Thursday, June 4, 2015

Money can buy happiness, but only if you let me have more than you

M.C. Escher, Encounter, 1898.
This thing from Politico's magazine section, endorsed by Ramesh Ponnuru:

Soaking The Rich Won't Make America Happy

It turns out money does buy happiness. But happiness isn’t everything.
...(it won't make us happy, though it would make us happy, but then is that all you want anyway?) gets even more confused as you work your way into the argument.

1. Robert F. Kennedy in 1968 started a
movement to make happiness, rather than wealth, the priority of public policy. “The gross national product,” Kennedy said, “does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials..."
OK, so the claim is that happiness reports provide a better measure of how well government is doing its job than the GNP. Costa Rica has a better government than Azerbaijan, and Netherlands just might be doing better than the US, too. Any questions?

2. Let's pretend that this theory says something totally different:
Happiness research has been and continues to be used to bolster the high-tax anti-economic growth agenda of the far left. To understand how this happened, you need to grasp why social scientists once believed that economic growth doesn’t boost a country’s happiness.
Whose agenda is opposed to economic growth? Who said economic growth doesn't boost national happiness? The "high-tax agenda", "far left" or otherwise, is not at all "anti-economic growth".

It's a radical rightwing position that progressive taxation slows growth (based on the single piece of evidence that the nation did well on the cut in top marginal rates from 91% to 70% proposed by liberal Democrat John Kennedy in 1963 and passed under liberal Democrat Lyndon Johnson in 1964 over furious opposition from budget-balancing conservatives of both parties, in a purely Keynesian move completely unlike the crazy tax cuts of the Reagan and Bush II administrations), and the position of everybody else, from Nixon leftwards, that it doesn't.

If there's a corresponding claim in the "happiness agenda", it's that growth promotes happiness only to the extent that it's fairly distributed, which is obviously true. If there's a community of a hundred people making $100 each, and then the next year one of them makes $990,100 while the income of the others is unchanged, then their GDP rises from $10,000 to $1,000,000, or a growth of 10,000%, but 99% of the population is just as poor, and miserable, as before.


Richard Easterlin, an economist at the University of Southern California, looked at the spotty survey data available at the time and found that, more money made individual citizens happier but, paradoxically, didn’t make a country any happier overall.
Exactly. Although only an economist could call it "paradoxical" (the economist who went deer hunting, took one shot six yards wide to the left, another shot six years wide to the right, and shouted "I got him!").
To explain this perplexing pattern, which was dubbed the “Easterlin paradox,” a host of left-leaning thinkers fixated on the hypothesis that it’s our relative standing that matters for happiness. But anytime someone rises in relative income, someone else must fall. That’s why average national happiness doesn’t rise with national income. Because math is cruel. Because half of us will always and forever earn less than the median income, no matter how lofty the median becomes.
Not exactly. Inequality is what matters here; if everybody's absolute income is rising and inequality is diminishing, changes in relative status will be less traumatic for the losers. While relative happiness judgments became a pretty important part of the research on the economic factors of individual happiness, what was needed for the study of societal happiness was a development of the concept of inequality, which is really the biggest thing going on, well before the emergence in English of the Piketty book, as in this very masterful and comprehensive paper by Carola Gruen and Stephan Klasen, "Income, inequality, and subjective well-being", 2013:

Income growth has a significant effect on average national happiness, in fact, but much more significant in low-income than high-income countries, because enough is enough; but inequality reduces overall happiness everywhere.

4. Bring out the big guns!
In a series of groundbreaking papers, economists Justin Wolfers and Betsey Stevenson analyzed bigger, better data-sets with the most sophisticated available statistical techniques and found “a clear positive link between average levels of subjective well-being and GDP per capita across countries” and “economic growth associated with rising happiness.” According to Stevenson and Wolfers, a 20 percent increase in income has the same impact on happiness, regardless of the initial level of income: rising from $500 to $600 of income per year yields the same impact on well-being as rising from $50,000 to $60,000.
Not quite, you see, because for one thing while the Wolfers and Stevenson research looked pretty interesting to David Leonhardt (and Daniel Kahnemann) in 2008, it is based to some extent on Stupid Economist Tricks—as Eric Falkenstein writes,
I think it's best to say, no relation, and to stop drawing lines on blobs.
And for another, it ignores the inequality issue, and therefore misses the most crucial example. Their strongest results are for the very richest countries, where there seems to be no "satiation point" at which higher incomes stop being a happiness spur, but there are two exceptions, Belgium and the United States, and as Joachim Weimann, Andreas Knabe, and Ronnie Schöb (2015) write, although Belgium's problem is anybody's guess, the US is the only extremely wealthy industrialized country in which inequality is very high:

In most of the very richest countries, in Western Europe, Japan, and Canada/Australia/New Zealand, inequality is much less severe than in the US, along with their much better statistics on metrics like child poverty and life expectancy and so on.

Which makes Wilkinson's next point just nonsensical:
Taking money from the rich and giving it to the poor is redistribution of not just wealth but happiness. Taxing the rich hurts their happiness. If it boosts the happiness of the poor a lot more, which it should, maybe they should take the hit. But happiness studies on progressive redistribution find that it has either no detectable effect on average happiness or a very small one. This puzzling result is probably due to the effects of giving the poor money the rich might have otherwise invested in the economy. Other things equal, redistribution doesn’t seem to hurt national happiness. But it doesn’t help much either.
Reading into the Wolfers-Stevenson results the idea that they're somehow about "redistribution" is reading something that's not there anyway, but we've just seen that redistributionist France and Japan and Canada are happier than the anti-redistributionist States, that's just a fact.

5. And into the clouds!
But happiness isn’t everything. Happiness isn’t even most things. I’m a new father. I don’t know that my son has increased my “life satisfaction,” a common term in happiness research. I’m tired all the time, stressed. Everything’s harder. Every waking minute feels worse. But when I chase my boy down the hall and he laughs himself mad with his piping, woody little voice, I am consumed with love. In that besotted moment, I’d even say I’m happy. Add those fleeting minutes to the constant undertone of fatigue and low-grade misery, though, and I doubt I come out ahead.
In fact, happiness isn't even happiness! Huh?

Leaving aside the question whether one is still a new father when one's kid has arrived at the chasing-down-the-hall stage (to me the novelty had worn off by then, though I think I felt relatively happier than Wilkinson sounds), or what "woody" means applied to a toddler's voice (ew!), what is it even about then? If money buys happiness but happiness isn't all it's cracked up to be, why bother with growth in the first place?

I can't imagine at this point how this argument is even about economics any more; surely it's about how this life is all suffering and delaying gratification until we're dead, laying up that Heavenly Trust Fund off which we will live, as a spiritual rentier class, through eternity.

But in this world, you know, growth in your own income counts. You can get more out of that kid if you can spend more time with him and if he's assured of all the things, from bath to bachelor's degree, that he's going to need. And a society where only some have access to that stuff is a less happy one on the whole.

Moreover, if anybody was in doubt, the Piketty work makes it clear that pervasive social inequality and slow growth are linked. It seems plausible that rapid growth like that of the classic period from around 1910 to 1980 in the "Anglo-Saxon" countries itself decreases inequality, but it also seems possible that increasing inequality can slow growth, as happened with the upwards redistribution of income under Reagan and Thatcher.

Chart from Thomas Piketty, Capital in the Twenty-first Century, via Meng Hu.
In that sense it's the Reaganaut tax policy that's anti-growth, and at this point I can't see a rational argument for doubting it. The tax-cut mania isn't about growth at all: it's really just about the wealthy trying to accumulate all the money in the world.

Though a charming thought from Satya Paul at the University of Western Sidney suggests that maybe happiness itself can affect inequality:
This paper investigates the effect of happiness (self reported life satisfaction) on income inequality by exploring the causality from happiness to income based on the panel data from the first five waves (2001-2005) of Household Income and Labour Dynamics in Australia (HILDA) survey. Happiness is hypothesized to impact upon the income generating capacity of an individual directly by stimulating working efficiency and indirectly through its effect on the allocation of time for paid work. Both these effects of happiness on income are tested in a model consisting of an income generating function and work hour equation. The income flows of happiness and other variables obtained from the model are inserted into the income inequality decomposition equations to obtain their relative inequality contributions. The empirical results reveal that happiness has a positive effect on income generation and contributes to the reduction of inequality.
Which would certainly explain why our conservatives are so dead against happiness research—they know it's going to cost them!

No comments:

Post a Comment