The Least Radical Case for Happiness Economics

(Goodshot)

There’s a fascinating debate on happiness going on over at The Economist. Officially, the motion is that: “This house believes that new measures of economic and social progress are needed for the 21st-century economy.” (See recent Freakonomics Radio podcast: Health of Nations)

My own contribution tries to discipline the grandiose rhetoric of both sides, concluding that:

[T]he benefits of new happiness data have surely been overstated. But we economists compare benefits with costs. Adding a couple of questions to existing surveys is so cheap that it almost certainly passes any cost-benefit analysis. And when the motion passes, we nerdy social scientists need to stop writing grandiose treatises and get back to the mundane grind of social science, mining these data for yet more incremental insight.

My full argument is available over the fold.

The debate about happiness is stuck in unhelpful coarse caricatures. We see the caricature of GDP-obsessed economists, who cannot see beyond whatever the national statistician measures. But Bobby Kennedy reminded us of the emptiness of GDP, not of economic analysis. Real economists care about welfare, not GDP. No one wants to maximise GDP at the expense of the environment, friends, leisure, or a good life. Better measurement of well-being is a complement to standard economic analysis, not a substitute for it. There is the caricature of national statisticians involved in hard and objective value-free measurement, which is contrasted with the survey researcher involved in the fluffy and subjective task of asking people how they feel. But scratch the surface of our objective statistics, and you will find them built upon fluffy value-laden questionnaires. Where does the unemployment rate come from? Asking people. Whether you consider yourself unemployed is surely a matter of circumstance, time and place—no less a social construct than your well-being. What about GDP? Much of our GDP data is built on surveys. Data on prices are an important exception.

But as Angus Deaton noted in his AEA (American Economic Association) presidential address, using these price data involves difficult value judgments. For instance, should the high price of international airfares from Africa be considered when comparing the living standards of Zambians who cannot afford to fly with Americans who do it all the time? (It is.) There is the caricature of the politician, who responds only to what is measured. But real politicians love to talk about community, social solidarity, trust, rights, capabilities, satisfaction and, yes, happiness. Anyone whose livelihood depends on re-election knows that all this is evaluated by voters. The happiness agenda is not radical. It is just providing feedback on the objectives that real policymakers have always had.

There is also the caricature of Bentham’s ghost, gleefully celebrating the discovery of the hedonometer, which allows a scientific measurement of utility. But is life really just about happiness? What about serenity? Feelings of achievement? Or sadness? Or pain? Or anxiety? All are hedonic states, yet few are captured by questions about happiness. Even Bentham’s ghost is unwilling to argue that data showing that parents are unhappy provide a rationale for mass sterilisation. Why? Perhaps we care about more than happiness. Then there is the caricature of radical happiness scholars, armed with a sinister anti-growth agenda. Perhaps the radicals did once pound the table proclaiming that the Easterlin Paradox undermined the case for economic growth. But ultimately the data disappointed them. The richest countries are in fact the happiest countries. And forget what you have read about happiness not changing over time; it is a misreading of the data. Countries with more economic growth have enjoyed bigger increases in subjective well-being. Serious well-being scholars have given up pushing this tired old fiction. In fact, the well-being data look so similar to the GDP data—the correlation is over 0.8—that happiness data point to nearly identical conclusions on most issues. Want to build a happy society? Both sets of data suggest following the lead of America, Britain or Denmark, rather than Burundi, Togo or Zambia.

Finally, there is the caricature of citizens as passive spectators, watching social-science gladiators fight over whether their politics will be ruled by happiness data. Nothing could be further from the truth. Happiness is hot, because happiness resonates with the public. Publishers have figured it out, which is why my local bookstore is overflowing with happiness tomes. Journalists have figured it out, which explains why my RSS reader is full of earnest reports on the latest happiness findings. (This newspaper is no exception.) And politicians have figured it out, which is why the politically adroit Sarkozy and Cameron governments have jumped aboard. The happiness conversation is happening, and it will continue, whether or not we feed it with new data and force it to be disciplined by facts.

Here is the boring truth. There is nothing radical here. Social science, measurement and public policy advance together. New measures of well-being are yielding useful insights, but few are radical. Returning to the motion before the house, the benefits of new happiness data have surely been overstated. But we economists compare benefits with costs. Adding a couple of questions to existing surveys is so cheap that it almost certainly passes any cost-benefit analysis. And when the motion passes, we nerdy social scientists need to stop writing grandiose treatises and get back to the mundane grind of social science, mining these data for yet more incremental insight.

Interestingly, my claim that “Happiness is hot, because happiness resonates with the public,” is largely borne out by this debate, in which around four-fifths of all readers are voting for the motion—effectively endorsing the view that economic policy be informed by subjective well-being.

If you are interested in more, here are the opening statements by the always-splendid Richard Layard and the critical Paul Ormerod, a response from the ever-insightful psychologist, Ed Diener, and rebuttals by Layard and Ormerod. The debate continues all week.


Ryan

The only economics that's going to matter in this century is the economics of ideas. Specifically good ideas. The measure of nations will be in how many good ideas it produces, how many of those ideas it acts on, and the success or failures of those it does.

If happiness helps produce good ideas, so be it, but some degree of misery could certainly play a part as well. We already know of the explosion of invention when suddenly people with decent income get excess spare time away from their jobs to work on their own personal projects, but we also know some degree of necessity is also a must. There's no reason to think the happiness/misery issue doesn't work the same way as excess/necessity.

useful in parts

this video http://bit.ly/korU21 of an rsa lecture on measuring wellbeing/happiness may be of interest

James

Unfortunately, your claim that "No one wants to maximise GDP at the expense of the environment, friends, leisure, or a good life." is contradicted by the observation that there are plenty of people who do in fact want just that. Including, but by no means limited to, the climate change denialist community.