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The economics of happiness

By Joseph Lindemuth
web posted November 28, 2016

Should increasing GDP be the economic target for the nation?  Should policies be based purely on income and money? These are questions Angus Deaton asks in his "Using happiness data in policy making" article published in September 2014.  How does happiness and well-being factor into these policies? It doesn't usually, unless the specific point of a policy is related to well-being. The happiness of people can significantly affect the economy. If people want to work or enjoy doing what they do, then labor is increased because people put effort into what they are doing. What if the government made a policy that it would find jobs for people based on their skills and education so that human capital is maximized to its fullest potential? This makes sense at first, but people don't like being told what to do, especially if it is something they don't enjoy.

Take for example, somebody who has education in computers and experience programming. The government, under the previously stated policy, would find a job for this person as a computer programmer. He would not have to do anything to find a job, and he would be maximizing his skills so that would be good use of human capitol effectively increasing supply. On the other hand, what if this person didn't like computer programming and only did it for a few years to earn money. Instead he wants to be a construction worker. He has enough education and skills to be a construction worker but wouldn't be maximizing his human capitol effectively decreasing supply. Or would he? Put yourself in his shoes. Being forced to be a programmer makes sense because he would get the most out of his education, but he wouldn't put as much effort into it because he doesn't like it, causing less work to get done. As a construction worker, he would happily work efficiently because he puts his effort into it.

Both ideas make sense. It seems a compromise would be the best solution. But how should it be decided which way to lean towards, maximizing the effect of education and experience or people's happiness. This is still working under the assumption that maximum output is the goal. There is also the fact that happiness should be a goal in and of itself. If it is decided that there should be a compromise that equalizes efficiency and happiness, then the problem arises how do you compare those two let alone measure happiness. It is not a substance or a statistic, it is an idea, an emotion. There is no scientifically accurate way to measure happiness.

The best compromise I can imagine, assuming this government policy, is the government finds and suggests jobs that would fit people's skill well, but doesn't force people to follow these suggestions. Even better (and this happens a lot anyway) is people choosing education and work that they enjoy not what will get them the most money.

This is only an example, the idea of keeping people happy to increase productivity applies in other areas as well.

Things that make people enjoy life more should not necessarily be promoted to everyone. The things that make one type of person happy do not always make other types of people happy. People with children are statistically less satisfied with life, does this mean that the government should discourage people from having children. Obviously not, for one there would be no future at all. Also, you can't determine from statistics whether it will be beneficial for a family to have children.

One example that Angus Deaton uses is people who live near an airport have lower life satisfaction than those who don't because of how much noise there is. People with higher life satisfaction are more willing to put effort into their work and be more productive. Should this mean that the government should create noise control policies or only allowing planes to land during certain hours. Even if the cost and logistics of changing how the airport functions is not considered, there is still a significant opportunity cost of creating these policies. The houses that are near the airport will be significantly less expensive because of the noise. It is not the noise that affects these people's quality of life but the fact that they must buy cheap housing because their income is too low to afford the same size house away from the airport.

Happiness and well-being is a very complicated subject of economics. There is a very fine balance that must be come to when any policy is made. ESR

This is Joseph Lindemuth’s first contribution to Enter Stage Right. © 2016 Joseph Lindemuth






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