Economic Crisis, Markets, and Democracy in Latin America: Some Evidence from the Economics of Happiness

Article excerpt

As crisis after crisis has swept through Latin America, optimism about the region's turn to the market and democratic government during the mid-1990s has given way to grave concern. Most of the economic and political news lately has been disheartening--Argentina's economic collapse and subsequent default on its debt, threats of defaults in Uruguay and Brazil, strikes and stagnation in Venezuela, and often violent protests against tough economic measures in Ecuador and Bolivia. Even Chile, supposedly Latin America's "tiger," is slated to grow only 2.5 percent in 2003, with unemployment at 9.5 percent--higher than it has been in two decades. Longstanding social and economic ills--the world's highest inequality rates, along with high incidences of poverty, violence, crime, and corruption--continue to plague the region.

How will the financial crises affect a region already suffering from reform fatigue? Will declining public backing for market policies translate into support for radical alternatives? Will frustration erode individuals' faith in future progress, for themselves and their children? Will diminished individual well-being lead to increased social and political unrest? We attempt to shed light on these questions based on an analysis of the Latinobarometro, a regionwide public opinion survey that explores respondents' perceptions and other measures of well-being broader than simple income criteria.

Happiness and Economics

Although research on happiness has traditionally been the realm of psychologists, economists have recently begun to analyze subjective well-being and its relation to objective economic conditions and individual economic behavior.

Building on early work by Richard Easterlin, economists' findings have underlined the importance of nonincome determinants of well-being, such as health, marital status, and job security and satisfaction, as well as the role of relative income differences and economic insecurity.

Considering these results often leads to assessments of welfare that depart sharply from conventional assessments--and have quite different implications for policy.

Economic Crisis and Happiness in Latin America

The crises in Latin America in the past year may well have affected subjective well-being in the region, in turn affecting public attitudes about markets and democracy in the region. We explore the relationship between subjective well-being and public support for market policies and democracy in 17 countries in Latin America, with approximately 1,000 respondents in each country.

As a simple exercise (and accepting the methodological problems of comparing happiness levels across samples and years), we compared mean happiness scores on the Latinobarometro in 2002 and 2001. The share of respondents describing themselves as "very" or "fairly" happy fell from 68.2 percent in 2001 to 65.4 percent in 2002; the share describing themselves as "not at all" or "not very" happy rose from 31.8 percent in 2001 to 34.7 percent in 2002, differences that are statistically significant.

These declines in happiness may well be temporary, and substantial evidence suggests that most people eventually adapt to what psychologists call homeostasis, or a "normal" (for each individual) level of happiness, even after major negative life-changing events--though how and how quickly individuals' subjective well-being recovers to "normal" after national crises is uncertain.

Still, the decreases in happiness in the region are likely to have some negative spillover effects. Research in Latin America by one of the authors (Graham) and Stefano Pettinato, for example, finds that happier people are, on average, more supportive of both markets and democracy. While it is difficult to establish the direction of causality in this link, decreases in happiness in the region could jeopardize a virtuous circle.

In addition, deeper analysis of regional happiness evinces cause for concern. …