Should We Pay Attention to Happiness?

Sanjay Paul

The Patriot-News
July 24, 2005

Happiness. It’s not a subject that economists pay much attention to. Not professionally, that is—although, in their personal lives, economists are quite likely to engage in the “pursuit of happiness” with as much vigor as other mortals. But, as a matter of scholarly study, happiness has proved to be of less interest than fluctuations in gross domestic product and changes in the consumer price index. This is not entirely surprising, since happiness, unlike GDP or the CPI or the other myriad variables that beset economists’ minds, is less amenable to analysis and empirical verification. Far easier to model supply and demand, and determine prices and quantities, than to grapple with the elusive notion of what constitutes happiness.

Well, things are changing. Sort of. In a recent book titled, aptly enough, “Happiness,” Richard Layard, a noted British economist, bravely wades into the subject and emerges with rather astounding assertions. First, he claims, happiness can be measured. Surveys with questions like “Taking all things together, would you say you are very happy, or not very happy?” elicit useful responses. Second, growth in incomes in the West, particularly in the U.S. but also in Europe and Japan, has far outpaced increases in happiness. Societies have become richer, but not necessarily happier. Third, things like promoting efficiency, linking pay to performance, increasing labor mobility, cutting taxes to encourage people to “work harder”—all largely desirable in the eyes of economists—may have the perverse effect of weakening social bonds, increasing friction in the workplace, and imposing strains on family life. The result, according to Layard, is diminished happiness.

So what can be done? Layard calls for a change in policies by businesses and governments. Firms should be cautious about using incentive schemes designed to encourage performance by workers. They should adopt family-friendly policies. Commercials aimed at children should be prohibited (as in Sweden). Governments should increase spending on mental illness (a deplorably neglected area, according to Layard), institute policies to maintain low unemployment, and subsidize activities to foster community life. He also advocates an increase in foreign aid to developing countries, a call that has been echoed recently by a number of individuals and countries—the G-8 and Tony Blair, the United Nations’ Millennium Development Goals, Jeffrey Sachs (author of “The End of Poverty”), and of course, Bono.

Despite Layard’s impeccable credentials, the book faces an uphill task in changing attitudes in academe and government. The idea that surveys, even sophisticated ones bolstered by other instruments, can measure happiness strikes many as dubious. But even if one were to set aside measurement issues, the recommended policies also engender skepticism. If businesses and government adopt policies that impede efficient use of labor, growth in incomes and living standards is likely to fall which in turn will constrain public spending on what Layard considers desirable—mental illness, community life, foreign aid. Similarly, Layard’s call for maintaining low unemployment conflicts with the desire to limit the geographical mobility of workers. Furthermore, paradoxically, countries that are least happy (the US and UK) have enjoyed the lowest unemployment rates in recent years. While the European Union has struggled with unemployment in excess of 10% during the last 15 years, the US rate has been consistently lower and now stands at around 5%. Growth in income has also been consistently higher in the US—and during the 1990s, inequality in this country, which had risen inexorably since the 1970s, had also begun to fall. More recently, however, as a result of Bush’s tax policy, those advances in inequality reduction are likely to have stalled (or even reversed) since the cuts in top marginal income tax rates and capital gains tax rates conferred the greatest gains on the wealthy. If, as Layard suggests, exacerbated inequality leads to increased discontent, society’s happiness is likely to have been diminished.

But the science of happiness—the subtitle of the book is “Lessons from a New Science”—is still in its infancy. For the time being, happiness is likely to remain daunting terrain for most economists, and one they are largely content to leave to philosophers, sociologists and psychologists.