MONEY & HAPPINESS
On Tech Central Station, Arnold Kling ably critiques the latest attack on the basic economics assumption that people pursue happiness (a.k.a. utility) and that higher incomes and technological progress aid that pursuit. An excerpt:
Recently, the Co-Director of the Centre for Economic Performance at the London School of Economics Richard Layard spelled out a fundamental challenge to mainstream economics. He argues that higher incomes do not lead to greater happiness. This in turn threatens much of the conventional wisdom among economists concerning policy issues.
To an economist, it is literally axiomatic that if people pursue higher incomes, then higher incomes make them happier. We do not believe that people do things that are contrary to their interests.
Layard argues instead that people pursue higher incomes even though collectively it is not in their interest to do so. He says that people are deluded into pursuing higher incomes by distortions in perception.
"First, I compare what I have with what I have become used to (through a process of habituation). As I ratchet up my standards, this reduces the enjoyment I get from any given standard of living. Second, I compare what I have with what other people have (through a process of rivalry). If others get better off, I need more in order to feel as good as before. So, we have two mechanisms which help to explain why all our efforts to become richer are so largely self-defeating in terms of the overall happiness of society."
According to Layard, we are on a happiness treadmill. Once we get used to air conditioning, having air conditioning no longer makes us happy. Once we get used to surfing the Internet, surfing the Internet no longer makes us happy. Once we get used to living longer because of modern medicine, our greater lifespan no longer makes us happy....
Going from the fact that brain activity changes when people say that they are happy to the conclusion that surveys can correctly identify the causes of happiness is not a valid logical leap.
More important, the fact that subjective happiness and measurable brain activity are correlated does not imply that we can make a meaningful comparison between the happiness reported by one person and the happiness reported by another person. In particular, if I do a survey and find that two people with incomes of $20,000 and $40,000 report happiness of X and Y, I cannot draw any conclusion based on the relative values of X and Y. Even if we are talking about one person, and X and Y represent their reports at two different points in their lives, it is not clear that we can make a meaningful comparison between X and Y. Thus, it is unlikely that survey research can shed light on the effect on happiness of a change in income from $20,000 to $40,000.
Read the whole thing, which includes relevant links.
Arnold's passing comment about the same person's assessment of his or her happiness at two different points in life is worth elaboration. As I learned long ago from reading Thomas Sowell, in assessing economic data, always correct for age. Younger people are generally poorer than older ones. But are younger people less happy?
Probably not, for reasons irrelevant to the dispute at hand. Youth has its own resources: all those options one's choices have not yet foreclosed, all those imagined futures that might come to pass. In middle age, most of us have more money, and hence more material choices, but simply living our lives has eliminated some of the possibilities we felt in our youth. Hence we may not be as happy as we once were. But we're still happier than we'd be without air conditioning--especially if we live in Texas.
On this subject, Richard Rodriguez's books, Hunger of Memory, a youthful work, and Days of Obligation, a middle-aged work (also influenced by the AIDS epidemic), offer an eloquent contrast. (My WSJ review of Days of Obligation is here.) I haven't yet read his new book, Brown; I bought it earlier today. Based on an excerpt and his speech at our second Dynamic Visions Conference, I expect it to be as good as, if not better, than the earlier ones.