Is the world happiness report informative?

The eighth World Happiness Report (2020) ranked Finland number 1. 

The happiness score is described as a ladder, where zero is not happy at all and as you climb up, 10 is maximum happiness, hence the ladder score. Finland is no. 1 with a score of 7.8087. 

The happiness index is a subjective measure of well-being, the report says. When Professor Sachs talks about it he says it is supposed to measure satisfaction. Say, utility in economics jargon. In neoclassical economics, utility is a function of consumption of goods and services and leisure. Leisure is time spent not working in market activity and it is assumed to be a normal good. 

To measure happiness, they conduct a survey. Then they take a national average response to a question, e.g., they ask 1000 people a question, record the answers and take the average.There are a number of variables that make this happiness ladder score. They include, not surprisingly, real GDP per capita. Additionally, it includes health life expectancy at birth; social support - i.e.,having someone to rely on in times of need or trouble; freedom to make choices, where people are asked whether he or she is satisfied or dissatisfied; generosity - i.e., they ask, "have you donated money to charity in the last month?" take the average response, then run a regression of this average measure on GDP per capita. Generosity is the residuals of this regression; corruption perception, is the national average of the response to this question "is corruption widespread in government and businesses, or not?"

They use regression analysis to measure how much each of these variables explains of the happiness score! The reported data suggest that only three variables could actually explain most of the happiness ladder score. The most significant explanatory variable is not surprisingly, real GDP per capita, followed by social support, and health life expectancy at birth. The rest do not seem to have enough variations to explain the variation of the ladder score. In addition, they have something called dystopia residual, dystopia happiness, which I could not find its definition so I Googled it. Google says, "it is the score of a hypothetical country that has a lower rank than the lowest ranking country in the report, plus the residual of each country. This happened to have a lot of explanatory power! 

Having briefly explained this subjective well-being index, which is supposed to inform policymakers, and us, about the well-being of every country, now I want to show you the statistics for Finland, the No.1 ranking country and New Zealand, the No.8 ranking country.The differences are small in magnitude, but statistically significant (I tested that). Finland's score is 7.8087 and NZ score is 7.2996. The first two columns in the graph below are the country ladder scores, the rest of the columns are the amounts of the ladder score that are explained by the factors mentioned above. 

So what makes the Fins happier than the Kiwis.The populations are almost the same size. COVID-19 killed more than 600 Fins, but only 25 died in NZ. NZ government and businesses are the least corrupted in the world according to the corruption perception index 2020; it ranked no.1 and Finland No.3. Both countries are democratic and freedom is relatively similar. Are the Fins more generous than Kiwis? 

So if log real GDP per capita explains more of the happiness index than any other variable, why calculate this index? 

That's not all. Going through the list show more strange results. 

Would anyone believe that Iraq is a happier and a better place to live than Jordan? 

Historically, Iraqis, unlike the Syrians and Lebanese, are not known for migration. However, they have been migrating all over the world and to Jordan in particular since the American invasion in 2003. The wars devastated Iraq (see Wikipedia). Millions were displaced. Millions of women lost their husbands and have no jobs, income, and social benefits. There are  millions of homeless children, and millions are disabled persons. Millions lost family members, properties, income, and more. The society has been torn apart by violence. Furthermore, Iraq is more corrupt today according to the corruption perception index than ever. It is environmentally unsafe. Its health and education systems are dysfunctional, and the list goes on. I believe that the Iraqis abroad are also unhappy because the majority believe that they lost their country to terrorists and foreign powers. So what do we make of this ranking?    

Finally, who would believe that Libya, another war torn country, is a happier and a better place to live than Malaysia,Turkey, China, and Morocco? None of these countries has been in war let alone a continuous devastating war for decades.

I could go through the list and examine it country by country, but there is no point. I have some serious doubts about this statistic.I do not think that it is more informative than simply looking at real GDP per capita. Yet, many governments have adopted similar methodology as a guide for policy rather than focusing on productivity. I think tat there is more politics in this than economics behind it. 

The Iraqi Predicament

 

What would people do in a country, where the private economy is stagnant, millions are unemployed, millions work in a bloated public sector, currency devalued, twin deficits (fiscal and current account), and a mounting external debt? The unemployed are credit-constrained, and have no assets. The government is unable to solve any of these problems. They are not easy problems, however. I am talking about Iraq in particular. A similar story is in Lebanon. Syria, Yemen, and Libya, which have been in a state of war since 2011, face a more uncertain future.

Iraq is a big oil producer. It has about 145 billion barrels of proved oil reserves (twenty percent of the Middle East total proved reserves), and 3.5 trillion cubic meters proved natural gas (4.75 percent of the Middle East total proved gas reserves). Iraq has a vast agricultural land in between the Tigers and the Euphrates from the north to the south and from the far West to its east border with Iran. The total area of agricultural land is 93,000 square kilometers, which is 21 percent of the total land area. The population of Iraq is just short of 40 million; where people aged 15-64 (working age population) are a little more than 22 millions.[1] The oil price crash in 2014, followed by civil unrest, and COVID have paralyzed the country, more so the government. Lebanon, which is not a state of war, now, has similar economic problems, without the oil and smaller population and land, however. Nonetheless, Lebanon has a relatively highly educated population.

The average Iraqi and Lebanese person is in despair. There is no other way to describe it. Those who have saved something will spend it soon. Those who have an asset they sell it for cheap. The few rich people – mainly the politicians and their clients – will buy assets at cheaper prices, get richer, or leave the country when all comes to a grind. Most of the politicians have foreign citizenships and foreign bank accounts.

What could be done? 

An immediate transfer of ownership of land and resources from the government to the people will solve most of the problems. The politicians will not like this idea because it reduces their power. Their clients will not like it either because it will reduce their rent. What is needed now is a law along the lines of the Homestead Act(s) of the 19^th century, whereby people in many countries (including the United States) were given free land (with a title). People could use the land for agriculture, sell it in an organized market, or rent it. Such arrangements will generate income and ensure survival of families. In Iraq, oil and gas wealth must also be transferred to citizens in an equal share just like Russia and other Eastern European countries did after the fall of the Soviet Union; a share per citizen. Each share is tradable (sold and purchased) in an organized regulated market. This arrangement will create a market and an immediate income.

For Iraq, such private wealth transfer reduces the dependence of the budget on oil. It would also reduce the people’s dependence on public sector unproductive jobs. Private consumption and aggregate demand will increase over time. A modernization of the existing tax system will be helpful. The wage bill will be reduced significantly. Total government expenditures could be rationalized, and the budget could be balanced.   

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[1] See the World Development Indicators, World Bank and the BP Annual Statistical Review.