For Better or Worse

Listener 5 August, 2000

Keywords: History of Ideas, Methodology & Philosophy;

At the heart of much economic analysis is the belief is that it is better to have more material goods and services. The assumption underlies the economic policy objective that we should aim for higher real incomes and production because that means we can (sustainably) consume more and have more material possessions. Economists – or at least the good ones – have been aware of the importance of the assumption, but until recently they were not able to evaluate it in any scientific way. Now that we can, ‘more means better’ proves to be only marginally correct, not nearly as important as economic policy assumes.

The main evidence comes from an official US survey which asks each year whether each of the 1500 odd respondents were ‘happy’. (I take it the question is motivated by the US Declaration of Independence that among ‘certain unalienable rights’ is ‘the pursuit of happiness’.) Since the questions are asked through time (together with a whole range of other personal variables), it is possible to study the trends and associates of happiness.

The first oddity is that US citizens are no happier today than they were in 1972, when the survey began (or even back to 1946 according to older surveys). There are differences between groups. Men have been getting slightly happier and women slightly less happy. (On average men report themselves less happy than women, so gender happiness is converging.) This is an astonishing finding, given the social changes over the last three decades are generally thought favourable to women. David Blanchflower and Andrew Oswald, the authors of the paper I am mainly using, simply report their findings but (given the data limitations) are unable to shed light on why. A cynical possibility is that ‘women’s liberation’ is making women as happy as men.

Another outcome one may not have predicted, is that happiness changes over a lifetime, initially decreasing as one gets older, hitting the bottom in the thirties, and rising thereafter. Less surprising, given the findings about long-term trends, is that high incomes do not seem to generate greater happiness. While real incomes have risen since the survey began, happiness has not. There has been some dispute over this conclusion. One view is that while additional income may not make one any happier, having more income relative to the average may. If this were so, then it is relative income not absolute income which is important, and growth in material product contributes little directly to human welfare (once one has got out of poverty). However, not all those who have evaluated the data agree.

It turns out there is a very slight improvement in happiness as incomes rise. In order to quantify the effect, the authors compare the advantage of extra income to the advantage of being married, for respondents report being married is a much happier state than being widowed, separated, divorced or never married. (That is an average, of course. As Jane Austin reminds us, ‘happiness in marriage is entirely a matter of chance.’) The economists calculate being average married generates the same additional happiness as an additional income of $US 100,000 a year. These figures apply for the US, of course, but some less comprehensive European data generally supports the broad conclusions. (The annual sum capitalises to at least a $1,000,000. Look at your (average) spouse and think ‘you’re a million dollar baby.’)

The research draws identifies other economic variables over which the government has some influence, and which give a much better increase of happiness than income the more years of education the happier. It is also happier to have a job (for the same income). This last result is intriguing, for it suggests that work is valuable in itself, and that job creation may generate greater happiness, even if that reduces average incomes. I would not jump to the conclusion that make-work schemes or low paid jobs are necessarily a good thing. My reading of other studies is that such work has to be seen as socially valuable (and adequate remuneration is a signal that it is).

Encouraging people to stay on in education is also valuable in itself. The result may apply to older people returning to education too. A Swiss study found those who lived in more democratic cantons were happier than elsewhere. This suggests political devolution contributes to happiness. (Local Government New Zealand take note.)

I do not think the research implies the government should march around with a shotgun marrying everyone. But it does suggest it should not overstress stress strategies which increase average incomes. We probably need the additional production to create jobs, and relativity effects – especially when we compare ourselves overseas – may be relevant. An implicit conclusion may be that improving the quality of our consumption – a decent TV channel, arts and recreational pursuits, an attractive environment, better health care, more education, personal security, more genuine choice may all make significant contributions to the nation’s happiness.

Perhaps the research findings are too subversive to economic policy for economists to happily contemplate them.