Bernanke to Graduates: Be Happy

http://www.usatoday.com/money/workplace/2010-05-08-bernanke-graduation-speech_N.htm

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. 

Toward a new welfare economics for sustainability

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.”

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7 Responses to Bernanke to Graduates: Be Happy

  1. Mark Hall says:

    If “happiness” should outweigh financial gain then we should instill and/or boost the happiness for ALL local, state and federal government employees by reducing their salaries by 10%-20%; reducing their pensions by 20%-30% and imposing a minimum retirement age of 65.

    If this is to be our new “life reward”, then lets spread the Happiness to ALL.

    Don’t worry! Be Happy!

    Were Bernanke’s ancestors from Jamaica?

  2. Mark Hall says:

    So, by imposing new austerity measures, is Greece trying to corner-the-market on “True Happiness”?

    • Pete Murphy says:

      Watch and see, Mark: we’ll hear more and more about “happiness” as a rationalization for the austerity that economists are telling everyone is necessary. You’ll be happier without all this unnecessary income. Just like Bernanke was telling these graduates.

      I wonder what new economic theory will take its place when economists see how their happiness theory back-fires and makes people angrier than ever.

  3. MikeF says:

    For all practical purposes, Bernanke is in violation of copyright infringement, he stole the Greek governments message to their citizens.

    The U.S. citizenry is undergoing the same pre-op procedures when we hear, “Entitlements will have to be cut, taxes will have to be increased, and if you don’t have a college education it’s your fault for not succeeding.”

    Tell them what you’re going to tell them, tell them, tell what you told them, and then do it to them.

    If anyone doesn’t think this approach works, ask those under 50 if they think they will receive Social Security after paying into it for a lifetime.

  4. MikeF says:

    Pete,

    You stated, “Per capita consumption has now transitioned from being taken for granted under the neoclassical theories of growth to being the bogeyman of economics.”

    You’re absolutely correct but it also helps to remember that in the U.S. 20% of our population has 85% of the money. Consumption out of bounds at the upper end and nearly non-existent at the lower end.

    • Pete Murphy says:

      Very true. One of the biggest criticisms of the new “happiness” economics comes from libertarians, who point out that happiness economics leads to elitism – those in power decide what makes the rest of us happy. I’m not a big fan of libertarianism, but they have an excellent point here.

      Also, much of the blame for the growing disparity in wealth distribution lies again at the feet of economists. As part of their sustainability theories, they have used what’s known as the “Kaldor-Hicks” compensation test to determine whether a “potential Pareto improvement” is efficient. To boil it down, it’s a simplistic method of testing a potential policy to determine whether or not it’s helpful. The thinking is that if a policy benefits one person without harming another, then it’s OK. For example, applied to trade policy, the thinking is that it benefits corporations and the wealthy, and does no harm to the rest of us because downward pressure on wages is offset by declining prices for goods. Therefore it’s a good thing.

      I’m afraid that all the political action in the world isn’t going to change policies, because politicians will listen to their economic advisors, regardless of what they see as the ignorant masses think. It’s the field of economics that needs to be straightened out before common sense can ever be injected into government policy-making.

  5. Mark Hall says:

    Is it the pursuit of “poor but happy” that brings immigrants (legal and illegal) to the U.S.?

    Is this our new immigration reform plan?

    If so, please pass the word along A.S.A.P.!

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