Happiness, Economics, and the Big Society

Should the economics profession care about happiness? And how does happiness fit in to the Big Society agenda?

Before delving in to this, it is important to emphasise that an important problem within this subject is – like other areas – people often have different understandings of the same word. Some terms are not “univocal”, which muddies the debate unnecessarily, and this is very much true concerning “well-being”, or “happiness”: there are multiple meanings & interpretations.

The motivation for economists to appreciate & value well-being / happiness, in my view, is that we have been trying to use GDP growth as a proxy for some aggregated measure of national well-being for quite some time. That might have been appropriate in, say, the 19th century, and might still be a good proxy for (economically) under-developed countries. But it is not that useful for the West today. Also, there is evidence suggesting that for incomes above a fairly modest level there is no clear correlation between income and happiness.

There are at least two approaches economists can take when it comes to happiness. One is a deeply naive and (most likely) damaging attempt to create some national, aggregated measure of national happiness. In this approach, all we need to do is use some sophisticated econometric analysis to measure what makes “everyone” happy, and then allocate government resources accordingly. Hey presto – national happiness is optimized. This is the wrong approach but, unfortunately, some economists seem to be travelling down this path and this is what many people believe is meant by “happiness” in the political economy world.

The second approach starts from the individual’s perspective, and recognizes that well-being is contextual, in both time and space, and it is subjective. What makes someone happy now in a particular situation won’t necessarily make them happy in a different situation, or the same situation later on, nor will it necessarily make another person happy in the same situation… etc. And, to make things worse, many things we value, which make us happy, are not measurable; and values are often incommensurable i.e. non-comparable. Richard Bronk stressed this point in The Romantic Economist. In this framing, building aggregated metrics – as in the first approach – is incredibly difficult. It ought to be clear that this second approach is preferable but it is often conflated with the first in discussions about well-being.

Criticizing the first approach is easy but that’s not to say that an appreciation of a population’s happiness would not be useful. But we have to be careful using collective metrics for fear of the government being overly prescriptive and mis-allocating resources, unintentionally, because of a blunt framing of a nuanced subject.

There have been some discussion of “flourishing” as an alternative to well-being e.g. by Martin Seligman, one of the founders of positive psychology. Flourishing can be interpreted as the extent to which people are enabled, and constraints are removed, to live the life they want and are capable of living. In effect, if people are allowed to flourish, they can pursue their own subjective well-being. Flourishing and well-being are complementary and related concepts.

In terms of the Big Society agenda, I would argue that the role of social institutions (including the “state”) ought to be to enable individuals to choose their own paths to happiness (within self-imposed ethical bounds), and to remove unnecessary constraints, rather than being prescriptive about people’s happiness. This argues for a devolution of decision-making power: people and local communities will know better what makes them happy versus the perceptions of a national government. Of course, that is not to argue national governments ought not to have some discretionary decision-making power over aspects of resource allocation – the question becomes “what sort of power?”.

Importantly, the devolution of decision-making power is necessary but not sufficient for enabling people to pursue happiness in their own way. There are normative questions too – perhaps more important than the positive ones – about the allocation of resources and decision-making in an unequal society, which Britain is today.

So, in terms of the happiness / well-being agenda, I would plead that the government takes the idiosyncratic, subjective approach to understanding happiness; and ignores those economists who think a quantitative, aggregated, optimization approach is all that’s needed. I would not be happy if that happened, in my own subjective world…