It is time to pause and think about the idea of happiness we invoke in the New Year’s greeting. This might be an odd request from an economist, because 20th Century economists struggled with the idea of happiness. The basic problem economists had with happiness was its measurability; so they focused on two related but very different concepts – utility and welfare.
The happiness measurability problem has two parts. First, it is hard if not impossible to compare happiness between two people. On the face of it, it seems absurd to say something like this: I get more happiness from watching a sunset (or eating an apple, going to a Star Wars movie) than you do. In economist language, it is not possible to make interpersonal utility comparisons. Second, there are no logical units with which we can measure happiness; there is no logical way to say that a vanilla ice cream cone gives you twice the happy points of a chocolate ice cream cone.
Given these measurability problems, economists fell back on the idea of the utility an individual gained from consumption. The assumption was that each individual could rank personal utility gained from consuming alternative goods. So, it is possible for a person to say I prefer vanilla ice cream to chocolate ice cream and I prefer chocolate ice cream to onions. No happy points are needed to say that. Furthermore, these rankings could be measured using money income of the individual consumer. The logic was, I should be willing to spend more income on vanilla ice cream than on chocolate because of the ranking of my preferences.
This was a slippery slope for economic thinking because it led to the often unstated idea that utility was nearly the same as happiness, and that utility could be measured using units of money. So an economy that provided more money income on average for its people would yield more utility.
By the end of the 20th Century, some economists were beginning to question the logical problems that this had led economics to and started talking about happiness again. Prominent among these was Richard Layard of the London School of Economics. Layard’s 2005 book, Happiness: Lessons from a New Science is an important resource for new thinking about happiness. The key insight that shows the problem for economics is on page 30 where Layard shows over 50 years of data comparing real average money income for Americans and how happy they state they are. Economic theory said that higher incomes should yield higher consumption levels, which would make people happier. Starting in the 1960s the happiness and income lines diverged; more money income did not make people happier.
This finding, if true, makes economics much harder. No longer is it enough to devise policies that encourage economic growth, because of a belief that growth in income makes people happier. If such growth leads to job insecurity, mindless work that pays more money, income inequality, the need to move from community to community to find higher pay, and a degraded natural environment, growth and higher incomes might actually make people less happy.
In his book on happiness, Layard explores not only the economics of the issue but the psychology of happiness as well. Layard’s work and that of other like-minded academics has spawned a whole new field of social science research, happiness studies. The field has its own academic journal, The Journal of Happiness Studies. And Layard is part of a new on-line effort to help people use the research to be happier. This is called Action of Happiness.
The Beatles told us that “money can’t buy me love,” and it turns out that it can’t buy happiness beyond a certain point either. Clearly, everyone needs enough money to provide clean shelter, healthy food, health care, decent clothes, meaningful pastimes, and the like. Beyond some point (about $20,000 per person, per year), money may well add very little in the way of happiness. Layard (p. 31) calls this the happiness paradox: “When people become richer compared with other people, they become happier. But when whole societies become richer, they have not become happier…”
So as you greet your family and friends with the Happy New Year greeting, stop for a moment and think about your happiness. Are you using your time to make extra money income rather than spending that precious time doing what makes you happy? What is it that makes you happy? Do you make those around you happy?
Layard’s book is a good place to start your own personal inquiry into happiness.