Social capital, economic growth and well-being

Social capital,economic growth &

well-being

Introduction

Subjective well-being

the evolution overtime of SWB

Internationaldifferences inwell-being

the Easterlin paradox

Social capital andSubjective well-being

Social capital predictshappiness

SC as a predictor ofSWB trends atmicro-level

US work hours

NEG model

An example: guardlabor

testing NEG model

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Faculty of Economics - University of Siena

Social capital, economic growth and well-being

Francesco Sarracino

Population et emploiCEPS/Instead, Differdange

Luxembourg

[email protected]

03 May 2011

F. Sarracino Social capital, economic growth & well-being 03 May 2011 1 / 97


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Introduction

Economists have always been interested in people’s well-being

but, how do we measure it?

GDP (under the belief that a higher income may not increaseindividual’s well-being, but it will not reduce it for sure)

promoting economic development became the main tool to raisewell-being



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Introduction

but there are many aspects that strongly concern people’swell-being and that are only partially accounted for by GDP:

people declare themselves isolated and lonely;

unsafety of the social environment;

cities are polluted;

trust in others and honesty are declining;

it is more and more difficult to find a place to enjoy socialrelationship (unless mediated by commercial activities) (Dienerand Seligman, 2004; Frey and Stutzer, 2002b).

Is development missing to provide promised benefits?



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Success in improving or not people’s well-being depends on the“quality” of development (Helliwell, 2008).

Present work sets in this debate supporting the idea that the socialquality of economic growth does matter a great deal forwell-being.



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Introduction

Success in improving or not people’s well-being depends on the“quality” of development (Helliwell, 2008).

Present work sets in this debate supporting the idea that the socialquality of economic growth does matter a great deal forwell-being.



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Three measures of well-being

Well-being can be proxied by:

happiness

life satisfaction

objective data: mental illnesses, suicides, alcoholism, drugsabuse, psychopharmaca, etc.

Happiness and life satisfaction are called subjective well-being(SWB)

Subjective well-being (SWB): individual’s evaluation of itsown life regarded as a whole (Helliwell, 2008)



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Observing SWB (World Values Survey)

Happiness:

“Taking all things together, would you say you are:”

1 “very happy”

2 “quite happy”

3 “not very happy”

4 “not at all happy”

Life satisfaction:

“All things considered, how satisfied are you with your life as awhole these days?” Answers range on a 1 to 10 points scale:

1 “dissatisfied”...

10 “satisfied”



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Observing SWB (World Values Survey)

Happiness:

“Taking all things together, would you say you are:”

1 “very happy”

2 “quite happy”

3 “not very happy”

4 “not at all happy”

Life satisfaction:

“All things considered, how satisfied are you with your life as awhole these days?” Answers range on a 1 to 10 points scale:

1 “dissatisfied”...

10 “satisfied”



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Reliability of SWB

Reliability

data on SWB are:

consistent with more objective measures of well-being (heartrate, blood pressure, Duchenne smile, brain scanners, suicide)(Blanchflower and Oswald, 2008a; Van Reekum et al., 2007);

highly correlated with other proxies of SWB (Schwarz andStrack, 1999; Wanous and Hudy, 2001; Schimmack et al.,2009);

consistent with evaluations about the respondent’s happinessprovided by friends, relatives or clinical experts (Schneider andSchimmack, 2009; Kahneman and Krueger, 2006; Layard,2005).



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The evolution over time of SWB

SWB data are easy and cheap to collect and proved to unveilinteresting and consistent patterns about modern societies

How far is general income growth likely to increase averagehappiness?

this is a question about time series relationships



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The evolution over time of SWB

SWB data are easy and cheap to collect and proved to unveilinteresting and consistent patterns about modern societies

How far is general income growth likely to increase averagehappiness?

this is a question about time series relationships



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61

La fig. 1 illustra in modo didascalico il cuore del paradosso della felicità.

In essa sono confrontate la tendenze americane del reddito annuo pro-capite

e della percentuale di individui che si dichiarano molto felici, nel periodo

1946-1996.

Fig. 1 Reddito e felicità medi in USA, 1946-1996

Il grafico mostra che, a fronte di una forte tendenza crescente del

reddito medio, la percentuale di individui molto felici presenta una tendenza

alla diminuzione. La domanda che grafici come questo suscitano è: perchè in

una società che diviene sempre più ricca la gente si sente progressivamente

peggio?

Dati oggettivi

Figure: Income and happiness in US 1946 - 1996. Source: Layard, 2003



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Health



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Information technologies



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Travels



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economic growth seems to be associated to undesirable side-effectson well-being.



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Well-being trends across countries

There are international differences in long-term trends of SWB

for instance: SWB slightly increased in several EU countries anddecreased in the US in the last 30 years.



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Declining trends in US happinessUS declining happinessUS declining happiness

Source: Stevenson and Wolfers 2008, GSS dataFigure: Source: Stevenson and Wolfers, 2008 (GSS data).



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Declining trends in US happiness

Figure: Source: Stevenson and Wolfers, 2008 (GSS data).



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What does predict international differences in the trends ofwell-being?

GDP trends do not!

people do not become happier when a country’s income increases.



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What does predict international differences in the trends ofwell-being?

GDP trends do not!

people do not become happier when a country’s income increases.



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The Easterlin paradox

The trends of happiness and income are unrelated in the long runin:

developed countries;

developing countries;

all countries together.

Easterlin and Angelescu (2009)



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Figure: Source: Easterlin and Angelescu, 2009



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Easterlin and Angelescu (2009)g ( )




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Conventional explanations

Aspirations: after a while people adapt to their living standardby raising their aspirations. SWB is predicted by past income;

Social comparisons: people compare themselves with othersand set their aspirations accordingly. SWB is predicted byreference income.

two problems arise:

1 SWB varies in the long run and it doesn’t vary in the sameway in every country (Stevenson and Wolfers, 2008; Inglehart,2009; Chap. 3.

2 trends of GDP and SWB are unrelated in the long run(Easterlin and Angelescu, 2009).



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two problems arise:





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two problems arise:





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two problems arise:





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If it is not GDP, what does explain SWB trends and its differencesacross countries?



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Social capital and Subjective well-being

SC plays a major role in determining people’s well-being.In particular, the quality of the relationships among people has apredominant impact on their well-being.(Helliwell and Putnam, 2004; Helliwell, 2006; Bruni and Stanca,2008; Becchetti et al., 2008)

Social capital (SC) is “features of social life - networks, norms andtrust - that enable participants to act together more effectively topursue shared objectives.” (Putnam, 1993)



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Social capital and Subjective well-being

SC plays a major role in determining people’s well-being.In particular, the quality of the relationships among people has apredominant impact on their well-being.(Helliwell and Putnam, 2004; Helliwell, 2006; Bruni and Stanca,2008; Becchetti et al., 2008)

Social capital (SC) is “features of social life - networks, norms andtrust - that enable participants to act together more effectively topursue shared objectives.” (Putnam, 1993)



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Operationalizing social capital

4 groups of proxies for SC

Non market relations (RSC)

Putnam’s & Olson’s groupsKnack (2003)Knack (2003)

Beliefs concerningBeliefs concerning institutions (non-RSC)

Figure: Costituents of social capital. Source: author’s own elaboration.



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In the long run social capital predicts happiness

What happens in this kind of regressions when income issubstituted for social capital as the independent variable?(Bartolini, Bilancini and Sarracino, 2009)

The measure of social capital: share of the population member inat least one group or association

Data: World Values Survey, waves 1 - 5, 1980 - 2005.



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In the long run social capital predicts happiness

What happens in this kind of regressions when income issubstituted for social capital as the independent variable?(Bartolini, Bilancini and Sarracino, 2009)

The measure of social capital: share of the population member inat least one group or association

Data: World Values Survey, waves 1 - 5, 1980 - 2005.



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Groups and associations

social welfare service forelderly people;

religious organizations;

education, arts or culturalactivities;

labour unions;

political parties;

human rights;

conservation, theenvironment, ecology andanimal rights;

youth work;

professional associations;

sports or recreation;

women’s group;

peace movement;

organizations concerned withhealth;

consumer groups;

other groups.



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Happiness and social capital

Happiness & Social Capital Developed countries (15 years)

Jap

FinCan

008

Developed countries (15 years)N = 14

It

Fr

DenFin

.006

.0

ppin

ess

1 - 4

sca

le)

4R2 = 0.60

Y = 0.0012 + 0.381X

SweBel

.004

hang

e in

hap

mou

nt o

n a

1

(2.40) (7.40)

t‐stat in parentheses

ukEsp

NetUSA

.002

annu

al c

h(a

bsol

ute

am

Ger Ire0(

-.005 0 .005 .01 .015 .02l h i b hiannual change in group membership

Ehapr Linear prediction

dependent ariable a era e ro th rate of happinessdependent variable = average growth rate of happinessindependent variable = average growth rate of membership in associationsunit of observation = countrytime span= at least 4 waves

Figure: Happiness and social capital in Developed Countries (15 years).Source: author’s own elaboration.



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Happiness & Social Capital Developing countries (15 years)

Mex

04

Developing countries (15 years)N = 5R 68

.03

.0

appi

ness

1 - 4

sca

le) R2 = 0.68

Y = 0.0047 + 0.890X

(1.29) (2.44)

1.0

2

chan

ge in

hap

mou

nt o

n a

1 ( 9) ( 44)


Arg

ChileKorRep

Chi

0.0

1

annu

al c

h(a

bsol

ute

am

China

-.01

-.02 -.01 0 .01 .02 .03annual change in group membershipannual change in group membership


dependent ariable a era e ro th rate of happinessdependent variable = average growth rate of happinessindependent variable = average growth rate of membership in associationsunit of observation = countrytime span= at least 4 waves

Figure: Happiness and social capital in Developing Countries (15 years).Source: author’s own elaboration.



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Happiness & Social Capital All countries

Mex

04

All countries N = 19

.03

.04

pine

ss- 4

sca

le) R2 = 0.53

Y = 0.0001 + 0.740X

(0 09) (2 30)

.02

ange

in h

app

ount

on

a 1 (0.09) (2.30)


It

uk

FrSweEsp NetUSA

Jap

Ger

DenFin

Ire

Bel

Can Arg

ChileKorRep

0.0

1

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te a

mo

China

-.01

(a

- 02 - 01 0 01 02 03.02 .01 0 .01 .02 .03annual change in group membership


dependent ariable a era e ro th rate of happinessdependent variable = average growth rate of happinessindependent variable = average growth rate of membership in associationsunit of observation = countrytime span= at least 4 wavesFigure: Happiness and social capital in Developed and DevelopingCountries (15 years). Source: author’s own elaboration.



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Results

World-wide evidence:

Happiness and GDP are unrelated in the long run, while happinessand sociability are strongly and positively related.



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Evidence from within-countries data

Can within-countries data give us a more detailed picture of whatdetermines the changes in well-being over time?



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Declining trend in US Happiness: WHY?

Bartolini, Bilancini and Pugno (2009) try to answer using datafrom the US General social survey (1975 - 2004).

The GSS started in 1972 and has been carried out mostly everytwo years, covering large representative samples of the Americanpopulation.

The GSS contains an happiness question and several question onsocial capital. Unfortunately, it is not a panel.



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Declining trend in US Happiness: WHY?

The trend of US happiness is predicted by 4 forces that drivesuch a trends in opposite directions:

absolute income growth;

adaptation;

social comparisons;

social capital.

Relational goods and trust in institutions: components of social capital



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Social comparisons

Mrs. Jones compares what she owns with what is owned by otherpersons, said reference groups.

Having a lot may seem little to Mrs. Jones if those she comparesherself to, have more.

An increase in income has a positive impact on the well-being ofMrs. Jones but an increase of the same size in the income of herreference group, offsets about 2/3 of such an impact.

Growth raises happiness if what matters for happiness is to have abigger car, not if what matters is to have a bigger car than yourneighbour.



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The decline in relational goods

The trends of the various indicators document:

An increase in: loneliness, sense of isolation, instability of families,generational cleavages, mistrust.

A decrese in: social contacts, honesty, solidarity, socialparticipation, civic engagement.



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The decline of relational goods and of trust ininstitutions

Figure: Source: Bartolini et al., 2009.



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The impact of socio-demographics on happiness




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The impact of relational goods on happiness




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The impact of trust in institutions on happiness




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Accounting for the happiness trend

Computing the predicted impact on happiness of each variable overthe period 1975-2004

∆H = α(X2004 − X1975)

For each regressor α is the coefficient of the happiness regression,while X2004 and X1975 contain the average values of the regressor inyear 2004 and 1975.



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Accounting for the happiness trend




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Predictors of the decline in US happiness

The predicted negative impact of:

social comparisons;

decline of relational goods;

decline of trust in institutions.

more than offset the predicted positive impact of the increase inincome.



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Relational goods matter

If relational goods had remained at its 1975 level, happiness mighthave substantially increased.

About 10%!

this is the growth rate of household income needed to compensatefor the happiness loss due to the decline in relational goods.



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Relational goods matter

If relational goods had remained at its 1975 level, happiness mighthave substantially increased.

About 10%!

this is the growth rate of household income needed to compensatefor the happiness loss due to the decline in relational goods.



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Given the relational decay...

...not even 30 years of economic growth at a Chinese pace wouldhave increased the US happiness.



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Lessons for measuring well-being

1 The purchasing power, measured by GDP, is one componentof well-being but is not all that matters;

2 The quality of relational experience cannot be purchased butis important for well-being;

3 A credible indicator of well-being must also take into accountsocial capital.



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Moreover...

Figure: US work hours increased in the last decades.



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...



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A sharp disappointment



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The Easterlin paradox becomes more paradoxical

Why do Americans work more if more money does not make themhappier?

why does industrialism tend to produce goods rather than sparetime?



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Why do Americans work more?

Bartolini & Bilancini (2009) show that:

Being poor in relational goods causes longer work hours. Relational

poverty pushes people to longer working hours. Those who arepoorer in relational terms are also more captured by work and aremore interested in money.

The reason is that individuals turn to work and money tocompensate for poor relational conditions.

Those poor in time develop poor relations.

This is a vicious circle. Relational poverty causes time povertyand the latter causes relational poverty.



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Why do Americans work more? An Answer

The increase in hours worked in the past 30 years has beeninfluenced by the decline of relational goods. In turn, these latterhas been influenced by the increase in hours worked.

Unhappiness and stress have a common root: the worsening ofsocial relationships.



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Social poverty vs. economic prosperity?

The average American is increasingly poor in relations, time, trustin institutions and well-being. These data are the symptom of asocial crisis.

However the growth rate of US GDP has been the highest in 1980- 2000 among the big western countries (UK excluded).



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Social poverty vs. economic prosperity?

The average American is increasingly poor in relations, time, trustin institutions and well-being. These data are the symptom of asocial crisis.

However the growth rate of US GDP has been the highest in 1980- 2000 among the big western countries (UK excluded).



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The Negative Endogenous Growth (NEG)

Relational poverty can be a cause of economic growth

(Bartolini and Bonatti JE 2003 and JEBO 2008)

These models are based on 3 hypothesis:

1 existence of free goods: goods that we can’t buy and that arevery important for well-being;

2 the market supplies expensive substitutes to free goods;

3 economic growth constraints the availability of free goods.



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we can defend ourselves from the deterioration of relationaland environmental goods by purchasing some goods(defensive expenditures).

To finance these defensive expenditures we must work, produce andconsume more. Therefore defending ourselves from the decay offree goods increases the GDP.

The decay produces economic growth!



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The third hypothesis: economic growth causes the deterioration ofrelational and environmental goods (the free goods).

NEG is a self-reinforcing vicious circle: environmental andrelational deterioration fuel economic growth which in turnfeeds deterioration. People compensate the social andenvironmental decay with private opulence !

Economic growth works as a substitution process destroyingnon-marketable goods and providing economic (expensive)substitutes.

Growth is fueled by its own erosive power!

NEG is undesirable from the viewpoint of well-being. Privatewealth is fueled by the deterioration of the common goods.



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NEG: the key equations

NEG models insert some key equations in traditional endogenous(or exogenous) growth models:

Ut = U(Xt ;C2t ; Lt),UX > 0,UC > 0,UL > 0;

Xt = Rt + δC1t , δ > 0;

The resource Rt is subject to negative externalities:

Rt+1 = F (Yt ,Rt),FY < 0,FR > 0;

where:

R : common;

C1: defensive expenditure: substitutes for the common;

C2: part of consumption aimed at satisfying other needs:does not substitute for the common;

L : leisure;

Y : aggregate output.



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Private wealth



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Common poverty



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NEG models: conclusion

This kind of economic growth has disappointing effects overwell-being. The negative impact of social and environmental decayand of the compression of spare time on well-being counterbalancethe positive effects of income growth.

the importance of money grows up in a society in which all thatyou can do without money is reducing. Money is the way out fromthe deterioration of all that people have in common. This is whyeconomic prosperity does not lead to higher well-being.



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Relational goods and models of production

The relational decay does not affect only our consumptionpatterns. It also affects our way of working: the erosion of trust, ofshared social norms, of honesty and business ethics make marketrelationships much more complicated.

The substitution process between free and expensive goods affectsnot only our consumption models but also our production models.



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The “guard labor”

The guard labor is a measure of the disciplinary apparatus of asociety.

It counts labor resources allocated to preventing, controlling,punishing indesirable behaviours by others.

Examples: work monitors, police, private security guards, militarypersonnel, etc.

Guard labor is a typical defensive expenditure. It is mainly aresponse to declining trust.

Bowles and Jayadev, JDE 2006.



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Why GDP may grow?

Figure: Evolution of guard labor in US. Source: Bowles and Jayadev,2006.



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Guard labor: international comparisons

Figure: Guard labor international comparisons. Source: Bowles andJayadev, 2006.



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Conclusion: NEG and GDP

There are many signs that economic growth has been fed by socialdegradation.

To use GDP as an indicator of well-being can seem particularlyabsurd if an increase in GDP can be the consequence and thecause of social and environmental decay.

It can work in the short run, but in the long term it appears to bebiased.



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Conclusion: NEG and GDP

There are many signs that economic growth has been fed by socialdegradation.

To use GDP as an indicator of well-being can seem particularlyabsurd if an increase in GDP can be the consequence and thecause of social and environmental decay.

It can work in the short run, but in the long term it appears to bebiased.



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testing NEG model

Buying alone

Conclusion: GDP and social models

To question GDP is to challenge an economic and social modelseen by many as the example to follow: the US.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

What’s going on in Europe?

NEG models predict:

The worse is the trend of relational goods

the higher will be the growth rate of GDP;

the worse will be the trend of hours worked;

the worse will be the trend of well-being.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


NEG models predict:







well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


NEG models predict:







well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


NEG models predict:







well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Comparing European countries and US

US (and UK) compared to continental Europe exhibit:

more economic growth;

increasing vs. decreasing hours worked;

what happened to happiness and relational goods in Europe?

Sarracino (JSE, 2009) provides an answer using WVS data.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone









well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone









well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone









well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone









well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005:GERMANY

−.0

4−

.02

0.0

2.0

4.0

6pe

r w

ave

grow

th

.34

.35

.36

.37

.38

.39

aver

age

annu

al g

row

th

1990 1995 2000 2005year survey

overall trend 90% CI

trend by wave confidence interval

trend by wave (controls) confidence interval (controls)

trend of trust in other people

Figure: Trend of trust in others.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


−.1

0.1

.2.3

per

wav

e gr

owth

.54

.56

.58

.6.6

2

aver

age

annu

al g

row

th

1990 1995 2000 2005year survey




trend of membership in putnamian groups

Figure: Trend of participation in groups and associations.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


−.0

50

.05

.1pe

r w

ave

grow

th

33.

013.

023.

033.

043.

05

aver

age

annu

al g

row

th

1990 1995 2000 2005year survey




trend of feeling of happiness

Figure: Trend of happiness.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: ITALY

−.0

50

.05

.1.1

5pe

r w

ave

grow

th

.28

.3.3

2.3

4.3

6

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4.5

per

wav

e gr

owth

.1.2

.3.4

.5

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

per

wav

e gr

owth

2.85

2.9

2.95

33.

05

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: FRANCE

−.0

8−

.06

−.0

4−

.02

0.0

2pe

r w

ave

grow

th

.18

.2.2

2.2

4.2

6

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4.5

per

wav

e gr

owth

.1.2

.3.4

.5

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.0

5.1

.15

.2.2

5pe

r w

ave

grow

th

3.05

3.1

3.15

3.2

3.25

3.3

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: SWEDEN

0.0

5.1

.15

per

wav

e gr

owth

.55

.6.6

5.7

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4pe

r w

ave

grow

th

.2.4

.6.8

1

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.0

5.1

.15

.2.2

5pe

r w

ave

grow

th

3.25

3.3

3.35

3.4

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: NORWAY

0.0

5.1

.15

per

wav

e gr

owth

.6.6

5.7

.75

aver

age

annu

al g

row

th

1980 1990 2000 2010year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4pe

r w

ave

grow

th

.4.5

.6.7

.8.9

aver

age

annu

al g

row

th

1980 1990 2000 2010year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


−.0

50

.05

.1.1

5.2

per

wav

e gr

owth

3.15

3.2

3.25

3.3

3.35

aver

age

annu

al g

row

th

1980 1990 2000 2010year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005:DENMARK

0.0

5.1

.15

.2pe

r w

ave

grow

th

.5.5

5.6

.65

.7

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4pe

r w

ave

grow

th

.2.3

.4.5

.6

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.0

5.1

.15

.2.2

5pe

r w

ave

grow

th

3.25

3.3

3.35

3.4

3.45

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: BELGIUM

0.0

5.1

per

wav

e gr

owth

.29

.3.3

1.3

2.3

3.3

4

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4pe

r w

ave

grow

th

.2.3

.4.5

.6

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.0

5.1

.15

.2pe

r w

ave

grow

th

3.2

3.25

3.3

3.35

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005:NETHERLANDS

−.0

50

.05

.1.1

5.2

per

wav

e gr

owth

.45

.5.5

5

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.1

.2.3

.4pe

r w

ave

grow

th

.5.6

.7.8

.9

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


0.0

5.1

.15

.2.2

5pe

r w

ave

grow

th

3.3

3.35

3.4

3.45

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Trends of relational goods 1980-2005: GREATBRITAIN

−.2

−.1

5−

.1−

.05

0.0

5pe

r w

ave

grow

th

.25

.3.3

5.4

.45

.5

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


−.2

0.2

.4pe

r w

ave

grow

th

.2.3

.4.5

.6

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


−.2

−.1

0.1

.2pe

r w

ave

grow

th

3.26

3.28

3.3

3.32

3.34

3.36

aver

age

annu

al g

row

th

1980 1985 1990 1995 2000 2005year survey








well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Does the NEG process matter in US growth?

Summarizing: US (and UK) compared to continental Europeexhibit:



decreasing vs. increasing relational goods;

decreasing vs. increasing happiness.

Conclusion: this picture is consistent with NEG.Prudence is required: descriptive statistics and scarcity of comparable data on relational

goods.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

NEG models, Europe and US

In Europe NEG mechanisms seem weaker. This is consistent withthe evidence that the only European country with very similartrends in terms of economic growth, working hours and happinessto US ones is UK.

In this framework the weaker European economic growth is not asnegative as many analysts claim: It does not suggest that the USmodel is better. It is the outcome of a higher social andenvironmental compatibility of the European model.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Buying alone

The Making of the American Consumer as the Prologue to theCurrent Crisis

The economic crisis that started in 2007 is the outcome of theNEG consumerism.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

The answered question

Many analyses try to answer the question:

Why did an initially small and localized default crisis (sub-primemortgages in US) become a dramatic global financial crisis?

The answers generally focus on credit supply:

The abundance of capitals inflows in the US coming fromabroad which determined a credit bubble and financed aconsumption boom.

The lack of transparency of the default risk implicit instructured assets derived from the securization of mortgagesand loans.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

The growth of toxic assets

Figure: Securization of mortgages: growth in structured assets (1980 US$ per household). (Source: Jagannagath et a., 2009.)



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

The premises of the crisis: the formidable USconsumerism

During last decades US consumers have been consuming at fasterpace absorbing a large amount of goods coming from Europe andfrom large part of Asia, mainly from China.The American consumer has been the engine of the world economyin the last two decades.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

How is it possible?

The consumption possibilities of the US economy had to bedeclining!!!

increasing income inequalities

relatively slow wage increase

shrinking of the middle class

The engine of mass consumption is the middle-class.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

How is it possible?

The consumption possibilities of the US economy had to bedeclining!!!

increasing income inequalities

relatively slow wage increase

shrinking of the middle class

The engine of mass consumption is the middle-class.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Something, somewhere went wrong!



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Consumption excess

Figure: Private consumption and wages. (Source: Jagannagath et a.,2009.)

US consumption grew up faster than the growth of wages.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

How is it possible?

They got indebted!



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

How did Americans finance their expenditures?

Figure: Ratio of debt (mortgage and total) to wages. (Source:Jagannagath et a., 2009.)



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

How did Americans finance their expenditures?

Figure: Household debt increases while CAB worsens, US $ perhousehold. (Source: Jagannagath et a., 2009.)

The huge american private debt is the starting point of theeconomic crisis. All the rest: the crash of the financial system, theeffects on the rest of the world, the credit crunch concern only thespreading of a disease that comes from the US private debt.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

US consumption

Americans lived for a quarter of a century beyond their possibilities.

Mortgages and credit cards were the way Americans bought biggerand nicer houses, and more consumption goods, than those thatthey could have afforded



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

The UNanswered question

what has driven the high credit demand in the US?

What have driven Americans to accumulate an enormous debt, inorder to finance their consumption, which was already the mostaffluent of the world?What drives individuals to consumption bulimia, sacrificingcollective infrastructure, environmental and social assets, humanrelations, leisure, in economies that grow ever more affluent andproductive?More than that: this consumption bulimia was financed by goingdeeply into debt, namely sacrificing future living standards



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


These are not naive questions: where is this rush for consumptioncoming from?

We are speaking about the richest consumers in the world.

The richest consumers in the world were financingconsumption that they can not afford.

Strong pushes to reduce consumption.

Credit demand has been driven by consumption demand.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone


These are not naive questions: where is this rush for consumptioncoming from?

We are speaking about the richest consumers in the world.

The richest consumers in the world were financingconsumption that they can not afford.

Strong pushes to reduce consumption.

Credit demand has been driven by consumption demand.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

The question is:

what has been pushing the richest consumers in the world to getindebted to buy even more of what they could already havewithout credit?

If we want to understand the current economic crisis and its origin,we must start from explaining this consumption bulimia.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

GUESS THE ANSWER

The debt is the answer to the incredible emphasis that thesocio-economic structure and the US culture give to consumption.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

GUESS THE ANSWER

The debt is the answer to the incredible emphasis that thesocio-economic structure and the US culture give to consumption.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

the NEG answer

NEG describes consumerism as an answer to the decline incommon goods.The formidable american consumerism can be be driven by thedecline in relational goods.

In a society of lonely people, comsumption provides a form ofidentity: “I buy hence I am”



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

the NEG perspective

In the post Bretton Woods era, the international freedom ofmovement of capital allowed for a concentration of investments inthe largest and most reliable market of the world.Over the last 10 years, this large amount of international resourceshas been addressed towards the financing of the US middle-class.

The world was financing US consumption

The US financial system was lending money to US citizensborrowing assets from the rest of the world.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

the NEG perspective

the global financial system is characterized by:

high international demand for US bonds;

high supply of US bonds, thanks to financial engineering.

In this way Wall Street attracted a large part of the availableinternational assets, even from Developing countries: the extremeinequality in terms of international financial reliability amongcountries allowed the financing of the US consumption.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

the Credit crunch

The crisis of sub-prime mortgages shows to the whole world thatUS citizens are unable to give back the money they borrowed.Some banks and insurance companies failed.The international financial system explodes: high interest ratesreveal that banks do not trust each other (impossibility todistinguish good from bad assets).Credit crunch: the financial crisis affects the real economy.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Another overlooked aspect

Since the end of ’90s, the US economy is involved in economic andfinancial scandals. (Enron, WorldCom are only some examples.)The US system is affected by a crisis of trust, of legality, of values,business ethics and responsibility.These aspects hold also in this case:

1 every manager knew that their bonds were filled in withunreliable assets;

2 those in charge of controlling the system and check thereliability of firms were corrupted.



well-being

Introduction








US work hours

NEG model


testing NEG model

Buying alone

Not even a perfect market system - based on pursuing privateinterests - can work without ethics.

No institutional design can solve such conflicts of interest betweenindividual interests and social utility.There is a selection problem: people selected by the system arethose who miss any kind of ethics.We need people that are motivated to act in a different way.


Documents

Social capital, economic growth and well-being