Event Summary: Informing Policy Choices Using the Economics of Happiness

June 3, 2004

When comedian Henry Youngman famously quipped, “What good is happiness—it can’t buy money,” he never could have guessed that the dilemma posed in his question might one day become an area of serious academic research.

Yet an increasing number of scholars and academics are taking a closer look at the relationship between money and happiness in order to see if insights into what makes people happy can lead to more effective social policies.

Some of those in the forefront of studying the “economics of happiness” took part in a panel today at the Brookings Institution. The social scientists are wrestling with a dilemma described by Brookings Visiting Fellow Gregg Easterbrook in his recent book, The Progress Paradox: How Life Gets Better While People Feel Worse.

“Almost every indicator is improving,” Easterbrook said, “and people are miserable about it.”

Ed Diener, an alumni professor of psychology at the University of Illinois, presented evidence suggesting that “life satisfaction” in the United States has stayed the same—and even slightly declined—since 1946, despite a three-fold increase in our national income.

This apparent contradiction has panelists convinced that a new methodology is needed to quantify the well-being of Americans. Currently, the state of the nation is almost exclusively measured by economic indicators such as gross national product (GNP), interest rates, unemployment rates, and various stock indexes. Panelists, however, argued that such economic measures fail to take into account important criteria regarding quality-of-life. This, in turn, has created a gap between economic prosperity and personal happiness.

Panelists said that the research on economic well-being, once a vague abstraction, is now comprehensive and statistically sound. Cost-benefit analyses can now be used to put dollar values on such non-economic indicators such as satisfaction of life, work, marriage, depression, stress, trust, and security.

“We really are incredibly driven in public policy by gross national product,” said Jeffrey Sachs, director of Columbia University’s Earth Institute. “It’s our national discourse to a huge extent?But GNP tells us nothing about whether we’re better off or not.”

Placing greater emphasis on the economics of happiness, according to panelists, could yield several important policy advances. Brookings Senior Fellow Carol Graham showed data measuring economic mobility and well-being in Peru (1991-2000) and Russia (from 1995-1999), and she said the data could more clearly suggest potential problems than traditional economic indicators.

“Happiness research could help us get a better view of policy questions,” Graham said. “These survey tools may lend insight and help us understand countries that are more close to instability than we would think.”

“This research will provide new ways to tackle longstanding traditional problems,” said Andrew Oswald, an economics professor at the University of Warwick. “It will allow us to do a true cost-benefit analysis bearing in mind the things that really matter to people.”