The politics and economics of happiness debate continues!

The politics and economics of happiness debate continues!

Promises that cannot be kept

Alan Wood | August 01, 2007

The Australian

I DOUBT that Kevin Rudd or Wayne Swan have read much happiness research, but they have managed to effectively exploit one of its central tenets: economic growth doesn’t make us happier. This finding goes back to a 1974 paper by American economist Richard Easterlin, which showed that there appeared to be no increase in reported average happiness in the US between 1946 and 1970, despite a doubling in income a head.

This finding has since been reproduced for various rich Western economies, and in China, where a survey by the Gallup organisation showed no increase in reported life satisfaction between 1994 and 2005, although real income a head rose by 150 per cent.

Among other things, this has led to the dismissal of gross domestic product and gross national product as narrow and sterile measures of prosperity, and the call for the use of a broad measure of happiness as the benchmark to judge the success or failure of government policies.

This isn’t a new idea. The 18th century British philosopher Jeremy Bentham held that the aim of public policy should be to maximise the sum of happiness in society: the greatest happiness for the greatest number.

The idea that economic growth has no impact on happiness has particular appeal to the progressive Left, which has been left floundering by the remarkable prosperity generated by post-war capitalism. The surge in happiness research in the past decade or so has given it new hope in its crusade against growth, markets, consumption and capitalism.

In March 2003, a left-wing labour market economist, Richard Layard, delivered a series of lectures at the London School of Economics where he was emeritus professor of economics on the theme Happiness: Has Social Science a Clue? In 2005 the lectures were turned into a book, Happiness: Lessons From a New Science.

Drawing on happiness research, Layard suggested that we don’t get happier with higher income (higher GDP) because of the existence of income inequality. From there he went on to propose, among other things, a much more savagely progressive income tax and measures to restrict hours of work and discourage excessive effort.

Or as economists Helen Johns and Paul Ormerod put it in a new monograph from the Institute of Economic Affairs in London, Happiness, Economics and Public Policy, “People need to be told how to be happy and, for their own good, taxed off their treadmills of overwork and consumption.”

Their monograph is a powerful critique of Layard’s work and of happiness research more generally. For example, they demonstrate that the claim that happiness does not increase with GDP is based on extremely shaky foundations.

They show that the survey method used to measure national happiness levels over time ensures a very flat level of happiness, which is usually measured on a scale of one to three.

They warn that “there are potentially very serious problems associated with attempting to deduce correlation and-or causation between a variable such as happiness, which can take values only within strictly confined bounds, and a variable such as real GDP, which can rise without limit.”

And while happiness research suggests there is no correlation between happiness and income a head over time, this isn’t all it shows. It also shows there is no correlation between happiness and increased leisure time, crime, declining infant mortality, increased longevity, unemployment, declining inequality between the sexes, public spending on areas such as health, education and welfare, or a range of other indicators that might reasonably be expected to affect happiness. Pretty obviously nonsense.

The first country to adopt a measure of gross national happiness as a basis for policy is the tiny Kingdom of Bhutan in the Himalayas, often cited with approval by leading happiness advocates.

However, closer examination by Johns and Ormerod reveal some disturbing facts not mentioned in the happiness literature. In short, one way Bhutan is promoting national happiness is through ethnic cleansing of its Nepalese minority.

In Britain at least happiness economics is becoming influential in policy circles. According to Philip Booth in his introduction to the IEA monograph, politicians are running around promising to look after gross national wellbeing instead of just gross national product.

“It may increase the happiness of politicians to tell us they are going to maximise our wellbeing, but it is a task that is beyond their capacity,” says Booth. Rudd skates perilously close to suggesting he can do so at times, which could rebound on him in government if he wins.

However, while much of happiness research and the policy recommendations based on it is, to quote a favourite phrase of Bentham’s, nonsense on stilts, economists — particularly those engaged in public policy — need to be careful, as Johns and Ormerod warn.

“If economists do not clearly communicate what economic growth is for, they should not be surprised if people read their position as one that equates freedom to consume with happiness, nor that there is distaste for such a world view, and an appetite for any analysis, no matter how badly thought through, which purports to refute it.”

But the idea that economists, politicians and policy advisers think that GDP is the be-all and end-all of public policy has never been true. It may surprise you to learn that the Australian Treasury’s mission statement begins by declaring its “mission is to improve the wellbeing of the Australian people”.

Treasury Secretary Ken Henry in a speech in March said that the concept of wellbeing had evolved into a framework that drove all of its work. “Put simply, it’s what we do,” Henry said.

But Treasury’s view of wellbeing, while it certainly involves income distribution issues, is very different and much more hard-edged than that in the happiness literature, where happiness and wellbeing are used interchangeably. Henry would regard it as the polar opposite of, say, Layard’s view.

It is a recognition politicians need something more sophisticated than advice that says “if you do this, GDP will go up (or down)”. But it is always likely to be consistent with maintaining a globally competitive economy.