Economic growth and people's happiness?
Part 1
There has been a tremendous amount of debate about the means that provide “people’s happiness”. The word debate is an understatement if we consider that it is an explicit goal of the United States Declaration of Independence and a goal of the Marxist theory and its practical foundation. As a matter of fact, the Cold War itself was conducted between two coalitions, both of which claimed to do better at providing “people’s happiness”. The Cold War is over for more than three decades now and the western coalition won, at least for the time being.
However, even during the first decade after the collapse of the Soviet Union, and the relative consensus that the United States of America and their allies won the confrontation because they just outmatched the Soviets in terms of economic growth, the debate about “people’s happiness” remained very much heated. After all, there is no grownup in the world that didn't hear and repeat the phrase “money cannot buy happiness”.
Since economic growth is so popular among analysts and seems so essential to the outcome of the Cold War, it is logical to take a closer look at how it can be achieved and if it provides a direct connection to people’s happiness. A relatively fair model to dive into is the Solow-Swan model, which is considered a widely accepted time-dependent macroeconomics model of long-run economic growth.
where Y(t) is the total production (of a country) as a function of time t, which can also be denoted as Y the Gross Domestic Product (GDP), or total cumulative production per year,
K(t) is the allocated capital, K if allocated per year,
A(t) the labor-augmenting technology or knowledge, A per year,
and L(t) is the labor (the workforce), and the product A*L represents effective labor per year.
Although α is not essential for the rest of this analysis, 0<α<1 is the elasticity of output with respect to capital, practically a term that is adjusted in order for the model to agree with the observations.
The first observation we can make is that all quantities in the Solow-Swan model are actually summations of partial elementary quantities regarding the total population (the citizens) of the country, for each the contribution may be bigger, smaller, or zero. In fact, we can also include the corporations in a country in the total count of citizens in order to come up to the “augmented population”. After this assumption (and by dropping the elasticity), the modified Solow-Swan model for the annual GDP can be written as:
where N is the (augmented citizens and corporations) total population of a country and Σ is the summation symbol. The last product of sums can be converted to a sum of products as follows:
This has a profound effect on the generation of wealth since wealth for a citizen is not only produced by his/her own capital, using his/her own knowledge, and by putting his/her own labor, but also by sharing capital, knowledge, and labor with others. In fact, the shear counting of the possible cross terms in the sum of products indicates that the dispersal of capital, knowledge, and labor produces multiple times more wealth than the concentration and exploitation of all assets by each person individually.
The second observation we can make is that all quantities in the Solow-Swan equation can be directly or indirectly converted to energy. In fact, even the knowledge factor that is widely considered a catalyst for the increase of wealth can be converted to the energy needed (capital, resources, and labor) in order for knowledge to be achieved.
One might wonder: why transform an equation that is difficult but manageable into a more abstract equation anyway? Is there a hint that the economic theory provides the wrong picture? The answer is that there is no attempt to challenge the research and scientific endeavor of respected scientists. The only attempt is to provide a qualitative analysis that hopefully will bring new insight and understanding to the effort to provide happiness and prosperity to the people. The analysis is going to continue in Part 2.
