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Evolutionary happiness economics

September 9, 2010

Academics go through fads just like everybody else. At the moment, one of the new crazes is “happiness economics”, which is getting quite popular among leftists because it allows them to justify all manner of taxes, regulations and new government programs.

Another fad with perhaps more substance and less political partisanship is “evolutionary economics” which focuses on the process of economic interaction rather than the outcome of market equilibrium. In truth, this “new” approach isn’t new at all, but a re-badging of Austrian and institutional economics which were developed a century ago.

Dr Jason Potts is a leading evolutionary economist, and he was kind enough to let me read through a draft of his latest paper which brings these two fads together — evolutionary happiness economics.

Happiness economists like to point out that money doesn’t really make you happy, and they generally conclude that the government should abandon economic growth as a policy goal and instead concentrate on redistributing money and investing in all manner of schemes as determined by happiness gurus. As with most fig-leafs for totalitarianism, there is some important truths at the base of the happiness literature. There can be decreasing marginal utility from money; positional externalities do exist; reported happiness hasn’t increased significantly in the west over the last 50 years.

There are also some standard responses to these points. In his paper, Potts nicely summarises the concerns of Johns & Ormerod (who point out that so-called measures of happiness don’t seem to be related to anything and that they are mostly made up of statistical noise) and Wilkinson (who points to the disconnect between happiness evidence and happiness policy). Bruno Frey manages to draw significantly different policy conclusions, arguing for more jurisdictional competition and experimentation instead of ever-bigger government.

There are other responses, such pointing out the happiness value of voluntary action & freedom, philosophical debates about the meaning of happiness and measurement of utility, public choice problems with happiness-hunting governments, the inevitability and flexibility of positional goods, the link between economic growth and longevity & better health, potential for money to decrease unhappiness and at least give short-term happiness, and the possibility that non-academics might be smart enough to figure the puzzle of happiness for themselves. I made some of these points in my 2005 book review of Clive Hamilton’s “Growth Fetish” (published in Economic Analysis & Policy).

But Jason comes at the issue from a different, innovative, and I think a valuable angle. Instead of taking a standard view of happiness outcomes, Jason looks at happiness as a process. He makes the obvious but important point that happiness provides information, and that positive and negative emotions give feedback on past decisions, so that people can make better decisions in the future. This is true not just with regards to your own happiness (if playing football makes you happy, do it again) but also when we observe other people (if you are happy playing football, maybe I should try it). This means that happiness inequality is actually an important indicator, and weakening that indicator will lead to retarded “happiness evolution”. As Jason says in his draft paper, happiness is similar to price signals as a way to coordinate information dispersed around society.

This is not inconsistent with earlier happiness economics, but it introduces a significant new variable, and makes all activist happiness policy immediately suspect… at least until it has been re-thought in light of Jason’s “happiness signaling theory”.

  1. Ben
    September 10, 2010 at 12:51 am

    Talk about junk science. But thanks for the laugh. It reminds me of one great book, “Manufacturing Victims: What the Psychology Industry Is Doing to People” by the Canadian, Dr. Tana Dineen.

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