Happiness

The latest publication from the IEA landed through the letterbox yesterday (I can't say plonked or thudded, because the IEA publications are always of eminently digestible proportions). It is on one of the most important subjects of modern policy and economy - happiness.

There is an increasing tendency amongst academics and politicians to decry policies that deliver simple economic freedom, and to talk up policies that try to deliver social benefit, usually at the expense of economic freedom. The pretext is a growing body of work that argues that prosperity and happiness are not linked, and suggests alternative approaches to maximising happiness (most commonly, though with little empirical or logical justification, the reduction of income inequality). In these demotic times, what modern politician can resist the call to maximise the public's happiness? Certainly not most of our bunch of intellectual lightweights.

The IEA booklet, Happiness, Economics and Public Policy, by Helen Johns and Paul Ormerod, tackles this body of work head-on, in its own terms. It examines critically the statistical merits of the happiness data, and the claims that standards of living are unimportant to happiness, and that other factors such as economic inequality are more important. It finds most of the happiness literature wanting.

This is a necessary counterweight to the burblings of politicians like David Cameron and "economists" like Lord Layard on the need for policies to try to maximise General Wellbeing (GWB) or Gross National Happiness (GNH), rather than Gross Domestic Product (GDP). It is to be hoped (but not expected in the race to the wishy-washy centre-ground) that politicians will read this booklet and stop sniffing Layard's glue.

But it would have been better still if economists had not progressed down this route in the first place, dragging politicians behind them. The pursuit of bogus notions of aggregate welfare can be traced back to those Cambridge con-men, Alfred Marshall, Arthur Pigou and John Maynard Keynes. It lies at the heart of the twentieth-century corruption of mainstream economic science. It goes hand-in-hand with the mathematicisation of notions (such as utility) that were never fit for quantification and aggregation. And yet it came to dominate economics as it is taught in most economics departments around the world.

On the basis of fighting fire with fire, Johns and Ormerod's book does an excellent job of using mathematical economics to argue against mathematical economics. It is likely to be taken more seriously by economists than arguments that dismiss the whole superstructure of modern economics (though it will probably be used more as an excuse for further study resulting in restatement of the happiness-advocates' position than as a cause of genuine reconsideration).

But for the minority who believe that mathematical, neo-classical economics is an illogical dead-end, such refutation is unnecessary, and the fallacy of the original claims unsurprising. Austrian economists did not claim that economic freedom increased happiness in a direct way. In 1927, Ludwig von Mises accepted in his book Liberalism (in Chapter 5, "The Future of Liberalism"), "It is true that all this straining and struggling to increase their standard of living does not make men any happier." "Nevertheless", he continued, "it is in the nature of man continually to strive for an improvement in his material condition." The point is not that improving your standard of living necessarily makes you happier, other than in a transitory way, but that reducing the opportunity to pursue your objectives, and the reward for your efforts, will certainly make you less content.

Economic freedom allows you to pursue your goals. Whether the pursuit of those goals makes you happy is up to you.