Tuesday 26 August 2014

If We're So Rich, Why Aren't We Happier?

Not what we have but what we enjoy, constitutes our abundance.

People in the west are richer than ever. That means we can satisfy more of our desires for the good things in life than humans have ever been able to. Yet we don't seem to be getting any happier. Consciously or not we have come to depend on a particular economic theory of welfare as mere preference satisfaction. But if all that we can already have isn't enough to satisfy us, then perhaps we should reconsider whether having even more would make us happier. The good life requires wisdom not just purchasing power. As the classical Greek philosophers taught, we should look to the content of our desires rather than merely whether we can afford them.

I. Productivity: doing more with less

Economists pay a lot of attention to productivity, the efficiency with which inputs are translated into outputs. This is quite reasonable since productivity is the source of the wealth of nations. But economists tend to focus on the supply side: the ratio of labour/capital to the final product. So they generally neglect the fact that productivity is also a feature of the other side of the market relationship: consumption.

The productivity of consumption consists in the ratio of inputs - labour (our deliberations about what we value) and capital (our time/money budget) - to output (living a life we have reason to value). Of course there is a relation between purchasing power and happiness, but we put too much emphasis on that factor alone. We would be more successful - more efficient - in our consumption decisions if we were wiser about how we spent our time and money. If we were better at buying what we actually find valuable we could achieve our present level of happiness with a smaller outlay than present (allowing us to work less). Or, if our budget stayed the same, we would be able to get more value for it than we do now.

Not all economists have neglected the productivity of consumption. The late Gary Becker was an economics genius who made a career out of applying perfectly orthodox economics methods in radically unconventional ways and to unconventional subjects, like crime, discrimination, and fertility. (Unfortunately, his 'economic approach to human behavior' has also led to excesses like Steven Levitt's Freakonomics, where the "Hidden Side of Everything" turns out to be only ever about incentives, but that's another issue.)

One of Becker's contributions was to point out that consumption itself requires production, i.e. work. For example, if you buy a book for $20, completing that transaction does not mean that the book has now been 'consumed'. In order to consume the book (in the normal way) you still have to read it. In other words, to enjoy your purchase you will have to put several hours of your own labour into producing utility out of it. The same goes for restaurant meals, clothes and so on. (This, by the way, is something to bear in mind when giving gifts. Just how much work are you implicitly imposing on your friends and family by giving them that Hilary Mantel novel or Game of Thrones box set?)

If one prices the labour you put into this 'productive consumption' at even minimum wage levels (let alone your actual wage levels), one will often find that the market price of a good is less than it will cost you to actually enjoy it. And this should not be a surprise. The whole point of using the market is its efficiency compared to domestic production, thanks to the productivity pay offs from accessing vast economies of scale and divisions of labour.

For that very reason, a great deal of productive consumption is also outsourced to the market. For example, eating at a fast food restaurant like McDonald's is not only quite cheap in price but also in the time it requires of you. There is also specialised capital equipment available to make your household a more efficient factory for turning purchases into utility, like the dishwashers and washer-driers which make meals and clothes cheaper to consume.

Yet it must be noted that some kinds of consumption activities, like watching a movie with your friends or reading Jane Austen, stubbornly resist such market efficiencies. That is because for certain goods our time and attention are intrinsic to their enjoyment. If we outsourced them for the sake of efficiency - if we just read the CliffsNotes plot summary of Pride and Prejudice - we would be losing not gaining from the transaction.

II. Constructing preference rankings is also work

Becker's analysis is very pertinent to how economists should think about production, as something that occurs on both sides of the market relationship. Yet I want to add a further point that he could not because as a neoclassical economist he was committed to taking preferences as given, as pre-existing facts that identify and define each of us as unique beings. Becker assumes that we are rational agents who maximise our utility by choosing the bundle of consumption goods that best satisfies the preferences we already have, given our budget constraints. The conception of rationality employed here is purely instrumental, a complex but superficial matter of logistical calculation.

As many people have noted, including plenty of economists, this is a very limited view of rationality. So limited that it can be applied to insects and plants as easily as to humans. But humans are more than the things that we want, and human rationality is about more than how smart we are in getting what we want. We also have the capacity for valuation, for critical second order reflection about what it is that we should desire and how much.

The standard way of presenting this point was put well by Benjamin Franklin (whom Max Weber called the preacher of the spirit of capitalism), “There are two ways of being happy: We must either diminish our wants or augment our means – either may do. The result is the same and it is for each man to decide for himself and to do that which happens to be easier.”

But I think we can do better than merely expanding or contracting our desires to fit with our level of ambition. That is still a doctrine of more or less, in which the content of our desires is a black box. We can open up that box rather than letting it define us. We can use our practical reason to investigate the true importance of the desires we have to the life we want to live. Aristotle thought this capacity for working out what it is we should value in life, not just how to get what we want, was what separated humans from other animals. We can ask ourselves not only whether we can get away with another glass of wine on a work night (an exercise in constrained maximisation, of applied economics), but also whether we want to be the kind of person who wants to drink quite so much wine in the first place.

There is a rigorously utilitarian argument for taking this capacity for practical reasoning seriously, and one that should appeal to economists. As Epicurus - the first philosopher of hedonism and a successor but no disciple of Aristotle - argued, taking charge of our desires is essential to doing egoistic hedonism properly. Having the wrong desires, such as desires for status goods that can never be satiated, will make our lives unhappy or even painful. The hedonist Epicurus was notorious not for his gluttony but for his asceticism; not for his selfishness but for the importance he placed on friendship.

III. Outsourcing valuation is a false efficiency

The intellectual neglect, particularly by economists, of this essential ability of human beings to review and revise our desires has had a major influence on our so-called consumer culture. Most people most of the time have a very weak sense of what it is exactly that we want, and how much we want it. We want to be loved, to accomplish admirable things, to be independent of the whims of others, and so on, but we give relatively little thought to what specific goals follow from these desires, or their overall coherence. That is because we generally do not know how to reflect on what we want, or simply do not bother to. The result is that we do not have the clearly defined complete preference orderings over all states of the world that economic theory presupposes. Instead we have vaguely defined desires which stand in ambiguous relations to each other.

This is where advertising and marketing comes in as a shaper as well as a driver of consumption. Just as we seek to become more efficient consumers by buying things that require less effort to convert into the goods we really want – pre-chopped onions, no-iron shirts, and so on – so we, perhaps naturally, turn to the producers of consumer goods and services for advice about what we should want in the first place. We try to minimise the expenditure of our own time and effort by looking to corporations to help organise our inchoate desires into action-oriented preferences for specific goods.

While neo-classical economists still insist that the role of advertising and marketing is merely to inform consumers about the features, quality, and prices of the available options for satisfying their preferences, this is not a product of empirical analysis but of their axiomatic assumption that economic agents are rational calculators with stable fixed preferences. It is obviously wrong, as advertisers themselves know full well, and as social psychologists, behavioural economists, etc have analysed extensively.

Advertising plays an important role in shaping our vague desires about who we want to be and what we want to achieve into specific economics-like preferences for specific products that will supposedly make us sexy, clever, healthy, and happy. A central technique is association. We are shown happy families eating cereal and are given the impression that buying that brand of cereal for our children is a concrete step towards achieving their health and flourishing. Cars are sold with the promise of freedom, or the love of a beautiful woman. Manufacturers of vodka promise to make us cool. And so on.

Of course this is all bait and switch - none of these promises will be fulfilled. That's why more of this kind of consumption doesn't make us happier. It doesn't actually take us closer to where we would really want to be. What this approach to consumption does achieve is to distract us by pulling us towards commodities - things that are easily priced and marketed - at the expense of the other valuable things in life, such as friendships, conversation, sunsets, or art. People looking forwards see their ability to buy stuff as important. They'll even take jobs they hate to be able to buy more of it. But people looking back on their lives rarely see the stuff they bought as what really mattered. They often appreciate the time they spent being present and attentive to others and to the experiences of life more than the time they spent earning money so they could exchange it for things with price tags.

In economic life, though not economic theory, our practical reasoning about what we want is often outsourced to the producers. Mainstream economics asserts that sovereign consumers make demands and producers compete to meet our desires. But that relationship is reversed where consumer preferences are induced by the producers themselves. We cannot assume that satisfying 'our' preferences by buying the latest I-phone or imported beer is really maximising our utility, since the way those preferences were formed may not reflect what it is that we really want. The involvement of producers in shaping and ordering our desires means that welfare (the satisfaction of our preferences) can depart from autonomy (the sovereignty or 'ourness' of those preferences). If you let companies like Apple tell you what you want in life then, even though you get your paycheck from somewhere else to pay for its products, you are in effect working for Apple rather than yourself.


Economists have missed something. Producing actionable rational preference orderings is work and can be analysed as such. Just as Gary Becker pointed out that beyond market transactions lies 'productive consumption', so I argue that beyond choices lies choosing, and behind choosing there should be thinking. Just as consuming a book requires more than buying it, so choosing to read that book is about more than the constrained maximisation of a given preference ordering.

As I noted in discussing the idea of ‘productive consumption', there are some cases for which it is appropriate to seek efficiencies and some cases, like watching an opera, where the investment of our time and attention is itself an intrinsic part of consumption. Likewise, in some cases it may be efficient for consumers to use brands as a shortcut to decision-making, where that allows us to economise on the information gathering and processing that doing our own market research would require (like which laptop should I buy?). But going further and outsourcing our practical reasoning itself to corporations and marketers undermines our higher autonomy to decide on our own wants. This actually decreases the productivity of our consumption. We succeed in economising on mental effort, yes, but at the cost of the happiness we were seeking. The preferences we are so busy earning money to pay to satisfy are not our own and ultimately cannot make us happy.

This is a revised version of an essay originally published on 3 Quarks Daily