Professor Philip Booth is the Editorial and Programme Director at the Institute of Economic Affairs. Today the Institute of Economic Affairs have published a new study “…and the Pursuit of Happiness: Wellbeing and the Role of Government”.

Screen shot 2011-10-13 at 16.54.31A major policy plank in the re-branding of the Conservative Party has been the adoption of well-being economics – one of the favourite fads of the left. Six years ago, David Cameron made a speech in which he said that there is more to life than money and that it was time we focused not on GDP but on GWB (general well-being). Twelve months ago, he re-entered the fray again stating that “[measures of well-being] could give us a general picture of whether life is improving” and eventually “lead to government policy that is more focused not just on the bottom line, but on all those things that make life worthwhile.” The economics in the speech was facile, and notable for three examples of what economists call the “broken window” fallacy. The Prime Minister suggested that crime actually increased GDP because it increased spending on locks, clearly not understanding that it merely diverts spending towards locks from other things.

Today the Institute of Economic Affairs published a new study “…and the Pursuit of Happiness: Wellbeing and the Role of Government”, that examines almost every aspect of well-being (or happiness economics). The authors are very sceptical of the Government’s approach and underlying assumptions. It is demonstrably not true, for example, that governments focus on GDP alone, as the Prime Minister suggests. If that were the case, we would have much more liberal planning laws, we would rid the country of employment regulation and government would spend less than 30 per cent of national income. Indeed, if government spending had been held for the last fifty years at the same proportion that we had in 1960, national income per head would probably be twice as big as it is today. So much for governments being obsessed with maximising GDP.

It is argued that well-being in society will be promoted if we have greater equality and spend less time trying to earn more money. If we get off our hedonistic treadmill, we will find some level of deeper satisfaction and be happier with our lives. However, as one of our authors notes: “There is no credible evidence that people in more egalitarian countries enjoy happier lives, nor is there any empirical reason why they should. Scholars of happiness have identified many factors which improve life satisfaction scores but income equality is not one of them.”

Screen shot 2012-01-13 at 17.53.00For those of you who prefer pictures, this graph shows the relationship between equality and happiness in the US. Clearly there is no relationship. International data shows the same pattern.

David Cameron has made a particular point out of the supposed lack of relationship between income and happiness. This also fits in with the trendy left wing agenda that legitimises envy. The economics of happiness proponents suggest that we do not get happier as income rises and the reason is because our happiness falls as other people in society get richer. In other words, the happiness we gain on the income swings we lose on the envy roundabout as those around us also get richer.

This is why some suggest, despite the lack of evidence, that greater equality leads to greater happiness. Others suggest that as we accumulate more “stuff” we do not get happier – we just want yet more “stuff”. There are several flaws in this argument. However, at a fundamental level, the Prime Minister should note that the best analysis of the data now suggests that we do actually get happier as income rises. Money does not buy happiness, but it does make life more comfortable and more bearable and well-being does improve. These relationships are robust across time, across countries and within countries. It is true that we do adapt to our changed conditions, but this does not mean that we are not happier if we get better off.

Happiness is also linked with happy marriages, religious belief, employment and economic freedom. This is troubling for the left, though perhaps not quite as troubling for the well-being proponents in the Conservative Party. Should the state promote religious belief? I don’t see well-being proponent Polly Toynbee suggesting that it should any time soon. We do not need well-being economics to tell us that it would be a good idea for the state to stop discriminating against marriage in the tax and benefit system and one half of the coalition does seem to recognise this. David Cameron should, however, reconsider his well-being at work agenda being promoted through policies of promoting more employment rights, parental leave and compulsory holidays. Our study shows that there is little evidence that such policies improve the well-being of the employed. However, if they raise the costs of employment and lead to higher unemployment, these policies will significantly reduce well-being overall.

And this really leads us to the main point. The Government does not need to collect well-being statistics in order to try to educate, exhort and lead society (in the Prime Minister’s own words) in the direction of greater happiness. The Government should do less, not more. Greater freedom from government actually increases happiness in its own right. The side effects of greater freedom from government (more employment, higher incomes and the dismantling of welfare systems that discriminate against work and family) also lead in the direction of greater happiness. In other words, government should not try to make us happy, it should allow us to pursue happiness. It should reverse the half-baked policies of collecting data on how happy we all are and get back to an agenda that ensures that we are free – individually, as families and in broader social networks – to pursue happiness.

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