The economics of happiness don't always add up

Academics are now asking whether eight years of growth have contributed to human satisfaction
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It is a quarter of a century since Fred Hirsch, a professor at the University of Warwick, wrote a bestseller on the "social limits to growth". Affluence, he argued, bred frustration. We could not all enjoy solitary possession of the world's best beaches.

It is a quarter of a century since Fred Hirsch, a professor at the University of Warwick, wrote a bestseller on the "social limits to growth". Affluence, he argued, bred frustration. We could not all enjoy solitary possession of the world's best beaches.

Hirsch, of course, predated the limitless potential of the virtual world; but now, in August, it's real towel-space we want. Meanwhile, those still slaving over a hot keyboard are more than usually inclined to wonder what it's all for - what, in short, continuous economic growth for eight years have actually contributed to the sum of human happiness. Such qualms, it seems, have even afflicted the economics profession. The latest newsletter of the Royal Economic Society reveals a sudden eruption of interest in the "economics of happiness".

Not, of course, for the first time. Anxiety about the consequences of wealth always increases in economic upswings; in downswings, people are too busy trying to hold on to their jobs. Materialism is most comfortably deprecated with your hand round a large Pimm's. And, along with materialism, the works of economists are blamed for our obsession with income and consumption.

That's hardly fair. The textbooks were not all written by Mr Gradgrind. Economics, from its early days, has provided us with ways of analysing "welfare", and now, for that matter, "negative externalities" - those side-effects of economic transactions, such as pollution, that worry a rich world. What is true is that economists have traditionally preferred objective measurement. They like to analyse what people do - how they make choices - rather than what they say. This particular prejudice has great virtues: it has enabled economists to deflate all sorts of paternalist pretences, by governments and companies, to know what we really want.

So perhaps economists should leave the analysis of such subjective concepts as happiness to psychologists, or the great novelists? Not if you believe, like another Warwick professor, Andrew Oswald, that economics is simply "the search for reliable patterns in economic data". Professor Oswald, one of the leading detectives of the economics of happiness, reported some intriguing patterns to an American conference last week.

His results show unhappiness to be strongly associated with unemployment, as well as with divorce and chronic ill-health. Which is only what one would expect. But the very clarity of these results contrasts with the uncertainty of the relationship between income and happiness. Surveys show that the least well off are the most unhappy. Again, hardly surprising - "Those who say money doesn't buy happiness don't know where to shop", as someone said. So what happens when we get richer overall? The puzzling answer seems to be, not at lot: the balance of happiness and unhappiness remains much the same. Indeed, in the US happiness has, if anything, declined.

There must, one assumes, be limits to this remarkable consistency over time. Civil war and starvation would presumably disrupt these basic patterns, which have mostly been analysed with respect to stable, developed, well-fed countries. And even there, some long-term changes do show up in the surveys: the black community in the United States, notably less happy than the white, has become happier over the postwar period (although economic advancement does not seem to have done as much for women).

But overall, the level of happiness seems remarkably unaffected by affluence. Between the 1940s and the 1990s, real incomes per head trebled in the United States, yet the proportions of Americans reporting themselves to be happy hardly changed. Similar results have been found in the UK, as the second table shows. And Japan doubly proves the point. Not merely has a fivefold increase in real incomes over the past half-century made little impact on happiness levels, but these actually tend to be lower than in some less well-off countries.

Some researchers argue that this does no more than reflect what is really happening to our quality of life: that affluence has brought as many costs as benefits. But it is hard to believe this would stand the test of choice: even the rosy glow of nostalgia would not lead many people to swap today's living standards for those of the 1940s.

So maybe the results are distorted by "cohort" effects? Perhaps there was a temporary bulge of happy relief among a generation that had experienced a world war, which as it faded cancelled out the boost to happiness from a higher standard of living. The "cohort" explanation, however, is at odds with another finding: happiness seems to decline with age, then rise again, and the turning point (somewhere at the end of our thirties) has remained remarkably constant.

Analysis, at least, should help disentangle cause and effect. Well, maybe: one piece of research concludes that "if there is any causal relationship in rich countries, it appears to run from happiness to growth, not vice versa". At the macro-economic level, that sounds reasonable: a discontented society is unlikely to operate efficiently. At the micro level it is less easy to believe: discontented and restless individuals are often the ones to achieve technological and business breakthroughs.

What is most interesting about this work is the extent to which non-economic factors shine through, in comparison with others - to the extent that Professor Oswald calculates the "value" of a lasting marriage at $100,000 a year. Less encouraging is the extent to which it suggests happiness to be relative: depending on what we see of other people's lives, as well as our own.

Some of the surveys ask us to report not happiness but "satisfaction", which gives a clue: even if I reckon my life is pretty good, why should I be "satisfied" with less than my neighbour? Perhaps this also helps explain the age pattern: in later middle age people adjust their expectations and are readier to count their blessings. (Or perhaps it's just that they no longer have to go on holiday with small children? No, sorry - forget I said that.)

Does any of this add up to a row of beans? Is it just an academic excursion? Well, there is one group to whom it matters very much, namely the politicians. It is more than two centuries since "the pursuit of happiness" was, along with life and liberty, elevated to the status of a constitutional right. Governing parties strive to generate the rather less elevated "feelgood factor" at election time. Traditionally, they have relied on income and consumption as measures of voter mood. (In Britain, the mortgage rate has also been a powerful factor; Mr Micawber could explain why.)

Both the Democrats in the US and (if he does not hang around too long) Tony Blair in Britain should enjoy the benefits of going to the polls on the crest of a long economic upswing. Yet even at this basic level, the economics of happiness can go topsy-turvy: the Tories managed to win the 1992 election deep in recession, but lose in 1997 despite five years of growth.

Some economists, notably Professor Yew-Kwang Ng, use this new research to try to remake the case for public expenditure. They argue that it has more impact on happiness than private consumption, because it delivers such things as security and environmental protection that people value increasingly and cannot buy for themselves. Such arguments under-rate both the inefficiencies of public expenditure and the dignity of independence, and ignore the extent to which electorates have voted to hang on to their own money. But they find echoes in the policies of Tony Blair's Government, whose recent U-turn on public spending has been truly remarkable. This will, however, take time to feed through: so the Prime Minister's election timing will be a nice call. Will he go early to capitalise on the "feelgood" factor, or risk waiting for the power of the public purse to be felt?

Sarah Hogg is chairman of Frontier Economics