Federal Reserve Chairman Ben Bernanke told graduates at the University of South Carolina on Saturday to worry less about making money and focus instead on being happy. This might seem like good advice if it came from a psychologist, but we should all be wary when our economic leaders start talking this way. It may signal a shift in U.S. economic policy.
“Happiness” is the latest half-baked idea being served up by the field of economics. In neoclassical economics, the focus was on macroeconomic growth. Put in labor and capital, and out comes all of the stuff that satisfies our endless wants and needs. Keep increasing the inputs and the output can be grown toward infinity. Per capita consumption was taken for granted. It would always be there to sop up the output.
Beginning sometime in the 2nd half of the 20th century, economists began to awaken to the fact that, though our well of wants and needs may be bottomless, the well of natural resources (or “natural capital,” as they are known to economists) is not. Theories of “sustainability” were born, in which manufactured capital could be substituted for natural capital, thus avoiding collapses in the finite supplies of resources. Per capita consumption could be maintained, but shifted in a way that would assure sustainability.
More recently has come the realization that maintaining current levels of per capita consumption while sustaining our stocks of resources is a pipe dream. So what is the field of economics, devoted to increasing the welfare of mankind, to do? Redefine welfare. Economics now eschews per capita consumption as a measure of wealth or welfare in favor of a new measure – “happiness.” Economists have taken note of studies that show that, beyond some minimal level of income – about $15,000 per capita – little additional happiness is provided by growing incomes. Once our needs and a few basic wants are met, further pursuit of wealth in an attempt to satisfy more and more wants becomes counter-productive. The conclusion is that we can all be happier with much less. Health care, job security, old age security – these are the things that really make people happy, economists have concluded, and these are where economists and policy-makers need to focus their efforts.
There’s just one problem. In this happy new world of low per capita consumption, economists haven’t explained what we’ll all do for a living. Per capita consumption and per capita employment are intertwined. As one goes, so goes the other. Subtract from the output in the old equations of neoclassical economics, and the labor input will be left standing naked with nothing to do. Nor do the advocates of this new “happiness” economics explain the source of revenues that governments will require to enhance health care and old age security.
In addition to defining what makes us happy, the same happiness studies also reveal what makes us unhappy. Far and away, the biggest killer of happiness is unemployment. The field of economics has now traded one paradox for another – replacing infinite growth in a finite world with decoupling per capita consumption and per capita employment. Per capita consumption has now transitioned from being taken for granted under the neoclassical theories of growth to being the bogeyman of economics.
The problem, of course, is that economics has turned its scorn upon per capita consumption when the real problem is total consumption. But the latter would require an admission that population growth is the real problem, something that economists, still curled in a fetal position from the beating they endured upon the seeming failure of Malthus’ theory of overpopulation, are still unwilling to do.
Because this all sounds so unbelievable, you may think that I’m making this stuff up. I’m not. Check out the following article. Go to section 3, “consumption, happiness and sustainable welfare,” beginning on page 216, for a good summary of the new focus on happiness.
What’s really scary is that this stuff will soon begin creeping into U.S. economic policy. Falling incomes will soon be rationalized as something beneficial to your “happiness.”