More Money, Less Mirth
September 3, 2010 |  by Dale Keiger

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Then came Richard A. Easterlin. Easterlin now is professor of economics at the University of Southern California. In 1974, as a professor at the University of Pennsylvania, he published a paper titled “Does Economic Growth Improve the Human Lot? Some Empirical Evidence.” He had studied happiness surveys conducted in 19 countries, developed and less-developed, after the Second World War, to see what evidence there was of an association between income and happiness. What he found was that within a given country, people with higher incomes were indeed more likely to report being happier than those with lower incomes. No shock there. But when he compared countries, those with higher national income levels paradoxically were not appreciably happier than those with lower. Furthermore, as countries grew materially wealthier, on average their people reported themselves to be no happier. These findings have been grouped under the rubric “the Easterlin paradox.” Thirty-six years on, economists still debate its validity. But to the extent that you can arbitrarily designate the advent of a new discipline, by his paper Easterlin had launched happiness economics.

“Does Economic Growth Improve the Human Lot?” proved to be about 25 years ahead of its time. In the last 10 years happiness economics has burgeoned. More sophisticated econometric tools have allowed economists to control for more variables and impose more analytical rigor. Growing computational power permits mining ever deeper datasets as organizations like Gallup recruit economists and psychologists to improve their polling. “But there is much more to it than that,” says Andrew J. Oswald, professor of economics at the University of Warwick in England. “My sense is that happiness economics has caught on because it chimes, deep down, with our subconscious concerns about whether materialism—ever more Lexuses, ever more stuff—is really a rational path for society.”

In a way, after years of just sifting data that they believed bespoke happiness, economists began to go into the field and ask, Was it good for you, too? Says Oswald, “Economists were attracted to logical purity, and still are. Some still prefer a beautiful theory to a true one. Asking people things about their feelings was too straightforward to appeal to the last two generations of economists.” Says Easterlin, “Economics in the 20th century was strait-jacketed by the paradigm of behaviorism, which explicitly rejects subjective testimony as relevant to understanding human behavior.” Andrew Clark, research scientist at the Paris School of Economics, adds, “There was great reluctance to believe what people say and a preference for looking at what they do. This was all bound up with the worry that subjective reports were so full of noise as to be useless.”

Traditional mistrust of expressed preferences is unfounded, Graham believes. “If you think about it,” she says, “there’s less incentive to lie to a happiness survey than almost anything else. The idea behind revealed preferences was that you can’t trust what people say because there’s no consequence to what they tell you, right? They can say anything. Versus you can trust the data from consumption choices because people have to make a trade-off within budget constraints. My view is that you still can model economic behavior, but one needs to build in a much larger error term that explains irrational decisions and innate character traits.” For example, people driving two hours and spending $15 on gas to save a few bucks on a purchase, and irrational consumer choices driven by addiction, self-control issues, or social norms that the consumer is powerless to influence. Is buying cigarettes really a rational choice for a heavy smoker addicted to nicotine? “Standard revealed practices would say that smokers are smoking by choice,” she says. “They have a budget constraint and they’re choosing to buy cigarettes versus other things. That’s it. That’s the story.” With his finite resources, Homo economicus does what makes him happy. “But then why are smokers significantly less happy in every survey I’ve looked at in Russia, the U.S., everywhere?” If obesity is the result of rational consumption choices, why are the obese also among the unhappy in every country Graham has studied? When a member of India’s untouchable caste elects not to send his daughter to school, is that a perverse rational choice among other options, or something forced on him by a social context that he cannot change? Graham says, “As economics grew more rigorous and mathematical and sought precision in its models, more and more parsimonious concepts of what makes people happy were necessary. That was good from a mathematical modeling standpoint, but in the end imposed much more rationality on the average individual than we actually observe in reality.”

Governments have noticed what happiness economists are up to and have begun considering metrics of national well-being comparable to GDP. Canada now has the Canadian Index of Wellbeing that tracks eight factors, including community vitality, education, environment, and democratic engagement. Bhutan officially measures gross national happiness. In September 2009, French president Nicolas Sarkozy announced that his country planned to begin including happiness and well-being as measures of economic progress.

Graham applauds efforts to create national well-being indicators that take into account what economists have been learning about human happiness. But she’s skeptical about the prospect of a national happiness policy. She says, “I’m not ready to jump on the Pollyanna bandwagon and say it should be a national policy objective because there are still a lot of unknowns. I worry that if governments get into the business of engineering happiness, they will also be tempted to get into the business of engineering polls that could produce either bad policy outcomes or really manipulate people.” A public “happiness policy” presumably would require the government to define happiness, which would impose that definition on its constituents. And as Daniel Kahneman has pointed out, people may report being happy or unhappy in an economist’s survey, but that does not mean they are all that good at predicting what will make them happy. He wrote, “One conclusion from this research is that people do not know how happy or satisfied they are with their lives in the way they know their height or telephone number.”

Besides, Graham points out, certain kinds of discontent can be beneficial: “Do we want happy peasants, or frustrated achievers? Do you know what I mean? The frustrated achievers are making progress happen, and progress in the aggregate makes people’s lives better. It’s great that people can adapt to adversity and remain cheerful. But I think it could result in collective tolerance of a very bad equilibrium. If people in Guatemala are more satisfied with their health care than people in Chile, how are they ever going to make their system better without some rude awakening? Their kids are still condemned to shorter life spans and likely to die of preventable diseases. If people are ‘happy’ because they have no alternative vision, should we just say, ‘Fine, they’re happy, so what?’ I’m not comfortable with that.” Graham prefaces a chapter of Happiness Around the World with an epigram from Nobel laureate economist Amartya Sen: “The grumbling rich man may well be less happy than the contented peasant, but he does have a higher standard of living than the peasant.”

These days, Graham has so many new avenues to explore, she can sound as if she hardly knows where to go first. Throughout her career, as both a developmental economist and Dr. Happy, Graham has been fascinated by human adaptability. Now she is curious to study places on the globe where some kind of beneficial change has been set in motion, but at the cost of an unsettling near future. “How do we value inter-temporal trade-offs in both health and income arenas?” she says, sounding very much like an economist. “How do we say to somebody, ‘This is going to make you unhappy today, but two years from now, you and your family will be better off?’ People with low prospects for upward mobility or low expectations may be less likely to invest in their and their children’s future, in savings, education, and health.” She’s looking for funds to go back to Afghanistan, to repeat a survey she did there two years ago. She’d like to study migrants: When they first arrive in a new country they are probably unhappy, but how are they five years later? “The coolest thing about my work is how much I have learned about the complexity of human well-being, and the intersect between economic thinking and other disciplines.” She adds, “I see this stuff as a research tool, not as lessons in how to live your life. I don’t want to be in the business of telling people how to be happy.” She smiles when she says it.

Dale Keiger is associate editor of Johns Hopkins Magazine.