Prof. Bryan Caplan

Freedom and Happiness Conference


Political Economy and Happiness

I.                     Liberal Bias in Normative Happiness Research

A.                 Loewenstein’s challenge: “How could anybody study happiness and not find himself leaning left politically?”

While walking in Pittsburgh one afternoon, Loewenstein tells me [Jon Gertner] that he doesn't see how anybody could study happiness and not find himself leaning left politically; the data make it all too clear that boosting the living standards of those already comfortable, such as through lower taxes, does little to improve their levels of well-being, whereas raising the living standards of the impoverished makes an enormous difference.

B.                 Something else we learn from empirical psychology, though, is that people suffer from confirmation bias.  When the facts support your view, you get more convinced, but we readily ignore (or explain away) counter-evidence.

C.                It turns out that there are many findings in happiness research that clash with the stereotypical left-wing view.

II.                   What Loewenstein Didn’t See

A.                 Finding #1: Most poor people are happy!  In the GSS, roughly 80% of the poorest quintile say they are “very happy” or “pretty happy,” versus 90% of the richest quintile.  If the poor don’t feel bad for themselves, why should we?

B.                 Finding #2: Objective material well-being has relatively little effect on happiness compared to marriage quality, subjective job satisfaction, and personality.  Leftists are focusing on the wrong things.

1.                  See Regression #1 from the GSS.

C.                Finding #3: People have fairly fixed “hedonic set-points.”  Changes in external circumstances usually only have temporary effects on happiness.  (See Frederick and Loewenstein, “Hedonic Adaptation”).

1.                  E.g. studies of lottery winners – after a year or so, they are back to normal.

D.                Finding #4: Gratitude matters.  People who appreciate what they have – instead of complaining about how other people have more or took advantage of them – are happier.  Leftist grumbling about income distribution could be counterproductive on this ground alone.

1.                  E.g. Alesina et al find that inequality reduces happiness in Europe; but in the U.S., the only victims of inequality are rich leftists.

E.                 Finding #5: Employment matters a lot more than income for happiness.  Continental-style labor market regulations that try to push up wages at the cost of increased unemployment are a terrible idea from a happiness standpoint.

F.                 Finding #6: Absolute poverty – the kind you see outside the First World - does make people unhappy.  So preventing absolutely poor foreigners from immigrating because they might “undermine the welfare state” that protects relatively poor natives is demented happiness policy.

1.                  See Krugman’s strange evolution.

G.                Finding #7: Religion and marriage increase happiness.  Do leftist happiness researchers want the government to encourage religion and marriage?

H.                 Finding #8: Communism creates lasting misery, even adjusting for income.  Simply having been under communist rule at some point seems to substantially depress national happiness long after the nightmare is over.

I.                     (General Reference: Donovan and Halpern, “Life Satisfaction: the State of Knowledge and Implications for Government”)

III.                  Markets, Politics, and Misconceptions About Happiness

A.                 Some happiness researchers use their results to argue for government intervention on the grounds that people have misconceptions about what makes them happy.

1.                  Popular Sunstein-Thaler variant: “Libertarian paternalism.”

B.                 Under rule by psychologist-kings, the main utilitarian objection to such paternalistic policies is that people resent coercion – they are happier making their own mistakes than being pushed around for their own good.

C.                Under democracy, there is a simpler objection: If people have misconceptions about happiness, why should we expect policy to improve matters?  As I emphasize in The Myth of the Rational Voter, voters have weak incentives to overcome their misconceptions, and politicians have strong incentives to cater to voters’ misconceptions.

D.                Case study: the Iraq War.

IV.               Concluding Thoughts

A.                 The big lesson of happiness research, in my view, is that changing policy in the First World is unlikely to make us much happier.  Get used to it.

B.                 This undermines happiness-based reformism of all kinds, but also shows that much of the status quo is dispensable.  You need additional values to argue that one policy is vastly better than the status quo (or vice versa).

C.                Main happiness benefit of economic growth has been eliminating extreme poverty and increasing population. 

D.                The main thing rich countries can do to increase the number of people who do not live in extreme poverty is allow more immigration.

Regression #1


Questions for Discussion:


1.  How happy are poor Americans, really?  How about rich Americans?


2.  What is the lowest income you think you could be very happy on?


3.  Why is practical politics so focused on material well-being instead of more important sources of happiness?


4.  Why do even most liberal pundits (e.g. Krugman) put so little weight on the happiness of foreigners?


5.  What political biases about happiness research are liberals and libertarians likely to share?


6.  Is the median voter a wise paternalist for the least competent 10 or 20 percent of the population?