A major policy plank in the re-branding of the Conservative Party has been the adoption of well-being economics – one of the favourite fads of the left. Six years ago, David Cameron made a speech in which he said that there is more to life than money and that it was time we focused not on GDP but on GWB (general well-being). Twelve months ago, he re-entered the fray again stating that “[measures of well-being] could give us a general picture of whether life is improving” and eventually “lead to government policy that is more focused not just on the bottom line, but on all those things that make life worthwhile.” The economics in the speech was facile, and notable for three examples of what economists call the “broken window” fallacy. The Prime Minister suggested that crime actually increased GDP because it increased spending on locks, clearly not understanding that it merely diverts spending towards locks from other things.

Today the Institute of Economic Affairs published a new study “…and the Pursuit of Happiness: Wellbeing and the Role of Government”, that examines almost every aspect of well-being (or happiness economics). The authors are very sceptical of the Government’s approach and underlying assumptions. It is demonstrably not true, for example, that governments focus on GDP alone, as the Prime Minister suggests. If that were the case, we would have much more liberal planning laws, we would rid the country of employment regulation and government would spend less than 30 per cent of national income. Indeed, if government spending had been held for the last fifty years at the same proportion that we had in 1960, national income per head would probably be twice as big as it is today. So much for governments being obsessed with maximising GDP.

It is argued that well-being in society will be promoted if we have greater equality and spend less time trying to earn more money. If we get off our hedonistic treadmill, we will find some level of deeper satisfaction and be happier with our lives. However, as one of our authors notes: “There is no credible evidence that people in more egalitarian countries enjoy happier lives, nor is there any empirical reason why they should. Scholars of happiness have identified many factors which improve life satisfaction scores but income equality is not one of them.”

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Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.