Confidence versus Happiness versus the Economy
There’s been quite a bit of talk about consumer confidence recently. Just today, the Thomson Reuters/University of Michigan survey of U.S. consumer confidence showed a move from 74.3 in August to 78.3 in September. Earlier in the week, the Conference Board Consumer Confidence Index posted at 70.3, up from August’s reading of 61.3. Surveys like these are seen as leading indicators for economic conditions. It’s sort of a demand-driven idea; the more positive consumers are about the economic prospects of the country, the more willing they will be to spend money on appliances, cars, houses, you name it. So, positive sentiment can presage an economic expansion. But what does that positive economic growth give back to consumers?
Consider an op/ed piece in today’s New York Times by Richard Easterlin. Easterlin and some colleagues at the University of Southern California, Los Angeles analyzed survey data, which challenges the idea that economic prosperity breeds feelings of well-being or happiness. Their analysis covered Chinese people from 1990 to 2011. China is arguably the greatest economic success story of the last 100 years, so one could reasonably expect that all that economic prosperity would lend a certain amount of life satisfaction to the country’s citizens. However, that’s not what they found.
Easterlin’s team found that satisfaction levels actually declined over those two decades. They propose that the decrease finds its roots in the transition from a fairly predictable system of “permanent jobs and an extensive employer-provided safety net” to a more private economy, which brought joblessness and insecurity. The decrease in happiness comes, he theorizes, from the decrease in certainty. Before, you had a job and some stability. After, there was competition and uncertainty. The authors point to similarities with countries in Central and Eastern Europe, who went through comparable changes after the fall of communism. While the satisfaction scores in China are up from their lowest levels, only time will tell if they can rebound as fully as those of the former-Soviet states. One interesting theory they put forward for the lower satisfaction during a time of economic growth is what I’d call the “yeah, but it could be better effect.” The idea is that as your conditions improve, the “growth in aspirations induced by rising income undercuts the increase in life satisfaction.” Essentially, as you’re making more money, you find yourself with aspirations for even yet still more. You’re less happy because your desires outstrip your improved means.
Give the article a read. If you’ve got more time, you might even check out Easterlin’s full paper here. It seems to me that the basis of a consumer’s economic confidence is founded on a bedrock not just of current conditions and an outlook of their financial situation, but more upon their belief that despite market fluctuations and economic uncertainty, that their country and economy will stay relatively stable into the future. Tomorrow will broadly be like today. Granted, consumer confidence and well-being are measuring two different things, but the former feels like an evolved version of the latter. Once a citizenry has established that they’re feeling relatively content in their current standing, then they can move on to their estimation of the short-term economic horizon.