A robust critique of the so-called 'economics of happiness'.

In Happiness, Economics and Public Policy, Helen Johns and Paul Ormerod analyse the economic research that underlies politicians’ growing preoccupation with measures of ‘wellbeing’.

In a lucid and compelling analysis, written for economists and non-economists alike, the authors find that happiness research cannot be used to justify government intervention in the way its proponents suggest. Those who wish governments to take into account measures of wellbeing when setting policy often point to the fact that increases in income have not led to increases in measured happiness, and thus governments should concentrate on redistribution and improving the quality of life, rather than on allowing people to benefit from economic growth. In fact, measured happiness does not appear to be related to public spending, violent crime, property crime, sexual equality, disability, life expectancy or unemployment either.

The stark fact is that, as Helen Johns and Paul Ormerod demonstrate, the difficulties in measuring society’s happiness are insurmountable, and policymakers should not claim that they can control and increase happiness through public policy decisions.

About the Authors:

Paul Ormerod is an economist and director of Volterra Consulting. He is the author of three bestselling books, The Death of Economics, Butterfly Economics and Why Most Things Fail, the latter being Business Week US Business Book of the Year 2006. His main interests are complex systems and social networks, and he publishes in a wide range of journals, including Physica A, Journal of Artificial Societies and Social Simulation and Diplomacy and Statecraft.

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Happiness, Economics and Public Policy
Helen Johns and Paul Ormerod
with commentaries by samuel brittanandk, melaniepowell
The Institute of Economic Affairs, 2007

Forward:

The authors of this monograph have done a brilliant job of ‘unpicking’ the tangled web of the economics of happiness.

It appears that ‘happiness economics’ is becoming influential in political circles. Politicians are running around promising to look after our gross national wellbeing instead of just looking after gross national product. But it is difficult to think of any subject within economics that is built on such insecure foundations.

Furthermore, the translation of the economic ideas into political practice seems specifically oriented towards no purpose other than providing further excuses for interference in the lives of individuals by the political class.

First, let us consider the politics. It is clearly a misconception that governments through the ages have acted to try to maximise gross national product. For most of time, in most countries, gross national product has not been measurable in real time. Ironically, in the UK and the USA, it has only been during the post-war period that gross national product has been observable, yet policies have been followed that reduced growth below its potential by increasing regulation and taxes. The share of national income taken in taxes in nearly all developed countries is significantly above that which would allow economic welfare to be maximised.

Politicians have never tried to maximise gross national product – and, if they have, they have not been very good at it. There is a straightforward cause of this phenomenon, of course. In general, politicians follow the courses of action that are most likely to get them elected. In the political market, vested interests and median voters are king. It may increase the happiness of politicians to tell us that they are going to maximise our wellbeing, but it is a task that is beyond their capacity.

The economics of happiness seems just as shaky as the politics. The proponents of the use of happiness measures argue that happiness has not risen with national income. People become happier, it is said, only when they are better off relative to others.

We are therefore in a futile race to become happier, in effect, at the expense of others. On average, happiness does not increase with incomes.

As Helen Johns and Paul Ormerod show, aggregate measures of happiness over time are not, in fact, strongly correlated with any variable we would expect them to be correlated with – and this is unsurprising given the way happiness measures are constructed.

Happiness measures are extremely insensitive indicators. Happiness, for example, is not correlated with improved life expectancy, government spending, disability, sexual inequality or unemployment.

Relationships between happiness and crime appear, tentatively, to throw up a positive correlation! Policymakers have latched on to the apparent need to have a more even distribution of income to raise national happiness – something that many would regard as the legitimisation of envy, a vice that never brings happiness in the long term. Measured happiness has not, however, been affected by the widening of the disparity in incomes over the past 30 years or so, just as it has not been affected by the growth in average incomes.

There is no question that happiness data is being used selectively to justify preconceived beliefs about policy alternatives. Helen Johns and Paul Ormerod are to be congratulated for their rigorous analysis, sifting through a highly complex subject area and bringing out the key points so effectively. One of those key points is that the happiness data does not tell us anything significant as far as economic relationships are concerned.

So if we accept the authors’ conclusions, what are we to make of the use of gross national wellbeing in government policy? It appears clear from the evidence that happiness has much to do with personal values and dispositions. It also seems clear that we adjust our description of happiness according to our aspirations of what is attainable. If we live in a brick-built house, with food and clothing but few luxuries, we might feel happy, all other things being equal, in an era where most other people were just able to meet their basic needs. In a later generation, when many people own luxury goods, somebody who had these luxury goods might not feel any happier than a person on a modest living in an earlier generation. This is easy enough to explain. It is the natural human disposition to want to aspire to better things and to be a little restless and ambitious – to attain a little more than we have. As long as this improvement in living standards is not achieved at the expense of general welfare, why should we suppress the natural human desire for self-improvement just because it throws up some awkward questions for compilers of happiness statistics? In fact, we are simply taken back to the age-old political questions – what political and economic systems and policies are both in harmony with the natural human condition and lead to the highest levels of welfare? The desire by governments to plan our happiness will lead to a loss of liberty and a loss of welfare. Such efforts are as flawed as attempts by government to plan our economic activity.

Or perhaps we can just sum it all up in one phrase from Hayek’s The Road to Serfdom (Chapter V): ‘The welfare and happiness of millions cannot be measured on a single scale of less and more.’

Philip Booth
Editorial and Programme Director,
Institute of Economic Affairs
Professor of Insurance and Risk Management,
Sir John Cass Business School, City University
June 2007

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