As an economist by training, I relish hearing about well-applied economic principles, which help solve problems. London uses a congestion charge to tackle traffic jams, The European Union runs a carbon emissions trading scheme that enables European power stations and industrial plants buy rights to pollute, Singapore pays willing citizens to collect and recycle litter. 

Last week I attended a How To Academy talk with philosopher Michael Sandel who made me question my convictions. Michael Sandel teaches at Harvard, has delivered lectures at Oxford and Sorbonne, his work has been translated into 15 languages and most recently he wrote a book What Money Can’t Buy. 

“There are some things money can’t buy, but these days, not many.” Indeed, Sandel cites a few troubling examples:

• The services of an Indian surrogate mother to carry a pregnancy: $6,250
• The right to immigrate to the US: $500,000
• “Concierge” doctor appointments: $1,500 - $25,000 per year

Of course, not everyone can afford such pricey services, but today there are infinite possibilities to make extra cash:

• You could earn $15-$20 per hour by queuing overnight on Capitol Hill to hold a place for a lobbyist  
• If you are a second grader in an underachieving Dallas school, you could earn $2 by reading a book
• You could buy a life insurance policy for an elderly person, pay annual premiums while the person is alive, then collect the death benefit when he or she dies…

Sandel is concerned with market principles taking over all aspects of our lives. Granted, markets are the most effective economic system there is, as the collapse of the Soviet Union and other command economies (China, Cuba, Eastern Europe) has demonstrated. But has the sale of “naming rights” to academic centres, public buildings and parks; marketing of ‘designer’ eggs and sperm for assisted reproduction, giving kids economic incentives to read and help with domestic chores gone too far? 

Sandel writes that “the recent financial crisis did more than cast doubt on the ability of markets to allocate risk efficiently. It also prompted a widespread sense that markets have become detached from morals and that we need somehow to reconnect them.”

The trouble is that some examples of markets stepping over non-economic values are less obvious than others. 

It is clear to me that paying kids to read books may incentivise them in the short term but it will also make them regard reading as a chore rather than a source of pleasure and a long-term good. It is alarming to me that schools in Washington D.C. pay their students for attendance, good behaviour and turning in their homework, allowing conscientious kids to make up to $100 every fortnight. Paying NHS doctors £55 for each patient diagnosed with dementia appears to me equally morally dubious and ineffectively designed even as far as purely economic incentives are concerned. 

But another example Sandel cited during his talk divided opinions. He told the audience about Namibian government running a black rhino hunting permit auction in the US. Approximately 5,000 endangered black rhinos live in Namibia and anti-poaching measures are costly to implement. The government auctioned a permit to kill one old non-breeding male rhino, raised $350,000 and did considerably better than the governments of the neighbouring countries struggling with their conservation efforts in the absence of funding. 

Michael Sandel asked the audience to vote whether such an auction is the right way to tackle the problem at hand. Opinions were split. Many argued that since the ultimate goal is conservation of species and since the auction helped to achieve that, such means is justified. Others argued that however effective, killing a rhino to save the species destroys the underlying principles of conservation. 

Then one woman in the audience shared her opinion. She said: “First we kill a rhino, then what? We hold an auction to raise money to tackle domestic violence by giving permission to the winner to beat up his wife?”

I was ‘happy’ to kill a rhino but of course I would not support wife-beating. It made me think, and I have been questioning myself ever since. 

At which point do you draw the line? 

Reading The Consolations of Philosophy by Alain de Botton, I was surprised to find out that the famous Epicurean philosophical establishment had no grand house and neither did Ericurus indulge in lavish parties. "The food was simple, Epicurus drank water rather than wine, and was happy with a dinner of bread, vegetables and a pailful of olives. "Send me a pot of cheese, so that I may have a feast whenever I like," he asked a friend. Such were the tastes of a man who had described pleasure as the purpose of life."

It turns out, Epicurean philosophy of happiness is based on the principles of friendship, freedom and mindfulness: 

1. Value friendship

At the age of thirty-five, Epicurus bought a large house in Athens and moved in with a group of friends. Everyone had private quarters but there was also a common room for sharing meals and conversations. Epicurus observed that "of all the things that wisdom provides to help one live one’s entire life in happiness, the greatest by far is the possession of friendship."

Alain de Botton observes: "We don’t exist unless there is someone who can see us existing, what we say has no meaning until someone can understand, while to be surrounded by friends is constantly to have our identity confirmed; their knowledge and care for us have the power to pull us from our numbness."

"True friends do not evaluate us according to worldly criteria, it is the core self they are interested in; like ideal parents, their love for us remains unaffected by our appearance or position in the social hierarchy, and so we have no qualms in dressing in old clothes and revealing that we have made little money this year."

Indeed, whilst some may seek riches and status, their ambitions motivated solely by deep down yearning for respect and attention, people who appreciate friendship enjoy love, respect and happiness money can’t buy. 

2. Enjoy freedom

Epicurus and his friends left jobs in the commercial world of Athens and set up a commune, growing their own vegetables and trading for other supplies, down-shifting and accepting a simpler way of life in exchange for independence from what we would now call corporate clutches. As someone who now earns a fraction of what I used to earn and having to make choices about how I spend my money, I can definitively say that ‘free range’ freedom and flexibility are infinitely inspiring and rewarding vis-a-vis politics and stresses of working for a large corporate. 

3. Practise mindfulness

Meditation, philosophical thought, writing a diary, being present and appreciating small things like a flower blossoming on your balcony or a stunning sunset, watching children play or baking an apple pie are very much in line with Epicurean philosophy of decluttering our minds from unnecessary baggage. Anxieties over money, death, status are preventing us from the simple enjoyments of the daily life. 

The teachings of Epicurus are delivered much better in this short and fun video by the School of Life. Enjoy.

It’s amazing what you can achieve if you give yourself permission. 

Previously, I thought that you have to be born special to become a writer. I pictured Hemingway, hunched over his typewriter at his studio in Key West, a salty sea breeze coming through the window, as if gently blowing inspiration into the room. I thought of Joanne Rowling hiding from the rain in the Elephant House cafe in Edinburgh, inventing rules of Quidditch. And I was pretty convinced that I don’t have a fiction writing bone in my body.  

Reading Malcolm Gladwell’s Outliers and later describing how he challenged the traditional view of success as a simple product of extraordinary natural ability in a Life Tonic article 10,000 hours, I discovered that to become good at something, I just had to practise. Gladwell cites a study done in the early 1990s by the psychologist K. Anders Ericsson who concluded that a violinist became a virtuoso after about 10,000 hours of practice. The same rule applies to experts in any other field. 10,000 hours is equivalent to approximately 10 years. Gulp.

It’s not like I am aspiring to write the next Wolf Hall and bank a Booker prize. I just want to feel like a writer, to "feel absorbed, preoccupied, fulfilled", quoting broadcaster and writer Sue Perkins. I want to give it a go and own it. At the end of this year I’d like to get a sense of achievement - not by looking at my bank account or a new gadget or even at the names of countries I’ve managed to cross off my 'bucket list'. And so I grabbed hold of an idea I’ve been entertaining in my head for a while and set sail.

The idea was to write short stories about my maternal grandmother and my childhood in the Soviet Union. I wanted to dip into my memories of those strange days and pay tribute to my babushka, who would have turned one hundred this year. 

A marathon race starts with a first twenty minute training run. Writing starts with committing time and sticking to it. I began writing this summer, when I was staying with my parents in Russia. I’d have breakfast with my mum, make myself a cup of coffee and settle in with my laptop. The discipline I have acquired writing for Life Tonic paid off: I wrote four stories in two weeks. I set the ball rolling.

Back in London, I found myself a freelance editor, recommended by my friend and novelist Polly Courtney. I wrote three more stories and I found a brilliant illustrator, Alexandra Burda, who created beautiful illustrations for my stories and produced a stunning book cover. 

I am currently working on the final edit, tweaking the typography and the layout of the book and will soon publish my stories on Kindle. Of course, Life Tonic readers will hear about it first!

"I am happy. I think I feel like a writer”. I am quoting Sue Perkins again.  

When people think of economics, they are usually led by media headlines discussing economic growth, interest rates, inflation, unemployment and government deficit. All of these are 'macroeconomic buzzwords' - easily confusing, even if we use them all the time. This article dips into the fundamentals of macroeconomics: let's look at what we mean by  an "economy" and understand its components.

Whilst microeconomics studies the behaviour of firms and individuals, macroeconomics studies the behaviour and performance of an economy as a whole. When we say "economy", we refer to gross domestic product or GDP, as it is commonly abbreviated. It is the total value of all goods and services produced in a country or any other selected region (say, Europe or the whole world). When we talk about economic growth or economic decline, we imply changes in the GDP. 

GDP is measured as the sum of consumption, investment, government spending and net exports:

Consumption refers to private spending on products and services, and it is the largest component of the GDP for most countries. According to the World Bank, household consumption accounted for two thirds of the UK's GDP in 2013. Investment is simply the total spending on goods and services by businesses. It includes spending on raw materials, machinery, equipment, offices and factories, but not salaries paid to employees because salaries are accounted for in Consumption (as household income spent on goods and services). Government spending includes government consumption, investment and such activities as national security and defence. Its relative share of the GDP indicates the size of the government and its historical and political decisions. Net exports is the balance between all goods and services exported by an economy and the value of imports into that economy. Net exports, also known as trade balance, can be positive or negative. The US and the UK have negative trade balances because they import more than they export. Germany, Russia, China and oil-rich Gulf countries are 'net exporters'. 

"Wait a minute! What about savings and tax? How do they fit into the GDP?"
"An excellent question, my imaginary reader!"

Another way of looking at the economy's income is to split it into three baskets: consumption, saving and taxation:

If we did not save, we would not have the money to invest, and if the government did not earn tax revenues, we would not have state education, healthcare, infrastructure and space programmes. Combining both ways to express GDP, we get a picture of what a balanced economy would look like:

In reality, economies aren't perfectly balanced so it's common to see domestic spending surplus (when investment is greater than savings), trade deficit (when imports outweigh exports) and budget deficit (when government spending is greater than taxation). 

It is important to point out that GDP is a flow value as opposed to a stock value. It measures national output over a period of time not at a point of time, like an annual income vs. funds on a bank account on a certain date. As such, budget or government deficit (often expressed as a percentage of GDP) should not be mixed up with national debt or government borrowing - watch out for confusing newspaper headlines!
 
Comparing GDPs of different economies, we need to take into account a few other factors, most notably, population. Real GDP (which means it has been adjusted for inflation) of China may very well catch up with the US by 2016, but looking at GDP per capita (GDP divided by population) suggests that the US population

is vastly better off than the Chinese: $53,143 vs. $6,807 (World Bank, 2013). According to the World Bank, the poorest countries in the world in terms of GDP per capita are Malawi, Burundi and Central African Republic, while the richest economies are Luxembourg, Norway and Qatar. 

GDP is how we measure economic well-being and of course it is not perfect. British economists Mell and Walker point out that "most economists feel about GDP the same way Winston Churchill felt about democracy when he quipped that: "Democracy is the worst form of government ... apart from all the others that have been tried from time to time." 

The most eloquent criticism of the GDP was delivered by Bobby Kennedy in 1968. He said: 

"Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who breaks them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armoured cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile."

That was a lesson in macroeconomics with a bonus section on inspired speech-making.