economics equality growth

The IEA is wrong about wellbeing

The Institute of Economic Affairs released a paper this week called …And the Pursuit of Happiness. In a nutshell, it argues that the government is wasting its time measuring happiness, because it is economic growth that makes people happy. It adds that we shouldn’t worry about inequality either, and that big government is bad.

In other words, it’s a stern reminder from the temples of economic orthodoxy: do not meddle with the markets, do not interrupt growth, do not ask questions. It would be easy to ignore, except that these sorts of papers are bound to be cited, repeatedly, by anyone whose purposes it serves. And it is wrong on many levels.

If you’ve been following this debate, you’ll know that this is a response to David Cameron’s new Index of National Happiness. The Prime Minister commissioned this last year from Britain’s Office of National Statistics, as a complementary metric and guide for policy making. It’s there to measure the many things that GDP can’t reflect, and the first results came out in November last year.

But, it’s got the Institute of Economic Affairs worried, probably because it suggests that the government might pay more attention to real people in future, and less attention to economists. The horror! So they’ve got together a collection of eminent contributors and issued this series of essays. Unfortunately, it either misunderstands or misrepresents the idea of wellbeing metrics throughout.

First, it begins by dismissing the credentials and sophistication of the wellbeing movement. “The scholars who first measured GDP realised from the outset that it had serious limitations” writes Paul Ormerod. “The same point applies to the happiness data, yet it is scarcely recognised by the proponents of happiness-based policies.” This is nonsense. There’s a long and ongoing debate about how to measure wellbeing and how useful ‘happiness’ actually is.

In fact, the way that the IEA uses ‘happiness’ and ‘wellbeing’ interchangeably shows that they haven’t done their homework. Happiness is just one part of wellbeing, which is a broader term that includes a sense of purpose, autonomy and resilience, quality of relationships, work satisfaction, and the ability to contribute meaningfully to society. This is reflected in the differing hedonic and eudaimonic approaches within the movement. The first asks ‘are people happy?’ and is concerned with reported feelings. The second asks ‘are people flourishing?’ and looks at individual and social functioning too. The IEA are apparently unaware of the more sophisticated and holistic approach.

Having over-simplified the debate, the paper then sets up a false choice, pitting the ‘wellbeing agenda’ against the growth agenda. The whole first section is called ‘GDP or GWB?’ as if it’s an either/or situation. “The wellbeing movement” worries Ormerod, “suggests replacing GDP altogether with a measure which purports to describe not the material prosperity of a population, but its happiness.” Does it? Surely no single metric can sum up progress, and a wellbeing index would have to be used as part of a broad set of measurements including life expectancy, levels of literacy, ecological footprints and yes, GDP.

Then we get to the original research, where the team attempt to disprove the long-running observation that increased wealth delivers diminishing returns once people reach a point of satiation. So you get graphs like this one, that shows life satisfaction plotted against income. “Our graphical analysis suggests that subjective wellbeing rises with the log of income” they say.

But note that the horizontal axis here is a log scale – it doubles with each move to the left. What this graph actually demonstrates is that as GDP rises, it takes ever larger increases in income to deliver greater satisfaction. According to the graph, someone on an income of $64,000 would need to double that to $128,000 to see the same degree of satisfaction that someone on $2,000 would get from a rise to $4,000. That looks a lot like the law of diminishing returns to me, just disguised by the choice of visual presentation.

Next Christopher Snowdon contributes an essay on how there is no evidence that people living in more equal countries are happier. On this he’s correct, but inequality can be linked with a whole host of social ills. There is overwhelming evidence to suggest that more equal societies do better, and the absence of happiness among the many benefits of equality doesn’t weaken the case at all. Greater equality also guarantees a slice of any of that much-prized GDP growth that the IEA seeks to champion.

Finally, the paper turns to wellbeing and government intervention. Here it makes a rather bizarre assumption: that pursuing wellbeing means big government and central planning. This is daft, especially considering that David Cameron is the main target of the paper, and he is an advocate of both wellbeing and small government. “Larger government does not imply a happier population” writes Christian Bjørnskov soberly, as if there was anyone, anywhere in the world going “why am I so unhappy? I know, it must be because the government is too small.”

Having belittled the wellbeing movement, then oversimplified it and hashed the data, the monograph concludes by taking the worst possible interpretation of its motives. Wellbeing advocates aren’t just social scientists wondering why it’s so wrong to ask if economic growth means actual progress. They’re utilitarian utopians who believe that happiness can be centrally planned by totalitarian governments. The editor even admits this is a flawed argument, but then concludes with it anyway. “The reader may consider that this is knocking down a straw man and that nobody seriously believes that societies should be centrally planned to maximise happiness, just as nobody really believes these days in centrally planning an economy to maximise wealth.” Exactly, so let’s stop there shall we?

Finally, the monograph doesn’t maintain a coherent position across its many authors, and manages to contradicts itself. One section decides that wellbeing research does have some value: “we conclude that subjective wellbeing data is indeed likely to be useful in assessing trends in global wellbeing.” But nobody briefed Pedro Schwartz. “Happiness economics” he decides, “must be pronounced an unworkable project”. Likewise one statistical section claims a “positive but somewhat less precise relationship between growth in subjective wellbeing and growth in GDP”, while another admits that no link exists. “The mere fact that economists have, hitherto, found little evidence of happiness increasing with income does not mean that happiness does not increase with income – it could also mean that the evidence has not yet been found” says Philip Booth.

Ultimately, …and the Pursuit of Happiness is a work of ideology, of economic dogma. It is riddled with big government paranoia and fear of redistribution, pro-growth tub-thumping and faith in the markets. Which is a shame, because if the Institute of Economic Affairs hadn’t been so determined to see wellbeing economics as a threat, there could have been some genuine engagement with the issues. Instead, it comes across as a defensive, knee-jerk reaction from an economic philosophy that knows it has no place in the 21st century.


  1. Andy in Germany says:

    By the sounds of it the arguments are exactly the same old rubbish they trot out about ecology: It’s against growth, it’s not proven to be an issue, it will damage the economy and it’s a Trojan horse for big Government and dictatorship.

    Yup, same old. They probably just cut and pasted the report. I guess that’s what comes from being spoiled so long: up until now everyone listened to all their nonsense so they didn’t actually have to think about making sense.

    No wonder they want to control online information.

    1. Jeremy says:

      Yes, but what’s disappointing is how the papers that reported the story took it at face value. The IEA press release that went out about the paper was titled ‘Government shouldn’t worry about our happiness’, and that’s what the Daily Mail went with word for word. The Times of India headline goes ‘It’s official, money can buy you happiness’.
      They don’t need to control online information – they already do. The combination of lazy journalism and google rankings means that this report will be able to spread its self-serving message for years to come.

  2. Karen Williams says:

    My parents taught me ‘Money can’t buy happiness’. I found that they were right but that some money can prevent many worries. It’s that simple. We didn’t need the IEA, ’eminent’ contributors, or a report to tell us. The IEA must have too much money and no other experience and it doth protest too much.

    1. Jeremy says:

      Indeed, but common sense and ancient wisdom fly in the face of what the free-marketers would have us believe. Hence the statistical exercises, trying get the numbers to say something we all know is false out here in the real world.

  3. Stefan Thiesen says:

    I do not want to waste my time reading this report, but based upon your summary the oversimplifications are just painful and outright embarrassing for the authors. I really hope that “The Times of India” meant to be satirical, especially since the “Institute” is a neo liberal propaganda instrument and not a research institution.

    The graph you showed – indeed it looks like the law of diminishing returns at work. But I think it also represents a complex socio-psychological sphere. Most people will be happier (or believe they are) when they “keep up with the Joneses”, and the wealthier they are, the more that will cost. It also could suggest that the more you have, the greedier you become – so the perceived “happiness” might then be that of a drug addict needing ever bigger shots to get high. The more you have, the more you need. A cycle of greed. I assume subjective happiness also has a lot to do – almost everything – with the society surrounding us. My perception is that from childhood on we are kept in a state of perpetual dissatisfaction that we are meant to cure by “having” things. The most important events in a child’s year usually are Christmas and their birthday. And we all use these occasions to train our children that getting some THING is pretty much the greatest that can happen to you. And we all know that childish feeling of desperately wanting something, and the sudden emptiness taking over after the first moment of joy when, finally, we got it.

    Anyway – an actual Gallup research paper by Dr. Angus Deaton has a far more differentiated perspective. In his rather interesting and objective paper titled “Income, Health, and Well-Being Around the World: Evidence From the Gallup World Poll” he writes:

    “The ‘best possible life for you’ is a shifting standard that will move upwards with rising living standards (…)”

    That insight alone renders many of the statements in the IEA report practically meaningless.

    There are so many other flaws… Are people happy because they have a high income, or are they happy because they do work they love? Or are people rich because they are happy? Also possible, isn’t it? At the same time… the graph stops at US$ 128,000, which is a high income, but still not super rich. It is an income of normal lawyers, doctors, dentists and the like. Important factors for satisfaction for example are financial security, health, the ability to care for your children and offer them a good education. So if looking at „life satisfaction“ we also need to know to what extend these factors are related to income. In many European countries the correlation between good healthcare and personal income is weak – as is the chance of going to college. I am not worrying (yet) if I can afford sending my girls to college. It’s for free! I am not concerned about affording a doctor if they get sick. Everything – including a heart transplant if required – is free until they are 18 years old, and near free for people with no or low income, such as college students or the unemployed. No money related worries here. Now of course there would be more satisfaction if we could afford visiting our relatives in Asia with the entire family – and help them out with their (very real) financial ordeals, but I cannot imagine that there would be an increase of happiness on my side if my income would rise beyond a certain threshold – and 128,000 Dollars certainly already is far beyond that personal “satisfaction” threshold of mine.

    Yet another aspect: we are all trained that ambition and success are key factors in life, and that success is defined by income. This an archetype deeply engraved in our contemporary culture, a fungus that took over the brains of the majority of the world’s population. People with high income will state they are satisfied with their life, because it is, quite simply, culturally defined that way.

  4. Jeremy says:

    Interesting thoughts, and yes, that graph definitely suggests a ‘cycle of greed’. As you say, it’s likely to tail off as well. If you have a billion and you get another billion, does that move you up one point on the life satisfaction scale? I doubt it. But then if the IEA included the incomes of the infamous top 1%, they’d unravel their own arguments.

    Definitions of happiness are important here too, and I’m sure plenty of people report being unhappy because they don’t have things they want, as that’s what we’re brought up to think. In such a culture, happiness can be relative in the same way that poverty is relative. Many of us have everything we need to be happy, but we see all the things that others have on TV and in magazines. The gap between our lives and others’ lives is experienced as lack, and we feel the unhappiness that results.

    Having said that, the results of the government’s first survey of national wellbeing seem to suggest that most of us are actually pretty happy. Perhaps it has something to do with the 64 million prescriptions written out for anti-depressants last year…

    And yes, I wouldn’t bother to read the report. The Institute of Economic Affairs is a free market thinktank, and what makes us happy is well outside their field of expertise.

    1. Stefan Thiesen says:

      Yesterday I finished reading “The Fear Factor” by Robert Harris, and although I am not much into thrillers in general, it really was a good read. I especially liked the difference between the high energy physics research world (in this case CERN) and the world of high end algorithmic stock trading (which, in this detail, was new for me). And what they had in common, as both were described as playgrounds for people with too much extra brain capacity and a severe lack of social skills. But the fear factor as a driving force of our weird economy struck me as disturbing and true at the same time. I myself noticed that whenever I leave the TV off, whenever I don’t browse the web, don’t turn on the radio and don’t read a newspaper for only two or three days, a great feeling of calmness overcomes me. No advertising, nobody telling me what I am supposed to want – and no disturbing news about impending disasters, mostly related to one or another form of financial meltdown. Instead: peace.

      The IEA report has yet another flaw, but you basically mentioned it already. It embraces the good old trickle down delusion, assuming the “growth” manifests as increased income for everyone. This could be seen as the major flaw since it has long been proven that that’s simply not happening. An old friend of mine, who was chief economist at the bank of Hawaii, already wrote about that in the Early nineties. Trickle down has been proven wrong for 2 decades.

  5. Tony Franks says:

    Happiness is transitory, the real goal should be to lead lives that are meaningful, this can give the individual some or all of: value, self-worth, happiness, calm, engagement, transcendence, equilibrium, but they won’t all arrive together, and they won’t all arrive, and crucially, they won’t be permanent.

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