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Economics and Happiness

Written By: Jason Shafrin - Jan• 02•07

At the beginning of the new year, one often wishes their friends and family for a happy and healthy year.  But how does one find happiness?  Is this an entirely individualistic experience or are there generalizations that can help people lead a happy life?

Many people assume that economists only care about money.  This is not true.  In fact Adam Smith even complained “How many people ruin themselves by laying out money on trinkets of frivolous utility?â€?   At one time, economists did try to measure happiness directly.  The development of the concept of a utility function stems directly from this line of research.  In more recent research, the utility function is used mostly in a theoretical setting to motivate the research and empirical issues of happiness are left to social scientists in other disciplines.

The Economist magazine ambitiously tackles the question of happiness (“Happiness and how to measure it” and “Economics discovers its feelings“) using recent research from various economists.  While I do not believe that economics as a discipline is likely to lead to breakthroughs in the understanding of happiness, the article does make some interesting points with which I agree. 

  • A paradox appears in some simple longitudinal survey data where affluent countries have not got much happier as they have grown richer.  “The science of happiness offers two explanations for the paradox. Capitalism, it notes, is adept at turning luxuries into necessities—bringing to the masses what the elites have always enjoyed. But the flip side of this genius is that people come to take for granted things they once coveted from afar. Frills they never thought they could have become essentials that they cannot do without. People are stuck on a treadmill: as they achieve a better standard of living, they become inured to its pleasures.Capitalism’s ability to take things downmarket also has its limits. Many of the things people most prize—such as the top jobs, the best education, or an exclusive home address—are luxuries by necessity. An elite schooling, for example, ceases to be so if it is provided to everyone. These “positional goodsâ€?, as they are called, are in fixed supply: you can enjoy them only if others do not. The amount of money and effort required to grab them depends on how much your rivals are putting in.”
  • “In general, the economic arbiters of taste recommend ‘experiences’ over commodities, pastimes over knick-knacks, doing over having. Mr Frank thinks people should work shorter hours and commute shorter distances, even if that means living in smaller houses with cheaper grills. The appeal of such fripperies palls faster than people expect, they say. David Hume suggested that ‘the amusements, which are the most durable, have all a mixture of application and attention in them; such as gaming and hunting.’But as with any argument involving economists, there is more than one side to it. For one thing, many experiences demand a substantial outlay on commodities: horses, hounds and jodhpurs, for example. And as Bryan Caplan, of George Mason University, points out, many trinkets and fripperies themselves provide a stream of experiences.”
  • Economists think that work causes disutility.  One sells one’s labor in order to increase one’s income, but not for pleasure.   The magazine article, however, finds that “As for well-being, other studies show that elderly people who stop working tend to die sooner than their peers who labour on. Indeed, another side of happiness economics busies itself studying the non-monetary rewards from work: most people enjoy parts of their work, and some people love it.”  This brings to mind the proverb: If you find a job you really love, you’ll never work another day in your life.

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