Re-evaluating the output gap: Happiness shall be the new indicator of it

 

There is a macroeconomic term called the output gap which indicates the gap between the long run potential productivity capacity and the short run real time productivity. It used to be popular to consider that the business cycle, the productivity level output at the real time, fluctuates alongside its long run trend, showing the structural capacity offering the potential productivity level. The output gap is the gap between the business cycle and its long run trend. Then, it used to suggest that the macroeconomic policy should intervene to stabilise the business cycle adjusted to the trend. 

However, this theory has been largely challenged by the Real Business Cycle theory which regards that there is no difference between the business cycle and its trend.  By means of this theory, the cyclical business cycle is always adjusted to the structural capacity because it affirms that the structural productivity itself is fluctuant.  Therefore, there is no difference between the cyclical and the structural productivity so that the intervention to stabilise the business cycle does not make sense according to this theory. 

The rise of the Real Business Cycle theory has then discouraged the macroeconomic intervention of various economic regions. Then, the recession taking place after a major economic downturn such as a a world financial crisis has been more likely to be perpetuated. The haunting unemployment, the real income depreciation, and the dissatisfaction of individuals' daily-life tend to be ignored by claiming for their cause as the mere structural incapacity.

In many countries such as Japan and various European countries, people especially of the relatively younger generations tend to show their discontent with their life because they are less likely to access better opportunities of gradually increasing their income and career prospects. One of the major causes is the slower speed of the economic growth and the market multiplier stimulating a diverse income distribution than the past. This phenomenon is reflected by the declining birth rate caused by the despair for the future and the political support for seeking a more interventionist or even a collectivist socioeconomic policy of the relatively younger generations than the elder counterparts.

Nevertheless, the claim and the expectation of these desperate relatively younger generations are quite likely to be ignored due to the suppression by the more politically powerful and populous elder generations enjoying their already established wealth and social status. Their reason of the suppression is the incapacity of stimulating the economy more than the available structural capacity nowadays so that there is no gap between what is available and what should have been done at least according to what they insist on.

On the other hand, it is questionable to guess there is nothing which should have been done to make individuals of all the generations more satisfied. Someone may claim that the happiness, as opposed to dissatisfaction, is merely psychological, so its measure is subjective so that it is not reliable to refer to for scaling the productivity gap of the overall economy of the physical world.

At the same time, this psychological factor is often derived from the physical well-beings such as the satisfying income gain, the lucrative property ownership, the efficient access to the medical services propping up their health, and the widely available choices of their life patterns. Thus, individuals' happiness must be a key factor of determining the direction of economic policies. 

The money supplied by a central bank should be distributed more directly to what individual citizens needing and wanting in their daily life if majority of them seem to show their unhappiness. Conversely. the money supply should be more tightened when majority individuals in society start showing extravagant, immoral, and excessively risk loving behaviours. The money supply nowadays is monopolised by those privileged corporations and government institutes where the liquidity of money supply is stuck not being distributed to those who are more clinging to its access. 

By contrast, needs and wants people finding as lacking are less ostensible and more intangible than the past. Individuals' access to the information resources as well as their education and technique to process these information resources are critical for sustaining their physically and emotionally content lifestyle nowadays. Moreover, their lifestyle quality has become even more important to consider than the past to live a good long lifestyle instead of a miserable painful long life. The degree of their lifestyle quality is difficult to measure by means of the traditional aggregate productivity figures such as the Gross Domestic Product (GDP): It must be the time to analyse by means of the income distribution among different social groups of individuals for instance.

All in all, there is still such a thing as the output gap: It is just the case that the characteristics of it have changed. It might not be remarkable in terms of the GDP figure although it is remarkable to analyse by means of the degree of individuals' happiness. The alternative measures to the traditional counterparts should be introduced to determine the degree of the economic intervention.