Writing skills - AS Level Example 1
From 2008 to 2018 Thailand’s GDP per capita increased by 100%. Over the same period national happiness in Thailand also rose. However, from 2008 to 2018 India’s
GDP per capita increased by 80% but national happiness fell.
Evaluate the view that achieving a government’s macroeconomic objectives is likely
to result in an increase in national happiness. (Source – Edexcel IAL Jan, 2021)
Possible answer –
From the case study above, we can see that there is an increase in per capita income for both Thailand and India from 2008 to 2018. Though the national happiness in Thailand increased during this period but fell in India at the same time.
This means, increase in per capita income may not be the only factor to increase the national happiness. Anyway, before I get into the evaluation further, let me first present my understanding on National happiness and per capita income.
National happiness is an indicator that shows the happiness among people within a country after going through various government policy measures. Whereas the per capita income is the income per person which is calculated after spreading the national income over the population of that country.
Coming to the point that “achieving a government`s macroeconomics objectives is likely to result an increase in national happiness”, I must mention the likely macroeconomic objectives before providing any analysis on the issue. Those macroeconomic objectives are as follows; higher economic growth, lower unemployment, maintaining a stable inflation, keeping the balance of payments balanced, reducing income inequality, protecting the environment, and balancing the government budget etc. Let me explain how these (some of those) objectives can help to increase the national happiness of a country.
Higher economic growth – the usual objective of any government would be to increase the economic growth. Higher economics growth would mean higher national income. This means higher income for each individual or each household. As a result of that, happiness is likely to increase among people in the country, particularly, among those who were low-income earners. As income of the households increase, they would be able to fund their purchases more than before leading to higher satisfactions from the consumption of material beings. This must be the reason why national happiness in Thailand has increased.
Lower unemployment – as government reduces the unemployment successfully, more people find themselves in the jobs leading to higher income than before. As people are engaged with the jobs to earn money, so they do not involve themselves into something else which is not productive, such as, involving in criminal activities. On the contrary, employed people may engage themselves in productive activities such as to work hard to get promotions or improve their current skills to maintain their jobs. All these engagements cause a society to enjoy the happiness broadly leading to an increase in happiness at national level. Surely, this would be the case in Thailand as Thailand enjoyed higher economic growth leading to lower unemployment causing greater engagement at work which ultimately must have led the higher national happiness among people in Thailand.
Maintaining a stable inflation – if a government stabilizes the inflation successfully then, prices of goods and services may not change quite often. As a result, people in that country would not have to worry about their spending. This is because the value of their money that they earn will not go down or go up often leading to have less uncertainty about price changes among people. Not only that, they might be able to avoid the shoe-leather costs as they don’t have to roam around to find out their best deals. This means people would be quite certain and can make plans for their purchases before hand leading to sense of relaxation among them. If this happens at macro level then there is a chance of increase in national happiness due to governments objective of maintaining a stable inflation. It is possible that the Thai Government has maintained stable inflation regardless of their higher economic growth between 2008 to 2018 leading to higher national happiness in Thailand.
Balancing the Government budget - Generally governments objective is to balance the budget which means Government spending is equal to tax revenues, so that, there is no unwanted effects of budget deficit or budget surplus. If in case an economy is going through any problem such as high inflation or low economic growth then, government uses deflationary fiscal budget or reflationary fiscal budget as a tool to correct the unwanted situation. When inflation is high due to higher economic growth government increases the tax to bring down the consumption to bring the inflation rate down as a consequence. This gives a government an opportunity to collect higher tax revenues that they are likely to use next year to increase their government spending to provide better education, infrastructure or healthcare facilities. As a result, people get to enjoy those facilities leading to increase in national happiness. Government may also increase their spending by borrowing funds (if in case, tax revenues are not sufficient) to provide unemployment benefits or any other support to people during the period of low economic growth or recession. This again causes people to have their confidence on the government budget leading to lesser anxiety and greater happiness among them as they feel confident to have their governments support to overcome the bad patch soon. Thailand Government must be successfully tuning the government budget according to the situation in the economy leading to greater happiness among Thai people. Thailand government must be providing better public services as they have received greater amount of tax revenue due to higher economic growth during 2008-18. As a result, it is likely that national happiness in Thailand would increase.
Balancing the balance of payments - balance of payments includes current account balance and capital & financial account. Countries try to make the current account as much as possible balanced if not enjoying the surplus. Surplus in current account balance makes a country’s economy strong though it may also cause conflicts with trading countries. Mostly, a government is keen to balance the current account balance which includes balance of trade in goods and services. This could be a primary factor for some countries to generate income from exports. As exports create a further opportunity for employment, so countries are generally interested to enjoy the balance of trade surplus. Though trade surplus is good for a country but it does not make trading partners very happy. They often embrace protectionism against a country that enjoys trade surplus leading to unwanted unemployment in the country that enjoys trade surplus over a longer period of time. As a result, countries often choose to have balance of trade to be balanced so that trade could take place without any use of protectionism. This means continuity in exports at per with imports leading to a continuous employment opportunities for people, which means fairly stable income among people leading to higher living standard and greater happiness among people. Connecting to the case, Thailand must be able to balance its balance of trade or must be enjoying trade surplus. It is possible, Thailand's higher economic growth has come from greater amount of exports. As a result of that people in Thailand must be enjoying greater employment leading to greater income. This must be the reason why national happiness in Thailand has increased.
Protecting the environment - To elaborate on the topic, I must mention that, not only higher income causes to improvement in living standard but also other factors such as environment with clean air or less pollution. As Thailand enjoyed higher economic growth, so it is likely that pollution in Thailand must have increased. Though there may have higher pollution but that did not affect the happiness as there was higher national happiness during the period 2008-18. This could be due to governments efforts or by any other means, higher economic growth has led the innovation or importation of foreign technology that might have reduced the impact of growth-led pollution. As per the probability that, higher economic growth must have powered the ability to explore new avenues to reduce the impact of pollution, people of Thailand must have enjoyed higher economic growth with greater protection of the environment. This could be a reason why national happiness has increased in Thailand despite of the negative impacts of the higher economic growth.
Reducing the income inequality - Higher economic growth is always good for any country as it causes the income among people to be higher. But, only higher economic growth leading to higher national income does not make sure that people in that country would actually experience the higher income. It depends on how the income is being share among the population. If the income is shared among people equally then, it is likely that people would be able to satisfy their material needs more than before. As a result, they may feel happy. This must be the case with Thailand. It is possible that Thailand government was able to distribute the national income among people relatively equally which must have made them feel happy leading to increase in national happiness.
However, let us discuss the reasons for national happiness to fall for India despite of their higher economic growth from 2008 to 2018.
Economic growth – though higher economic growth would cause higher income for each individual or each household. That does not mean, it may increase happiness for everybody, particularly, among those people who were high income earners. As per the Easterlin Paradox, if the households are already enjoying higher income then, increase in national income leading to increase in further income for households may not increase their happiness as they have already enjoyed all the material happiness before. This could be true for India if a greater portion of increase in national income is enjoyed by only rich income groups. As a result, higher economic growth could not lead to rise in national happiness rather fell because a large portion of the population were still poor with lower income.
Protecting the environment - as discussed before, higher economic growth could increase the income and consumption which might lead to more pollution and other environmental challenges. It is possible that the higher economic growth caused the negative production externality in India leading to imposition of greater amount of external costs on the society. Economic growth could have availed higher income to people of India, but the existence of negative production externality might have caused people not being able to enjoy their higher income due to lack of clean air to breath outdoor. As a result, Government of India could not achieve their objective to protect the environment leading to fall in national happiness.
Lower unemployment - Economic growth means higher production which needs more people, if not available, then the existing workforce would need to work more hours to fuel the growth. This means people will have less time for leisure and opportunity to balance their personal and professional lives, thus, reducing their happiness. It is possible, India has experienced such negative effects of higher economic growth, thus, led to fall in national happiness.
Balancing the balance of payments - unlike Thailand, India may have experienced higher economic growth by exporting more to some countries where they have enjoyed absolute advantage, whereas, chosen not to trade with those countries that were competitive in nature, leading to restricting the quantity of imports. As a result, consumers in India must have left with very less options/choices to fulfill their needs and wants. It is also possible that the price of many goods in the domestic market is higher (due to lack of enough competition) at the same time the quality is lower. All these factors must have caused people to be unhappy leading to fall in national happiness in India.
Reducing the income inequality - Though India has enjoyed higher economic growth during the period 2008-18, but, it is possible that Indian Government was unable to distribute the income equally among people. This has led some people to be very rich whereas others to be extremely poor. As a result, people were not happy leading to fall in national happiness.
Stabilizing the inflation - as India enjoyed higher economic growth leading to higher income among people, which in turn fueled higher consumption, so it must have caused higher inflation in the economy. To keep the inflation under control, government of India must have used contractionary fiscal policy leading to higher tax on income. As higher tax causes lower disposable income, so people must have felt unhappy to have lower disposable income leading to lower consumption towards the end of the decade. Possibly, this could be one of the reasons why national happiness in India fell over the time.
Balancing the budget - as India enjoyed the benefits of higher Economic growth for long time leading to higher consumption and greater prosperity among people. So government of India might have chosen this time to balance their budget by cutting Government spending or by raising the tax on income. Either of the actions might have caused some inconvenience among people as cutting government spending means reducing the provision of public services in the economy, such as free healthcare, free transportation or free education. Raising tax might have caused significant reduction in disposable income among people leading to greater amount of unhappiness among people of India. All these factors might led the national happiness to fall in India.
To conclude, I must say that, macroeconomic objectives are subject to time and conditions, this means, it depends on the governments political priorities. Government would generally focus on their priorities and may not necessarily focus on increasing national happiness as there is no single factor that can be focused to increase the national happiness. Thus, there may always have conflicts between governments aspiration to to achieve the macroeconomic objectives and the national happiness. As a result, there may have occasions when governments efforts to achieve macroeconomic objectives would cause rise in national happiness, whereas in some other instances, it may cause fall in national happiness.
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