August 12, 2005
The Case against Happiness
Opinion piece written with fellow Ph.D. student Joe Mazor.
Ask yourself a question: On a scale of one to five, how happy are you?
What did you consider when you assigned yourself a number? According to the latest studies, the average person thinks about family relationships, their financial situation, work, community and friends, and health, in that order - with some thoughts about personal freedom and personal values mixed in. What do we leave out? A comfy bed, three meals a day, central heating, all the creature comforts our mothers kept telling us to be grateful for because somebody somewhere does not have them. We simply take them for granted as the status quo.
Our personal well-being depends on two factors. The first is the daily pleasures that we come to take for granted. This includes not only our creature comforts, but other pleasures - social and mental - which are part of our status quo. Psychologists call this our "adaptation level."
The second is the emotions resulting from the relative comparisons we constantly make to this status quo: what we have relative to what we used to have, what our neighbours have, what we believe we ought to have. When prompted to state their happiness, people focus on the second factor. They do not report the part of well-being that they take for granted.
Confusion around these two factors and how we should measure well-being has sparked a fundamental debate within economics. On one side are traditional economists who focus on consumption as a proxy for well-being. Our spending affords us a certain level of daily pleasures that we quickly get used to. Thus, consumption as measured by gross domestic product (GDP) is an important component of the first factor, the pleasures of the status quo that we take for granted.
On the other side of the debate is a new breed of "happiness economists" who want to wean the economics profession away from an admittedly unhealthy obsession with GDP. They advocate using stated happiness instead as the measure for well-being. Lord Richard Layard's book Happiness: Lessons from a new Science (2005) is only the latest example in this literature. By focusing exclusively on stated happiness, however, they only capture the second component of well-being, emotions associated with comparisons to the status quo.
To understand the distinction between the two components of well-being, think of Lord Layard's central heating, an example he uses in his book. A higher income allowed him to install central heating to keep his house warm. Initially, his well-being increased for two reasons: First, he was happy because this new situation was an improvement over the status quo. Second, he experienced the comfort of his pleasantly warm house.
After many years, Lord Layard has come to take the pleasures of the warmth for granted. Central heating has become part of his status quo, and so no longer makes him happy. Lord Layard clearly recognizes that if we take the heating away, he would be unhappy. What he fails to recognize is that even though his central heating no longer makes him happy, his pleasantly warm house still contributes to his well-being on a daily basis.
A groundbreaking book on well-being edited by psychologist and economics Nobel Laureate Daniel Kahneman formalizes this argument. Even these experiences we are used to contribute to our well-being without adding to our happiness.
It is worth mentioning that not all pleasures are equally easy to adapt to as a warm house. In particular, as Lord Layard recognizes, the pleasures we get from our relationship with family, friends, and God are more complex. Their complexity makes them harder to take for granted. Thus, factors like a good family life can be a continual source of both pleasure and happiness.
If well-being is a combination of our status quo pleasures and our happiness, focusing on either one alone will result in misguided policy. Should we have a higher income tax? If we overlook happiness, as many traditional economists do, we would answer with a resounding no. Higher income taxes create distortions, which lower our GDP. If we overlook the pleasures that we take for granted, as Lord Layard does, the answer is yes. Discouraging work would mean more free time to pursue what truly makes us happy, like a good family life. Since higher income would not make us happier in the long run, nothing is lost.
The truth lies somewhere in the middle. Both the pleasures we take for granted as well as happiness are important to our well-being, and there is often a trade-off between the two. In order to make informed policy such as setting the proper income tax, we need to create a more comprehensive welfare figure than GDP; one that includes both our central heating systems and the quality of our family lives. But we certainly should not abandon GDP altogether and rely on happiness surveys alone.
Posted by Gernot Wagner on Friday, August 12, 2005. 
Comments
Of possible interest, from today's New York Times Science section:
A New Measure of Well-Being From a Happy Little Kingdom
http://nytimes.com/2005/10/04/science/04happ.html
Comment posted by 
Gernot Wagner, October 04, 2005 4:07 PM.
I thought that was an excellent post. There's a lot of literature taking issue with, as you say, economists' and policy-makers' obsession with GDP as a measure of well-being. But because the alternative they present is based on those 'happiness' studies, they can come out with some odd arguments that don't seem realistic and aren't taken seriously. So some middle ground is very useful! Thanks.
Comment posted by 
, November 22, 2005 6:58 PM.
Hi Gernot, I enjoyed your piece.
My own personal problem with "happiness" theories is that they usually ignore revealed preferences, which I take to be a more reliable indicator of happiness/well-being than what someone is willing or able to verbalize on the spot. The truth is, given the option of having or not having heat, he will take heat, and is clearly better off for it. The reason this doesn't cross his mind is because he's already secured heat so reliably in the past he's free to move on to other concerns. Alfred North Whitehead famously wrote, "Civilization advances by extending the number of important operations which we can perform without thinking." He's so used to it that he's simply not thinking about it, and this freedom to think about other luxuries he wouldn't have time to if he were obsessing about heat is precisely progress. If he were forced to think about everything every moment of time, he'd probably report more happiness because he'd be constantly reminded of the luxuries he ordinarily takes for granted, but he'd be a lot less efficient. We don't constantly compare ourselves to the worst possible outcomes because we don't have limitless brain capacity. This is just how the pattern-recognition hardware of the human brain works.
-Stephen Miran
Comment posted by , March 21, 2006 6:29 PM.
It is cold out, I am warm. It is raining out, yet I am dry. There are birds chirping and squirrels making funny twitching faces on my deck but I do not see or hear them. It is noght time but I have electric lights. Happiness and the limitless nature of human wants that intro econ courses take for granted are deeply engrained in human philisophical questions.
When will our environment be fixed to our liking? When will our curiosities be satiated. We are in a very scary time to think of what coast our manifest destiny is driving towards.
All I can say is to. 1- turn off the light. 2. go outside. 3. just be happier.
Comment posted by rossm@unh.edu, June 28, 2006 8:32 PM.
i'm an italian student and i must study an article from the economist who express the lord layard book's ideas and i don't understand his position, but thanks to your post i can say "yes now i know it!"... thanks
Comment posted by , September 06, 2006 10:43 AM.