not mean that economic issues are no longer important and that we may stop studying economics. As argued below, a shift of resources from private consumption towards public spending, especially on education, research, and environmental protection, may significantly increase happiness.

4.1 The Futility of Private Consumption

After a biological minimum, the futility of money to buy happiness, at least at the social level, has already been discussed in Chapter 2. In rich countries, the increase in consumption has been really phenomenal. In the century between 1880 and 1980, cigarettes consumed per capita in the US increased by 300 times (not percent). But for the recent concern with the health hazards of smoking, the figure would have increased further. Between 1900 and 1990, real per capita consumer spending increased by 6.4 times on housing, by 20.6 times on household appliances, and by 21.7 times on automobiles. (But spending on public transport actually decreased by 4%. See Lebergott 1993, p.76 and p.85.) As early as eight decades ago, Veblen (1921, p.12) said that ‘something like one-half of the actual output is consumed in wasteful superfluities’. Since then, real output per capita in the US has increased by nearly three times. However, as noted earlier, measures of happiness have fluctuated around the same levels, without an increasing trend.

The failure of higher income to increase happiness may be explained by the following considerations.

1. Marginal utility of consumption diminishes quickly: Happiness may respond to higher consumption at low consumption level but the magnitude of this response quickly diminishes as consumption level increases. In the jargon of economics, the marginal happiness/utility of consumption diminishes quickly to a negligible amount. Kenny (1999, pp.4-5) puts the point of fast diminishing marginal utility of income in more objective terms thus: ‘Compare Mozambique, China and the USA. In turn, the countries’ GNPs per capita in 1992 were $80, $470 and $24,740. Infant mortalities were 145.6, 30.5 and 8.6 per 1,000 live births, respectively. Life expectancies were 47, 69 and 76 years. Thus, going 1.6 percent of the distance between Mozambique and the United States in terms of wealth, so reaching China’s income, we move 84 percent of the distance in terms of infant mortality and 76 percent of the distance in terms of life expectancy.’

2. Mutually offsetting effects of competitive consumption: After a biological minimum level, much of the consumption is used competitively to keep up with or surpass the Joneses. At the social level, such competitive consumption is mutually offsetting, making people on average no happier. In addition, the environmental costs of the extra production and consumption may actually make people worse off (Ng & Wang 1993, Ng & Ng 2001).

3. The adaptation effect: Initially, a higher consumption level makes the consumer happy. However, the consumer quickly adapts to that higher level and the happiness level falls back to the initial level.

Due to the above effects, it need not be surprising that higher income fails to generate more happiness. However, it may be argued, especially by economists, that it is the measures of happiness that are problematical. People now may require a larger amount of subjective happiness before describing themselves as ‘very happy’. Thus, despite a substantial increase in happiness, the percentage of people describing themselves as ‘very happy’ may not have increased. It is true that the methods used by psychologists and sociologists to measure happiness are open to the charge of incomparability. Thus, the first author has developed a method that yields happiness measures that are comparable interpersonally, intertemporally, and internationally (Ng 1996a).

Even before using such more comparable measures, there are persuasive arguments that such happiness measures are rather reliable (Kahneman et al. 1999). For example, different measures of happiness correlate well with one another (Fordyce 1988), with recalls of positive versus negative life events (Seidlitz, Wyer & Diener 1997), with reports of friends and family members (Diener 1984), with physical measures like heart rate and blood pressure measures (Shedler, Mayman & Manis 1993), and with EEG measures of prefrontal brain activity (Sutton & Davidson 1997). Pavot (1991) finds that respondents reporting that they are very happy tend to smile more. Di Tella & MacCulloch (2000) note that psychologists who study and give advice on happiness for a living use happiness data. ‘Presumably, if markets work and there was a better way to study well-being, people who insist on using bad data would be driven out of the market’ (pp.7-8). Moreover, correlationships of happiness show remarkably consistency across countries. All these do not rule out remaining problems (see, e.g. Schwarz & Stracek 1999, Bertrand & Mullainathan 2001). However, reported subjective well-being may still be used as good approximation (Frey & Stutzer 2001).

There could be different degrees of cultural bias in reports of happiness levels internationally (Diener, Diener & Diener 1995). For example, people in the US are more inclined to profess happiness, as being happy is socially regarded as something positive. French respondents may have the opposite bias, as Charles de Gaulle was quoted as saying ‘Happy people are idiots’, though this assertion has actually been refuted by the data (Diener 1984). In Japan, the social custom of modesty may make people less ready to describe themselves as very happy. However, for intertemporal comparisons, it is likely that, if there have been any significant changes in such biases, they are likely towards more willingness to profess happiness. Thus, such cultural bias cannot be used to explain the failure of the happiness measures to increase over time with income. Moreover, researchers have used various methods (e.g. the social desirability scale of Crowne & Marlowe 1964) to isolate the effects of such biases without changing the conclusions significantly. For example, Konow & Earley (1999) report that the use of the C-M scale to control for the bias does not significantly affect their findings that people who help others are happier.

Furthermore, the picture is not much different even if we use more objective indicators of the quality of life. Analyzing a panel data set of 95 quality-of-life indicators (covering education, health, transport, inequality, pollution, democracy, political stability) covering 1960-1990, Easterly (1999) reaches some remarkable results.

While virtually all of these indicators show quality of life across nations to be positively associated with per capita income, when country effects are removed using either fixed effects or an estimator in first differences, the effects of economic growth on the quality of life are uneven and often nonexistent. It is found that ‘quality of life is about equally likely to improve or worsen with rising income. … In the sample of 69 indicators available for the First Differences indicator, 62 percent of the indicators had time shifts improve the indicator more than growth did’ (Easterly 1999, p.17-8). Even for the only 20 out of the 81 indicators with a significantly positive relationship with income under fixed effects, time improved 10 out of these 20 indicators more than income did.

The surprising results are not due to the worsening income distribution (there is some evidence that the share of the poor gets better with growth). Rather, the quality of life of any country depends less on its own economic growth or income level but more on the scientific, technological, and other breakthroughs at the world level. These depend more on public spending than private consumption. Many studies (e.g. Estes 1988, Slottje 1991; see Offer 2000 for a review) show that measures of social progress strongly correlates with income level at low incomes (to around US$3,000 at 1981 prices) but the correlation disappears after that. Others (e.g. Veenhoven 1991, Diener & Suh 1999) show a similar relationship between happiness and income.

If private consumption does not increase happiness (at the social level), public spending that reduces private consumption may be costly in dollar terms but not in happiness terms. Since money is not our ultimate objective while happiness is, reckoning in dollar instead of happiness terms overestimate the truly ultimate cost of public spending. It fact, as argued below, even just on dollar terms, the true costs of public spending have been much overestimated by economists.

4.2 The Overestimation of the Costs of Public Spending

(Readers finding this subsection technical may skip it without much loss of continuity.)

Economists are good in recognising the indirect, hidden costs of many things that escape the attention of most non-economists. This is an important function of economists difficult to over-emphasise. However, most economists overestimate the costs (or underestimate the benefits) of public spending, especially on research and environmental protection. In combination with the global public-good and long-term nature of the fruits of research and environmental protection, this may make public spending on these items well below the optimal levels, even before we take into account the failure of higher private consumption to significantly increase happiness and improve the quality-of-life indicators.

4.2.1 Overestimating the excess burden of taxation

For a dollar of public spending, non-economists typically cost it at one dollar. However, economists typically cost it at well in excess of one dollar. A recent estimate by a prominent economist at Harvard University (Feldstein 1997) puts it at $2.65. Such high estimates of the costs of public spending suggest that public projects should yield very high benefits before they are worthwhile to undertake. This conception probably partly contributes to the world-wide trend towards cuts in public spending.

The costs of public revenue include not only its direct cost (the amount of taxes imposed) but also the costs of administration, compliance, policing, and distortion. While the first three types of costs are substantial, they do not vary significantly with the tax revenue raised. Hence, concentrating on the marginal costs of public spending, economists emphasise the distortionary costs or excess burden of taxation due to the fact that taxes distort the free choices of individuals, especially in discouraging work effort, i.e. the disincentive effects. At least since the time of Pigou (1928), economists have emphasized that the benefits of public goods must exceed their direct costs by an amount sufficient to outweigh the excess burden of taxation. An authoritative modern textbook (Stiglitz 1988, p.140) puts the Pigovian principle this way: “Since it becomes more costly to obtain public goods when taxation imposes distortions, normally this will imply that the efficient level of public goods is smaller than it would have been with nondistortionary taxation.”[1]

The economists’ practice of including the excess burden of taxation in the costs of public spending ignored an important consideration pointed out by Kaplow (1996). Basically, the disincentive effects on the taxation side are largely offset by the incentive effects or negative disincentive effects on the spending side. Kaplow argues that public goods can be financed without additional distortion by using an adjustment to the income tax that offsets the benefits of the public good. The ‘preexisting income tax schedule is adjusted so that, at each income level, the tax change just offsets the benefits from the public good. By construction, an individual’s net reward from any level of work effort will be unaltered; any reduction in disposable income due to the tax adjustment is balanced by the benefits from the public good. Because an individuals’ after-tax utility as a function of his work effort will thus be unchanged, his choice of work effort - and utility level – will also be unaffected’ (Kaplow 1996, p.514).

For example, if the benefit of a public good is proportional to the income level of the taxpayers, it may be financed by a (or an increase in) proportional income tax. The proportional income tax itself may involve a disincentive effect. However, the tax plus the public good together involve no disincentive effect. For example, suppose the benefit of police protection of properties is proportional to the income level of the taxpayers. With a higher degree of police protection financed by a higher proportional income tax, a person benefits more (in comparison to a lower degree of protection and lower tax) and pays more by the same amount if they earn more, leaving the incentive structure unaffected. Hence, a dollar of public spending needs only to yield no less than a dollar (instead of the $1.35 or $2.65 estimated by economists) of benefits to the public for it to be worth spending.

While Kaplow’s argument has to be subject to some qualifications, there are other considerations suggesting either that the costs of a dollar of public spending should be significantly reduced (possibly to below one dollar) or that the benefits of public spending should be significantly increased from those normally estimated by economists as private consumption have grosser inefficiency (Ng 2000b, 2001c).

4.2.2 Environmental effects, relative-income effects, and burden-free taxes

Even before we take account of Kaplow’s argument discussed above, the costs of public spending are overestimated due to the failure to take adequate account of the environmental effects, relative-income effects, and burden-free taxes.

Environmental effects

The production and consumption of most goods and services impose significant disruption on the environment either directly or indirectly (through input usage), including various forms of pollution, congestion, deforestation, etc. Ideally, taxes should be imposed in accordance to the estimated costs on the society of these environmental disruption effects. However, largely speaking, this has not happened. Thus, general taxes on income and consumption, though designed mainly for the purpose of revenue raising, may in fact serve as rough counteracting measures to the disruption effects involved. Thus, far from being distortive, taxation may be corrective; instead of imposing positive excess burdens or distortionary costs, taxation may serve to improve efficiency, given that tax rates are around 30% in most countries and the severity of the environmental effects, such may well be the case, especially if a global and long-term view is taken. At the very least, the distortive costs of taxation are far less than estimates that fail to account for the environmental effects. Most such estimates (e.g. the one by Feldstein mentioned above) do not consider the environmental effects.

Relative-income effects

The importance of relative incomes (one’s income relative to those of others) is beyond doubt and has been discussed by economists as early as Rae (1834). However, its relevance for the costs of public spending has been ignored. Ignoring the possible concern for the poor, most people (with the exception of those at starvation level) typically would not like a situation where the income of everyone is doubled while their incomes increase by only 5%.

For a single person, an increase in income increases both their absolute and relative incomes. It is thus perceived to be very important. If the friends/school-mates of your child all receive expensive birthday gifts, you also have to give your child an expensive one. If your friends all have luxurious cars, you may feel less satisfied with your standard one. However, since public goods are simultaneously consumed by all individuals, no such relative pressures are present. This causes a bias in favour of private spending or against public spending. The benefits of public spending are underestimated (effectively equivalent to an overestimation of the costs). In most estimates, the marginal benefit of private expenditure is likely to be taken to include the absolute-income or intrinsic consumption effects plus the internal or direct relative income effect (as these two taken together constitute the worth of private consumption as it appears to each individual), but not to include the negative external or indirect relative income effects. This creates an over-emphasis in favour of private expenditure, leading to a sub-optimal level of public spending, as demonstrated more formally in Ng (1987a). (The point about relative-income effects repeats that discussed in Section 4.1 above. However, the point is relevant in both places.)

Burden-free Taxes

Economists regard a tax of $1m as generally imposing a burden in excess of $1m, say $1.35m on the economy. (The $2.65m figure estimated by Feldstein is a remarkably high figure; $1.35m is about the average estimate.) The $1m is the burden that is exactly offset by the tax revenue. The $0.35m is the excess burden that is a deadweight loss created by the taxation distortion of choice. While most economists realize that corrective taxes on say pollution involve negative excess burden or positive efficiency gain, burden-free taxes are regarded as existent only in fairyland. However, there are goods taxes on which create not only no excess burden (the $0.35m) but no burden ($1m) at all. These are pure diamond goods or goods valued for their values rather their intrinsic consumption effects. People consume or hold these goods to show off their wealth, to use them as stores of value or gifts of value. Cubic zirconia looks exactly like top quality diamond but costs only a tiny fraction of true diamond. But no one gives his fiancée an engagement ring of cubic zirconia. For such goods, it is the value (price times quantity) that enters the utility function of the consumer rather than the quantity, as posited in economic analysis. As prices increase due to higher taxes on these goods, consumers may just spend the same amounts to buy the same values without real losses. The revenues raised are pure gains, suggesting arbitrarily high taxes on them (Ng 1987b). While many goods (most precious metals and stones, top brands of most goods, especially conspicuous items like cars and wines) possess various degrees of diamond effect, few if any goods are pure diamond goods. Nevertheless, very high taxes on mixed diamond goods are still efficient. Moreover, as consumers may wish to consume the value (pure diamond) aspect of the mixed goods so much (such as to show off their wealth) as to incur negative utility on the intrinsic consumption aspect (such as health-threatening excessive drinking), taxes on such mixed diamond goods may actually make consumers better off (being able to show off to the same extent without drinking to excess), as shown in Ng 1993.

4.3 Welfare-Improving Public Spending

From the various factors discussed above, the costs of public spending have been grossly overestimated. While it is desirable to do away with the inefficiencies in public spending if possible, it is increases in public spending, especially on research and environmental protection, that can really increase our welfare. The recent trend to check the growth in public spending may be grossly inefficient. In fact, we show that economic growth increases the optimal share of public spending and that, without directly dealing with environmental disruption, economic growth may reduce happiness even if the shares of public spending and environmental protection are being optimized. (See Ng & Ng 2001.) Thus, one may say that the historical increase in the relative size of the public sector is consistent with and is partly explained by this. In fact, we may go further than this and argue that, despite the higher relative size of the public sector, it is still lower than the optimal level. This may be so for a number of reasons.

Environmental quality is to a large extent a global public good. The big mountain fire in Indonesia recently (1997) affected the air quality, climate, and even visibility of neighbouring countries within days/weeks and is fairly certain to affect the air quality (though to a lesser extent) of the whole world for a very long time to come. Decisions by separate national governments based on national interests are unlikely to take full account of the global effects unless there is adequate international coordination. The latter is only starting to emerge and is far from being adequate.

Environmental quality is a very long-term problem. Many pollutants remain in the environment for a long time. The warm-house effect could threaten the coastlines of low-lying cities perhaps decades or centuries from now through the melting of polar ice. In contrast, politicians in both democratic and authoritarian countries are likely to have much shorter time horizons.

In assessing the relative benefits of public versus private expenditures, people are likely to overestimate the true importance of the latter, as already discussed above. Affected by the working of relative-income effects including the desire to keep up with the Joneses, people find private spending very important. However, most people ignore the fact that, if the whole society devotes more resources to supply public goods, on average everyone will have less to spend on private items, making it easier for one to keep up with others.

Research, especially fundamental research, is also largely a global public good and hence is under-funded by national governments. However, once a basic level of consumption has been attained, happiness cannot increase significantly with higher private consumption (especially at the social level due to relative-income effects as already discussed) given the level of knowledge. Many of us can easily double our private consumption. (For those who cannot, many can halve their consumption without much real loss in happiness.) But what is the point? If you are already well fed, well-clothed, well accommodated, increasing private spending does not increase your happiness significantly but imposes significant negative externalities in the form of environmental disruption and relative-income effects. Is it really very important to spend many weeks holidaying in far-away places living in 5-star hotels, while you can walk or jog in nearby parks and read fascinating books or watch interesting programs on TV? Is having a beer or a cuppa with a few friends in a local pub or at home significantly less enjoyable than dining in expensive restaurants or drinking wines US$500 a bottle? Rather than spending luxuriously, our welfare can certainly increase much more if the cities becomes safer, the environment becomes cleaner, a cure is found for some illness, or the method of stimulation of the brain can be improved for common use. (On the quantum leap in welfare with the last method, see Chapter 6.) Most of such items need public spending.

Due to the inefficiency of public organisations, privatization in certain areas and de-regulation of counter-productive regulations may make a lot of sense. It is also easy to find particular areas of waste and ineffectiveness in public expenditures. (This is so since public expenditure is unlikely to be optimally distributed among different items and also unlikely to be provided in the most efficient way.) However, due to the above considerations, the recent global trend towards the checking of public expenditures, especially in the funding of research, may be very negative in terms of social welfare, especially globally and in the long term.

This negative effect may consist to a large extent in the failure to attract talented people to work in the welfare-improving areas of research and the public sector. Top students used to stay to do PhD and remain in the academic world. Now, many good students leave to work for business firms where real talents are largely wasted in competitive rivalry at both the production and consumption levels. True, talents are also needed to have efficiency in production and innovation. However, the very top talents are needed to do research and to serve in the public sector, especially after the satisfaction of basic needs when increases in private consumption without an increase in knowledge are not very welfare-conducive. Many people are sceptical of the productivity of increased funding for research, being aware of many ill-conceived projects and a lot of published rubbish. However, one gem out of many items of rubbish may still be worthwhile. Moreover, long-term social welfare may be improved by raising the rewards and working conditions of researchers and other public-sector employees so as to attract real talents back from the business sector. The market fails here partly because of the public-goods external effect and partly because of factors like relative-income effects (also a form of external effects) discussed above. (An ‘external’ effect is present when the activity of someone affects others without receiving/paying compensation for the relevant benefits/costs involved. An example is a factory polluting the air without paying for the damages imposed on the society.)

Based on the discussion of this chapter, a strong case may be made for international cooperation to dramatically increase public spending on global public goods including environmental protection and research. A few examples may be given to indicate that a lot more research is needed to increase welfare.

The very topic of the appropriate size of the public sector, regarded by Feldstein as the central public finance question, is much under-researched. For example, few if any researchers relate the important issue of relative income to this central question. While we have discussed this and other related issues above, a lot more quantitative studies are needed.

While studies on the effects of specific drugs and ingredients have been done, it seems that a general study tracing the different types of food, drugs, and activities taken by a big enough sample of people (at least in tens of thousands) of different ages and health conditions (not just those hospitalized) over a long period (at least in decades) to discover the desirable and undesirable, short and long-run effects, may be most rewarding. Though the study would be very costly, we would gain very useful knowledge on many thousands of things simultaneously. A recent analysis suggests that ‘even after taking account of distorted incentives, the potential gains to medical advancement are enormous … easily justify … expenditures far above current levels’ (Murphy & Robert 2000).

The stimulation of certain pleasure centres in the brain can induce intense pleasure without the effect of diminishing marginal utility. This has been known since the mid 1950s. Why has the method not been perfected for common use? (See Chapter 6 for details.)

Despite the negative evidence discussed in Chapter 2 and Section 4.1 above, we believe that happiness has increased. (It is likely that people’s standards for describing themselves as ‘happy’ or ‘very happy’ have increased, hiding an increase in real happiness. This increases the importance of using the more interpersonally comparable measure of happiness proposed in Ng 1996a.) However, we remain convinced that happiness could be increased by shifting resources from the largely competitive private consumption to items of public spending that benefit the whole world for a long time.

4.4 Concluding Remarks

While noting that the rat race for material growth may be welfare reducing, we are not anti-growth. Instead of hoping for a slower growth or even a depression, as some environmentalists do, a healthy growth with an appropriate increase in environmental protection measures seems a much superior option. Moreover, if economic growth is conducive to a higher degree of civilisation by providing more resources to support scientific and technological advances conducive to happiness, it may be happiness-improving despite some negative environmental effects. For example, the advance in science and its applications to medicine, engineering, etc. have contributed much to a comfortable and enriched life, the relief of pain, and the cure of many illnesses. The development of the Westminster and other forms of democratic government and the rule of law, the prevalence of modern communications and social interaction have also helped create a freer and more peaceful world. The understanding of the working of the market mechanism has contributed to the collapse of the communist totalitarian system and to the end of the Cold War. Even among students failing to understand the basic elements of subjects studied, a university education broadens people’s mind. (On the importance of primary school education, see Section 7.1 below.) Looking into the future, one can be reasonably confident that further advances in these and related areas will be forthcoming. Moreover, there are likely to be significant or even dramatic increases in happiness from sources most people do not dream of now. For example, the techniques of electrical brain stimulation (discussed in Chapter 6) and genetic engineering (Chapter 7) could be used, after more intensive experimentation and with careful management, to increase happiness by quantum leaps.

Despite the above-mentioned promises, it remains true that a pure increase in GNP (even without any deterioration in income distribution) may be happiness-reducing unless environmental protection and other happiness-improving measures are facilitated. In rich countries, what is important is not simply growth in GNP and the resulting higher consumption per head but how happiness-improving measures (environmental protection, scientific advances, etc.) can be increased. Thus, despite the excess costs (excess burden, administrative, compliance, and policing costs) of raising public revenue, more public expenditures in the right areas (including research) may yet be most-happiness increasing. This is especially so in view of the importance of environmental disruption effects, relative-income effects and diamond effects (with the associated burden-free or at least less burdensome taxes) which may be expected to be increasing in importance absolutely and relatively.

Chapter 5 How to be Happier?

After learning the various factors that correlate and also those that do not correlate with happiness, perhaps one may learn to become happier. We have already mentioned that the first lesson we may learn is: stop being too selfish and too materialistic; start doing things useful to others. In this chapter, let us elaborate on this and also discuss other lessons we may learn.

5.1 Realistic Expectation

The height of one’s expectation or ambition has two opposite effects on one’s happiness. First, a high expectation propels one to work harder to achieve one’s goals. Such achievements may increase one’s happiness. On the other hand, a high expectation may increase unhappiness when it is not realised. The higher the expectation relative to the realised level, the higher the frustration. Most teenage tennis players would be thrilled by being able to qualify (not to mention making the final) for any of the four Grand Slam tournaments. However, the world first ranked 18 year-old Martina Hingis virtually collapsed and cried uncontrollably in the arms of her mother and in full view of thousands of spectators and millions of TV viewers, after losing the 1999 French Open final to Steffi Graf, a match Martina expected to win.

To be happy, one should have a realistic expectation high enough to sustain the urge to achieve but low enough to have a good chance of being largely fulfilled. Moreover, one should try to be philosophical when faced with unfulfilled expectation to avoid the Hingis syndrome.

In particular, with respect to material wants, one should keep in mind the unimportance and ineffectiveness of high consumption for happiness and the happiness-decreasing (at least at the margin for rich countries) inborn animal spirit for accumulation discussed in Chapter 2. ‘If, as Demetrius says, you want to make Pythocles rich, you must not increase his money but decrease his greed’ (Poggius Bracciolini, in Phyllis Gordon, Two Renaissance Book Hunters, quoted in Lebergott 1993, p.69).

5.2 A Purpose in Life

People with a purpose in life, including those who have a religious belief, are happier. If you are a believer in one of the major religions, consider yourself lucky. We seem to have too logical a mind to believe in something without sufficient evidence. We are also too much influenced by Darwinism. True, evolution does not prove that God does not exist. God could have created the world before evolution took place. God could have endowed us with our mind which cannot so far (if it could ever) be explained scientifically. Thus, we find it reasonable to be an agnostic on this. If the world was created by God, we should be thankful not only for our creation, but also for making the world so complicated so that we have fun pondering, discovering, puzzling over the unending mysteries of life and the universe, and above all, the world knot – mind.

In fact, a part of one’s purpose in life could be the unravelling of the various mysteries of life and the universe. This may include but need not be confined to working at the forefront of science to discover new knowledge. One may unravel the mysteries to oneself by just reading about the knowledge others discovered and reported in newspapers, magazines, and books. In so doing, one increases happiness in a number of ways. First, we are the most intelligent species on earth and survive the severe competition of natural selection mainly on our superior intelligence and better knowledge. Thus, we are born with a high degree of curiosity. Discovering and learning new knowledge satisfy our curiosity instinct and hence make us feel good. Secondly, your better knowledge helps you to achieve happiness better. For example, reading this book satisfies your curiosity, increase your knowledge, and help you to become happier. Thirdly, your better knowledge may make you perform better in your job and in your everyday life so as to help others. And these should in turn make you feel happier.

Thus, rather than spending most of your leisure time watching soap operas or sports on TV, consider spending some time reading books. While money spent on competitive materialistic consumption is counter-productive to happiness socially, the money spent on a useful book may be worth a lot. Moreover, even if you do not have the budget for buying new books, you can always rely on your local libraries. Most people spend too much time watching TV programs that entertain more immediately and not enough on reading books that may entertain less immediately but have longer lasting effects on happiness. What you learn reading this book may help you to increase your (and others’) happiness for the rest of your life.

More generally, one’s purpose in life could just be to achieve happiness. This is fine provided that you are not too self-interested in your pursuit of happiness. The self-interested pursuit of happiness to the disregard of other people almost certainly makes one fall into the trap of the hedonistic paradox. Apart from possibly causing harms on others, one ends up unpopular and unhappy. To avoid this trap, a good strategy is, in pursuing one’s happiness, to help others to achieve happiness.

Some people, like Mother Theresa, put helping others so high in their objective that their main purpose in life is to help others. They probably end up not only giving the greatest (in comparison to others) help to others but also achieving the greatest happiness for themselves. However, not many people can have such a high level of selflessness. We certainly do not pretend that we are close to or even dare to aspire to such a sainthood level. For most people, what could be achieved is perhaps the second level. This is to help others directly or indirectly in one or more of your principal activities in pursuit of your own happiness, as discussed below.

5.3 Pursuing Happiness and Helping Others in One’s Job

For most economically active people, the principle activity one may help others (apart from one’s family and close friends) is through one’s job, whether as an employee, employer, or self-employed.

In the choice of occupation, most people put the most emphasis on financial rewards. This would be right if money were very important for happiness. Since money is not that important, perhaps one should give more emphasis to working conditions, relationships with colleagues, job satisfaction, and usefulness to others. This precludes any occupation detrimental to others. One may make a lot of money by stealing, robbing, or fraudulent activities. But one cannot expect to become happy doing so. Think about it. Even those who win fortunes in lottery prizes fail to increase their happiness. This is a legal and socially accepted way to get rich overnight. The winners are not troubled by a quilt conscience. If one tries to get rich by fraudulent activities, he may be caught. Even if he gets away with it, he probably has a quilt conscience, if not consciously, certainly subconsciously. How can he expect to be happy! Thus, the good old saying, ‘Honesty is the best policy’, is really a piece of good advice. True, due to our inborn accumulation instinct, it is difficult for most of us to be perfectly honest and not tempted by the lure of money. However, after learning the real important things for happiness, one should at least try to shift towards the direction of honesty.

One should also give some emphasis to the usefulness of one’s occupation to others. At least when other things are not significantly inferior, one should prefer an occupation that is more useful to others. This choice will not only benefit others, but will increase your own happiness by increasing your job satisfaction and self esteem which are much more important to happiness than money.

One may query the true social usefulness of the above advice when the indirect effects on the supply and demand for different occupations are taken into account. Suppose more people choose to work in those occupations (e.g. researchers) that are thought to be beneficial to others and fewer people choose to work in those occupations (e.g. tax-evasion advisers) that are harmful. Would not this increase the difficulty of prospective researchers in getting jobs and decrease their effective salaries and increase the incomes of the remaining tax-evasion advisers? Let us answer this in three steps, with the last step being the most important.

First, we do not expect our advice will be influential enough as to cause significant effects on the rewards of the different occupations. For this case, the effects are negligible. Secondly, suppose that the effects are significant. Then, while the effects on rewards (before we take into account the next factor) are undesirable, the effects on activities are desirable. Specifically, harmful activities like tax-evasion are reduced and beneficial activities like research are increased. Thirdly, the undesirable effects on rewards take account of only the effects of the advice on the supply (of people to the various occupations) side but fail to take account of the effects on the demand side. However, our general advice should also decrease the demand for tax evasion and for tax-evasion advisers and increase the demand for researchers, especially if our argument for more public spending on research and environmental protection is effective in affecting people’s preferences and choices. If our advice is roughly equal in its effects on the supply side as on the demand side, there will be no significant effects on relative rewards. However, the beneficial effects on activities (reducing harmful activities and increasing beneficial activities) will be doubled. In fact, if our arguments are fully followed, at least the demand-side effects on researchers should dominate, as we are in favour of substantial increases in public spending on research.

After the choice of an occupation, one may be beneficial to others simply by performing one’s job responsibly, considerately, and efficiently. If salespersons are more helpful and friendly to their clients, they make others and themselves happier as well as being more successful in their jobs. If employers are more considerate to their employees, they make the employees and themselves happier and their businesses more successful (by having a team of happier and more cooperative employees). If tradespeople and professionals provide better services and avoid overcharging their clients, they make their clients and themselves happier and will also become more successful in their trades at least in the long run.

‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.’ So said Adam Smith in The Wealth of Nations, Book I, Chapter II, p.16. The message is quite true. His point is to emphasise the importance of motivation through self-interest and the role of market mechanism in coordinating the self-interested activities of people working in different professions and in different capacities. As each is trying to do well (propelled mainly by self-interest), everyone gets served well through market coordination. For the coordination of the diverse and complicated economic activities at the social level, the importance of relying mainly on self-interest motivation and market coordination must be fully recognized. The collapse of the Soviet Union and its East-European Satellites and the transformation of China into a market economy testify to the inefficiency and even tragedy of the alternative to the market.

However, for the individual, the danger lies more in the over-emphasis on self-interest to the disregard of others, leading eventually to harmful effects on one’s own happiness, thus falling into the trap of the hedonistic paradox. The more the individual can be aware of this trap and hence adjusts their behaviour accordingly, the more happiness they can achieve for themself and for others. This is particularly true since, apart from the sphere of economic activities that are efficiently coordinated through the market, there are other spheres important to our happiness where the market fails or cannot be relied to do the job. First, the market fails or fails to perform perfectly in areas of economic activities where the market does not exist for some reasons, where competition is not very effective, where workers and consumer ignorance is important, and where there are large external effects like pollution. Before these market failures are remedied by appropriate government actions (which may also be rather costly), the public consciousness or others-regarding spirit of the individual will help to limit the inefficiencies. Secondly, there are non-economic spheres important to our happiness. Few people would like to live in a perfectly efficient society if all people in the society are perfectly self-interested without any regard to the interest and feelings of others.

5.4 Health, Family, and Friends

As health is important for happiness, one should treat one’s own body well. Give it sufficient nourishment by having a healthy diet, sufficient exercise by doing both daily and weekly exercises, sufficient rest by not over-working, over-indulging, and by having enough sleep. Have a regular time in going to sleep. This does not only make you healthy but also help avoid the problem of unable to sleep properly. Spending the normal hours for sleeping on studying (even for exams), working, or entertaining is most certainly bad for happiness in the long run. It is better to do these things in normal waking hours. Studying late after midnight for an exam next morning is the most stupid thing to do. You might be able to go through your notes or books more but likely to remember less the next day when you suffer from the lack of sleep.

The importance of regular exercises cannot be over-emphasized. These should be started as early as possible in age. Most people ignore this when young, relying on their healthy youth. Only when they discover some health problems in their middle age that they decide to start regular exercises. True, better late than never. However, your health will be much better if you have been exercising regularly right from your youth. In their middle and older ages, most people (ourselves included) regret starting regular exercises too late in life. We hope that our young readers will not make the same mistake. Thus, we are giving this advice at the risk of being regarded as being paternalistic.

Many people may be too lazy and not disciplined enough to stick to exercising themselves regularly. Two points may help here. First, in most cases, once you get over the initial inertia, you really enjoy yourself while and after exercising, especially for people doing work sitting down. Thus, exercising not only increase your long-term health and happiness, it often also increase your short-term happiness. Secondly, once you have the determination to establish daily and weekly exercise routines, it becomes much easier to stick to regular exercises. Thus, make up your mind and start today!

A most important factor for happiness is the relationship with one’s family, especially spouse. If one is not on good terms with one’s family members that one lives with, the negative effects on happiness are obvious. It goes without saying that one should give very high priority to one’s spouse, children, parents, and siblings. Remember at least that they are all far more important to your happiness than more money. Also, recognize that, more so than relationships outside of family, relationships inside the family is even more characterised by the principle: generous giving without expecting returns will in fact yield the greatest returns, in happiness if not in money! This is true because family members are closer and the relationships last longer. Blood is thicker than water. Treasure and cultivate good relationships. Recognize that no one is perfect.

After family, friends, especially close friends, are very important for happiness. The presence of good friends increases positive moods and alleviate negative ones like depression. (On the latter, see Sapolsky 1999.) Many people have close friends they can confide in more so than family members. According to an ancient Chinese saying, ‘Having a confidant who really knows you, there is no regret in dying’. So, treasure and cultivate friendship almost as much as family relationships.

5.5 Understanding the Differences between the Sexes

In relationships, especially with one’s spouse (including de facto), a most important point to know is the differences between the sexes. We believe in the equality between the sexes, both in fact and as required for justice. By equality in fact, we mean that, though the male is superior to the female in some activities and vice versa, no one sex is clearly superior to the other overall. However, recognising equality does not mean that we should be blind to the important differences between the sexes. Knowing such differences is important in dealing with personal relationships appropriately and may be crucial in avoiding unnecessary unhappiness, as well as in achieving real equality in the presence of differences.

For example, consider a small, though not unimportant, difference. On average, women need to spend more time and use more space in the toilet than man. Thus, with the same number and size of female and male toilets, queues for female toilets are typically several times longer than those for the male toilets, if any. Recognising this difference, real equality does not mean that females and males should be entitled to the same number and size of toilets. Rather, real equality requires that there should be more and/or bigger female toilets in public places frequented approximately equally by females and males. Real equality does not require that the waiting time for female and male toilets should be equalized. This ignores the costs of supplying toilets and the longer time spent in the toilet by women. Real equality requires that the happiness of everyone should have the same weight in social decisions, as argued in Ng (2000a, Appendix B). It does not require that everyone should end up equally happy or rather equally unhappy. Insisting on the equality of welfare or happiness would require the society ‘to dumb down the brilliant, infuse the healthy with disease, and blind the sighted’ (Pojman & Westmoreland 1997, p.5).

Some differences between the sexes are obvious. Men are generally stronger physically and better in maths. (More on this last point below.) Women are generally better in languages, have higher emotional quotients and a sharper sense of smell. Women are significantly better than men in showing empathy to others, while men tend to score higher in showing anger (Nolen-Hoeksema & Rusting 1999). Readers may also wish to read Gray (1993) on improving communication between women and men. A particular difference the understanding of which is of special importance for happiness relates to the preference for variety in sexual partners.

In Section 2.3, we already mention that the characteristics of a species are largely determined by the fitness for survival and reproduction. Our preferences in sexual matters are no exceptions, if not even more so, as sexual matters directly affect reproduction. A male requires only minimal investment (courting and intercourse) to pass on his genes. Thus, if a man have sex with many different women, he has more chances of passing on his genes. A man who only likes to have sex with a single partner has far less chance of passing on his genes to many children. In time, through natural selection, non-variety-seeking genes were competed to extinction. Thus, this Bateman-Trivers effect (Trivers 1972) dictates that men are universally born with a strong desire for sexual variety. Recognising this simple biological fact allows variety-seeking men to have less guilt feeling and their spouses or partners to feel less unloved on discovering the affairs as well as reducing the dirty-linen factor in democratic politics (on which, see below). In our view, this simple point is so important to happiness that it should be taught to all high school students.

On the other hand, females require big parental investment (nine months of pregnancy plus many years of breast feeding and further care) to pass on their genes. A woman can increase the number of offspring not by promiscuous sex but by securing the parental investment of the male partner. Thus, “most women become sexually uninhibited primarily in the context of an established relationship”. Recognising this, “some sexually sophisticated men may learn that … despite the absence of the jolt novelty provides … intercourse with a trusting, familiar partner is potentially the most intense sexual experience possible” (Symons 1979, p.273). This is especially so if men also realize that the “desire for sexual variety dooms most human males to a lifetime of unfulfilled longing” (Symons 1979, p.228). The pursuit for a dream girl is a will-o’-the-wisp. In terms of the distinction between preference and happiness, while a man prefers variety, his happiness may be better served by having a lasting relationship with one partner. Though few men, even after realising this, can resist the inborn preference for variety completely, perhaps some may choose to locate the optimal trade-off point somewhat in favour of a lasting relationship. The institution of family is not just good for bringing up children and for women, but also extremely important for the happiness of men.

If women fight for sexual equality with men by trying to be as promiscuous, they are unlikely to gain happiness. They need to have an established relationship with security for bringing up children. They may make their partners have less need for variety by providing them with more satisfying relationship than what could be obtained by occasional encounters. Not recognising the big differences between the sexes on sexual preference/needs and insisting on abstract equality are like saying, ‘Since a man eat two serves of rice/meat each meal, a woman must also eat the same amount!’ (This basic difference between the sexes does not deny considerable differences within each sex and differences between short and long-term strategies, and the change in the mixture of strategies as circumstances change, as discussed in Gangestad & Simpson 2000.)

It is true that women are not completely free of the desire for sexual variety. In fact, recent studies show that women, when in those days during their menstrual cycles that are open to conception, find strong, masculine men more attractive; in other periods, they find gentler men more attractive. Such preferences are a result of natural selection trying to have the best of the two worlds of: 1. Having a long-term partner who can help the woman to bring up children; 2. Having the genes of a strong man. This suggests that some cheating on the long-term partner must exist. However, due to the disproportionate differences in parental investments between the sexes, the stronger preference for sexual variety of men is a logical necessity as well as a well-established fact. (The importance for sexual variety for men has also been amply documented; e.g. Symons 1979, Chapter 7; Rancour-Laferriere 1985, Chapter 22 and references therein).

Instead of recognising the importance of sex to happiness and the fact that there are differences in sexual preferences, most major religions and moral teachings in the world, including Buddhism, Christianity, and Confucianism, are rather conservative, if not repressive, with respect to many aspects of sexuality, and certainly against the seeking of sexual variety. “At about the time the Church began to emerge as the formative institution in the West, its attitudes towards sexuality were formed around the twin pillars of sexuality as evil but justified in marriage by procreation. There was no intrinsic value to sexuality.” (Chamberlain 1975, p.75). Moreover, the adult world in general, parents in particular, also typically adopt an exclusive and negative attitude on sexual matters towards children. Most children thus grow up to regard sex as something secretive or even dirty. “Close your eyes and think of England!” Traditionally, “sexual restraint has been seen as an index of social worth, such that eschewing the sexual increases moral status” (Klassen, et al 1989, p.271).

The conflict between biological need and moral inhibition results in sexual hypocrisy and the feeling of guilt, consciously or unconsciously, leading to further psychological and social problems. (See, e.g. Langston 1973, Mosher 1979, Daugherty and Burger 1984, Wulf, et al 1984, and Gil 1990.) “Sexual hypocrisy” refers to the upholding in words of sexual morality in accordance to the traditional requirement while engaging in seeking sexual variety, etc. in practice. This hypocrisy also tends to increase hypocrisy and hence reduce honesty in other spheres, for obvious reasons. This is contrary to the requirements of a good society and to happiness.

As late as 1976, “the Supreme Court [of USA] upheld a Virginia sodomy law which led to a five-year prison term for a married couple who had oral sex. Even today almost half our states still have such sodomy laws” (Reiss 1990, p.232). As late as the 1980s, Surgeon General Everett Koop had difficulties in getting informational brochure on AIDS distributed in the US and had to resign in May 1989. When television networks finally agreed to air a public service announcement about condoms in late 1988, they decided to avoid mentioning the word “condom” and used “putting on socks” as a euphemism. (See Reiss 1990, pp.26-7.) As late as 1991, a prominent public figure in England had to resign simply for being caught by police for soliciting prostitutes. The situation becomes so absurd that, e.g., the success in the US Presidential election depends more on whose extramarital affairs (which most men engage in given the opportunity) got disclosed (recalling Senator Hart) than on the talents and policies of the candidates. Hopefully, such a dismal situation may gradually change after the failure in 1998 of the US Congress to indict President Bill Clinton for his affair with Monica Lewinsky.

The fact that, on average, women are better in languages and men in mathematics is obvious, though seldom recognized openly. The contrived silence is well-intentioned and also have some positive effects like the avoidance of discouraging girls from studying maths and sciences. However, we believe that the negative effects of not recognising this important difference openly far outweigh the positive ones. Let us give a real-life example of our younger daughter. She was among the very top students in her grade and could choose whichever subject to study at university. We did not put pressure on her choice, believing that it is best for her to make up her own mind. However, her teachers at that select private college for girls strongly encouraged (if not pressured) top students to do sciences and related areas (like medicine and engineering) in contrast to humanities. Much affected by this, she ended up ‘choosing’ to do science. Later, she realised that her interest lies really in languages. Moreover, she could not out-compete the few top boys in her class, who seemed to have more natural talents doing maths and sciences. After spending four years getting an honours degree in science, she started again from first-year linguistics. This is a right choice. It is better to (not really completely) waste a few years than to be stuck in something uninterested for life! She is now completing her PhD in linguistics.

We do not want to discourage girls from doing maths and sciences if they are really interested and talented in these areas. (We did not raise any objection when our younger daughter decided to do science.) Obviously, there are girls who are so talented. Madam Currie is usually cited as an example. However, for one Madam Currie, there are many dozens male Nobel laureates in sciences. This may partly reflect the heavier responsibility of women in bringing up children and their other social handicaps. However, the fact that most girls are more talented in languages and human relationships than in logical thinking is indisputable. Inordinately encouraging girls to do studies they are not talented in is not the right way to help them to overcome any remaining handicaps.

The fact that women are better in languages also has a biological foundation. Due to the biological necessity of breast feeding and some other reasons, it was the mother who was close to the children and hence children learned languages mainly from the mother than from the father. The males were typically outside hunting for animals and hence need to have a brain better in recognising directions, making them better in geometry and logical thinking. Nowadays, such biological division of labour is less important. However, our characteristics evolved over thousands of generations do not change overnight. Not recognising such important differences is not a realistic attitude and may be much contrary to the pursuit of happiness.

5.6 Tips on Gambling and Consumption Choice

Even if money does not buy happiness to a significant extent, wise consumption choice may yet increase happiness. For example, if health is important for happiness, the choice to consume healthier products may significantly increase happiness with the same amount of spending, while the higher consumption of unhealthy products may actually decrease happiness. Thus, information on healthy products and lifestyles are important.

In economic analysis, the basic optimisation formula for consumption choice is that the marginal utility (usefulness) of the last dollar (or cent) spent on each good should be equalized across all goods consumed. (The “marginal utility” of consuming a unit of a good is the increase in total utility from the consumption of that unit.) Assuming divisibility of goods (e.g. you may consume any amount of sugar per week, 0.2534 or 0.2533 kilo), this formula is logically valid. If it is not satisfied, you can increase your satisfaction by increasing consumption of the good with higher marginal utility per dollar and reducing consumption of the good with lower marginal utility per dollar, maintaining total spending unchanged.

While economists largely assume that a consumer is rational and knows how to maximize their utility in consumption choice, psychologists find many instances where individuals make inconsistent, non-rational, or utility-decreasing choices. It is not our intention here to discuss such choices. We believe that they can be largely explained either by the non-inclusion of some relevant factors (such as regret, excitement, hopefulness) or by individual mistakes. Rather, we wish to mention a few common mistakes (some well known and some never discussed) the avoidance of which may help the reader to increase their happiness somewhat.

The fallacy of proportion

Suppose that a consumer is faced with the choice of either to buy 2 kilos of bananas at $4 or 10 kilos of the same at $10 for daily consumption as fresh fruits (not for making preserves). The unit price of buying the larger quantity is only half that of buying the smaller quantity. To believe that it must thus be desirable to buy the larger amount may be a mistake. The consumer may not be able to eat that much bananas before they become rotten. Cutting off other fruits consumed may involve too much a sacrifice of variety and a balanced diet. While the extra 8 kilos may cost only $6, they may still not be worth it.

For non-perishable goods, the more common fallacy is not to take advantage of the economies of large purchase, especially for those on low incomes. A budget-tight consumer may think that they cannot afford to buy in bulk even at substantial discount. However, in the long run, it is more economical to have some savings so that one may take advantage of buying most non-perishable items at the lowest possible unit price, provided that this does not involve so large quantities as to make the costs of storage prohibitive. Many consumers on low incomes fail to take advantage of this simple principle of economy.

For consumers on high incomes, the reversed fallacy is more likely to be made. Suppose that light bulb A lasts 100 hours and costs $1 and light bulb B lasts 500 hours and costs $8. It is likely that low-income consumers should buy A and high-income consumers should buy B. This is so because the time and trouble of changing the light bulb frequently are valued higher by the high-income consumers. However, some high-income consumers fail to recognize that they could afford the higher quality at higher prices, partly due to the confusion of the simple calculation of proportions.

Suppose hi-fi system A costs $1,000 and B costs $2,000 but provides quality that is say 1.2 times that of A. Again, low-income consumers should probably buy A, if at all, and high-income consumers should probably buy B. Doubling the price gives only 1.2 times the quality and seems not worthy on the simple calculation of proportion. However, spending $2,000 to buy two units of hi-fi system A does not provide twice the quality. (If a rich person needs two units of hi-fi system, they may as well buy two units of B.) If spending the extra $1,000 (to buy a unit of B instead of A) does not deny the rich consumer from enjoying other items of consumption of any significant consequences, as is likely to be the case, it may well be worth the slight improvement in quality.

The fallacious ‘law’ of large numbers

There is a correct law of large numbers that implies (among others) something like this. If an unbiased coin is tossed a large enough number of times, the proportion of head or tail turning up will be close to 50%. The fallacious ‘law’ of large numbers says something like this, among others. If the number of times head has turned up far exceeds that of tail turning up, the next toss will likely be tail due to the law of large numbers. This is a definite fallacy. If the coin is really unbiased, the probability of head (or tail) turning up in any unbiased toss is 50% irrespective of what has happened previously. If the coin may be biased, then the fact that head has turned up more often suggests that it is head rather than tail that will likely turn up in the next toss.

The fallacious ‘law’ of large numbers has claimed many victims in various areas. For example, having learned that many more boys than girls have been born among relatives and friends, many people believe that the next baby expected is more likely to be a girl. Similarly, after being unlucky for many times in a row at the casino, a gambler may believe that they will likely be lucky the next time round and stack a large sum of money, quite possibly to their peril. The fact that the gambler has lost many times before does not suggest that they will likely be lucky the next time round. Rather, it suggests that they are unlikely to win in that form of gambling.

The fallacy of a ‘sure-win’ method in gambling

Many people believe that the following method ensures winning in gambling. We want to show that this is a fallacy. For simplicity of argument, we shall assume something favourable to the belief. Virtually in all forms of gambling, the gambler faces odds less than fair. For example, if the payoff is one-to-one, then the probability of winning is less than 50%. For simplicity, assume that the gambler faces fair odds and considers only one-to-one payoffs with 50% chance of winning and also 50% chance of losing (as stand-offs involve no difference, they may be ignored).

The supposed sure-win method goes like this. First, bet $1 (or the minimum bet if any). If you win, pocket the one dollar and start again betting another $1. If you lose, double the bet to $2. If lost again, double the bet again to $4 and so on until you win. Counting your previous losses, you win a dollar. Pocket this dollar, and start by betting $1 again. So, you see, you always win, a dollar, and a dollar, … towards infinity.

All casinos impose minimum and maximum bets on each machine and table. This restriction may be avoided to some extent by starting from the lowest bet and then proceeding to machine/table of higher bets if necessary. For most people of average wealth, the more important restriction is the financial constraint. One may not be able to double the bet for more than a dozen times or so. Most people underestimate the speed at which the doubling gets into astronomical figures. This can be seen by a simple calculation: 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024. So, doubling a dollar 10 times reaches a sum in excess of a thousand dollars. Thus, doubling a dollar by 20 times reaches a sum in excess of a million dollars. Few people can afford to bet that sum. Doubling a US dollar by 50 times reaches a sum in excess of a thousand million million dollars which is many times the GNP of the whole world!

Of course, the probability that one will lose a bet for 20 times in a row is also very low, about one in a million. However, when this unlikely event occurs and the gambler has no more money, he loses a million dollars, not one dollar. Thus, if you use the above method to gamble, you are likely to keep winning a dollar after a dollar. To make a significant win, you have to keep on gambling, until perhaps you win many thousand/million dollars. But then it also means that the one in a thousand/million event may likely occur when you will lose a thousand/million dollars. In terms of expected win, your expectation is still exactly zero, whether you gamble a long time to win many dollars or a short time to win fewer dollars. For the latter case, your chance of losing a lot of money is very small, but still exactly offsetting your likely win which is also very small.

The fact that the expected value of the above gamble is exactly zero does not mean that you do not lose anything. You lose security. You subject yourself to the extra risk of winning/losing money by playing the above gamble. Unless you are a risk lover or enjoy the process of gambling very much, you are likely to lose in happiness terms, as you lose time and incur risk and anxiety. In addition, most if not all forms of gambling involve unfair odds to the gamblers. (Not surprising as casinos, horse racing, lotteries, etc. have huge costs of operation and still make money from gamblers.) Thus, you also lose money. Our advice is thus: avoid gambling. If you enjoy gambling very much, perhaps you may just gamble small, viewing losses as fees for admission to cinemas.

The fallacy of overestimating the chance of winning

Many gamblers continue to gamble away their money due to their mistaken overestimation of their chances of winning. This is probably related to their underestimation of the smallness of the small probability involved. This in turn is related to their underestimation of the bigness of the large number of alternatives involved. For example, if the game is to choose 4 numbers out of 64 to match the randomly selected 4, most people do not realize that the odd of a match is nearly as small as one in a million (1 in 635,376 to be exact). This odd decreases much further if there is/are supplementary number/s to be matched. To train oneself to be free of this fallacy of overestimation of the odd of winning, it is useful to consider the following thought experiment.

Suppose a thin sheet of paper of 0.1 mm is folded once to become 0.2 mm and twice to become 0.4 mm and so on. (A book of 100 sheets or 200 pages of such thin paper is only 1 cm or much less than half an inch in thickness.) How thick will the folded paper become after 110 folds? (As a thought experiment, the practical difficulty of actually folding it so many times does not arise.) Take a pick: A. 100 metres; B. 1 km (kilometres); C. 100 km; D. 10,000 km; E. 1,000,000 km.

None of the above is even remotely close to the correct answer. The solution to this problem is similar to the doubling of your bet discussed above. But this time it will be even more astonishing to you, even after you have read above about the fast speed such doubling gets to astronomical figures. As before, folding 10 times increases the thickness by 1,024 times (recalling 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024). For simplicity, let us forget the odd figure of 24 and just say that the thickness increases by one thousand times after 10 folds. From 0.1 mm, it becomes 10 cm. At the 20^th fold, it has increased by another thousand times to 100 metres or 0.1 km. At the 30^th fold, it becomes 100 km; at the 40^th fold, 100,000 km; at the 50^th fold, 100,000,000 km; and at the 60^th fold, 100,000,000,000 km.

In comparison, the Moon is only 385,000 km away and the Sun is only 150,000,000 km from the Earth. So it means that, by the 42^th fold, the thickness of the paper is more than the distance from the Earth to the Moon. By the 51^th fold, it is thicker than the distance from the Earth to the Sun. By the 60^th fold, it is many times thicker than the whole solar system!

At the 70^th fold, it is 100 million million km; at the 80^th fold, it is 100,000 million million km; at the 90 fold, it is 100 million million million km. which is many times thicker than the Milky Way (at only 1.3 million million million km). We all know that the fastest thing in the universe is light. It travels at 300,000 km per second, reaching the Moon from the Earth in just over a second, and reaching the Sun in 500 seconds or about 8 and a third minutes. Even at this absolutely fastest speed, it travels only 9.46 million million km in a whole year. This distance is called a light-year. So it takes light to travel more than 10 years to cover the thickness at 70^th fold and an astonishing 10,000,000 years or more to cover the thickness at 90^th fold.

According to Einstein’s theory of the curvature of the universe due to gravitational force, even light does not travel at an absolutely straight line. However, even assuming that it does, and let it travel non-stop from the time of the Big Bang some 50 thousand million years ago (this estimate has changed several times) until the year 999,999,999 AD, light will have covered only a tiny fraction (much less than 1%) of the thickness at 110^th fold!

5.7 Choices over Time

While many people, influenced by the accumulation instinct and the consumption oriented society, put too much emphasis on making money, they also make some opposite mistakes in their consumption choices. In particular, they tend to be too much concerned with present consumption and take inadequate care for the future or have excessive discount rates. This is widely noted, including by economists. For example, Pigou (1929, p.25) called it the ‘faulty telescopic faculty’, Ramsey (1928, p.543) called it the ‘weakness of imagination’ about the future, Harrod (1948, p.40) regarded it as the ‘conquest of reason by passion’. A discount on future consumption, income, and any other monetary values is rational as a dollar now can be transformed into more than a dollar in the future. A discount on future utility may still be rational if the realisation of the future utility is uncertain. (For healthy people, this uncertainty is usually very small.) Discounting the future for more than these acceptable reasons is probably irrational. A manifestation of this irrationality is the insufficient amount of savings for old age, necessitating compulsory and heavily subsidised superannuation schemes. We came across an extreme example of such under-saving during a survey regarding how much people would be willing to save more if the rate of interest were higher (Ng 1992). The question implicitly assumed that everyone did some saving, as the answers were in terms of how many percentages more one would save. One subject declared that he did not save anything. We then asked him to change the answers to be chosen from ‘saving 20% more’ into ‘saving $20 more per month’, etc. He still said that he could not be induced to save anything even at annual interest rates of hundreds of percent. It was only when we said, ‘If a dollar saved now could become a million dollar next year, would you save?’ that he admitted he would save then. We were careful enough to find out that this healthy-looking young man was not expecting early death from a terminal disease or the like.

The mistake of not giving sufficient allowance for the future may have a biological explanation. Though we are the most intelligent and most rational species on earth, we are still not perfectly rational. This is so because rationality is costly to program. For example, an important aspect of rationality requires the individual not only to take account of current costs and benefits but also those in the future (with appropriate discount for the uncertainty on their realisation for costs and benefits in welfare terms, or a discount at market interest rate for monetary costs). However, the ability to purposefully take account of future costs/benefits appears to be very rudimentary, if it exists at all, for most species. The storage of food by ants and the burial of nuts by squirrels are hard-wired instincts, not deliberate choices. If calculated choices are made by animals, they are largely confined to sizing up the current situation to decide the best move at the moment, like fight or flight. The ability to anticipate rewards in the fairly distant future requires much more ‘reason’, ‘imagination’, and ‘telescopic faculty’ than normally cost-effective to program in most other species. However, we know that we are endowed with some such faculty. Nevertheless, since this advanced faculty is almost completely absent in most other species, it is natural to expect that it is not fully developed even in our own species. Moreover, different members of our species may be endowed with different degrees of such faculty. The existence of a significant proportion of our species that do not possess a full telescopic faculty is thus not surprising. In fact, that we do not possess a full telescopic faculty also explains why we still need the animal spirit of blind accumulation. The accumulation instinct imperfectly makes up for the deficiency of not looking ahead adequately.

Related to both the above causes of irrational preference but bordering on ignorance is the tendency of people (and animals) to choose mainly in accordance to current utilities, ignoring the effects on the utilities of future choices, and to underestimate the effects of current pleasures/pains in decreasing/increasing future enjoyment through the adaptation effects. We already mentioned this earlier. Here we want to relate this point to the best consumption choice over time.

Eating sufficiently salty, sweet, or tasty food now may yield more utility now than the slight health hazard involved. Shifting to healthier food may incur too big a loss in present pleasure. However, our taste will adjust to the blander and coarser but healthier food. The first author changed from white bread to wholemeal bread a long time ago on health reason. Initially, he was not really sure that the gain in being healthier justified the loss in taste. However, after months of eating wholemeal bread, he began to enjoy that more than white bread even just on taste. Those still on white bread are strongly urged to shift. Also, making children accustomed to white bread may be very unwise.

An ancient Chinese poem had a line: ‘Having seen the big blue sea, it becomes difficult to appreciate waters [i.e. lakes become less impressive]’. Thus, the long-term utility of seeing the blue sea may not be that high as it lowers the utility of seeing other less impressive waters in the future. However, most people, including ourselves, fail to take adequate account of such effects. When we were on our first leave, we visited the top attractions in the world like the Great Wall, the Niagara Falls, and the Grand Canyon. After that, sightseeing is no longer exciting. ‘Except for that in the Wu Mountains, no cloud is attractive’, so says the second line of the poem. Thus, another Chinese sage advised that one should eat sugar-cane from the less tasty end, proceeding to the more tasty parts gradually.

The above consideration suggests that, to maximize happiness in the long run, one should start with not too high a consumption level so as to be able to gradually increase the level over time. In this perspective, children of the rich may really suffer a disadvantage. They start off being accustomed to very high level of consumption which they may find it difficult to surpass, hence suffering in happiness terms. Thus, wise rich people do not splash their children with money. But there are difficulties for the rich in limiting the consumption levels of their children, due to comparison with those of the parents and with peers. This may also partly explain why there is not much difference in happiness terms between the rich and the poor.

There is a consideration that qualifies the above principle of starting from a low consumption level. For certain items of consumption, especially those important for health, too low a level does not only fail to improve one’s future ability to happiness, it actually lowers that ability. This is especially so in one’s childhood and adolescent periods where sufficient (material and spiritual) nutrients are important for the healthy growth of the body, the development of healthy personality, and the build up of knowledge. If one is handicapped by seriously deficiencies earlier in life, one may never catch up later. This point is clearer for the healthy growth of the body, but is as important for the other two aspects. Once one’s personality is formed, it is difficult to change it. We already noted in Chapter 3 the importance of personality for happiness. While personality may have a large genetic factor, upbringing and social influences probably also have a significant role to play. The importance of learning while young cannot be over-emphasized. Due to biological reasons, childhood is devoted to learning. Natural selection thus ensures that learning ability is at its peak at childhood and youth. In fact, the bird species ‘white-crowned sparrow’ can only learn to sing between 10 and 50 days old (though actual singing does not take place until months later at the mating age; see Marler 1970). If a young bird is not exposed to hearing adult birds sing during that 40 days, it will be unable to sing even after months of exposure later on. It is also well-known that a much higher proportion of young than older macaques (a type of monkeys) learn to wash potatoes and separate sand from wheat using water from a fellow macaque Imo. For humans, if one does not learn a language from a young age, one always has an accent no matter how long one lives in a country speaking that language. The learning is imperfect after a certain age. When one gets older still, the ability to learn decreases dramatically. Hence, the saying ‘you can’t teach an old dog new tricks’.

The above considerations mean that it is important to have adequate education, exercise, love, nutrients, etc. while young, but excessive levels of consumption are counter-productive. This suggests that the relationship between the opportunity for happiness and the income level of one’s parents is likely to be inverted U-shaped. The (children of) absolutely poor suffer from insufficient education and nutrients and the very rich suffer from starting from excessively high levels of consumption. We hope that some researchers will do studies to establish this conjecture. The results of such studies may encourage some rich people to donate their money towards charity than to spoil their children to their children’s own detriment.

The young are not only at their peak of learning potential, they are also at their peak in enjoyment potential at least for those forms of enjoyment that do not require long learning. (When we take into account such learning and experience effects, the capacity of enjoyment may peak at late middle age, if not later. We are in our mid fifties and have never been happier.) For example, the young derive more intense pleasure from eating delicious food. While older people have less intensities in such pleasures, they are somewhat compensated by suffering from pain also less intensely, though they may have more occasions of being in pain due to failing health. (Perhaps the lower intensities of pleasure and pain of the old are genetically programmed as the old have less to lose in fitness terms. Having largely completed the task of passing their genes to offspring, their remaining task is only that of giving advice.)

Due to their higher learning and enjoyment potentials, the happiness value of the time of the young is likely to be higher than that of older people, despite the lower wage rates of the young. This means that it is all the more important for the young not to waste their time idling. They should use their time wisely mainly to learn and enjoy while they are at their peaks of such potentials.

Should the young then not waste their time working as their wage rates are low? Not necessarily, even if the young can borrow against their future higher incomes. If they cannot, obviously they may have to work to have some cash to spend, if they do not have enough from their parents. Even if they can borrow, it may still be intertemporally optimal for them to work at low wage rates, using their valuable time of high learning and enjoyment potentials, for at least two reasons. First, the young can also learn from working and also accumulate accredited working experience which may increase their potential for finding better jobs in the future. Secondly, the principle of gradual improvement requires the young to start with not only moderate consumption level (subject to sufficient nutrition standards), it also requires them to start with a reasonably harsh life in general. Having to do some work when young adds to the harshness of life and makes them able to appreciate the comforts of life better in the future.

While doing some work may be desirable for the young, excessive amount of work and excessively harsh work may be inappropriate. Apart from robbing them of their opportunity for learning and enjoyment, excessive work may adversely affect the personality development of the young. Thus, we are again likely to have an inverted U-shaped relationship between happiness and work for the young; in fact not just for the young.

The adaptation effect and the related principle of gradual improvement also mean that the widely adopted practice of ensuring complete quietness when the baby is sleeping is quite wrong. A former colleague of ours went to the extreme length of taking the receiver off his telephone to ensure no disturbance while the baby was sleeping. Such extreme comfort is likely to be very detrimental to the long-term happiness of the baby. When a person is brought up requiring absolute quietness for sleeping, working, etc., they will become more miserable when they have to live in a noisier environment. Moreover, they will become less able to tolerate disturbances and also likely to be less able to befriend and live with others amicably. It is much better to let the baby start adapting to the noise and other disturbances and discomforts of normal life right from the beginning. Again, we have an inverted U-shaped relationship between (long-run) happiness and the amount of comfort in life. The rich are likely to provide excessive comfort to their children. The above considerations also partly explain why inequality in income distribution is bad for happiness. (On the importance of equality for health and happiness, see Eckersley 1998, p.15. Here, we do not discuss the issues of efficiency versus equality which are covered in Ng 2000a.)

Two facts are apparently contrary to the principle of gradual improvement as well as to the economic principle of equating the marginal utility of the last dollar spent on each item. The first is the practice of having occasional feasts. Moreover, this practice is more widespread and regarded as more important in poor countries. Why having feasts while they do not even have enough nutrition over the rest of the year? Why not spread the consumption of food more evenly so that the more urgent need of having more nutrition over the year can be met at the expense of cutting down the excessive amount of food consumed in feasts that may be a health hazard?

When people are poor and cannot eat delicious food as much as they like most of the time, they attach a high value on being able to eat as much as they like, even if only occasionally. The practice among Malaysian Chinese about three decades ago when we were young and the people then fairly poor, with most people undernourished but no one starving, is about once a month. There were about eight traditional festivals that were celebrated by big feasts. Some people had smaller monthly feasts associated with ancestor worshipping. In non-festive times, meat was consumed in very small quantities. For example, while our family was somewhat above average in income, the occasional consumption of a small chicken of under one kilogram gross weight (before slaughtering) was shared by about 15 persons (counting young children as half a person). (Without artificial growth hormones, those chickens were small, but they tasted real nice!) The occasional feasts allowed us to eat as much meat as we like. We enjoyed those feasts tremendously, probably more so than the well-fed rich people can imagine. Moreover, we looked forward to those feasts and gleefully anticipated the enjoyment. After a feast, we talked about and recollected the enjoyment. Thus, each feast provided us with much happiness before, during, and after. Spreading the meat consumption over the month may make sense health-wise, but would not provide as much enjoyment.

After we started working in Australia, we could consume as much meat as we like everyday. We almost immediately lost our urge to have feasts. We did try to have a few, but they no longer had the magic of providing big enjoyment. No longer worth the trouble, we stopped having feasts. We may have gained in sufficient nourishment and daily consumption but we have lost the enjoyment of feasting. Again, this explains why additional consumption provides very little additional happiness.

The second fact needing explanation is the strong preference for having surprises which we discovered only after we came to Australia to do our graduate studies. While in Malaysia and Singapore, we did not know that people like surprises. So, why the preference for surprises and why the difference.

When people are poor, it is more important that gifts for birthdays, weddings, etc. serve some useful functions than to give surprises. Thus, people usually try to find out the real needs before buying gifts. This also explains the practice of giving red packets (of money) in place of gifts in kind. When incomes are higher, it makes sense to go for surprises even at some costs. Waiting until the very last moment before finding out gives concentrated pleasures that can be shared together in the presence of others. For the person concerned, are concentrated (in time) pleasures better than spread-out pleasures? Yes, when one has high income and hence relatively less time to enjoy the income. It is then more important to economize in time than in money. When we were young, we spent a long time eating small pieces of food bought with 5 cents (which is equivalent, after accounting for inflation, about the current US 8 cents, but perhaps 20 cents in terms of purchasing power parity) each. For people on such low consumption levels, knowing that you are going to receive a gift gives high expectation value. This, together with the usefulness of the gift, far outweighs the surprise value. For people on high income levels, the value of the gift itself is usually of trivial importance, it is the surprise and emotional values that are important.

While the above economic explanation makes sense, it is unlikely to be the complete story. We checked with colleagues from Japan and Korea, they confirmed that people there are not that mad for surprises. We also know that this is also the case in China. If the economic explanation is the whole story, people in Japan should also value surprises a lot. Thus, there may also be some cultural and social factors explaining the difference. For example, people in the East may be more cautious and do not want to create embarrassment.

Before concluding this section, a very simple point on intertemporal consumption choice may be made. For seasonal products like most fruits and vegetables, it clearly makes sense to buy and consume more in the peak seasons when they are cheap and tasty. It will help to have a list of the seasonal availability of various products stuck up on the kitchen wall to remind yourself when to buy more. When a certain seasonal product just appears on the market, either do not buy yet or buy only a small amount. The price will decrease and the quality will improve significantly. In particular, note the peak season for each of the more seasonal products. Buy a good quantity at or just after the peak.

5.8 Have a Positive Outlook

We already discussed the importance of personality to happiness in Chapter 3. Some people have a happier personality than others. For example, the first author often laughs heartily and loudly on all sorts of occasions (often at himself) and for various sorts of reasons, sometimes apparently for no reason at all. He laughs in a way very similar to the actor who played Mozart in the film ‘Amadeus’. In fact, we went to see this film after our daughters recommended to us, saying, ‘Amadeus laughs the same way as dad does!’ He laughs alone in his office. He laughs during meetings. Once, in a plenary session of a conference of economists, he laughed so loudly that it stopped the proceeding of the session for half a minute. More incredibly, in his second interview for appointment to a chair (i.e. the position of full professorship at the university, the Truby Williams Chair at the University of Melbourne for that occasion), he laughed very loudly at least twice, once of which was at a remark by the Chancellor of the University who chaired the big selection committee of about 16 persons. No need to worry for him, he was offered the chair despite (or was it because of) his laughs. Most of his friends like his laughs. However, perhaps many people not well acquainted with him might find his laughs annoying or even offending. We do not recommend you laugh as loudly as he does. Just laugh more often and more heartily. In any case, his laughs are more spontaneous than intended. He does not choose to laugh so loudly; perhaps he just fails to control his subconscious from laughing loudly. However, to some extent, his laugh is contagious, not just in triggering laughter in others at the time. Thus, a few months after working for him, his secretary Jan Ottrey was accused by colleagues thus, ‘You start laughing like Kwang these days!’

We were on leave from our university most of 1997 and 1998, visiting the Chinese University of Hong Kong in 1997 and visiting the National University of Taiwan in 1998. When in Hong Kong, we noticed many good points there and were happy there. When in Taipei, we again noticed many good points (despite its inferior traffic and air quality in comparison to either Melbourne or Hong Kong, we found the people, including those in the street, friendlier) and were happy there. So, each time we moved, we felt like going a step upward, including when we moved back to Melbourne early in 1999. We are able to feel this way because we focus on the good points of each place. We see many people keep complaining about the bad points wherever they go. While it is good trying to improve things, we should focus on the good points of what we have got and enjoy life. The first author spent a semester teaching at the Sino-American Economics Training Centre at the People’s University in Beijing in 1993. He did not find adjusting to life in Beijing difficult. Some years ago, he returned to Malaysia and stayed with a relative. At the time, there were quite many mosquitoes which seemed to like fresh flesh. He counted more than 25 mosquito bites just on one arm; there must be well over a hundred over the whole body! It was annoying but not enough to make him unhappy.

While our happiness is also affected by the objective circumstances, our subjective attitude, personality, mood, etc. seem far more important. Thus, instead of wasting your time, neglecting your family, betraying your friends, challenging the law, risking your freedom, and destroying your integrity in trying to make more money which is of doubtful value in increasing your happiness, you may do far better in terms of happiness by adopting a positive, non-hypercritical attitude, a realistic expectation, and an easy-going, friendly personality. While personality is partly nature and partly nurtured, one’s own attitude and effort also count. To some extent, you can nurture your own personality. If you spend more time helping others, befriend others especially those having happy personalities, you can make your own personality happier.

When encountering an adverse change, it may help to remember that most people adjust fairly successfully. If even those losing their eyesight or their limbs can adjust to enjoy life fairly happily, a drop in income or losing one’s job seems trivial in comparison. However, it may also be useful to know that some undesirable circumstances are easier to adapt to than others. First, beyond the biological survival and healthy levels, higher consumption levels have largely only relative significance. Thus, provided one can adjust to the lower reference level, one may not lose any happiness at all. For example, some of our former students from China asked us for advice on whether to accept a job offer from China. We always advise them to accept. We know that they will adapt to the lower salaries and will in fact enjoy higher relative incomes. Disabilities (such as losing limbs) are surprisingly easier to adapt to than commonly expected, while chronic diseases than become progressively worse are difficult to adapt to. Most people also take a long time to overcome the grief of losing a loved one like a child or spouse. In the week following the death of a spouse, suicide rates are increased nearly tenfold for women and nearly seventyfold for men (Kaprio, Koskenvuo, & Rita 1987). Surprisingly, noise is also difficult to adapt to, while a good or bad roommate is likely to cause ‘sensitization’, the opposite to adaptation, with the happiness or unhappiness increasing over time. (See Frederick & Lowenstein 1999.)

Chapter 7 Policy Implications

We have already discussed the ways individuals may increase their happiness in Chapter 5. In this concluding chapter, we concentrate on the policy implications of our arguments for governments and international agencies. We shall also discuss how individuals may have an important role to play at this level of national and international policies.

7.1 Public Policies

An important implication of our discussion (especially in Chapter 4) is that, for rich countries (including virtually all western Europe, northern America, Australasia, Japan, and some newly industrialised countries like Singapore), happiness can be increased more by increasing public spending in selected areas than in largely competitive private consumption. We mentioned research and environmental protection as two obvious areas. Most people do not realize the importance of research for happiness. In fact, human development over the last few centuries depended much on research. It is true that public spending was not important for research until this century. However, this importance has been increasing and can be expected to become more so in the future. Much useful research and development are undertaken in the private sector. However, by and large, it is effective only at the level with immediate or close to immediate application. Nowadays, most fundamental research is undertaken in the public sector. ‘It was a government research program that produced the mathematical algorithms that led to the computer. The Internet was created by researchers in US universities under contract to the Defence Department. The laser, the electric telegraph – research has always been a public responsibility. And, as we move to a knowledge economy, its role has become central to the economy’ (Joe Stiglitz, reported in The Age, (Melbourne), 27.3.1999.) ‘While we should certainly encourage industry to invest in research and development, the truly great leaps forward so often come from research which seems to have no immediate applications. In the past few decades, prime numbers have been used to create uncrackable codes, strange soccer-shaped molecules called Buckyballs look like they might help cure some types of cancer, and a pretty mathematical idea called chaos theory is starting to help us predict earthquakes and the weather’ (Gaensler 1999).

Imagine. Suppose we do not have all the inventions in this century. Unrealistically assume that our income could increase to our present level. We could buy more food and add more horses to our carriage. But no telephone, no cars, no computers, no television or even cinemas, no modern hospitals with advanced methods of treating diseases, and no electricity! The importance of knowledge, inventions, and hence research, is beyond doubt. Moreover, as argued in the last chapter, research in certain areas (stimulation of the brain in particular) promises quantum leaps in our happiness. For the more conventional ways of increasing happiness, an important area is education.

People with happy personality tend to be happy under most circumstances and remain happy throughout their lives. Also, possession of resources is not important for happiness, the ability to use them is more important. (See Heady 1993.) These considerations suggest that decisive factors for happiness include genetics (to be discussed presently) and education (including social influences) that shape one’s personality and abilities. For individuals and families, this suggests that parents should pay a lot of attention to the education of their young children. Many parents put more emphasis on education to have good job skills. Our discussion suggests that this is less important than education to have the right personality and attitude in life. Though personality may be partly genetically determined, the life experience in one’s childhood must also have an important role to play. This includes such important characteristics for happiness as extroversion/introversion, friendliness, and the ability to get along with people. In this respect, having a sibling especially one of similar age may be a big plus, especially if the parents are good in helping them to get along with each other. Thus, the one child policy in China in the last two decades has already created a generation of impossible ‘little emperors’ who are very difficult to get along with. The effects on happiness, social relationship, and other aspects are yet to be seen.

For public policies, it seems that nursing schools and primary education are more important than secondary education. Personality is formed very early in life. Once one gets into the wrong track, it is much more difficult to change. Though secondary and tertiary education may be more important for jobs and money, primary education is more important for happiness. Though secondary school teachers need better training to teach the academically more demanding subjects, primary school teachers should have better training in child psychology, human relationship, and other related areas and be able to provide better role models due to the more important influence on younger students. Thus, while all school teachers should get better pays, primary school teachers should really be paid even higher than secondary school teachers, in order to attract the right talents into the very important profession.

Currently, for all countries to our knowledge, school teachers receive lower pays than those working in the business sector. This is quite anomalous. We pay people working to persuade us to buy goods unnecessary for our happiness and detrimental to our environment much more than we pay people working to educate our children! The Chinese call school teachers the engineers of our souls. It seems that we put less emphasis on our souls than the frivolous and mutually cancelling competitive consumption. If we are able to look at the effects on happiness, our ultimate objective, rather than just at the effects on material consumption, we should be willing to tax business, income, and consumption much more, in order to finance public spending on education and research. This is true even if the excess burden of taxation is very high. Moreover, as argued in Chapter 4, the excess burden of funding public spending has been much overestimated by economists.

If we pay our teachers, especially primary school teachers, much more than the business sector, we may then afford to choose and properly train those that are really suitable for teaching. We may then also afford to have student evaluation of teachers and get rid of teachers scoring too low in the evaluation. However, to do so properly, we need to have some standardisation of marks awarded by teachers to students to avoid the use of liberal marks to gain popularity. We understand that there are difficulties in implementing these reforms. However, most people will agree that the effects of good teachers are simply incomparable to those of bad teachers. If we also take into account the largely neglected effects on the long-term happiness through role modelling, influences on personality, etc., the importance certainly justifies the trouble and a large sum of money.

While primary education is extremely important, perhaps upbringing at home before and after schooling may be even more crucial for the healthy development of personality and hence the happiness of the child. Unfortunately, most new parents (ourselves included) are not very good in parenting, mainly due to the lack of some elementary knowledge than to the lack of time, effort, and love. In fact, the lack of some basic knowledge makes the task of bringing up a child very heavy and the result disappointing. Similarly, most newly-weds are rather deficient in their knowledge of the relationship between husband and wife (including the differences between the sexes discussed in Section 5.5). We suggest that all high school students be taught some basic knowledge on such relationships and parenting. However, due to their young age and distance from actual marriage and parenting, teaching in high schools alone is not sufficient. Thus, we suggest that all first-time prospective brides and grooms should be required to attend a class for the newly-weds. Then, during pregnancy and before giving birth, first-time mothers and fathers-to-be should attend a class for new parents. Such classes should be provided freely by the government. (Contracting to appropriate private suppliers would be acceptable.) Economists may ask, ‘What about the costs of provision?’ Our answer is that such classes will cost the government a big negative amount, that is, the government will save money.

While advanced classes may also be offered, the basic ones may only require say five sessions of three hours each (including question time). If a class is attended by an average of 15 participants, this makes the costs of providing such education only one person-hour per participant plus some administration and minor venue costs. In comparison to this trivial cost, the government will save many times more in reducing the need to provide expensive supports to single mothers, family courts, problem kids, crimes, and others. When we also take into account the avoidance of unnecessary miseries and the increase in happiness that such classes are likely to bring about, the benefit/cost ratio must be many times higher than most profitable projects.

Economists may also ask, if the suggested classes are so important, why has there been no sufficient private demand that will call forth profit-making private suppliers? Our answer is that most newly-weds and new parents simply do not know that they are deficient in the relevant knowledge until it is too late. In addition, as the welfare of the children is also involved, there may also be some ‘external effects’ (on the children) involved if some parents do not take adequate account of the effects on children. However, we believe that such inadequate account is usually due to ignorance rather than irresponsibility.

While the importance of education is difficult to overemphasise, it (as well as any other conventional method) still has important limitations in the ability to increase our happiness. Apart from the difficulties of distinguishing good from bad teachers, there is the biological limitations on our capacity for enjoyment from the normal sources. We enjoy eating when hungry. But this enjoyment quickly diminishes to zero and then negative as we feel full to prevent us from overeating from the health (ultimately biological fitness) viewpoint. Thus, no matter how rich, educated, and healthy (physically, mentally, and personality-wise) we are, our happiness has a relatively low upper biological limit. This limit can be broken dramatically and our happiness potential can be increased in the order of hundreds of times (not percent) by two unconventional methods. The first is the electrical stimulation of the brain discussed in Chapter 6 above.

Another area that possesses much higher promises than brain stimulation is that of genetic engineering. We understand that this may smack of the Brave New World and many readers may be suspicious of it. However, while agreeing that we should proceed with adequate caution, we believe that we should not taboo it. It is something dangerous. So is electricity. Imagine. Had we banned research and experiments dealing with electricity on the ground that electricity is dangerous, the world now would be much backward.

Perhaps some people may argue that genetic engineering is different. It is changing ourselves. God forbids! Electricity is external to us and hence is OK. However, to some extent, even just taking medicines to cure illness is changing ourselves, not to mention blood transfusion, artificial limbs and organs. If God exists, we believe that he wants us to be happy and wants us to help other species to be happy. Thus, we believe that God forbids excessive environmental degradation but not genetic engineering or brain stimulation with sufficient safeguards.

The effects of genetic influence on our characteristics are enormous, though the extent of the influence varies across different characteristics. For example, eye colour is 100% determined genetically. Intelligence is roughly 80% determined by nature and 20% by nurture. (The percentage is in accordance to the proportion of the variation explained by the respective factor.) Even criminal tendency has a genetic effect, not to mention many genetically determined or inclined handicaps and diseases. With adequate safeguards and cautious preparation, genetic engineering could be used to relieve suffering and increase happiness by quantum leaps. Our short-term prospect here would be the eradication of many genetic handicaps. The medium-term prospect could be the reduction of the proportion of the neurotic and depressed personality. The longer-term prospect might be the dramatic enhancement of our capacity for enjoyment. All these have to be done with extreme caution. The reason we should be very cautious is not so much to avoid sacrificing our current welfare (which is relative small in comparison to that in the future with brain stimulation and genetic engineering) but to avoid destroying our future.

7.2 International Cooperation

While some of our recommendations, like the placement of much higher emphasis on primary education and the subsidy on coaching the newly-weds and new parents, could be quite effectively undertaken by governments at the national and state levels, others require international cooperation to achieve effective results. These include environmental protection at the global level and fundamental research. As the benefits involved are global and long-term, most myopic national governments do not spend the optimal amounts from the global viewpoint. Thus, international cooperation to increase spending in these areas is essential. It may be thought that the big problem is that of funding. We believe that, once international agreement can be reached, funding can be relatively easily solved by funding spending through taxing disruptive activities. The production and consumption of most goods involve directly and indirectly (through input usage) significant external costs of environmental disruption, relative-income effects, congestion, and other forms of largely negative effects. Thus, even from the viewpoint of pure efficiency alone, substantial taxes on income and consumption are desirable. Each country is limited in its ability to impose high enough taxes due to international competition. Due to the mobility of capital and talents internationally, countries with higher taxes lose these valued factors. Thus, with international cooperation, much higher taxes could be imposed.

Apart from the general taxes on income and consumption, specific taxes on activities with high disruptive effects should also be imposed. The amount of the taxes should be in accordance to the damages involved, not only from the present viewpoint, but also for the future. We are already suffering from the insufficient regard to the future by the past generation when computer programmers chose to use just two digits for the year, creating the Y2K problem now. Let us not impose even more calamitous disasters on our children and grandchildren.

One important aspect affecting the success or otherwise of global disruption prevention is whether emerging countries, especially China, is going to follow the West in developing private commuter cars on a large scale or to shift to the environmentally more friendly method of relying mainly on public transport. Even growing at five percentage points below its average rate of growth in the past decade, China will quickly (in less than three decades) overtake the US (allowed to grow at its average rate) in GDP on purchasing power terms. (However, China would by then still be much lower in GDP in exchange rate terms and in per capita terms.) Economists and government officials in China are already talking about the suitability of their income levels for the mass development of private passenger cars. If they go down this road, it would be a disaster both for China and for the world. It would be a disaster in all of the following three counts. First, enormous pollution of the atmosphere locally and globally. Second, serious road congestion and parking problems quite likely surpassing those of the dismal Bangkok. Third, huge waste in largely useless competitive spending on private cars.

We have already spoken and written on the inadvisability of the mass development of private cars in China. However, the Chinese seem to think otherwise. One renowned professor reasoned with us like this: “People in the West have polluted the world for centuries. Now that people in China are just starting to have the ability to afford private cars, how could you deny them this opportunity? Moreover, in the past, only high government officials are privileged enough to have cars. Now that private citizens are beginning to be able to afford cars, how could the government deny them this opportunity?” We replied thus: “We are not trying to deny the Chinese people something nice. Rather, we are in a deplorable situation. Like riding a tiger, it is difficult to get down. Once you have private cars as a norm, it is difficult to develop the more efficient public transport system. The congested situations in Bangkok and Taipei are pitiable, not admirable. Moreover, with the huge populations and narrow streets in big cities in China, it is impossible for most people to have private cars without causing worse congestion and the lack of parking spaces, even if China spends half of its GNP on road construction. It would be much better for China to develop much more efficient public transport systems, supplemented by taxi and rent-a-car services.”

Moreover, we are not advocating the outright prohibition of private cars. However, we would like the full costs of private car ownership and usage be reflected by say very high registration fees and big congestion and pollution taxes on petrol consumption. Most people do not like such taxes which increase the costs of their car usage. However, if people take into account the higher government revenue (with either corresponding lower taxes or higher government spending elsewhere), they should realize that most people are really made better off by such efficient taxes. Thus, we told our students that, only when they feel delighted enough to celebrate the higher prices of petrol from higher taxes that they can call themselves real economists.

Due to the environmental implications, the West (especially the US and Europe), the World Bank, and the United Nations should persuade and help China and other similar countries to develop their public transport systems before it is too late. That is, before they got stuck in a one-way street of relying on private cars. Developed and developing countries could come together and agree to impose high taxes on petrol consumption and use the proceeds to fund public transport, education, research, and environmental protection.

It is true that international agreement is difficult to achieve. However, it is not altogether impossible. For example, we had the agreement on world trade liberalization. True, trade liberalization has the support of big companies and governments. For education, research and the environment, perhaps we need the common people to realize the issues involved and hence to influence their governments before international cooperation may eventuate. Thus, we turn now to what the common people like you and us can do.

7.3 The Role of Individuals

In Chapter 5, we discuss how individuals may achieve higher happiness, mainly for themselves. Here, we concentrate more on how individuals may help others, including the whole world, to increase happiness.

First, you may help others by recommending them to read this book. You may think, “Ha! They just want to sell more copies of their book.” However, we are quite happy for you just to lend your friends your own copy. We just want more people to learn the message. (By the way, we have also undertaken to donate half of the royalty receipts of this book to charities and scholarships. We have decided to keep the other half partly to maintain some private material interests, on top of the non-material interests, in writing the book well. Though realising its low effects in increasing happiness, we are not yet completely disillusioned with the utility of money. Moreover, while not completely non-altruistic, we are not completely selfless either.)

Secondly, you may cast your votes for candidates in favour of education, research, and environmental protection.

Thirdly, do not waste resources, especially those having environmental disruption effects. For example, we find many American homes overheated. They wear only shirts and then complain about the high heating costs. Why can’t they put on some warm clothing and turn their thermostat a little lower? This saves money as well as reduces environmental disruption. If the money so saved is not needed, it could be donated to support the environment or other forms of charity.

Similarly, we find departmental stores, other big shops, offices, libraries, etc. throughout the West overheated in winter and overcooled in summer. Thus, we have to carry warm clothing in summer just to wear indoors. In contrast, in winter, we have to do a striptease soon after going indoors. Some librarians proud themselves by maintaining a constant temperature in their libraries throughout the whole year. This clearly means that, most of the time, they are using excessive energy to create inconvenience, a triple loss when counting the environment. In summer times, people wear light clothing and are used to losing not much body heat and will find 21°C (about 70°F) too cold for comfort. On the other hand, in winter times, people wear warm clothing and are used to losing more body heat and will find 21°C too warm. Heating to 20° in winter and cooling to 24-25° in summer are more than sufficient.

Nowadays, there are many pedestrian crossings where the red stop signal could be turned on at a press of the button. This makes sense especially in busy roads. However, they have been much abused by pedestrians. We noticed many pressing the button as soon as reaching the crossing without seeing whether it is necessary. Then, upon seeing that there is no car, they cross the road before the red signal, leaving many cars stopping at the red signal latter with no one crossing the road. We once chided a colleague for pressing the button unnecessarily. He said, “That is our rights!” That may be the right of pedestrians. However, why exercise the right if it is not necessary and will impose significant costs on others and the environment?

Fourthly, do not compete with others in private consumption. Compete in the contribution to others, including in one’s job performance, social service, and contributions to education, research, and charities.

Lastly, do not compete excessively, especially in a way detrimental to others. Why put stresses on yourself and damage others to make money that is of doubtful value to your happiness? Perhaps the colleagues of the first author may accuse him of hypocrisy. “You ask others not to compete excessively, but you yourself go ahead to publish many more papers than others. This is like asking others to walk slowly but you yourself run fast ahead.” He has three replies to this potential accusation. First, he works on average only forty hours a week (counting the time spent on correspondence), not really excessively. Secondly, he enjoys the process and likes the results of his work. Thirdly, he believes (perhaps without full justification) that his papers and books will make readers and others directly and indirectly happier. You, the reader, can be a judge of this last point.

Chapter 8 The East-Asian Happiness Gap

In the previous chapters, we discussed issues related to happiness in a general way. In this chapter, we discuss the problem why the East Asians have low happiness scores.

The low happiness scores of the East Asians have already been mentioned at the beginning of Chapter 2 on the international comparison of happiness; the East-Asian countries including Japan, Korea, and China (not including Indonesia and the Philippines) came last. The low ranking of East Asian countries in happiness is consistent with some other measures. For example, according to the survey of 18 thousand adults in 28 (27 for 2000) countries and regions by Durex reported in the mass media world-wide on 17-18 October 2000 and 28 November 2001, Japan also has the lowest average number of sex over a year 36 (37), (figures for 2001 with those for 2000 in parenthesis), far behind the second lowest of 63 (84) for Hong Kong (or 62 for Malaysia in 2000) and the low figures for other East-Asian regions: Taiwan 65 (78), Mainland China 72 (69). In comparison, the overall average figure is 97 (96) and the top score by the U.S. is124 (132). (Documents available at http://library.northernlight.com/FB20001017290000041.html and http://library.northernlight.com/FB20011127840000327.html. ) For another example, according to a measure of life satisfaction, East-Asian regions score rather low (China 4.00, Korea 4.98, Hong Kong 5.07, Japan 5.14, Singapore 5.72) in comparison to countries of lower per-capita incomes (Nigeria 5.11, India 5.15, Pakistan 5.49, Peru 5.77, Egypt 6.14, Colombia 6.20, Australia 6.23). (See Diener & Suh 1999, p.444.) The study of Furnham and Cheng (1999) also shows that Japan and Hong Kong score significantly lower in happiness than Britain. Also, according to a survey by a media research agency Optimum Media Direction (reported in China Post in Taiwan late in 2000), ‘only five percent of young people surveyed in Hong Kong said they felt happy. … 47 percent of the 504 respondents in the territory [Hong Kong] said they considered themselves either “a bit fat” or “too fat”. This compares with … Only 15 percent of young people in India felt uneasy about their weight.’ In a study of life satisfaction for international students in Norway, Sam (2001) also finds that ‘students from Europe and North America were on the whole more satisfied than their peers from Africa and Asia’,

Even if high incomes no longer increase happiness, perhaps, dynamically, we need rising incomes just to sustain happiness at an unchanged level, the so-called ‘hedonic treadmill’. The East Asians have not only high income levels but also high rates of growth in incomes. On these counts, they should be happier than others. Despite these, they are less happy than others. This may be called the East Asian happiness gap. Since our measures of happiness are not foolproof, we cannot be completely confident of the existence of such a gap. However, there is sufficient evidence for provisionally accepting the hypothesis of a gap before it is overthrown by more solid evidence.

Some explanations of the East Asian happiness gap are related to the explanation of the rat-race in Chapter 2. First, the higher congestion, pollution, and other forms of environmental disruption caused by high growth in production and consumption, especially in the heavily congested cities and industrial areas may partly explain why the rapid growth in East Asia is not an unmixed blessing, to say the least. These problems also exist in the West, but are more serious in East Asia due to the higher population density and more inadequate environmental protection. Some more genuine indicator of progress that take account of congestion and environmental disruption that are largely ignored by the conventional GDP may show that the growth rates are not as spectacular. A recent report indicates that fish from the rivers and lakes of Taiwan are not suitable for consumption. Certainly at the margin, it is undesirable to poison our air and water to have additional inessential output. ‘The human costs in ill health in cities such as Bangkok, Chongqing, Jakarta, and Shanghai are intolerable. In East Asia’s major cities, air and water pollution are the sources of some 200,000 premature deaths, 650,000 cases of bronchitis, and 2 billion person-days of respiratory symptoms each year’ (Walton 1997, second paragraph before conclusion).

Secondly, the East Asians are reputed to be highly competitive. This partly explains their economic success. However, the very high degree of competitiveness may be detrimental in achieving happiness both at the individual level and, even more so, at the social level. One aspect of competitiveness is trying to surpass others. An individual may succeed in surpassing others but for the whole society, an individual on average cannot surpass others. Much effort in achieving relative distinction, if spent on areas without significant external benefits, may thus be largely wasted socially. (Thus, people should compete in areas with external benefits such as contributions to knowledge and to charity.) Another aspect of competitiveness is not being contented with one’s current achievement and wanting to do better. While this may propel progress in objective terms such as production, it is likely to be detrimental to contentment and happiness.

Buddhism, Hinduism, and Taoism are more emphatic on the virtue of contentedness while Confucianism is, at least relative to the previous three, more emphatic on the virtue of achievement. While Buddhism and Taoism are still believed in parts of East Asia, their influence has largely wane, especially relative to the importance of Buddhism and Hinduism in India. Perhaps this partly explains the higher happiness level in India despite its much lower per capita income relative to East Asia.

It is true that we need some degree of competitiveness just to survive and a little more to make progress. However, too high a degree of competitiveness may be detrimental to happiness. In fact, one of the reasons the East-Asians have a high degree of subjective competitiveness may be due to the high degree of competitiveness that has existed objectively for many generations. The competitive environment favours those with a high degree of competitiveness which in turn increases the competitiveness of the environment, completing a vicious cycle. (Cf. the cycle between complexity and rationality discussed in Ng 1996b which partly explains the speed of evolution.) However, the cycle is not unchecked as excessive competitiveness also generates detrimental effects.

Thirdly, the educational method and general cultural influence of the East Asians are also highly productive in competitive achievements (especially in formal examinations) but likely detrimental to real creativity and personal and social happiness. According to the Third International Mathematics and Science Survey Report on year-8 students (reported in the mass media internationally on 6-7 December 2000), East-Asian countries/regions (Singapore, Taiwan, South Korea, Japan; but Mainland China was not included in the survey) led the international groups of 38 countries/regions including Australia, Britain, and the U.S. (The top scorers for maths are: Singapore 604, South Korea 587, Taiwan 585, Hong Kong 582, Japan 579 against the average of 487. The top scorers for sciences are: Taiwan 569, Singapre 568, Hungary 552, Japan 550, South Korea 549 against the average of 488.) Commenting on this report, Yuan Tzeh Lee (a Nobel laureate and President of Academia Sinica in Taipei) said, ‘Most Taiwan students are good in examinations. Their performance in science and mathematics are good at the stage of high school. However, after graduating from high schools, they become exhausted, as if going to retire … The educational system in Taiwan is very repressive of curious students interested in pursuing creativity. This is very bad.’ (My translation from a report in China Times, 7 December 2000, p.7.) At least to a large extent, this remark is also applicable to other East-Asian regions and also with respect to happiness, not just with respect to creativity.

Fourthly and relatedly, East-Asian culture (especially its educational system) is over-emphatic on conformity, order, and the collective interests to the detriment of individualism, freedom, and hence happiness. It is true that individual freedom must not be excessive either, as the welfare of others may be adversely affected by the relentless and unrestricted pursuit of individual freedom. However, while the West may be somewhat over the delicate tradeoff to be too emphatic of individualism in some aspects, the East-Asians are likely to err in the opposite direction by a wider margin. An important explanation of this big difference is probably related to the relative effectiveness of the legal system in the West which can be relied more to control the excess of individual freedom. This means that, with the legal system strengthened (as obviously very successful in regions like Hong Kong and Singapore), East-Asians may move towards the direction of freedom and individualism to increase happiness.

Happiness researchers remark: ‘… in the Latin nations, such as Colombia, there is a tendency to view pleasant emotions as desirable… In contrast, in Confucian cultures, such as China, there tends to be relatively more acceptance of unpleasant emotions and relatively less acceptance of pleasant emotions… In China the ideal level of life satisfaction was considered to be neutrality – neither satisfied nor dissatisfied’ (Diener & Suh 1999, pp.443-4). Eastern researchers also agree on the ‘abstinence’ tendency of Confucianism. For example, ‘in Confucian culture … abstinence is an important factor’ (Fu 1989, p.51; my translation) and ‘hedonistic striving for happiness is regarded as unworthy and even shameful’ (Lu & Shih 1997, p.183; see also Fang 1980, p.153.). How can one enjoy life happily if one is brought up to be adverse to pleasant feelings?

One indication of the abstinence tendency is the high average age of first time in having sex. In comparison to the overall average of 18.1 (years old) and the lowest average U.S. figure of 16.4 and Brazil of 16.5, the average figures for East-Asian regions are China 21.9, Taiwan 21.4, Hong Kong 19, Japan 18.9. (From the same Durex 2000 survey mentioned above.)

Fifthly, East-Asian culture is too emphatic on appearance, on not losing face and less on the real content and true feelings. The importance of ‘face’ (mian4 zi3) is well-known. The emphasis on outward appearance in contrast to inner content may be ‘spotted’ in the example of the styles of buildings. The Temple of Heaven in Beijing is extremely impressive looking from outside but rather ordinary inside. Most Western churches look rather dull from outside but are well furnished and decorated inside. When my father (born in China and lived in Malaysia for decades) first saw our flat (rented) in Australia, he thought that the building (brick-veneered) looked unfinished. When he went inside, he found it very comfortably furnished. Many flats in East Asia have a very small bathroom and kitchen but relatively large ‘visitors hall’ (ke4 ting) which is known in the West as the lounge room or living room. This difference in the naming of the same room also betrays the difference in emphasis between the East (to impress the visitors) and the West (for the comfort of the family). To what extent is this a reflection of more visitors rather than a difference in emphasis remains to be investigated.

For another example, when advising their children regarding marriage, most Western parents put happiness first. In contrast, many East-Asian parents emphasize the family backgrounds (men2 dang hu4 dui4) and other objective aspects. It is more important to them (at least relative to people of the West) for the marriage to look good in appearance than for the children to actually have a happy life.

Of course, happiness is also affected by biological factors. However, since they are less amenable to policy influence (except in the future when genetic engineering may be safely used), they are not emphasized here. (On the use of brain stimulation for pleasure, see Chapter 6).

While cultural differences are important, their role must not be exaggerated. Cultural differences do make a difference as to what factors may affect happiness (e.g. Christopher 1999) but not with respect to the concept and ultimate value of happiness as such. Moreover, there are largely universal factors determined by biology. Thus, Maslow’s (1970) need-gratification theory of well-being is largely universal. Also, I believe that, at the ultimate level, happiness as the rational end is culturally independent. It may be thought that my personal views on happiness are largely due to the influence of Western culture. However, I can vouch that I was brought up in largely Eastern influence, attending only Chinese schools and university in Malaysia and Singapore before my time of post-graduate study. Even now, my cultural influences are more Chinese than Western. For example, I still read most non-economics books and magazines in Chinese and listen mostly to Chinese music. I can read and write in Chinese twice as fast as in English. Moreover, I was almost a born (moral philosophical) utilitarian. I can distinctly remember that I had virtually full-grown utilitarian views by the age of around 6.

Some researchers exaggerate the cultural difference. For example, Lu & Shih (1997, p.181/2) mention that ‘the word happiness did not appear in the Chinese language until recently’, suggesting that the concept of happiness is alien to the Chinese people until recently. This is certainly misleading. It may be true that the modern phrase for happiness in Chinese (kuai4 le4) appeared only recently. However, the ancient word for happiness in Chinese (either kuai4 or le4) appeared from time immemorial. For example, le4 appeared in such ancient expressions as ‘Friends coming from afar, am I not happy?’ and ‘[I am] so happy, no more thought of shu3’, with the clear meaning of happiness. I suggest that such primitive concepts as happiness are universal and should exist in all cultures from time immemorial, probably not long after the evolution of homo sapiens, if not earlier.

Despite the failure of higher incomes to increase happiness (except for the very poor), I continue to believe in the usefulness of economic growth. However, the direction of growth has to be appropriate. First, the protection of environmental quality has to be a top priority. We want clean growth, not dirty growth. Secondly, we want growth that can really increase our happiness. This includes less on largely mutually cancelling competitive private consumption and more on areas of public spending that can really increase our welfare. Among others, this includes more public funding for research to find out more.

Another implication is the need, both at the individual and the social level, to put more emphasis on things that are much more important to happiness than money, including health, relationships, and spiritual fulfilment. In particular, for the developed parts of East Asia, more reflections on the East-Asian happiness gap are needed. Perhaps it is desirable to realize more about the illusions of the irrational accumulation instinct, to resist more the temptations created by the omnipresent commercial advertising, to reduce our competitive nature, to divert competition from consumption to social contributions, and to make less money in order to enjoy life more. East-Asians may not only achieve more happiness this way, but also, by reducing and redirecting their lopsided growth, contribute to a better global environment.

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[1] It is known that this general rule is subject to qualifications due to the presence of considerations like complementarity/substitutarity between public and private goods. (See, e.g., Atkinson and Stiglitz 1980, King 1986, Batina 1990, Wilson 1991, Chang 2000.) Specific cases or conditions under which the efficient level of public goods is not affected have also been identified (Christiansen 1981, Boadway and Keen 1993, Konishi 1995).

Contents

Relative-income effects

Burden-free Taxes

4.4 Concluding Remarks

5.8 Have a Positive Outlook