Saturday, March 30, 2013


The common economist during his professional practice, is immersed most of time in hills formulas, tables, indexes and statistics looking at each time taking more “rational” and “efficient” decisions. However, there are times when he experiences a deep doubt about its real contribution to human welfare.

Evidently he knows of the great economic and material progress of humanity but he can not avoid that also come to his mind the samples of a increasing dissatisfaction in contemporary man, of moral and spiritual degradation, of how the emptiness and meaninglessness take possession of his soul and how stress and anxiety become constants in his life. At that moment, perplexed and worried, he asks himself why of all this.

Then he shakes his head and says “I need to stop thinking nonsense, that's for idealists and philosophers. I am a serious man who deals with more accurate and important things”. And thus, ignored the problem, he returns to his professional work or an ultra-specialized theoretical research, as the case may. But the issue has already been posed and requires a response, especially from those who think about the economy as an social science at the service of man and his welfare.

Several economists have been concerned about the relationship between economic progress and happiness. One is the Briton Richard Layard who in his famous book The Secret of Happiness (2003) made a statistical comparison between GDP per capita and average happiness in the United States during the period 1946-1991, reaching the curious result that even when income had tripled, self-perceived wellbeing index remained relatively equal, decreasing from 2.35 to 2.2. This conclusion is particularly worrying for liberal economists who believe that higher income, higher production and higher consumption necessarily imply greater happiness. But what is the reason for this great contradiction? Curiously, Economics itself provides important arguments to explain. I will address some:

Relative income hypothesis

A first explanation is based on the thesis of the "relative income" which asserts that, if possible such a choice, an individual would prefer a 50% increase in their income without increasing the income of anyone than an increase of 100% on the income of all people around him including himself.

Evidently this is a hypothesis and not a universal law, but has high explanatory power in the conduct of individuals and, under certain restrictions, it is very difficult opposing it. Why? Because the welfare that give us the goods we consume depends not only on the utility but also of the image and social prestige they give us. Let us consider the grisly case of a girl who buys a beautiful (and obviously very expensive) red dress to attend a party. She arrives at the party and finds that all the girls in the party have a equally or more beautiful dress. Her utility level falls precipitously…

But must not think that this is an isolated and purely individual phenomenon: rather it is a structural problem in the economic development of societies. For example, according to figures from the United Nations Program for Development (UNDP), the richest (20% higher) in countries like Peru, Colombia and Brazil earn on average less than the poorest (20% lower) countries like Sweden or Japan. Thus, if a rich Peruvian goes to Sweden would become a "wretched man". But be careful. We should not infer from there that Swedes richer are necessarily happier, because we have to keep in mind that they also live in a constant state of tension, competing with other richs. In fact, this was what sustained the American institutionalist economist Thorstein Veblen in his famous book The Theory of the Leisure Class (1899) when he talked about the “pecuniary emulation” and “conspicuous consumption” (1).


1. Thorstein Veblen, The Theory of the Leisure Class, Fondo de Cultura Economica, Mexico, 1944, chapters II and IV.

You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and (email)