The Trojan Horse of Happiness Research

0:00I'd be curious of how many of you have even heard of happiness research in the field of economics. It looks like about half, something like that. So I'm going to, you know, the Trojan horse of happiness research, I'm going to do 15 minutes for a bit of a critique. If you want to read survey articles, Bruno Frey has written several of them, F-R-E-Y, Bruno, One in the Journal of Economic Literature and in several other places. And so if you want to read up on this, that's where to go. And basically what it is, is that it comes from psychology that an economist started doing research based on surveys done by psychologists asking people, how happy are you on a scale of one to ten?

0:49And then, you know, doing it by income, whether you're employed or unemployed, whether you're married or unmarried, and it's become a huge industry for economists. I just read recently on the web that the British government is spending $300 or $3 million, the equivalent of $3 million, on a research program to measure happiness in England. And so that's a good way of a full employment program for economists. But after looking at some of the literature, and there's a huge literature, I think a lot of it is really insidious from my perspective. And one of the things that this literature does is it simply assumes that utility is cardinal and measurable.

1:42There's really no argument that is made, they simply say, we're going to ask people how how you feel on a scale of 1 to 10, and we're going to call that cardinal utility, and that's it. And the old debate over cardinal versus ordinal utility is over according to these people. Utility is measurable after all, and they do it based on opinion surveys, and they assume that the values expressed by the people who respond to the surveys are constant, which which of course they aren't, we change our minds about things, and they assume of course that the people who answer the surveys are telling the truth, which is not always necessarily true also.

2:29And I asked Bruno Frey about this a couple years ago, I was at a conference in Prague where he made a presentation, and I asked him this question about, you know, what is These are justifications for abandoning the age old practice of economists of relying on demonstrated preference rather than opinion surveys and his response was that GDP data are bad also, if my data are flawed so are GDP data and here's, I'm going to read one thing that Murray Rothbard said about this in his article called Toward a Reconstruction of Utility and Welfare Economics, one of the most absurd procedures based on a constancy assumption that is constant values, your values don't change, has been the attempt to arrive at a consumer's preference scale not through observed real action but through quizzing him by questionnaires.

3:26In vacuo, a few consumers are questioned at length on which abstract bundle of commodities they would prefer to another abstract bundle and so on. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people when they are not confronted with the choices in actual practice. Not only will a person's valuation differ when talking about them from when he's actually choosing, but there's also no guarantee that he's telling the truth. And so that's a very articulate explanation of why, up until this research came along, economists didn't use opinion surveys. We rely on demonstrated preference, but these people, these researchers have just thrown this out the window.

4:12Here's one statement from the Frye survey in the Journal of Economic Literature. He says, quote, happiness functions, they create happiness mathematical functions. Happiness is a function of income. Happiness is a function of whatever variable they want to measure. These functions have sometimes been looked at as the best existing approximation to a social welfare function. It seems that at long last, the so-far empirically empty social welfare maximization is given a new lease on life. And so they've resurrected the old social welfare function that, when I was in graduate school, back when the dinosaurs roamed the earth, I was taught why this is a bogus concept, that you can't aggregate utility in any way.

5:02But they claim to be able to aggregate social welfare now with these surveys. Another thing that is in this survey is that the literature, there are many articles that have come to this conclusion that income has increased dramatically since World War II in the capitalist, you know, more or less capitalist countries, but happiness has not. So people go to work every day, they start new businesses, they invent new products, and they keep doing that year after year after year, but it doesn't make them happy. But they keep doing it anyway. But that's what the statistics say. This is all, you know, highbrow econometric research that is used to arrive at these conclusions.

5:49They also resurrect interpersonal utility comparisons, because after all, if utility is measurable now with opinion surveys, you can compare. And so we can compare the utility that one person has over a dollar compared to another person based on what they say in these opinion surveys. And of course, that's one of the keystones of Austrian economics is the recognition that This is impossible to make interpersonal utility comparisons. Another conclusion of this research is this, and I'm quoting from the Frey article in the Journal of Economic Literature. Wealthier people impose a negative external effect on poorer people, but not vice versa. So wealthier people impose a negative externality on poorer people because they envy the wealthy.

6:43Envy is a negative externality, But according to the econometrics, the poor don't impose a negative externality on the rich. So I wrote in a margin here, so the welfare bums and loafers do not impose a negative effect on the people who pay for their welfare benefits.

7:05Keep in mind, this is all said after a blur of mathematics and endless regression equations in the academic journals. to give them the authority to say these things. Another conclusion, raising everybody's income does not increase everybody's happiness, but improving one's income in comparison to others does. So income redistribution increases everybody's happiness. But if everybody becomes wealthier at the same time, that doesn't increase everybody's happiness, Contrary to All Reality. Then another conclusion, and I'm going to quote again from Fry, the production of luxury goods such as expensive watches or yachts is a waste of productive resources because overall happiness is reduced.

8:04They conducted studies where people claim that they have a negative externality by the fact The fact that other people have Rolexes and yachts and they claim, and since you can compare utilities now, interpersonal utility comparison, they came to the conclusion that the diminished utility from the envy of the lower income people over the yachts and the watches overwhelms any benefit that the watch owners and the yacht owners have in terms of utility. Therefore, of course, why not tax away the wealth of the people who buy the yachts and the watches? The Phillips Curve is resurrected in this literature. Here's another quote. If unemployment rises by 5 percentage points, the inflation rate must decrease by 8.5 percentage points to keep the population equally satisfied.

9:01And so, well, that's what the Phillips Curve said, you know, the Phillips Curve trade-off between inflation and unemployment, but they have sort of a satisfaction curve based on the trade-off between inflation and unemployment. And so the Phillips Curve and Keynesianism is supported by this. Another conclusion, and I'm quoting from a survey article in the Journal of Economic Literature that surveys, you know, numerous articles that have come to these conclusions. So these quotes I'm reading are not just conclusions of one isolated article. This is a survey article and these are some of the main conclusions based on these hundreds of journal articles that have been written over 20 years. Welfare payments should be increased to compensate for larger family sizes so as to maintain the subjective well-being of the family.

9:52So welfare is not big enough. The fight for relative positions in society is socially wasteful. And the high income recipients as winners of these races should be more heavily taxed. That's a direct quote. And so people who aspire for excellence, entrepreneurs who have a hunger to invent something and be successful, it's a race. It's nothing more than a race. And in this quote I just read, these people should be taxed for doing that. John Kenneth Galbraith is held up as perhaps the founding father of happiness research because he wrote the book The Affluent Society in the 1960s in which he denigrated affluence.

10:44And that's what this research does. So you're probably getting the message of why I think this is insidious, this whole area of research. There are lots of, a lot of this research, there are, I ran across lots of really inane pseudo-scientific mumbo jumbo dressed up in mathematical equations and econometrics. And so you have page after page after page of math and then statistics and econometrics to arrive at the conclusion. And I wrote down maybe a dozen or so of these conclusions that come after all this pyrotechnic stuff in these journals, and so I'm going to read you some of these quotes.

11:29And this is true of a lot of mainstream economics, by the way. You could go to any economics journal and find things like this. Here's one, a point of brilliance. Persons with higher income have more opportunities to achieve what they desire. There is diminishing marginal utility with absolute income. British lottery winners reported higher mental well-being the following year. There is more to subjective well-being than just income level. That's a shock. On average, persons living in rich countries are happier than those living in poor countries.

12:18Happiness of unemployed persons is much lower than that of employed persons. Experiencing unemployment makes people very unhappy. It sounds like three-year-olds saying this. Bruno Frey might win the Nobel Prize for this someday, if Paul Krugman can win it. Freedom and happiness are positively related. Who would ever have thought that? Inflation lowers reported individual well-being. That makes some sense. And then the final thing is there's also a part of the literature. Professor Bruno Frey himself has been publishing in Public Choice for many years and so he has published some articles on the influence of federalism and democracy.

13:11He's from Switzerland so he's a big fan of direct democracy and of course he's done all these econometric studies showing that direct democracy creates happiness in Switzerland anyway. But the way I look at it is, I wrote down my note here, allowing the sheeple to vote What Makes Them Happy, and so he sort of makes generalizations about democracy and direct democracy per se, making people happy, but you have to take it into context of what sort of constitutional arrangements there are in a different country. You know, I remember the Soviets used to brag that they had 99% voter turnouts, and so they had a form of democracy there, and so there wasn't that much happiness.

13:56And so that part of the literature seems very incomplete. And that's about all I have time for, I think, for now. I wanted to explain to you why I think so-called happiness research really is a Trojan horse. And there's a lot of it. It's been out there for 20 years. And there are books written about it now. And then the final thing I'll mention is that I ran across an article on the web stating that the country of Brazil is, I'll just read you what it says. There's a bill before Brazil's Congress, which would insert the phrase pursuit of happiness into Article 6 of the Constitution, which states that education, health, food, work, housing, leisure, and security, among other issues, are the social rights of all citizens.

14:43And so that's one country where this is being used to sort of resurrect Franklin Roosevelt's economic Bill of Rights, right to housing, right to a job, and so forth, and I think that's where this is headed, and Bruno Frey would deny it, I asked him about that and he denies it, but it sure seems like it to me.