If you’re happy and you know it, clap your hands

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Under the heading “Too much wealth can make us worse off: study”, the New Zealand Herald reported on Monday about an article published by two Canadian academics:

Using mathematical modelling, the economists advance the theory that once a country reaches a reasonable standard of living there is little further benefit to be had from increasing the wealth of its population. Indeed, it could make people feel worse off. They believe their work shows that as a nation becomes wealthier, consumption shifts increasingly to buying status symbols with no intrinsic value – such as lavish jewellery, designer clothes and luxury cars.

This month’s New Yorker magazine reviews three books on the same subject, asking “What can policymakers learn from happiness research?”

I’m a little sceptical of the research and very sceptical of some of the authors’ policy prescriptions. Given the scope of the topic, I plan to break my comments into at least a couple of posts.  (I also acknowledge that I have not read the books, though I’ve looked at a couple of the publicly available working papers discussed below).

Here’s the New Yorker’s description of Professor Bok’s book, The Politics of Happiness: What Government Can Learn from the New Research on Well-Being:

Bok, who served two stints as president of Harvard, begins with a discussion of prosperity and its discontents. Over the past three and a half decades, real per-capita income in the United States has risen from just over seventeen thousand dollars to almost twenty-seven thousand dollars. During that same period, the average new home in the U.S. grew in size by almost fifty per cent; the number of cars in the country increased by more than a hundred and twenty million; the proportion of families owning personal computers rose from zero to seventy per cent; and so on.

The New Yorker continues:

Yet, since the early seventies, the percentage of Americans who describe themselves as either “very happy” or “pretty happy” has remained virtually unchanged. Indeed, the average level of self-reported happiness, or “subjective well-being,” appears to have been flat going all the way back to the nineteen-fifties, when real per-capita income was less than half what it is today.

The New Yorker reports that, for Bok, this consistency in the level of self-reported happiness raises a profound critique of economic growth:

To suggest that the U.S. abandon economic growth as a policy goal is a fairly far-reaching proposal. Bok concedes as much—“The implications of this critique are profound”—but he insists that all he’s doing is attending to the data.

The two economists whose work is reported by the New Zealand Herald share a similar consternation about economic growth:

Nevertheless, Professor Eaton and Professor Eswaran […] do not believe the developed world’s obsession with wealth shows any signs of abating. They predict that “it is likely that conspicuous consumption will become worse as time progresses”.

I find the basic approach of Professors Bok, Eaton, and Eswaran misguided for at least four reasons.

First, subjectively reported happiness seems to me a thin basis on which to make recommendations about public policy settings.  Bok apparently regards the fact that the percentage of people who say that they are “pretty happy” is largely unchanged over the decades as a rationale for radically reshaping public policy.  I would tend to regard it as a feature of asking people to categorise their levels of “happiness”.  (Try this at home: are you “pretty happy” at the moment and were you “pretty happy” three years ago?)

Second, as John Stuart Mill wrote in Utilitarianism, it is “better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied.”  Mill’s point was not to dismiss the pursuit of happiness.  Quite to the contrary, he was explaining that happiness and the pursuit of the good life is a broader concept than mere contentment; it extends to a sense of dignity and accomplishment.  I wonder if some of the recent “happiness research” — which focuses on the avoidance of rivalry or dissatisfaction — fails to appreciate Mill’s insight.  For example, Oliver James’ book Affluenza makes the goofy suggestion of “a total ban … on the use of exceptionally attractive models in all forms of advertisement, closely policed by the Advertising Standards Authority” and Professor Lord Richard Layard of LSE has suggested that work should be taxed as a form of “pollution” on the basis that the increase in one employee’s income causes other people to be jealous and therefore unhappy.  It is not clear what to make of the type of contentment that requires an adult to be coddled from the sight of an attractive person.  However, as Mill explained in On Liberty, such a narrow, illiberal approach to life (i.e., alleviating people from the need for firmness, maturity, and toleration of other people’s choices) would be prejudicial to their development as individuals, rendering their character “inert and torpid”.

Third, there is good reason to doubt theories about what people should want that differ markedly from what people actually do.  Most people work hard to improve their lives and the lives of people they care about.  People respond to financial incentives because they want to use the money to pursue their own goals (which may mean a better car, a larger house, a more secure retirement, the opportunity to travel, or providing for their children, collecting art, and so on).  It seems dubious to second guess those revealed preferences on the basis of limited survey data about whether people say they are “happier.”

Fourth, the anti-growth policy conclusions drawn by the authors seem deeply misguided.  A prosperous and free society creates opportunities for people to follow their own idea of the good life.  However, Bok says that, ““People do not always know what will give them lasting satisfaction.”  The New Yorker continues:

Bok, for his part, argues that lawmakers should act on the findings of happiness research, even when doing so goes against the wishes of their constituents. “Most voters would probably prefer to be happy rather than have their representative mechanically accept their mistaken impressions of how to reach this goal,” he writes.

OK, so: economic growth makes people more prosperous and allows them to enjoy better living standards and buy things they want (larger houses, better cars) but Bok thinks this doesn’t make them happier.  Accordingly, he thinks policymakers should prefer his recommendations over those of the people concerned.  The New York Times’ review explains how he thinks this might be accomplished:

Government has the potential to produce happiness, but Americans dislike government.  Ever logical, Bok concludes that the state should therefore do more to encourage trust in it. Believing that the public’s attitude toward government is too “extreme” and its judgments of politicians too “harsh,” he also calls for the news media to balance their frequent stories of corruption and inefficiency “with accounts of success and accomplishment in order to give an accurate picture of the government’s performance.”

By this stage, the lessons that we’re told we need to learn from Bok’s happiness research seem not only illberal but downright weird.  I think happiness research may have some interesting things to say, but I’ll address that in a separate post.

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4 Responses to “If you’re happy and you know it, clap your hands”

  1. Alex Says:

    Jesse, I feel you don’t give the idea of people being in a rat-race to keep up with the Jones’ and using their extra income on conspicuous consumption which only keeps them at their previous level of well-being enough consideration.

    For example you wish to use the fact people make more money now and actually spend that money as the basis for a revealed preference argument that these people are better off. In fact revealed preferences only says that they expected to be better off under this course of action than under any other course of action given their circumstances. Putting aside the fact that expectations can be wrong for the minute, I think you are neglecting the importance of given cicrumstances.

    For example if the circumstances you face are that everyone else has earnt more income and spent it on a bigger house and a faster car, and if your well-being depends on your relative standing compared to say, the Jones’, then it may be your best course of action to make more money and spend it as well. But in fact the Jones’ (combined with your preference – jealousy) are causing a negative externality. So it may be that people actually be no better of now than they were 10 years ago if relative standing is an important determinant of well-being.

    Similarly your assertion that having wealth enables you to better pursue a good-life just begs the question. Bok is exactly saying that it doesn’t because more wealth and spending by others creates negative externalities and people are no better off than they were.

    I feel certain that you won’t like the fact I’ve relied on jealousy. But all externalities are based on the imposed upons preferences – like their preference for clean air. Economics can make a normative statement that given preferences which exhibit jealousy, extra income and spending may result in negative jealousy externalities.

    Despite all this I have no idea whether or not I agree with the idea that we should reconsider our focus on growth poilicies but I think it requires careful thinking.

  2. Alex Says:

    I think Jones’ should be Joneses.

  3. Jesse Says:

    Alex,

    I agree that it’s possible that spending on luxury goods might result in negative externalities for the envious. I suppose there are two questions.

    First, whether the unhappiness caused by jealousy outweighs the consumption benefits for the people who buy nice cars, etc. Otherwise the purchase of the luxury goods wouldn’t lead to any general loss of welfare.

    If so, I guess the next question is whether it is worth doing anything about the negative externality. I am inclined to think nothing should be done. Envious people can develop ways of dealing with their jealousy (e.g., find something else to excel in, join a commune where everyone has similar levels of wealth, adjust their expectations, etc), which do not require the imposition of limits on the choices of the envied.

  4. Alex Says:

    But isn’t Bok’s point exactly that he thinks that self-reported happiness surveys are supporting the claim that the benefits of higher consumption due to higher income are not that significant?

    In other words, assuming consumption benefits begs the question in this case. Given Bok has given an argument saying that higher consumption beyond some point doesn’t have benefits to happiness you need to address why that cannot be the case. And arguments based on revealed preferences break down in the face of the fact that in an equilibria where other people all work more your circumstances have changed.

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