Winner of the New Statesman SPERI Prize in Political Economy 2016

Sunday, 1 April 2012

Happiness and Paternalism

                Although I clearly do not agree with current UK macroeconomic policy, I did note at the end of a recent post that the government had taken the positive step of collecting more data on happiness. (It also deserves considerable credit for setting up the Office for Budget Responsibility, which it predecessor did not have the courage to do.) So I was interested to see a recent broadside from the Institute of Economic Affairs attacking this decision, and the whole happiness project more generally.
                Their collection of essays is slightly schizophrenic. It includes papers that try and show happiness is unrelated to equality, or employment protection legislation, and is negatively related to government consumption. However other papers and the introduction also argue that happiness data is an unreliable guide to wellbeing, and that the government should not use happiness data to promote wellbeing explicitly. What is the underlying problem? Why put so much effort into criticising a few extra questions in a survey?
                This is a question that the New Economics Foundation asks in a refreshingly restrained response to the IEA document. The answer they suggest is that the IEA, and many of its contributors, have a fear that happiness data will be used by governments to do things government thinks will make people happier, rather than allowing individuals themselves to decide what makes them happy. 
                I am sometimes asked by students whether economics as a discipline has an ideological bias. What they often have in mind is the role of markets. My response, which I think is reasonable, is that once you get beyond the welfare theorems in Econ 101, what most economists spend their time doing is analysing market imperfections. So if you want to know what is wrong with markets, ask an economist.
                However I think most economists do share one philosophical characteristic, and that is a deep distrust of paternalism.  This is something I share – by and large, if it does not adversely affect other people, individuals should be allowed to make their own choices. But the by and large here is crucial. Sometimes individuals do make choices which are clearly bad for them.
                This was cogently argued by Richard Thaler and Cass Sunstein in a short paper provocatively entitled ‘Libertarian Paternalism’ (American Economic Review, 2003, Vol. 93, pp. 175-9). A great deal of behavioural economics is all about departures from rationality, and these in turn can lead to people making choices that are not optimal. Thaler and Sunstein point out that sometimes government cannot avoid making decisions that influence choices. An example they give is enrolment in employment based savings plans. Should people be given the choice to opt in or opt out?  What is called ‘status quo bias’ means that which happens will influence people’s choice. Given this, surely it is best for the government to choose the option that makes people better off in its judgement.  The authors have subsequently developed these ideas in their book Nudge. The Economist has a nice summary of this position, and some arguments against it, here. Nudge has been very influential among policymakers, both in the UK and the US.
                Decisions on whether to make savings schemes opt in or opt out, and similar nudges, seem fairly innocuous even if they are important. But what about forcing people to do things they might definitely decide otherwise not to do? Like wearing seat belts. Some economists have difficulties with making the wearing of seat belts compulsory, and regularly cite the possibility that it might encourage drivers to drive more dangerously. This belief seems fairly impervious to contrary evidence, and this post  from philosopher/psychologist J.D.Trout has a justifiable go at economists as a result. The unfortunate truth is that individuals are rather bad at assessing low probability high risk events, and as a result it makes sense – at least in this case – to take away their choice. Can anyone think of a recent similar example with rather more global consequences?!
                So the bad news for the IEA and similar devotees of absolute individual sovereignty is that sometimes people do systematically make bad decisions, and the state is right on those occasions to do something about it. Equally, the state is often too paternalistic, and interferes when it should not. The state can also make bad choices. Given this, the more data we have that allows us to sort out whether government is helping or meddling the better. That is why happiness data is useful, because it can help us do this.


  1. "The answer they suggest is that the IEA, and many of its contributors, have a fear that happiness data will be used by governments to do things government thinks will make people happier, rather than allowing individuals themselves to decide what makes them happy. "

    When reading this I couldn't help thinking of a Yes Minister (or Primeminister, I don't remember which) where Sir Humphrey defends government policy by declaring "people don't know what they want".

    I realise thats not what you were aiming for, but it just reminded me of it.

  2. I remember the seat belt idea from one of my first econ courses. I've never really looked at studies about the subject, but thinking back, it seemed like my professor may have argued from the perspective that it increased the deaths of pedestrians as a result of moral hazard.

  3. Using evidence that individuals do systematically make bad decisions to argue against devotees of individual sovereignty may be arguing against a straw man when it comes to the debate over well-being (or happiness) and paternalism. Those in favour of individual sovereignty do not necessarily rest their claims on the fact that individuals always make good decisions – such a doctrine would be hard to defend. Rather, individual sovereignty is often defended on other grounds, either deontological (i.e., the state has no right to interfere with individuals’ autonomous choices) or consequentialist (i.e., it would be better in the long-term if the state didn’t interfere with individuals’ autonomous choices).

    Now, I suspect that most (non-libertarian) economists are consequentialists, rather than deontologists, when it comes to these kinds of issues, and indeed utilitarians at that (i.e., that it is only consequences that make a difference to people’s well-being which matter). I agree that many economists may resist paternalism on the suspicion that, if the government starts to act paternalistically in some respects (such as with the ‘nudge’ example) it will be increasingly likely to act paternalistically in more ominous situations (such as introducing a ‘consumption tax,’ favoured by ‘happiness economists’ Robert Frank and Richard Layard). I agree with you that, even if this is a reasonable fear, it should not be taken too far.

    But concentrating only on this kind of (utilitarian) viewpoint misses an alternative, and perhaps more important, kind of (utilitarian) justification for individual sovereignty. This justification harks back to John Stuart Mill (perhaps the most influential of all utilitarians) who argued that utility will be maximized overall by restricting the exercise of coercion over adults to that which is required to prevent harm to others. The important point is that Mill regarded utility in the largest sense, “grounded on the permanent interests of man as a progressive being”. It is in people’s interest to progress in terms of the development of their human capacities, including being autonomous individuals. According to Mill, paternalism prevents this progression from happening in the most efficient way possible. Note that this may often not be the case for a particular individual (whereby utility may well be maximized through paternalistic means), but is likely to be the case, according to Mill, for society as a whole. In general, that is, restrictions on coercion over adults will prevent society as a whole from progressing in the most efficient way.

    Of course, Mill could turn out to be wrong. But it may not be as obvious as you make out that the state is right to act paternalistically, even in terms of seemingly innocuous nudges (would it be better, for instance, for a society of individuals to (a) wear seatbelts out of fear of being arrested, or (b) collectively overcome the particular cognitive bias you mentioned and wear them out of a sense of safety?). Whereas ‘nudge tactics’ may favour direct intervention by government via corrective taxes or other means, an alternative, more Millian (and perhaps more mainstream economics) approach, may favour giving individuals the insights and means to best solve the particular decision problems they are faced with.


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