Michael Kelly: Politicians realise they simply can't buy happiness

I am delighted that the Westminster government is seeking to establish a happiness index which will be used as a basis for future economic policy. It is another example of politicians at last catching up with the advice of serious economists.

For too long policy has been based on the old ideas of economic man - that you increase social well-being by raising levels of income. When these ideas were originally promulgated, from our own Adam Smith onwards, it was pretty obvious in ages of great poverty and deprivation that as people became better off they became less miserable. So we have had two and a half centuries during which governments have striven to generate more and more income and wealth for their populations. Indeed it was the phrase, 'it's the economy, stupid' which won Bill Clinton the presidency in 1992, indicating the overwhelming importance of economic growth to successful government.

But even during that time there was a growing body of empirical evidence that rising incomes did not necessarily make people happy. It was found much earlier, for example, that happiness rose up to a personal income level of $15,000 a year but not beyond that. Relative incomes were also found to be as important as absolute levels. In one experiment, workers on $50,000 were offered a choice between their incomes rising to $80,000 while their colleagues' incomes went up to $90,000, or to take a rise to $70,000 while their peers were kept on $50,000. Many opted for the second choice. Other studies suggest that levels of happiness in the UK have not increased since the 1950s despite the enormous rises in GNP over that period.

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All of us can draw up a list of those things which make our lives better. A certain level of income must feature high on that as, clearly, freedom from financial worries is important. But good health would probably rank higher. Relationships, particularly family ones, would also feature. Self- esteem and recognition by one's peers would also be important, as would satisfaction about how one's society was looking after the planet.

A list such as this shows why many traditional economists felt unease about using happiness as a goal in macro-economic policy. The choices on the list are subjective and putting them all together in one index smacks of adding apples and oranges. Economics is supposed to be a science where the factors can be measured empirically and objectively. Is all this not a bit too airy-fairy?

However, this is at the nexus of economic theory and policy-making and is an issue that must be addressed.The methodology for identifying the ingredients of happiness has been improved by leading economists.

The best known of these is David Blanchflower late of the Bank of England's Monetary Policy Committee, someone with trenchant views on how governments should manage the economy through interest rate changes and fiscal intervention. Yet this hard-headed policy adviser is also known as the happiness guru because of his work in this area.

One of the more arresting conclusions from his empirical work is that 'the happiness-maximising number of sexual partners in the previous year is calculated to be 1'.

This conclusion diametrically contradicts the advocates of sexual freedom in permissive societies and throws one back to examining other areas where the ethics - if not the metaphysics - of traditional religions have long suggested that material wealth does not lead to happiness. Indeed, the concept of Gross National Happiness was coined in 1972 by the King of Bhutan heralding that country's age of modernisation. It was an attempt to discover an indicator that measured quality of life in a more rounded way than mere Gross Domestic Product. In Bhutan it was used to develop economic programmes consistent with that country's Buddhist values.

For the UK it is valid to ask whether the growth of a materialistic society that has accompanied increased wealth is a factor militating against increased happiness. "Turning the other cheek", "doing unto others as you would they do unto you", and other Christian epigrams seem more consistent with contentment than the aggressive behaviour of the rat race.

The fact that divorced people are less happy maybe emphasises the point. However, this is a huge jump and one that not many would be willing to take in our present state of knowledge.

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And knowledge is major factor in evaluating the worth of people's opinion of what makes them happy. Surveys suggest that Scots favour green renewable energy and that, therefore, the stance of the Scottish Government in opposing the building of new nuclear power plants makes them happy. But if we listen to expert opinion this attitude is based on ignorance of the facts. Energy experts are agreed that Scotland's current policies are risking an energy gap which will see the lights turned off.

Would people be so happy to support an anti-nuclear policy if they appreciated the level of risk it involved? This argument runs counter to the popular view that one opinion is as valid as the next. It isn't. Experts know better than punters on phone-ins.

One inescapable conclusion in an area from which the mists of uncertainty are still to clear is that having a job greatly increases happiness. Not just through increased income but through improved sense of purpose and self-esteem. I have my own personal observation to support this.As part of Tesco's Springburn Initiative to take and train long-term unemployed for their new Glasgow store, I saw men and women - driven to despair by government training schemes that left them trained without jobs to go to - rediscover community life through work and workmates.

If nothing else emerges from the current proposal to establish a happiness index as a guide to public policy it is to re-enforce the old belief that full employment is still a goal worth striving for. Even if they are low-skilled jobs in call centres, there are a lot of low-skilled people who would be happy to take them.