Friday, May 27, 2011

John Quiggin, “The Economics of Unhappiness”

“The Economics of Unhappiness”
By John Quiggin

“For at least the past decade, there has been a boom in work on the economics of happiness. But recalling Tolstoy's famous opening lines in Anna Karenina, I've always wondered why we don't study the economics of unhappiness instead. After all, we have so much more data.

The American tradition is to enshrine economic activity as a central element of "the pursuit of happiness." In reality, however, economic activity is largely concerned with the relief of unhappiness. At the subsistence level of economic activity that has prevailed through most of human history, people must work to eat and to be clothed and housed, not so that they can enjoy the happiness that these goods can bring but so that they can avoid the pain of hunger, cold, and exposure to the elements. In developed economies, most of us can assuage these fundamental sources of unhappiness. But whether because of drives inherent in our nature or because of the constant efforts of advertisers and others, we seem destined to remain unhappy with our economic lot.

Despite the burgeoning literature on happiness, and the contributions of prominent economists such as Richard Easterlin, Richard Layard, and Andrew Oswald, the general response of the mainstream English-language literature in economics has been to shrug and leave questions of this kind to psychologists and marketers. However, there is some interesting discussion going on in Europe, and a couple of recently translated works might help to stir the debate.

First up is Tomas Sedlacek's "Economics of Good and Evil: The Quest for Economic Meaning From Gilgamesh to Wall Street" (Oxford University Press, 2011), a surprise best seller in the original Czech and with a glowing foreword by Václav Havel. More than half of the book is devoted to the economic views of the ancients, starting with the Sumerians, but Sedlacek's closest engagement is with Adam Smith. A primary concern is what Joseph Schumpeter called "Das Adam Smith problem." That is, how to reconcile the Adam Smith of "The Wealth of Nations"—the advocate of the benefits of self-interest celebrated by Adam Smith clubs, Adam Smith tie pins, and the like—with Adam Smith the advocate of sympathy as the foundation of social order in "The Theory of Moral Sentiments." This is a problem that has been tackled from many angles but never before, I suspect, based on an interpretation of the epic of Gilgamesh.

The core issue is not so much evil in general but the desire for more of everything, traditionally stigmatized as "greed" or "avarice" in Christian thought, but viewed more positively as "aspiration" in modern times. Sedlacek inclines to the Christian view and even more to that of the Stoics, that "we have to be satisfied with what we have, and that happiness can be found precisely in that." But, as he observes, that is hard advice to live by, and even more so in the modern world. Views about life and its possibilities, about good and evil, are fundamentally altered in a society characterized by economic growth as compared with the essentially static economic possibilities of the ancient and medieval worlds. Arguably, it is precisely the experience of economic growth that distinguishes the economists of the Enlightenment era (most notably the Scottish Enlightenment, which gave us Smith) from their pre-modern forebears.

From early times—say, 2,000 years before Christ—down to the beginning of the 18th century, there was no very great change in the standard of life of the average person living in the civilized parts of the world. Ups and downs, certainly. Visitations of plague, famine, and war. Golden intervals. But no big progressive shift. Some periods perhaps 50 percent better than others—at the utmost 100 percent better—in the 4,000 years that ended roughly in AD 1700.

The realization that life had changed fundamentally was reflected in the 17th- and 18th-century disputes between advocates of the ancients' values and those of the moderns. Supporters of the ancients, represented most effectively by Jonathan Swift in his "Battle of the Books," scored some rhetorical points but couldn't obscure the evidence of intellectual and scientific progress. By the middle of the 18th century, the Industrial Revolution was under way, and the era of economic growth had begun.

Sedlacek's book is fascinating, but it leaves us with more questions than answers. His discussion of premodern thought persuades us that the willy-nilly pursuit of more of everything is misguided. But he fails to convince us that "being satisfied with what we have" is an adequate goal for modern humanity. In a world where change, both good and bad, is inevitable and pervasive, cultivating a position of stoical detachment, and an ideal of stasis, seems something of a cop-out.

How, then, should a constructive modern stoic seek to live? To the extent that stoicism involves freeing oneself from irrelevant attachments to material goods, technological progress provides us with more options, as John Maynard Keynes observed in his "Economic Possibilities for Our Grandchildren." (This is a title that reads somewhat ironically today. Even though the grandchildren of Keynes's generation are the grandparents or great-grandparents of today, we have made no progress at all in freeing ourselves from the frantic pursuit of economic gains that he hoped would become obsolete.) But taking advantage of the opportunities provided by developments like the Internet without being seduced by the appeal of ever more intricate gadgetry remains a challenge most of us find difficult.

In recent writings gradually being translated from the original Italian, Stefano Bartolini offers some possible alternatives to a consumption-driven society. Although the work is presented as a Manifesto for Happiness, Bartolini begins, as is necessary, with a focus on the central role of unhappiness in economic life. He argues that growth in the economy is driven by negative, self-reinforcing externalities; that is, economic interactions among people that are not mediated by markets or voluntary exchange. One class of externalities arises from positional aspects of consumption, or, more plainly, "keeping up with the Joneses." To the extent that social relationships depend on relative consumption levels, an increase in consumption by one individual or family places pressure on others.

This need not be a matter of superficial envy or aspiration. For example, at a college where few students own cars, social interactions will necessarily take place on or near the campus, and will typically involve relatively limited expenditures. But if many students own cars, they can socialize in nightclub districts or other off-campus venues. Not only are students without cars disadvantaged in terms of access, but the new entertainment options are likely to be more expensive. So there is pressure to take on part-time or even full-time jobs to finance the expenditures required for participation in the social life of the college. That reduces even further the chance to participate in a more traditional on-campus culture.

The other class of externalities considered by Bartolini are those associated with environmental degradation. That problem has been dealt with extensively in the literature on environmental economics, and was the motivation for Arthur Pigou's development of the externality concept, in the 1920s. An externality is a benefit or cost to one individual or firm, arising from the economic activity of another, that does not arise from a market transaction between the two. The classic example is that of environmental pollution, in which a factory can pour smoke into the atmosphere without compensating its neighbors or obtaining their agreement.

Bartolini's contribution is to observe the potentially self-reinforcing nature of a process by which people seek to insulate themselves from the consequences of environmental degradation through the acquisition of yet more material goods. A contemporary example, though one of primarily symbolic importance, is the plastic from plastic water bottles discarded by consumers trying to avoid impure water. Bartolini points to the broader problems created when tourists from wealthy industrialized countries seek to escape to "uncontaminated places and tropical paradises," often destroying what they came to find.

In the first part of his manifesto, Bartolini argues for a focus on relationships as the antidote to a materialist culture. In particular, and in common with many proponents of similar arguments in the past, he sees the industrialized education system as a fundamental part of the problem, and a more humane "relational" approach to education as central to the solution. He argues for an education based on the intrinsic enjoyment of learning and creation, rather than the extrinsic goals of money, jobs, and social status. He does not propose a political path by which such a transformation can be achieved, but promises one in writing yet to be translated.

Consider, though, that if the question of how to live a good life has challenged us since ancient times, and the unprecedented technologies of today have complicated that conundrum, the matter remains something of a luxury in a world where a billion or more people still live in the most extreme poverty despite endless labor. For the moment, the question of justice in global distribution remains at least as urgent as that of optimal production and consumption among the affluent."
John Quiggin is a professor of economics at the University of Queensland, in Australia, a columnist for "The Australian Financial Review," a blogger for Crooked Timber, and the author of "Zombie Economics: How Dead Ideas Still Walk Among Us" (Princeton University Press, 2010).
Hat tip to Alex Noble for this material.

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