Happiness about a new car is relative - it depends on your expectations and on what other people have. Shutterstock/Minerva Studio
All happy families are alike; each unhappy family is unhappy in its own way. - – Tolstoy, Anna Karenina
Money doesn’t buy you happiness, but it does buy you a better class of unhappiness. -– unsourced, but perhaps a modification of a remark by Spike Milligan
Over the past 20 years or so, the study of the economics of happiness has boomed. By contrast, the economics of unhappiness has been almost entirely neglected.
The neglect of happiness is not simply a quirk of nomenclature, like the use of “health economics” to describe a field that is almost entirely concerned with responses to illness and disability. The central problem in the economics of happiness has been to determine how people’s answers to questions of the form “How happy are you?” are related to economic variables like income and employment. Unhappiness is never considered, except as the absence of happiness.
Even the most basic results of the economic theory of happiness are, to a substantial extent, spurious artefacts of the analytical framework rather than genuine facts about how people experience happiness.
The crucial finding is this:
Cross-country data shows pretty consistently that on average happiness increases with income, but at a certain point diminishing returns set in. In the developed world, people are not on average happier than they were in the 1960s.
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Self-assessed happiness ratings are relative
The data that supports this consists of surveys that ask people to rate their happiness on a scale, typically from 1 to 10. Within any given society, happiness tends to rise with all the obvious variables: income, health, family relationships and so on. But between societies, or in Western societies like Australia over time, there’s not much difference even though both income and health (life expectancy, for example) have improved pretty steadily for a long time.
This sounds like a striking discovery, but actually it tells us little. An example illustrates the point. Suppose you wanted to establish whether children’s height increased with age, but you couldn’t directly measure height.
One way to respond to this problem would be to interview groups of children in different classes at school and ask them the question: “On a scale of 1 to 10, how tall are you?”
The data would look pretty much like reported data on the relationship between happiness and income. That is, within the groups, you’d find that kids who were old relative to their classmates tended to be report higher numbers than those who were young relative to their classmates (for the obvious reason that, on average, the older ones would be taller than their classmates).
But, for all groups, the median response would be something like 7. Even though average age is higher for higher classes, average reported height would not change (or not change much).
So you’d reach the conclusion that height was a subjective construct depending on relative, rather than absolute, age. If you wanted, you could establish some sort of metaphorical link between being old relative to your classmates and being “looked up to”. But in reality height does increase with (absolute) age.
The problem is with the scaling of the question. A question of this kind can only give relative answers. Since we have no internal scale of happiness that would allow us to say “I feel 6.3 today”, the only way to answer the question we have been asked is with reference to some implicit expectation of what constitutes, for example, an above-average level of happiness, which might justify the answer 7 or 8.
In a society where most people are hungry most of the time, having a full belly might justify such an answer. If everyone has enough to eat, but mostly rice or beans, you might consider yourself happy to be eating roast chicken. And so on.
Inevitably, therefore, the income and health status needed to report yourself as more than averagely happy will depend on what you consider average. Critically, this is true whether or not people in rich societies are in fact happier, and whether or not the average person is happier now than the average person in 1960. A relative scale tells us nothing one way or the other.
Why unhappiness is more revealing
If we think instead about unhappiness, a very different set of research questions emerges. While happiness is an elusive and subjective concept, there are plenty of objective sources of unhappiness: hunger, illness, the premature death of loved ones, family breakdown and so on. We can measure the way these sources of unhappiness change over time, and compare this to subjective evidence.
The shift of focus from happiness to unhappiness has important implications – most notably with respect to the central dividing line of modern politics, the welfare state.
The welfare state is not an institution much associated with happiness. Few people, if asked to list the sources of happiness in their life, would nominate the receipt of unemployment benefits, or a stay in a public hospital. What the welfare state does, or tries to do, is to remove or ameliorate many of the sources of unhappiness in a market economy: illness, loss of income through unemployment or inability to work, homelessness and so on.
The track record of the welfare state has been one of remarkable success. This can be seen by comparing outcomes in modern welfare states with those in the United States, where the New Deal produced only a stunted, and stinting, version of the welfare state. Despite its technological leadership and its founders’ endorsement of the pursuit of happiness, the US leads the developed world on numerous measures of unhappiness, including premature mortality, food insecurity, incarceration and inadequate access to health care.
These achievements have not earned the welfare state much love on the political right. Whatever the ostensible concerns about fiscal sustainability, the real motive for most attacks on the welfare state is the feeling that unhappiness is good for us, or at least good for other people. Malcolm Fraser, in his now-forgotten incarnation as an admirer of Ayn Rand, put this sentiment as well as anyone when he opined that “life wasn’t meant to be easy”.
Despite decades of relentless attacks from the political right, with the support of “Third Way” converts from social democracy, the welfare state remains largely intact, and remarkably popular. We have even seen some limited expansions: examples include Medicare Part D and Obamacare in the US and the National Disability Insurance Scheme (NDIS) in Australia.
Nevertheless, a renewal of the social democratic project will require new theoretical foundations. Hopes that such a foundation could be found in the economics of happiness have so far not been fulfilled. What we need is an improved understanding of the economics of unhappiness.
About The Author
John Quiggin, Professor, School of Economics , The University of Queensland