March 19, 2010
Economic psychology is a term few people know about or can define. But it’s gaining traction among the elite as a way to marry abstract economic theory with public happiness and behavior. In business and finance, behavioral models based on happiness and well being can predict market swings and consumer sentiment, and prompt people to buy a new product or service. For politicians, the stakes are even higher. Used effectively, economic psychology can help win elections, get legislation passed, and start or end wars.
In his new book, The Politics of Happiness: What Government Can Learn from the New Research on Well Being (Princeton University Press, $24.95), former Harvard president Derek Bok makes a reasoned argument that governments could use happiness research to determine public policy. Bok notes that most individuals are not very good at understanding exactly what makes them happy. And while “heredity probably accounts at most for 50 percent of one’s happiness level, ample room remains to affect well-being through human intervention. The acts and policies of government are one means by which that well-being may be influenced.”
Read our interview with the author:
TheFiscalTimes (TFT): Why did you write The Politics of Happiness?
Derek Bok: I’ve been intrigued since the 1970s that you can actually use empirical methods to study something as subjective and elusive as happiness. For years I couldn’t do more with my interest in this subject than read the literature on it -- I was involved in academic administration. Now that I’ve been able to dig into the growing body of research, I was struck by what it might mean for public policy.
TFT: What does it mean, in your view?
Bok: Well, I think it's a little premature for us to do what the tiny Buddhist nation of Bhutan has done, which is to make happiness a kind of focus of public policy. The field is still young and a number of points still need to be worked out. But we should at least take the happiness research more seriously. We should publish statistics about the trends in happiness and get a conversation going. As the field matures, I think it would be a very useful source of information and enlightenment. Happiness is the thing that most people would most like to have -- more than power or success or a lot of other things like that. So a representative democracy should take notice.
Happy people are more creative. They live longer. They're less likely to become depressed or commit suicide or get into drug or alcohol abuse. Happy people tend to be good for society. They have strong marriages, do a lot for other people, get involved in civic affairs, believe in democracy, and participate in democracy. All the more reason for government to promote it.
TFT: Yet different things make different people happy. Good physical health -- that seems to be important across the board.
Bok: Yes. And this is one of the virtues of happiness research: It can identify things that are more important to our happiness than we realize, which is why policymakers are likely to overlook them. When you get into the area of health, although many negative health experiences can be adapted to -- losing an arm, let’s say -- some things simply continue to produce dissatisfaction for as long as they last. And one of those is problems with sleep, which so many Americans have. If you haven't had a good night's sleep, you’ll be more affected by that the next day than by almost anything else. That surprised me. But we have it on the authority of no less than psychologist Daniel Kahneman, who won the Nobel Prize for his research on prospect theory in 2002. When he called people several times a day to find out what they were doing and how they were feeling, he learned that the quality of their sleep had more to do with how they felt than any other factor.
TFT: In the same vein, you suggest in your book that employers who fire people should treat them better in order to lessen their pain. Connect the dots here: What is the relevance to happiness and public policy?
Bok: The research shows that losing a job is one of the things that produces not just momentary unhappiness, but long-lasting and even permanent unhappiness. Losing income is really the minor part of this. Most of it has to do with the loss of self-esteem, that you're somehow a failure in the eyes of others. Even if you later get a job at the same rate of pay, the attack on your well-being persists. Scars remain. If that's true, then we need to take the way we handle unemployment and layoffs very seriously.
TFT: Yet most companies have downsized so much today, they no longer have the work force to offer the kind of support you’re suggesting.
Bok: That’s right. I don't think any government has ever found a way of eliminating unemployment entirely. But we have a situation in this country where the way to impress investors is to lay off the maximum number of people. And a lot of layoffs turn out to be excessive, and eventually people are hired back. Among other things, employers should exercise greater care in discharging workers.
TFT: You say the government should publish annual reports on Americans' well being. Why?
Bok: We already publish stats on many matters of interest, such as employment rates, growth rates, and the GDP. Happiness is a matter of such importance to people that it seems to me for that reason alone we ought to try to publish some statistics. It’s a way of educating people about what really produces happiness in life. There's a tendency to overestimate things like a new car, or a pay raise, or moving to California for the climate, none of which seem to have more than a temporary affect on one’s happiness.
TFT: Catching a glimpse of the Hudson River every morning on the way to work -- just to cite one personal example -- certainly makes me happy in a way I wouldn’t have thought about earlier.
Bok: And I'm looking out on the Gulf of Mexico as we speak. So you can understand how happy I am.
Derek Bok is Research Professor at Harvard University. He lives in Cambridge, Massachusetts and Longboat Key, Florida.
Read an excerpt from the book:
Excerpt from The Politics of Happiness by Derek Bok
In the United States, unrealistic expectations and inaccurate perceptions have combined with the familiar shortcomings of politicians and bureaucracies to produce a disillusionment that is out of proportion to the government’s actual performance. As a result, Americans have much less trust in political leaders and much less confidence in the agencies of government than citizens in countries with especially high levels of well-being, such as Denmark, Holland, or Switzerland. These negative feelings could well be one of the reasons why the world’s most prosperous country is not the world’s happiest.
Strengthening trust in government and avoiding excessive cynicism toward politicians have an importance that goes beyond increasing happiness. The attitudes of the public have serious consequences for the quality of our democracy quite apart from their effect on levels of well-being. The negative attitudes toward public officials that so many citizens share limit the attractiveness of government as a career and make it harder to recruit and retain capable people. The lack of confidence in the political process among lower-income Americans aggravates political inequality by weakening their desire to go to the polls. An even more serious effect of the low regard for government is the dangerous gap it has helped create between the functions people expect the state to perform and the taxes they are prepared to pay to support these services.
If most Americans believe that the government wastes half of every dollar it receives, it is only natural for them to resist giving more to Washington and to conclude that political leaders should fund desired programs and services by cutting waste instead of raising revenues. If the government truly makes every problem it touches worse, why should anyone contribute more to help it do its work?
Pressed by constituents for new services and benefits, yet constrained from raising taxes, Congress often responds by creating more programs than it can pay for. It then makes up the difference by incurring deficits that burden future generations, or by shifting expenses to hard-pressed states through unfunded mandates of one sort or another, or by underfunding programs so that they cannot possibly deliver their promised benefits. In these ways, negative attitudes have a self-fulfilling tendency to make the government less effective than it might be, a result that adds to the public’s cynicism toward politicians, diminishes well-being, and hampers efforts to deal with problems that urgently need to be addressed.
From The Politics of Happiness by Derek Bok, ©2010 by The Princeton University Press.