A while back I finished reading Gregory Clark’s wonderful economic history book A Farewell to Alms. There is one particular idea from that book has been fermenting in my mind since I finished it. Although I don’t necessarily like its’ implications, I do fear that it’s true.
One of Clark’s theses is that classical economics brilliantly, and accurately, explains the world before the onset of the Industrial Revolution in the Malthusian era. However, he points out that many of today’s economists obfuscate the complexity of the discipline with overly technical analysis that doesn’t tell us anything important. This is particularly true when it comes to conjuring up explanations for why some countries are rich, some are poor, and how this all relates to happiness and well-being.
Near the end of the first chapter, he makes the following claim: “The final great surprise that economic history offers — which was revealed only within the past thirty years — is that material affluence, the decline in child mortality, the extension of adult life spans, and reduced inequality have not made us any happier than our hunter-gatherer forebears.” If this is indeed true, which I suspect it is, then another foundational assumption of economics is incorrect, i.e., all other things equal, increased financial wealth always increases happiness. As they are prone to do, many economists and policy makers fail to understand an important caveat when it comes to increasing happiness through financial wealth.
The old folk wisdom is that money doesn’t buy happiness. However, this isn’t exactly true either. The statement should be amended to say that money doesn’t always buy happiness. Money can buy happiness, but above a certain threshold the absolute amount of money makes very little difference to the happiness gained. The relative amount of financial wealth one has relative to her peers, however, seems to be of utmost importance to happiness. The economist Robert Frank has written extensively about this in books like Luxury Fever and Choosing the Right Pond, which have shaped my thinking on the subject.
Happiness research and common sense both seem to indicate that above a certain threshold relative wealth is all that matters when it comes to happiness. This seems to be true on both the individual level and at the country level. Clark points out that despite an enormous absolute gap in income between rich and poor countries, reported happiness is only every so slightly lower in the poorer countries. Now, I’ll concede that “reported happiness” is admittedly a problematic measurement for exact detail, but nonetheless, I think it is a suitable measurement to demonstrate this effect, even if it’s not perfect.
What is one to make of this? I can’t help but conclude that happiness is a zero-sum game. In other words, my neighbors increased relative wealth (and hence happiness) directly detracts from my own happiness, unless we happen to live in Lake Wobegon “where all the women are strong, all the men are good-looking, and all the children are above average.”
If happiness turns out to be a zero-sum game, as I suspect it is, then much of the advice people are given about becoming happier is dead wrong. The striking lesson here, on the individual level, is that avoiding hanging around your financial betters will likely make you more happy . ”Choosing the right pond”, as Frank calls it, is actually incredibly important if you want to be happy. Sadly, however, I do realize that there must be those who are the small fish in the small ponds too — such is life.
Near the end of A Farewell to Alms, Clark describes the evolution of human nature in this way,
“Those who were successful in the economy of the Malthusian era could well have been driven by a need to have more than their peers in order to be happy. Modern man might no be designed for contentment. The envious have inherited the earth.”
As for me, I still find envy distasteful, but I also understand how it makes the economic pie bigger for all of us. There is an upside from benign envy, if only we have the philosophical and economic wherewithal to appreciate it.
I often remind myself that even the unhappiest people could probably be much unhappier than they already are, yet few of us find any solace in this point. The reason we don’t find comfort in this truth is that we have mistaken beliefs about the nature of happiness. La Rochefoucauld, then, aphorized something crucial when he wrote: “It is a kind of happiness to know just how unhappy we could be.” Accordingly, I’m ecstatically happy that I evolved the ability to be happy at all.