The Global Moment

The Economics of Happiness

A growing number of economists are bravely asking: What factors make people happy?
Design by Beau House

In the last few years, a growing number of economists have been discovering happiness. It's not that they are spending more time admiring flowers, helping old folks cross the road, dancing on the street or baking pies for neighbors. In fact, these happiness economists are working long hours in soul-numbing ways, torturing data with their latest econometric techniques to force deeply buried facts to the surface.

What is different is that these economists are revisiting old assumptions and asking new questions. They're not taking the neoclassical model of rational economic man for truth. They have been willing to learn from their colleagues in psychology. They have given up on the old assumption that the more you consume, the better off you are; instead, they are actually looking at the question empirically. Most importantly, they are bravely asking, "What factors make people happy?" It's another sign of the coming revolution in economics.

Not everyone is welcoming this new research program. The results are terrifying Milton Friedman's disciples. Consider this: once people have an annual income of about $10,000 per capita, further income does little to promote happiness. Worse yet, economic growth in most industrial nations, which has tripled or quadrupled our wealth since 1970, hasn't made us noticeably happier. In some countries, despite all this vast increase in wealth and consumption, folks are less happy than they were a generation ago.

I talked to Rafael Di Tella, an Argentinean economist at the Harvard Business School who is deeply involved in happiness research. Speaking from Buenos Aires, he explained, "Some of the very basic things we assumed in economics are not consistent with the evidence. This idea that income is so important to happiness is not correct. All the evidence seems to be pointing in the direction that we are working too much. In fact, we're happy if we work less. We are spending too much time on work and too little time with friends and family. So there's a mistake in the economic models that suggest happiness will come from more income."

How worried are those who believe society is but the sum of all the (selfish) individuals (with insatiable appetites) who square off in the market against powerful corporations freed of government control? Very worried. The Cato institute, a think tank based in Washington, DC, issued a 41-page brief attacking happiness research and its potential to undermine the "libertarian ideals" embodied in the US socioeconomic system. It countered with a creative interpretation of the data: "The happiness-based evidence points unambiguously to the conclusion that those of us lucky enough to live in the United States in 2007 are succeeding fairly well in the pursuit of happiness." Perhaps Cato also interprets the stats showing the millions of Americans on anti-depressants, the number of kids who show up at school without having had a decent breakfast, or the proportion of African-American men spending their days in prison as other signs their ideals are succeeding. Unfortunately for advocates of laissez-faire, the happiness evidence keeps knocking over more and more of the most cherished economic beliefs.

Lord Richard Layard is a distinguished British economist, Member of the House of Lords and a committed advocate for reorienting public policy towards the promotion of happiness. After reading his recent book on the economics of happiness, I could not resist calling him up to learn first hand what his research would imply for Chicago-school economics.

"Economists often fail to think of the social externalities of the policies they promote," he noted, "Many economists suggest workers should be ready to move to where the high paying work is, since this would increase income. Workers who move a lot would destabilize the community and family life. This would tend to decrease trust and increase mental illness.

"Another example is when one person works harder to improve their income, and feels extra well-being from greater consumption. At the same time, they make their neighbors feel worse off, because the neighbors' relative income has worsened. Not only that, but the pollution caused by the extra consumption enabled by higher income also decreases happiness for the rest of society. So most economists worry about how taxes discourage people from working, but in fact, taxes can be encouraging people to have a less feverish pace of life and to focus more on time with friends and family rather than consumption."

It seems almost unimaginable that economists would be now thinking of ways to design the tax system so that we work less, consume less and value each other and the planet more. But Layard would not stop there. (Advertising executives be forewarned.)

"One of the keys to achieving happiness is to live appreciating what one has, rather than wanting more. It is important that we not be totally focused on wanting something that we don't have – that makes for unhappy people. So it's not at all healthy for children to be bombarded with stories on the box that make them feel that they have to have this particular brand of clothing or this particular toy or train or whatever it is, as if they can't be a decent human being without it." Layard even pointed to the value of Sweden's law prohibiting advertising to children.

The folks at Cato and their brethren at the Vancouver-based Fraser Institute are most alarmed by how economists are now training the happiness lens to examine the gap between rich and poor. As Layard explained, "It's a very simple fact that an extra dollar is worth more in terms of happiness to a poor person than to a rich person. We now have evidence that shows the extent of the difference, which is roughly that a dollar is worth 10 times more to a poor person than to a rich person whose income is 10 times higher. The value of an extra dollar to somebody is roughly inversely proportional to their income, such that a little more or a little less money makes so much more difference in happiness to a poor person than it does to a rich person."

For a 21st-century economist, what an outlandish idea! By spreading the wealth around a little more equitably, society's total happiness can go up. After all, a CEO who takes home $50 million a year could have 90 percent of it taxed away without their total number of smiles dropping by more than a couple dozen, while that same money would be enough to improve the lives of the entire population of a small city in Africa.

No wonder the folks at Cato and other neocon "think" tanks are fearful. Might we actually deal with the legions of homeless in rich countries more generously then dropping the odd coin in the soiled paper cups they hold up to us? Might we find a way to transfer some of the wealth that has flowed for so many decades from South to North in the opposite direction? Imagine a world where everyone lived on at least $4 a day, while a few people lived slightly less extravagantly. Might we increase the total happiness on this planet?

46 comments on the article “The Economics of Happiness”

Displaying 21 - 30 of 46

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Rob Em

Is the article and the research based on the assumption that the purpose we're here on Earth is to be happy or is it based on the assumption that something is horribly wrong with our current economic system and that we have to start looking at alternatives? ( Although, we shouldn't have to even start looking at alternatives, because people should already be adapting, but it seems that they are not because of some idiotic fear that any change in economic behaviour is somehow scary Communism. )

But lets assume that you've identified the core premise successfully, that "our purpose is to be happy", You assert that happiness has a negative economic impact? Was not the Capitalist United States of America built on the "pursuit of happiness" and was not Communist Stalinist Russia built on the very premise you now defend of "the more content we are, the less we accomplish"?

What made me laugh most about your comment was the very next line when you said "discrediting those who are financially successful". Your own statements discredit those who are financially successful because you are certainly arguing in favour of keeping people financially insecure so they continue to work hard to improve their lot. Then your line of though contradicts itself again when you say that people actually "choose to work hard". They choose to work hard now? I thought you were saying before that people work hard because they are unhappy?

Make up your mind. I want to live in an economy where I'm not forced by a ruling elite, whether thats political or economic, to work hard because they keep me perpetually unhappy. Money does not bring happiness but it does a great deal to relieve unhappiness (not being unhappy doesn't necessarily make you happy, they are two seperate feelings). Once we have solved unhappiness we can have the time to so the things that make us happy: enjoying our loved ones, our bodies and our minds.

Your mind is recordable media.

Rob Em

Is the article and the research based on the assumption that the purpose we're here on Earth is to be happy or is it based on the assumption that something is horribly wrong with our current economic system and that we have to start looking at alternatives? ( Although, we shouldn't have to even start looking at alternatives, because people should already be adapting, but it seems that they are not because of some idiotic fear that any change in economic behaviour is somehow scary Communism. )

But lets assume that you've identified the core premise successfully, that "our purpose is to be happy", You assert that happiness has a negative economic impact? Was not the Capitalist United States of America built on the "pursuit of happiness" and was not Communist Stalinist Russia built on the very premise you now defend of "the more content we are, the less we accomplish"?

What made me laugh most about your comment was the very next line when you said "discrediting those who are financially successful". Your own statements discredit those who are financially successful because you are certainly arguing in favour of keeping people financially insecure so they continue to work hard to improve their lot. Then your line of though contradicts itself again when you say that people actually "choose to work hard". They choose to work hard now? I thought you were saying before that people work hard because they are unhappy?

Make up your mind. I want to live in an economy where I'm not forced by a ruling elite, whether thats political or economic, to work hard because they keep me perpetually unhappy. Money does not bring happiness but it does a great deal to relieve unhappiness (not being unhappy doesn't necessarily make you happy, they are two seperate feelings). Once we have solved unhappiness we can have the time to so the things that make us happy: enjoying our loved ones, our bodies and our minds.

Your mind is recordable media.

Mark Stock

I'd be curious as to which communist society you've lived in.

And, I like that you are questioning this article's premise: the assumption that the purpose we're here on earth is to be happy.

Feelings come and go. And, happy is only one feeling. I've come to like all of my feelings. I think that feeling feelings is beneficial. Rather than be happy, instead I feel happy. Sometimes.

Mark Stock

I'd be curious as to which communist society you've lived in.

And, I like that you are questioning this article's premise: the assumption that the purpose we're here on earth is to be happy.

Feelings come and go. And, happy is only one feeling. I've come to like all of my feelings. I think that feeling feelings is beneficial. Rather than be happy, instead I feel happy. Sometimes.

CargoCult

What many seem to have conveniently forgotten is that communism in practice was no different than the cartel capitalism that dominates Western economic activity. The Western cartel system reaches from oil (International Oil Corporations and OPEC) to metals (the Alcoa-led aluminum cartel, for example) to telecommunications (Verizon, ATT) and finance (Goldman Sachs, JP Morgan, etc.) - and of course, the weapons manufacturers. There are many small independents, but they struggle mightily and don't enjoy the "special access to government (contracts)" that the cartels do.
.
The surprising fact is that the Soviet military-industrial complex was very similar to the Eisenhower military-industrial complex, and the Soviet Union's empire was run much the way that America's South and Central American Empire was run. Take the Aral Sea in Kazakhstan, probably the world's largest environmental disaster behind global warming - Moscow-based Soviet planners thought that by diverting rivers that fed the Aral Sea, they could turn the region into a massive agricultural export zone - the Kazakh plantation. As a result, the sea dried up, destroying local livelihoods. Similarly, industrial export zones were set up by the Soviets in Romania and Bulgaria, resulting in some of the worst industrial pollution seen anywhere - entire landscapes blanketed with soot (much like China).
.
The main beneficiaries of all this were the Moscow elites who ran the Soviet empire, who in practice behaved much like the CEOs, board members, politicians and bankers who control the direction the U.S. economic system takes.
.
Empires are empires - the basic rule is that a lot of people get to suffer quite a bit so that a small number of people can enjoy great wealth - not necessarily happiness, as many wealthy people are quite unhappy and distrustful, even paranoid about their wealth (and the intentions of their "friends"), and great wealth still cannot cure the likes of cancer or AIDS or bad luck.
.
This issue goes back to prehistoric times - the tale of King Midas and his golden touch still hits home today. The difference now is that we've got nuclear weapons and the ability to more-or-less permanently alter the planet's biosphere and climate. As many people have said before, the problem is that our technological evolution has surpassed our social and moral evolution... and modern consumer-advertising culture deliberately acts to suppress that social and moral advancement. Why, do you ask?
.
Well, educated and self-aware people are hard to lead around by the nose, they ask inconvenient questions, they aren't easy marks, and they just in general demonstrate too much free will for any imperial overseer to tolerate.

CargoCult

What many seem to have conveniently forgotten is that communism in practice was no different than the cartel capitalism that dominates Western economic activity. The Western cartel system reaches from oil (International Oil Corporations and OPEC) to metals (the Alcoa-led aluminum cartel, for example) to telecommunications (Verizon, ATT) and finance (Goldman Sachs, JP Morgan, etc.) - and of course, the weapons manufacturers. There are many small independents, but they struggle mightily and don't enjoy the "special access to government (contracts)" that the cartels do.
.
The surprising fact is that the Soviet military-industrial complex was very similar to the Eisenhower military-industrial complex, and the Soviet Union's empire was run much the way that America's South and Central American Empire was run. Take the Aral Sea in Kazakhstan, probably the world's largest environmental disaster behind global warming - Moscow-based Soviet planners thought that by diverting rivers that fed the Aral Sea, they could turn the region into a massive agricultural export zone - the Kazakh plantation. As a result, the sea dried up, destroying local livelihoods. Similarly, industrial export zones were set up by the Soviets in Romania and Bulgaria, resulting in some of the worst industrial pollution seen anywhere - entire landscapes blanketed with soot (much like China).
.
The main beneficiaries of all this were the Moscow elites who ran the Soviet empire, who in practice behaved much like the CEOs, board members, politicians and bankers who control the direction the U.S. economic system takes.
.
Empires are empires - the basic rule is that a lot of people get to suffer quite a bit so that a small number of people can enjoy great wealth - not necessarily happiness, as many wealthy people are quite unhappy and distrustful, even paranoid about their wealth (and the intentions of their "friends"), and great wealth still cannot cure the likes of cancer or AIDS or bad luck.
.
This issue goes back to prehistoric times - the tale of King Midas and his golden touch still hits home today. The difference now is that we've got nuclear weapons and the ability to more-or-less permanently alter the planet's biosphere and climate. As many people have said before, the problem is that our technological evolution has surpassed our social and moral evolution... and modern consumer-advertising culture deliberately acts to suppress that social and moral advancement. Why, do you ask?
.
Well, educated and self-aware people are hard to lead around by the nose, they ask inconvenient questions, they aren't easy marks, and they just in general demonstrate too much free will for any imperial overseer to tolerate.

greengestalt

Too true.

Though poverty is itself destructive to man, to society and the soul, the excess of abundance can be just as challenging. A friend of my mother's worked at a high school teaching "At Risk" kids. For every poor kid with meth head parents who burnt him with an iron, there was a 'rich' kid who's behavior was just as if not more extreme. The suffocation of the latest game systems, cars at 14 and another at 16, but no parents there just a pressure to "Study for your future" made these kids lash out just as much as starvation and neglect.

What man needs, beyond basic comfort, is purpose in life. But to create that we need a stable, sustainable society. The rich elite, themselves soulless and vacant and only caring about the next three months profit, want a society of eternally fearful, frustrated people to make good workers to make them more money since they can never have enough. The elites don't care what they do to society, their fellow man, the earth, for that is secondary thought compared to having the next three month's profits.

greengestalt

Too true.

Though poverty is itself destructive to man, to society and the soul, the excess of abundance can be just as challenging. A friend of my mother's worked at a high school teaching "At Risk" kids. For every poor kid with meth head parents who burnt him with an iron, there was a 'rich' kid who's behavior was just as if not more extreme. The suffocation of the latest game systems, cars at 14 and another at 16, but no parents there just a pressure to "Study for your future" made these kids lash out just as much as starvation and neglect.

What man needs, beyond basic comfort, is purpose in life. But to create that we need a stable, sustainable society. The rich elite, themselves soulless and vacant and only caring about the next three months profit, want a society of eternally fearful, frustrated people to make good workers to make them more money since they can never have enough. The elites don't care what they do to society, their fellow man, the earth, for that is secondary thought compared to having the next three month's profits.

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