[Paleopsych] Economist: The economics of happiness: Can't buy it?

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The economics of happiness: Can't buy it?
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5.1.14

    Happiness: Lessons from a New Science.
    By Richard Layard.
    The Penguin Press; 272 pages; $25.95.
    To be published in Britain by Penguin/Allen Lane in March

    FOR the past half-century, those lucky enough to have been born in a
    rich country have had every prospect of growing richer. On average,
    incomes in Britain, America and Japan, adjusted for inflation, have
    easily doubled over that time. On top of this come the benefits of
    longer lives of better quality, thanks to advances in medicine and to
    a plethora of consumer goodies making living easier and more
    enjoyable. You might, even, expect folk to be a great deal happier
    today than in the 1950s.

    You would be wrong, according to many surveys taken in rich countries.
    These tend to show that, once a country has lifted itself out of
    poverty, further rises in income seem not to create a meaningful rise
    in the proportion of people who count themselves as happy. Since the
    1950s, for example, the proportion of Americans who tell pollsters
    that they are "very happy" has stayed constant at around 30%, while
    the proportion who say that they are "not very happy" has barely
    fallen. Explaining this paradox, and offering suggestions for
    increasing the supply of happiness, is the aim of a new book by
    Richard Layard, a professor of economics at the London School of
    Economics and a Labour peer.

    Lord Layard devotes a good portion of the book to a summary of what is
    known about how to be happy. Much of it will appear self-evident:
    cultivate friendships, be involved in a community, try for a good
    marriage. But his big idea is controversial. It is that a zero-sum
    game of competition for money and status has gripped rich societies,
    and that this rat race is a big source of unhappiness. Put simply, one
    person's pay rise is another person's psychic loss. To make that loss
    worse, says the author, there are only so many top rungs on the ladder
    of status--and as a peer of the realm, Lord Layard should know.

    He is among a growing group of economists who are dissatisfied with
    the way that the dominant neoclassical school of economics gauges
    well-being. When they try to divine human desires and happiness,
    mainstream economists look much more at what people do rather than at
    what they say. If, perhaps, you choose to work 90-hour weeks and skimp
    on leisure time, it follows that work is what makes you happy--or at
    least happier than taking extra time for leisure: otherwise you would
    not be doing it. Your actions, in other words, are said to reveal your
    "true" preferences, even if you tell a researcher that you would
    rather be spending more time with your children (what is known as your
    "stated" preference).

    To counter such Panglossian logic, Lord Layard draws upon the findings
    of behavioural economists, who make use of the insights and techniques
    of psychologists. These are more inclined to give credence to people's
    stated desires and feelings. Among many things, the behaviourists have
    found that it is relative, not absolute wealth, that matters most to
    people. Mr Layard cites as evidence a study in which Harvard
    University students claimed to prefer earning $50,000 a year when
    their peers are on only $25,000 to a world in which they earn $100,000
    while their peers get more than double that amount. The survey sample
    is anything but representative, but you get the point.

    So, Lord Layard's thinking goes, by spending 90 hours a week in the
    office, you may be improving your own income, but you are also causing
    other people to feel less satisfied with theirs. They may be
    encouraged to work longer themselves just to keep up, taking from the
    time that gets devoted to family and community.

    It is, the author argues, something similar to environmental
    pollution, where one person's action (or a company's) makes others
    worse off. Fortunately, he notes, economists have already figured out
    how to deal with such externalities: tax them so that the polluter
    internalises the cost of his actions. And so, near the top of Lord
    Layard's list for improving human happiness, comes the following
    recommendation: much higher rates of income tax to tame the rat race.

    The author singles out income inequality as a psychic wound uniquely
    worthy of state intervention. But if raising the level of happiness is
    to be the chief aim of government policy, as he argues it should,
    where then is the call to make divorce harder, given the pain that he
    says broken homes inflict on children? Further, where is his desire to
    compel the worship of a higher being, also on his list as a source of
    happiness? Thankfully, both are absent, but he never mentions the
    obvious reason for why they are: namely, that most people value
    freedom as a greater good than enforced happiness. The pursuit of
    happiness, Lord Layard's book will convince most people, is a private
    matter.