Wednesday, March 21, 2007

Education: Sharing the Wealth

In my past entries I have discussed an array of economic factors affecting people’s happiness. This week I had an opportunity to investigate into “This I Believe,” a national project that was launched as a radio program in the 1950s and recently revived by Jay Allison and Dan Gediman. It is a platform on which millions can share and discuss “the core values and beliefs that guide their daily lives” and come to “developing respect for beliefs different from their own.” Inspired by this project, I would like to share with readers a personal experience that led me to choose economics and happiness as the emphases of my blog.

When I decided to take an economics class in high school, my only motive was to fulfill a social science requirement. On the first day my teacher asked the class to explain in a short paragraph why it was important to study economics. I struggled to answer that question and for a long time could not formulate an intelligent response for I had no prior knowledge in the subject. Yet as the school year passed I fell deeply in love with that which some label as “the dismal science.” I found that because economics explains people’s behavior with so much logic and rationality, learning about the models made my own life more meaningful. Indifference curves, production functions, and utility theories quickly grew to be integral parts of my philosophy. And after almost five years of exploring the field, I can now proudly declare that I know precisely why I study economics and why it is important for others to do so too.

Steven Landsburg, author of The Armchair Economist, once said that businessmen want people to die rich and economists want people to die happy. Economics is the search for the best way to allocate limited resources in order to satisfy unlimited wants, for the paths people should take to arrive at the maximum level of utility under a certain budget constraint. When an individual has a given level of income, he must choose among numerous goods he wishes to consume. Since higher income allows one to purchase bigger bundles of goods, it is then perhaps natural to subscribe to the common belief of “more is better” and thus seek after the ways to increase material wealth. Yet Anke Zimmermann in time-series survey data analysis observes, “on average, an individual’s well-being does not improve despite increases in income.” This result appears puzzling if one is unaware that consumer products’ price and impact on happiness are
not always proportional; in fact goods can be divided into categories, some of which bring lasting increase in wellbeing and other do not. Understanding the difference among these types of goods helps consumers to make wise purchase decisions.

Many assume that they can derive the most satisfaction from purchasing materialistic goods such as luxurious cars and large mansions. I had believed that too, until I enrolled in a course titled “The Economics of Happiness” last semester. In that class I learned to examine time series data and identify how life circumstances such as getting married, having children, surviving accidents, and winning the lottery affect wellbeing. Through reading scholarly journals and participating in class surveys, I discovered that as welfare economist Tibor Scitovsky (pictured to the right) has stated, luxury or “comfort” goods like iPods and cell phones merely increase happiness temporarily, and only cultural or “stimuli” goods such as books, concerts, and theatrical productions have lasting positive effects on one’s welfare. Moreover, people tend to compare their collection of “positional” or material possessions, to those of others. When one discovers that his peers drive better cars or live in bigger houses than he does, he feels miserable under the influence of social comparison. And according to economics professor Richard Easterlin, assets that improve welfare the most are non-pecuniary
and non-positional and thus cannot be used as standards to compare oneself to other people. Good health, time spent with family, and personal hobbies fall under this category.

After studying economics and its connection to happiness I realized that my lifestyle had been too materialistically oriented. And I learned that from enjoying pastimes, developing artistic interests, and investing in interpersonal relationships I will find more lasting joy than from buying jewelry and clothes. Yet because our American culture places an emphasis on consumerism and the pursuit of wealth, many are still unaware of the fact that a more extravagant lifestyle does not necessarily lead to a happier life. It is then the responsibility of those who are well informed in the subject to share this knowledge with others, as I hope to do through this blog. I believe that education plays an important role in showing people the ways in which they can improve their wellbeing without laboring for additional income.

Sunday, March 4, 2007

Too Much On the Plate: Adding Nutritional Information On Menus

Recently there have been heated debates about whether restaurant chains should be required to provide nutritional information on their menus. The total number of calories, as well as the fat and cholesterol content, in certain food items served in restaurants such as the Colossal Burger from Ruby Tuesday are becoming serious concerns to nutritionists. According to the Los Angeles Times, health advocates led by Margo Wootan labeled them “hybrid horribles” because “eating just one of those items would swamp the eater's daily calorie requirement, 2000 for women and 2500 for men.” And Michael Jacobson, the executive director of the Center for Science in the Public Interest (CSPI), declares even more frankly that they “are seemingly designed to promote obesity, heart disease, and stroke.” The issue has been brought to the attention of state legislatures. In California, for instance, “hearings are scheduled for next month on two bills that would require greater nutrition labeling on restaurant menus,” one by Senator Carole Migden from San Francisco and the other by Senator Alex Padilla from Los Angeles.

On the other hand, restaurant owners led by Jot Condie, the president of the California Restaurant Association (CRA), accuse nutrition advocate groups of making “misleading, inaccurate” generalizations based on just a few items from a few restaurants. Condie suggests that the public should have the freedom to choose their food without interference from the government or organizations like the CSPI. “Consumers are capable of making decisions about what to order and are tired of the ‘food police’ telling them what to eat,” says the National Restaurant Association. This argument, although seemingly noble in promoting freedom and consumer sovereignty, is no more than a defense of business interest, an exploitation of the public’s lack of knowledge for the purpose of maintaining high levels of profit.

The CRA’s claim has neither theoretical nor empirical support. While analyzing public welfare, economists assume that the consumer faces perfect information; in other words, he is given every detail about his options before making a rational choice. In the context of ordering in a restaurant, the eater would have the freedom to choose the food he desires from the menu after finding out exactly to what the choice leads, including the number of calories. Without knowing the nutritional information, the customer could not necessarily be making the decision in his best interest. Such unawareness is especially dangerous because food consumption decisions entail long term consequences. People live through multiple periods of time, which economists call the “present” and the “future” in an intertemporal consumer choice model. The model assumes that a person is aware of the impact of the choices he makes today on his wellbeing tomorrow. For instance, when he chooses to eat the Cheesecake Factory's Chris’s outrageous Chocolate Cake, he is ready to deal with the impact of its 1,380 calories on his health in the future, possibly including physical pain and extra medical expenses. “Poor health,” suggests economist Ruut Veenhoven, “lowers appreciation of life indirectly by hampering economic activity and social contacts.” While Veenhoven provides reasons behind the negative effect of poor health on life satisfaction, economics professor Richard Easterlin goes one step further to conclude that people never fully adapt to illness. After examining time series data from the General Social Survey, Easterlin states, “There is, on average, a lasting negative effect on happiness of an adverse change in health.” When restaurants do not publish nutrition facts, diners who act in ignorance risk not only deterioration of physical health in the future, but also permanent decline in happiness as a result.

In reality perfect information is impossible to obtain, yet more information leads to better decision-making. Though Condie and the CRA seem supportive of consumer sovereignty, in reality they are merely trying to avoid having to reveal the fact that some of their products have detrimental effects on health and life satisfaction. The Cheesecake Factory currently does not have nutritional information on its menu; Ruby Tuesday does, but only for the items in its “Smart-Eating Choices”category. By selling high-calorie treats without labeling them, these prominent restaurant chains are taking advantage of the public. Contrary to the claims of the CRA, laws requiring more nutrition labeling on menus will not rob customers of the freedom to choose what to ea t. In fact, such new legislation will help consumers make wiser dining decisions.