The Easterlin Paradox

The whole world is in search of prosperity. All around the globe, ministries of finance, central banks, prime ministers, and president, promise to deliver growth, and governments rise and fall depending on the rate of GDP growth that they were able to deliver. In the 1970s, Richard Easterlin thought to ask, for the first time, the obvious question: Has this obsessive effort for growth paid off, in terms of increasing human happiness? Studying the question in depth, he came to startling conclusions, now famous as the Easterlin Paradox. One conclusion is that a massive amount of economic growth has indeed occurred. Today, in the wealthier countries, the general public enjoys facilities and conveniences which were once available only to a small percentage of the richest people, the princes and the aristocrats. Think of air conditioners, cars, washing machines, foods and drinks from around the globe, health facilities, and so on. The second is the paradox that the general level of public happiness has not increased. Easterlin gathered a large amount of data from diverse sources to establish this paradox, of increasing economic prosperity without corresponding payoff in levels of general happiness and public feeling of satisfaction with life. He looked at suicide rates, depressions, alcoholism, crime, and many other indicators of life-satisfaction and welfare. All of the data was consistent with the broad picture of economic growth without corresponding increase in happiness.

The Easterlin Paradox is hugely important. As sages throughout the ages have explained, wealth is a means to an end, and not an end in itself. An early paper of Easterlin “Does Money Buy Happiness?” answers in the negative. The impact of this finding is reflected in the approach of Bhutan. They now go after the goal of increased Gross National Happiness (GNH), instead of the GNP like the rest of the world. However, most economists and policymakers have refused to accept these results, and continue to pursue policies for growth, disregarding the strong empirical evidence that this policy does not produce the desired results. The few academics who have understood and accepted the Easterlin Paradox have created an entire new discipline known as “happiness (well-being) studies”, which attempts to explain the why of these startling results. They have come up with two explanations, known as the “Setpoint Theory” and “Comparative Utilities”.

Setpoints: According to the Setpoint Theory, people quickly get accustomed to a certain way of living as being “normal”. It is only changes from this normal that cause happiness or sorrow. Loss of customary standards leads to sorrow, while gains lead to happiness. Thus, the happiness caused by an increased standard of living is only temporary. An initial jolt of happiness is followed by habituation to the new standard, at a higher level. For instance, people who live without air-conditioners in the heat do not miss them. Upon introduction, the cool air brings great pleasure. However, after habituation, living with air-conditioners becomes the normal, and going out into the heat creates great discomfort. The long-run effects on happiness are harmful because paying for operating expenses of the air-conditioners requires additional labor, or increase of time spent on wage-slavery. At the same time, the new normal setpoint means that instead of air-conditioners bringing happiness, previously normal heat brings unhappiness. The process is very similar to that of drug addiction, where the initial doses bring ecstasy, but later, the drug becomes a necessity, and lives are sacrificed to feed the habit. Today, we talk a lot about progress and higher standards of living, but the costs we pay to maintain these standards are evident in the extraordinary amount of work that everyone has to do. In comparison, data shows that the most primitive societies of hunter/gatherers worked a lot less and enjoyed a lot more leisure.

Comparative Utility: The second reason for the Easterlin Paradox discovered by researchers of happiness is comparative utility. It is not what we consume which matters, but how it compares with the general level of consumption in our reference group. This creates a rat race phenomenon where everyone works hard to get ahead of others, but everyone ends up in the same place, in terms of relative standing. Thus, a lifetime of effort trying to get ahead is wasted. In the terminology of economic theory, a strong negative externality is created by trying to get ahead of others. If one person on the block gets happiness by building a luxurious palace, a thousand others become unhappy. Their reference point has been raised higher, and what was a happy if humble home, now appears like a hovel in front of the new standard for comparison. We waste our lives in this meaningless race for riches.

Radical consequences result from absorbing and acting upon this wisdom in our personal as well as collective lives. The Easterlin Paradox shows us that it is foolish to target increasing GNP per capita as a means of increasing societal welfare – a century of experience proves that this does not work. Bhutan’s approach to directly target happiness is a more subtle mistake, because happiness is not a goal which can be achieved by striving for it. Happiness research shows that it is not the race for riches, but our family, community, and network of social relationships that give us the greatest happiness. If we strive to strengthen families, communities, and social networks, by creating awareness of our duties and social responsibilities towards each other, happiness will follow. Today the trends are in exactly the opposite direction, where we are all motivated to spend more and more time to earn more and more money, while neglecting our family and friends who are the genuine source of happiness. The rising tide of consumerism leading to increased exploitation of people and planetary resources for production of commodities is threatening to destroy humanity itself by making the planet inhabitable. There is still time to oppose the trends, and spearhead a movement for simple living, in harmony with our fellow humans and our planet. This is urgently needed today to reverse the movement towards empty lives spent in a meaningless rat race, as well as the environmental catastrophe which looms.

This article is written by Dr. Asad Zaman and originally published on October 30, 2019 in Business Recorder https://www.brecorder.com/2019/10/30/539297/the-easterlin-paradox/

To read more on Happiness, see https://www.linkedin.com/pulse/secrets-happiness-asad-zaman/ and https://sites.google.com/site/aznews0/home/express-tribune/can-money

Nations as Imagined Communities

What exactly is a nation? Why does the academic community struggle so much in defining what “nation” means? How do people come to identify with a particular nation? Why is that national identity so strong that people are willing to live and die for it? These are the central question that Benedict Anderson,1983- Irish scholar of international studies and Asian studies-articulated on and brought forth to the public attention. Despite the fact that the concept of nation is only as real as our imagination, we are deeply hooked to the thought of it so much so that we are willing to run battles and offer our lives for its sake. History attests to how the printing press was used as a capitalist tool to connect to masses and inculcate in them a culture of nationhood. It’s a striking example of how ideas are capable of changing and revolutionaries our lives not only at an individual level but also as a community. The innate ability of an “idea” to have that astounding level of influence and power is sufficient to enlighten us in many ways. In a world where there is little regard left for sentimental as opposed to monetary value, there is a dire need to reshape the world with a very valuable resource at hand- that is imagining the world as to be a global community and eventually bearing the responsibility to put this idea into effect.

Nations as imagined communities: Published in January 10, 2016

Benedict Anderson, author of the enormously influential book Imagined Communities, died last year in mid-December. His memory lives on as his ideas have shaped modern thinking about the origins and nature of nation-states. To those who have not reflected upon this, it comes as a shock to realize that nations are social constructs — they do not have a physical existence outside the minds of people. Nations come into being by an act of imagination. We collectively agree to consider ourselves as a community, and agree to consider certain geographical boundaries as our collective property. Our social consensus, and the recognition of this consensus by broader communities, creates nations.

Orthodox and naive thinking regards nations as primordial constructs, which have existed since time immemorial. Anderson contested this idea, and argued that the nation-state is a distinctly new creation of modernity. In older times, nations were founded on the basis of the divine right to rule of monarchs, and did not create a sense of national community. Rejection of traditional concepts of nationhood required their replacement with an alternative basis for creating nations.

Unlike others who trace the origins of the modern nation-state to Europe, Anderson argues that modern nations were born in the Americas, with US, Brazil and other liberated Spanish colonies being the first to develop a national consciousness. These templates gradually took hold in Europe after the French Revolution shattered older forms of nationhood. Later they were transported to Asia and Africa by the process of colonisation. This narrative assigns a central role to the development of a national consciousness in the US, as the first among the newly-born modern nations which emerged in the period 1776 to 1838. The American revolution created the United States — a noun used with a plural verb at the time — which lacked all three of the factors required for an ideal commonwealth: one king, one language, one church. The leaders of the revolution worried about how such a heterogeneous body of people could coalesce into a single nation. At the time, a dozen or more denominations and sects of Christianity warred against each other, most claiming for their religious doctrines an exclusive orthodoxy. Political diversity reigned in the form of 13 states, which jealously guarded their rights against those of the loose federation united solely by their common enemy, England.

Anderson coined the term print-capitalism as a name for the processes that he saw as central to the creation of a national identity, essential to the survival of a nation. The invention of the printing press created the possibility of cheap production of books, pamphlets and newspapers. Capitalism exploited the profit opportunities created by the opportunity of mass sales of reading materials to the public at large. Exclusive languages of the elite and intellectuals (like Latin and Greek) were marginalised by the spread of popular media, and vernacular languages gained prestige and power. This also created the possibility of participatory democracy, since the voices of the people could be heard in the popular media. The revolutionary vernacularising thrust of the print media created common narratives, and the possibility of imagining a community where no real community was possible. Modern nations were created by this powerful act of imagination.

Anderson’s ideas have dramatic implications and create powerful possibilities for the future. Since community is created by an act of imagination, tremendous responsibility is placed on the shoulders of the media. Portrayals of harmony, and projection of stories of community and participation can create these important qualities. The negative approach of portraying and emphasising conflict and ethnic tensions actually dissolves national bonds of unity. Promotion of vernacular language is essential to creating a participatory democracy as it gives a voice to the people.

Finally, along with well-known strengths, the failings of the nation-state concept have been amply demonstrated by the nearly continuous wars and conflicts that have resulted from it. Today, a powerful act of imagination is required to create a broader community of humanity as whole, so as to create the peace and harmony that is desperately needed. By creating a global community, perhaps the modern media created by the internet can play an important role in forging the future.

Accentuating Positive Growth

Many developing economies of east (China, India, Bangladesh, Sri Lanka, Vietnam and others) have performed better than Pakistan. The historical evidences reflect that Pakistan faced unfavorable economic, social and political conditions which hindered its performance. However, still we can take up the challenge arise from our difficult circumstances and consider them as an opportunity to deliver the exceptional performance required to succeed. What can be done to fix our current condition? The first step to transformation is to believe in ourselves and our potential for success. Struggling together for a common goal is the key to success. Leaders and visionaries can bring radical change by inspiring their nations leading the heroic struggles. The nation could work together which would bring benefit to all. It is essential to put aside our differences and work together to achieve miracles of development.

With the use of power of media, we can create peace, tolerance, harmony and the will to strive together for a common goal of success. The media plays an outstanding role in creating and shaping of the self-image of a nation and strengthening of the society. Instead of reporting the dark side of incidents, crimes and events, media can project cases of heroism, bravery, honesty, sacrifice, compassion, tolerance and justice, which will have positive effects on nation and will strengthen building blocks of society. Through media good acts or deeds should be encouraged which can inspire others and they imitate these good deeds. In this way media can shape the minds and perspectives of nation towards common goals of success and development.

Recognizing its responsibility, the media can report good image about Pakistan by showing tremendous amount of wonderful things going on in the country. At individual level, numerous citizens are creating functional institutions to bring education, health services and microfinance to the poorest members of society. At national level, the government is making massive investments in public health, education and other social welfare initiatives. Recognizing and praising existing achievements in these areas, and demanding equal efficiency and effective outreach from all educational, health and finance institutions would go a long way to promote development. Rapid transformational change and growth could occur if we give up our habits of cursing the darkness, and start lighting candles instead.

Published in The Express Tribune, January 25th, 2016.

Original Article Accentuating Positive Growth

Talk: Islamic Economics at University of Indonesia: Parts 1-3 of 12 Part Video Series

This is the first post that will cover a 12 part video series containing an invited talk by Dr. Asad Zaman on Islamic Economics at the University of Indonesia. Part 1 and Part 2 contain the beautiful inaugural ceremony of the gathering.

The talk begins near the end of Part 3 of which we will present a gist. We must understand that economics is the new religion of mankind and therefore when we start to study it, we must understand first what we are studying and why we are studying it. It is quite natural for people to experience what is called cognitive dissonance when they hear something new or strange. As people, we tend to understand something new in terms of what we already know. To appreciate Islamic economics, we must first become comfortable with the idea that most of what we know might be challenged and the quest for economics actually starts with an inquiry into who we really are. Please watch the video here:

Dr. Asad Zaman, Talk on Islamic Economics at the University of Indonesia, Part 3 of 12.

You may listen to the full talk by Dr. Asad Zaman on YouTube.

Dealing Educational Poverty: A Nobel Approach

Educational poverty is most prevalent among the several diverse forms of poverty. It is the one that originates and amplifies the other issues for the poor, such as lack of opportunities, awareness, discrimination and so on. Therefore, development theory has declared this a fundamental factor contributing to poverty as a whole. Other forms of poverty such as income and health poverty are observed to increase the risk for people to remain educationally poor. This in turn is expected to make them further poor in other dimensions. Given this tangled situation, policy conduct is highly challenging to deal this deprivation at macro level.

It is observed that pro poor policies based on mainstream economic theories are almost everywhere ineffective. This is due to the fundamental flaws in development paradigms that propose assumption based solutions. Therefore, researchers at Abdul Latif Jameel Poverty Action Labs (JPAL) center MIT have proposed a radically different approach to tackle poverty. They opted to conduct experiments and observe what really goes on with the poor. Success or failure of development policies is then assessed by the effects of an intervention. Their evidence based solutions are very useful and have exciting effects at large. One significant finding bout the concept of poverty suggests that it is not a single big problem but thousands of small issues. This simple yet fundamental finding refers to various complex implications. In policy perspective it implies that a single tool cannot solve all the problems. So, it is required to find alternate policy solutions to reduce different deprivations. Nobel laureates and leaders at JPAL Abhijit Banerjee and Esther Duflo view conflicting ideological notions of free market and socialism about interventions the biggest barrier to find effective policies. They emphasize that theoretical arguments of both paradigms are irrelevant distractions to find the real solutions.

To deal with educational poverty, provision issues must be considered to find effective solutions. It requires us to observe the mechanism of education at schools and reasons of failure. Studies show that both the private and public schools in Pakistan have miserable situation in terms of educational outcomes. In Banerjee-Duflo approach, solutions can be found by studying issues of each outcome separately. For instance, we can consider why there is high drop out and absenteeism among both teachers and students of public schools. As per JPAL procedure it requires to formulate a hypothesis about the reasons of this problem and then test it through experiments. There are several plausible hypotheses like parents send children to earn due to lack of awareness about returns to education. Perhaps, the demand for educated workers is lower. Studies evaluate many such hypotheses using surveys and experiments. Suppose all of these are rejected and we find parents are well aware of the benefits of education. The schools are affordable and demand for educated workers is also sufficiently highly. Nonetheless, children perform poor and drop out is high from schools, so parents have to engage them in other works to avoid sitting idly. To solve the unanswered mystery of ‘Why?’, readers are invited to follow the JPAL process and observe the process in real world.

Millennium Development Goals (MDGs) emphasize lack of access to schools a key factor of poor education and required to increase enrolment rates. Several studies in Pakistan find that about eighty percent of students in third grade cannot read a paragraph of first-grade level. Obviously, even the hundred percent enrolment in such schools will not solve the issue. In free market ideology, it is supposed that failure is due to public ownership. Evidence suggest that teachers are well qualified and better paid but deliver poor results than their private school counterparts. However, it is observed that private schools perform just marginally better, not only in Pakistan but across the world. In Pakistan, only 55 percent of private school students could read a complete sentence in private schools. That is better yet unsatisfactory than the 38 percent students of public schools. This failure of private schools is significantly observed with effective intervention.

Banerjee-Duflo and their team introduced a programme ‘Balsakhi’ in India. They hired and engaged local young women with children lagging behind the basic learning skills. This delivered dramatic outcomes as high as learning by 100 percent children compared to just 40 percent from private schools. One important insight is community involvement in learning process. But most important finding from this experiment is surprising for many, that is role of expectations. Expectations playe key role to improve the performance. An experiment was conducted and students were given a fake exam. Teachers were informed about great potential of certain students based on the test. Performance of those students improved significantly because teachers expected them to perform well.

This experiment emphasize to inspire the teachers and observe the potential of each student. This is in accordance to Islamic tradition; human are like mines with hidden treasure. Here, setting unrealistic expectations is also a major obstacle. Most of poor parents suppose government job a prize of the education. Failure to get this means no benefit for them, this is like a lottery that is won by only few. Considering the low chance of their children to get reward, parents consider education and investment not worth their time and effort. This problem can be solved by changing the perception about education. Students, teachers and parents must understand that education is an incremental process that enhance capabilities and income stream. To develop this understanding, each year goals should be highlighted with respective achievements. It also requires introducing practical skills with real life application at each level of schooling. These skills must be aligned with the receptive audience such as knowledge of soil and cultivation for agrarian community and so on.

To tackle educational poverty in developing countries like Pakistan we must go beyond school construction and monetary incentives. It requires changing mind set of individuals, creating their trust and self-confidence. These solutions may be found in inspirational poetry of Iqbal.

The article is a slightly modified version of originally published article in “The Express Tribune”  on October 11, 2015 by Dr. Asad Zaman.

https://tribune.com.pk/story/971192/the-new-poor-economics/

Reading materials related to this can be found here:

https://sites.google.com/site/aznews0/home/the-new-poor-economics

Who are we?

As a nation, we are so impressed with the West that we have lost our own identities. So much so, that we have completely lost our direction and purpose in life. We have adopted Western models and ideology for education system. The goal of Western education is to turn us all into standardized machine parts, for use in the capitalist machine for production of wealth. Therefore, we have received an education which has the purpose of converting human beings into human resources. The evidence of this fact is that no one ever asked you who you are, what are your capabilities, what are the hidden qualities inside you which are unique to you – even though every human being is unique and has rare and precious talents. Western education is a form of brainwashing. It does not differentiate between any two humans and all are educated same stuff with same purpose.

Now the question is, why was this done to us? Why does our education ignore our unique characteristics and concentrate on converting us into standardized parts for use as labor. Answer to this question is very important for us to understand. We are all extremely precious, the most valuable among all of the creations of God. The entire planet does not contain enough gold to buy our lives. In order for others to be able to use our lives for their purposes, it is necessary for them to deceive us about who we are, and what we can become. Only if we are persuaded that we are cheap, will we be willing to sell ourselves for a few rupees. Now that is where the role of capitalism and market economy enter the scene. As an economist, I can tell you that the market economy is designed to use all planetary resources and convert them into wealth. This involves creation of a labour market, where human lives are traded for money. The only way to do this is to brainwash people into thinking that our lives are cheap, we have no unique characteristics, and one person is like another.

Two major deceptions of the Western education system are; you are a human resource and the most important problem in your life is getting a job

So now that we have been trained since our birth with these poisonous thoughts, what can be the antidote for this problem? It can only be the realization of the fact. The reality is that God created us as the best of the creations. He shaped us, and sent us into this world for a purpose: To see who could do the best of deeds. Our Creator has described our value: He says that he who saves a life; it is as if he has saved the lives of the entire humanity. This means that our one life is equivalent to the lives of billions of people. We are extremely precious, not commodities for sale for a few rupees. Now this is a big puzzle especially for this generation who believes in statistically and quantitatively analyzing everything. So they ask how can one life be equal to billions – it does not make sense mathematically. Also, we don’t feel that we are very special. The answer lies in terms of potential – every seed has the potential to become a tree, which generates thousands of more seeds, and thousands of more trees. Every human being is created with the potential capacity to change the lives of billions of people. Also: the seed does not know the potential which is hidden inside it. If we develop our inner potential, we can lead amazing lives – just as God turns a worthless particle of dust into a pearl. However, then we would be of no use to capitalists as a human resource.

This is why the education system is designed to deceive us, to turn us into commodities, units of labour, human resources. The most important question we face in our lives is to discover who we are – this process is made extremely difficult because there are so many buyers for our lives, who seek to deceive us, and thrust misleading identities upon us, so as to harness our lives for their purposes. Two major deception of the Western education system are; you are a human resource and the most important problem in your life is how to get a job.

Actually our most difficult job is to avoid being deceived by these false and misleading messages, and learn the truth about ourselves, and work on developing the unique and precious hidden potentials that we have been gifted with as our birthright.

This article was originally published in Daily Times on 18th June 2019. This is a summary of one of the lectures of Dr. Asad Zaman written by Dr. Taseer Salahuddin. For original lecture, see Learn Who You Are! . For related posts, see Our Lives for Sale (cheap!), and Re-Shaping Lives: Identity and Purpose

Allama Iqbal: Message for Youth

From 11 Nov to 16 Nov, I was in Jakarta at the invitation of the Bank of Indonesia to give a plenary talk at the opening session of the 6th Indonesia Sharia Economics Festival (ISEF), designed to promote Islamic Economics as the key to Sustainable Development and Prosperity in Indonesia. Slides for my talk are avaiable from “New Directions for Islamic Economics.” While I was there, I also met my namesake, Mohammad Asad Zaman, named after me by my student Hendri Tanjung, who was doing his Ph.D. under my supervision at the IIIE, IIUI, in Islamabad some 12 years ago. Here is a picture of me and little me:
img-20191116-wa0007

Hendri Tanjung, who is now the vice rector at Ibne Khaldun university in Bogor, invited me to give a talk at a session on Allama Iqbal at his university. I gave a short 10 minute talk about the Message of Iqbal for the youth: This is the poem on Khitab-be-Jawanan Islam. I started by explaining the importance of Iqbal — as he himself said, he was not a poet, he was trying to convey a message of burning importance by the means of poetry. His message was about reminding the youth of the forgotten glories of the Islamic Civilization, and the steps we need to take to re-create this magnificent heritage.

The poem starts by asking the youth if they even think about the greatness of the Islamic Civilization which has nurtured them with love and affection. This is a recurring theme in Iqbal, that Muslims have been brainwashed into thinking of ourselves as crows, when in fact, we were meant to soar like the eagles (see: The Ways of The Eagles). Short excerpts from the talk are given below:

and

and

The poem, and its English translation, is available from:  http://iqbalurdu.blogspot.com/2011/04…
and a video recitation of the poem in Urdu is available from: