Although I clearly do not agree with current UK macroeconomic policy, I did note at the end of a recent post that the government had taken the positive step of collecting more data on happiness. (It also deserves considerable credit for setting up the Office for Budget Responsibility, which it predecessor did not have the courage to do.) So I was interested to see a recent broadside from the Institute of Economic Affairs attacking this decision, and the whole happiness project more generally.
Their collection of essays is slightly schizophrenic. It includes papers that try and show happiness is unrelated to equality, or employment protection legislation, and is negatively related to government consumption. However other papers and the introduction also argue that happiness data is an unreliable guide to wellbeing, and that the government should not use happiness data to promote wellbeing explicitly. What is the underlying problem? Why put so much effort into criticising a few extra questions in a survey?
This is a question that the New Economics Foundation asks in a refreshingly restrained response to the IEA document. The answer they suggest is that the IEA, and many of its contributors, have a fear that happiness data will be used by governments to do things government thinks will make people happier, rather than allowing individuals themselves to decide what makes them happy.
I am sometimes asked by students whether economics as a discipline has an ideological bias. What they often have in mind is the role of markets. My response, which I think is reasonable, is that once you get beyond the welfare theorems in Econ 101, what most economists spend their time doing is analysing market imperfections. So if you want to know what is wrong with markets, ask an economist.
However I think most economists do share one philosophical characteristic, and that is a deep distrust of paternalism. This is something I share – by and large, if it does not adversely affect other people, individuals should be allowed to make their own choices. But the by and large here is crucial. Sometimes individuals do make choices which are clearly bad for them.
This was cogently argued by Richard Thaler and Cass Sunstein in a short paper provocatively entitled ‘Libertarian Paternalism’ (American Economic Review, 2003, Vol. 93, pp. 175-9). A great deal of behavioural economics is all about departures from rationality, and these in turn can lead to people making choices that are not optimal. Thaler and Sunstein point out that sometimes government cannot avoid making decisions that influence choices. An example they give is enrolment in employment based savings plans. Should people be given the choice to opt in or opt out? What is called ‘status quo bias’ means that which happens will influence people’s choice. Given this, surely it is best for the government to choose the option that makes people better off in its judgement. The authors have subsequently developed these ideas in their book Nudge. The Economist has a nice summary of this position, and some arguments against it, here. Nudge has been very influential among policymakers, both in the UK and the US.
Decisions on whether to make savings schemes opt in or opt out, and similar nudges, seem fairly innocuous even if they are important. But what about forcing people to do things they might definitely decide otherwise not to do? Like wearing seat belts. Some economists have difficulties with making the wearing of seat belts compulsory, and regularly cite the possibility that it might encourage drivers to drive more dangerously. This belief seems fairly impervious to contrary evidence, and this post from philosopher/psychologist J.D.Trout has a justifiable go at economists as a result. The unfortunate truth is that individuals are rather bad at assessing low probability high risk events, and as a result it makes sense – at least in this case – to take away their choice. Can anyone think of a recent similar example with rather more global consequences?!So the bad news for the IEA and similar devotees of absolute individual sovereignty is that sometimes people do systematically make bad decisions, and the state is right on those occasions to do something about it. Equally, the state is often too paternalistic, and interferes when it should not. The state can also make bad choices. Given this, the more data we have that allows us to sort out whether government is helping or meddling the better. That is why happiness data is useful, because it can help us do this.