The renewed folly of the Economics of Happiness

The launch today of the Action for Happiness organisation promotes yet again the old canard that material prosperity does not cause happiness. True, over the past few decades measured happiness has at best risen only slightly, whilst GDP has grown strongly.

But exactly the same thing can be said for public expenditure, which is up a lot. Yet we don’t hear the happiness proponents saying that more public expenditure will not increase happiness. Both here and in the US, income inequality has actually risen sharply since the 1970s. So income inequality does not make people unhappy after all?

The fact is that the measured happiness data over time does not tell us very much at all. People have to fill in a survey on a scale of 1 to 3, 1 to 4 or even 1 to 10, of how happy they are. In prosperous Western societies, most people are fairly content most of the time. And this is reflected in the answers. But the key thing  here is that almost by definition, the average happiness across a sample of such people cannot go up very much. This simply reflects the way it is measured. No-one can be more happy than the top number on the scale, so once you have answered ‘3’ or ‘10’ or whatever, there is nowhere for you to go  but down!

Why did people start to measure GDP in the first place? This was essentially done in the 1940s. It was in response to a huge policy problem, namely the catastrophic collapses in economies such as America and Germany in the early 1930s. In the 2008/09 recession, output fell by 3 per cent in the US  and 5 per cent in Germany. In the Great Depression, the fall was nearly 30 (thirty!) per cent in both countries.

So the pressing need to measure output – GDP – was driven by the hope that by doing so we could analyse its movements and both predict potential recessions and in so doing take actions to prevent them.

These laudable aims have simply not been fulfilled, despite 60 years of economic research with GDP data. The recent financial crisis was generally not predicted, and there is strong disagreement as to the best way to deal with the aftermath and to get the economy back on a growth path.

Measuring GDP does not mean it can be predicted and controlled.

The happiness movement suffers from a similar  delusion. The motivation is good. As people have become better off over time, they have become more interested in the quality of life. So it is perfectly sensible to try to measure these feelings in some way or other.

But those who believe that this will enable policy to increase happiness are likely to experience tears over time.  And for the rest of us, the process could spell danger. After all, Winston Smith, the hero of Orwell’s 1984, only became truly happy when the Thought Police eventually persuaded him to love Big Brother.

Paul Ormerod is the co-author of Happiness, Economics and Public Policy

Member of the Advisory Committee

Professor Paul Ormerod is a member of the Advisory Council at the Institute of Economic Affairs and a fellow of the British Academy for the Social Sciences. Paul is also a visiting Professor in the Centre for Decision Making Uncertainty at University College, London , funded by George Soros’ Institute for New Economic Thinking.

2 thoughts on “The renewed folly of the Economics of Happiness”

  1. Posted 13/04/2011 at 15:15 | Permalink

    One of the dangers with Happiness Economics is that supporters often pick out the ‘facts’ that suit their own agenda best. At least, I’ve never heard anyone saying “I personally hate X, but I’m nevertheless in favour of promoting X because happiness data, shows that X increases aggregate happiness”.
    This tendency would surely become a lot worse if maximising some happiness indicator was to become an official policy goal.

  2. Posted 08/05/2011 at 17:34 | Permalink

    I have written about this, mocking the happiness economists, in my published article Happiness by Index and Decree in The Salisbury Review. Enjoy!

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