Happiness and well-being as objectives of macro policy

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Question 1: Do you agree that subjective well-being measures, or at least some of the subindices from the typical survey measures, are now reliable enough to give useful insights when used in macroeconomic empirical analysis?

 
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Question 2: Do you agree that quantitative well-being analysis should play an important role in guiding policy makers in determining macroeconomic policies?

 
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Summary

Are quantitative measures of subjective wellbeing reliable enough to provide insights into empirical macroeconomic analysis, and should they influence the objectives of macroeconomic policy? The latest Centre for Macroeconomics and CEPR expert survey finds a reasonable amount of openness to wellbeing measures among European macroeconomists. On balance though, there remains a strong sense that while these measures merit further research, we are a long way off reaching a point where they are widely accepted and sufficiently reliable for macroeconomic analysis and policymaking.

Introduction

The Easterlin paradox is the finding by Richard Easterlin (1974) that reported happiness was flat or falling between 1946 and 1970 despite sustained US economic growth over the period. Some have cast doubt on the idea that happiness is decoupled from economic growth – for example, Stevenson and Wolfers (2008) show that happiness typically grows with income, albeit more slowly. Nonetheless, there has been a growth in the study of the economics of happiness and wellbeing.

As research in this area has developed and expanded, there has been a growing chorus of voices arguing that happiness and wellbeing should be the focus of economic policy although this idea goes back to Jeremy Bentham’s ‘Maximum Happiness Principle’. Such a ‘wellbeing policy’ is defined by O’Donnell and Oswald (2017) as ‘any form of economic and social policymaking that uses people’s feelings of psychological wellbeing. More broadly, it represents national decision-making that draws upon data on citizens’ reported emotions.’

The latest Centre for Macroeconomics (CFM) and CEPR survey seeks to explore two important aspects of this idea:

  • First, it discusses the important issue of measurement of wellbeing as compared with other, more conventional, statistics used in macroeconomic policy.
  • Second, its turns to whether or not this new research literature should influence the objectives of macroeconomic policy. 

Measurement of wellbeing and happiness

Much of the research on wellbeing and happiness uses measures of subjective wellbeing and life satisfaction scores. These scores tend to come from surveys in which respondents are asked to report the answer to a question such as this one in the Eurobarometer survey: ‘On the whole, how satisfied are you with the life you lead?’[i]

As the research literature has developed, official measures have also been developed. Famously, Jigme Singye Wangchuck, the fourth king of Bhutan, commented in the 1970s that ‘Gross National Happiness (GNH) is more important than Gross National Product’.[ii] Bhutan, albeit relatively recently, measures GNH quantitatively using nine sub-indices.

Similarly, since 2011, the Office for National Statistics (ONS) surveys UK adults to measure personal wellbeing. The UK survey covers life satisfaction, the extent to which the respondents feel that the things they do in life are worthwhile, as well as their happiness and anxiety the day before the survey.[iii]

But the measurement of wellbeing has many critics. As White (2014) states, ‘happiness is a vague, multifaceted, and subjective phenomenon that is difficult to define precisely enough for measurement, hard to measure in a way that allows meaningful comparison between individuals and groups, and fraught with ethical complexities that complicate policy implementation.’

In defence of subjective wellbeing measures, proponents point to the fact that these have been used for a long enough time, and across different countries, and they give rise to many consistent findings. Proponents also point out that other, more scientific, measures of happiness, such as those derived from brain scans, corroborate the results derived using the apparently problematic self-reported measures.

Gross Domestic Product (GDP) is not without its critics, beginning with Kuznets in the 1930s and 1940s. The Commission on the Measurement of Economic Performance and Social Progress, led by Joseph Stiglitz and colleagues (2011), stresses that the growing complexity of modern economies renders a measure of the value of a nation’s production of goods and services less and less useful and reliable. In particular, modern economies are characterised by a large (and growing) share of services in national production, as well as increasingly complex products and supply chains in manufacturing.

Furthermore, amid growing interest in the distribution of income, researchers can also use happiness surveys to understand the distribution of wellbeing within both OECD and non-OECD economies (for example, Helliwell 2016).  Measures of income distribution are harder to assess from standard measures of GDP.

Yet despite its problems, Coyle (2014) notes that, as a summary measure, GDP remains central to modern economic analysis and politics. Small swings in the statistic can make or break opinion on government policy.

Given that both GDP and subjective wellbeing measures have advantages and disadvantages, the first question in the CFM-CEPR survey asks the experts for their views about the current state of wellbeing measures for macroeconomics.

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Question 1: Do you agree that subjective wellbeing measures, or at least some of the sub-indices from the typical survey measures, are now reliable enough to give useful insights when used in macroeconomic empirical analysis?

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Fifty-seven panel members answered the first question. The panel members are roughly evenly divided: 40% either agree or strongly agree; 44% either disagree or strongly disagree; and 16% neither agree nor disagree.

Given that the analysis of wellbeing measures is relatively new, these proportions suggest a reasonable amount of openness of macroeconomists to measures of subjective wellbeing. The balance between agree and disagree is also evidenced by the fact that in many cases respondents on both sides of the answer cite reasons that are also used by respondents against them, and vice versa.

Nevertheless, two facts suggest that macroeconomists remain, on balance, somewhat against these measures:

  • First, only one respondent strongly agrees with the statement, while five strongly disagree.
  • Second, when weighted by self-reported confidence, the gap widens to 37% in agreement compared with 48% in disagreement.

Sir Charles Bean (London School of Economics, LSE), who led the independent review of UK economic statistics for the ONS, acknowledges the limitations of GDP as a measure of welfare. But he disagrees that wellbeing should be used in empirical macroeconomics: ‘we are a long way off having a measure of happiness or wellbeing that is widely accepted and sufficiently reliable to base macroeconomic analysis around.’

Sir Charles acknowledges that these measures warrant further research and analysis, and this view is shared by others who both agree and disagree with the overall proposal. For example, Per Krusell (Stockholm University) prefers to focus on ‘observable economic behaviour’, but states that his view ‘can be changed as more research is produced’.

Jürgen von Hagen (Universität Bonn) believes that wellbeing measures ‘seem sufficiently reliable in the sense of producing consistent and robust correlations with macroeconomic variables that make intuitive sense’, but he still wants to see more analysis to ensure that such findings are stable across time and when subject to sub-aggregate analysis. David Bell (University of Stirling) goes further and suggests that these data warrant greater interdisciplinary research with subject areas such as psychology.

Others are already happy to use these measures but not as a replacement for GDP. Ricardo Reis (LSE) notes the ‘remarkable progress in this area in the past two decades’, but still emphasises that these indicators should be seen as ‘complements to GDP though, not substitutes’. Similarly, Panicos Demetriades (University of Leicester) argues that such measures ‘can be a useful “add-on”, if used consistently’.

Some of the reasons given in favour of their use include the potential to generate higher frequency data and the potential for disaggregated data. On the latter, John Driffill (Birkbeck College, University of London) states that ‘Disaggregated data would be particularly useful as different groups within society might be affected by macroeconomic developments in different ways.’

Despite feeling that there is a lack of ‘reliability of wellbeing measures over time’, Martin Ellison (University of Oxford) agrees that there can be ‘insights behind the aggregate, for example in understanding how hard certain sub-sections of the population are hit by recessions.’

Ray Barrell (Brunel University) is supportive of the use of wellbeing measures in empirical macroeconomics, but he cautions against the complexity of the relationships involved: ‘One must be careful, however, not to use them in a mono-causal explanation, for instance with greater equality being associated with greater wellbeing.’

Pietro Reichlin (LUISS, Università Guido Carli) concludes that this heterogeneity is reflected in different ways by individuals and he is ‘very sceptical about the meaning of an index derived from the aggregation across individuals of these type of evaluations’. Fabio Canova (Norwegian School of Management) worries that respondents to wellbeing surveys each have different interpretations even when they face the same question.

There are others who disagree more strongly. Richard Portes (London Business School) does not like the attempts to measure happiness and stresses instead the United Nations Human Development Index as one of ‘plenty of indices out there which use reasonably objective data measuring aspects of wellbeing’.

While Michael Wickens (Cardiff Business School & University of York) agrees that ‘Happiness might give further insights into the well-known limitations of GDP as a measure of welfare’, he feels that there are several methodological reasons not to use these data in macroeconomic analysis, including that the ‘original happiness literature was in reality a measure of unhappiness: envy over income differentials, illness, divorce, being unmarried etc.’ Wickens stresses that ‘None of these is a natural macro policy objective.’

Wellbeing and macroeconomic policy

Wellbeing and happiness researchers tend to argue that government policy must take more seriously the impact of policy on wellbeing. Infrastructure project planners already think beyond the growth impact of such investments to account for health benefits of decreased pollution or time benefits of faster commutes when doing their cost-benefit analysis of individual infrastructure projects (for example, HS2, the UK’s planned high-speed railway linking London and the north of England).

A specific proposal by O’Donnell and Oswald (2017) is that ‘all government policy needs to weigh human happiness.’ In other words, government decisions should weigh the wellbeing impact of policy changes (and existing policies) as well as the fiscal cost-benefit analysis. Going further, such a proposal endorses the use of specific of quantitative indices in the cost-benefit analysis of policy choices: ‘In practice, departments could be asked to submit budgets for “must do” activities and then list a set of discretionary spending with estimates of their wellbeing impacts.’

Macroeconomic policies would also be affected by such a change in the approach to policy analysis. For example, if relative consumption is what matters for happiness and wellbeing, as a number of researchers argue, then policies that boost growth but in an unequal fashion would be less desirable than policies that raise incomes in a more uniform fashion (even if growth is lower for everyone).

Another potential policy change concerns the use of monetary policy as a temporary stabilisation tool. Given that unemployment is generally acknowledged to be a significant cause of unhappiness that persists even after new employment is found, central banks might be given the objective of getting back to full employment faster, even if at the cost of higher inflation.

Arguments against this shift in the focus of macroeconomic policy include the view that while all measurement is imperfect, our measures of wellbeing are not yet in the position to allow them to drive policy design. Others worry that the interrelationships between the factors driving wellbeing are not yet well enough understood.

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Question 2: Do you agree that quantitative wellbeing analysis should play an important role in guiding policymakers in determining macroeconomic policies?

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Sixty-three panel members answered the second question in the CFM-CEPR survey, which invited their opinions of using wellbeing analysis in macroeconomic policy. While still quite balanced, 48% of respondents disagree or strongly disagree that quantitative wellbeing analysis should play an important role in macroeconomic policy. This compares with 38% who agree or strongly agree and the remaining 14% who neither agree nor disagree. As before, those in disagreement are relatively more confident; when weighted by self-reported confidence, the 48% in disagreement becomes 50% with 38% in agreement.

Simon Wren-Lewis (University of Oxford) strongly agrees, suggesting that ‘Central banks should pay much more attention to this happiness data than the implications of what governs social welfare in very simple microfounded models.’ He dismisses arguments that we don’t understand such data.

David Miles (Imperial College) believes that the large effect on misery ‘caused by involuntary unemployment is surely relevant to a range of government (and perhaps central bank) policies’. He argues that the use subjective wellbeing measures will provide important information that helps our understanding of the relationship between macroeconomic policies and wellbeing.

Kevin O’Rourke (University of Oxford) answers in agreement because he feels that ‘If economists are going to persist in being utilitarians, then they should think about what actually makes human beings happy!’ But, as with others in answering question 1, he worries about the fact that we are a long way from being able to rely on wellbeing measures.

Such concerns actually lead Francesco Caselli (LSE) to disagree with the statement despite being ‘sympathetic to using these measures as one (among many) criteria to give weights to various intermediate targets, such as consumption, unemployment, inflation, etc.’

Others, such as Sir Charles Bean, Dame Kate Barker (British Coal Staff Superannuation Scheme) and Tony Yates (University of Birmingham), believe that microeconomic rather than macroeconomic policies and analysis are likely to see the benefits. Philippe Martin (Sciences Po) does not see a role in terms of monetary policy, but he thinks that ‘for fiscal policy, wellbeing should be one the main objectives.’

A number of respondents agree with John Hassler (Stockholm University) that measures of happiness derived from surveys ‘should be used in policy evaluation and other empirical analyses’. But like him, they worry about an effect akin to ‘Goodhart’s law’, which states that when a measure becomes a target, it ceases to be a good measure. For example, Ugo Panizza (Graduate Institute, Geneva) responds that these indicators ‘are easier to manipulate than standard macro variables’ and that use of these indicators as policy objectives would give rise to ‘strong incentives to manipulate them.’

Some respondents disagree because of the inability of wellbeing measures to get at what Patrick Minford (Cardiff Business School) calls ‘a fine measure of the effects of macro policies on wellbeing.’

Ethan Ilzetzki (LSE) captures the views of a number of respondents who don’t feel that ‘wellbeing analysis as currently conducted is the way forward’, but instead argue that ‘we should be looking at a variety of indicators and will, and should, continue to disagree on what makes for a good society.’ Tim Besley (LSE) says that we ‘need to be pluralistic which, in many ways, would be a break from the past’, pointing to Amartya Sen’s “capability approach” as ‘the most persuasive overarching intellectual framework in the area.’

References

Coyle, D (2014), GDP: A Brief but Affectionate History, Princeton University Press.

Easterlin, RA (1974), ‘Does Economic Growth Improve the Human Lot? Some Empirical Evidence’, in PA David and MW Reder (eds), Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz , Academic Press.

Helliwell, J (2016), ‘Happiness inequality and the importance of trust’, VoxEU, http://voxeu.org/article/happiness-inequality-and-importance-trust.

O’Donnell, G and A Oswald (2017) ‘Happiness as a Policy Aim’, chapter 1 in Understanding Happiness: A CAGE Policy Report edited by Karen Brandon, Social Market Foundation.

Stevenson, B and J Wolfers (2008) ‘Economic Growth and Subjective Wellbeing: Reassessing the Easterlin Paradox’, Brookings Papers on Economic Activity, Spring: 1-87.

Stiglitz, JE, A Sen and J Fitoussi (2011), ‘Report by the Commission on the Measurement of Economic Performance and Social Progress’, European Commission.

White, MD (2014), ‘The Problems with Measuring and Using Happiness for Policy Purposes’, Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA.

 

[ii] More information available at http://www.grossnationalhappiness.com/articles/. Of course, it should be noted that the ‘gross’ in Gross National Happiness is not well-defined in the way that the ‘gross’ in GDP is.

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How the experts responded

Measurement of well-being and happiness

Participant Answer Confidence level Comment
Jordi Galí CREI, Universitat Pompeu Fabra and Barcelona GSE Neither agree nor disagree Confident
Ricardo Reis London School of Economics and Columbia University Agree Confident
There has been remarkable progress in this area in the past two decades. In the same way that measures of health (infant mortality), inequality (Gini coefficients), absolute poverty (poverty rates) and others affect policy, it seems that measures of happiness may also be considered. They should be in the list of a few dozen indicators that policymakers keep in mind. All of these are complements to GDP though, not substitutes.
Fabien Postel-Vinay University College London Neither agree nor disagree Confident
Michael McMahon University of Oxford Agree Confident
I believe that they give useful information on higher frequency movements. As such this may be an advantage over many macroeconomic time-series given that surveys could be done more frequently than just annually or quarterly. As such, I think they would be useful for business cycle analysis. My concern with the measures relates to the ability to pick up up lower frequency movements. For example, slow-moving but significant increases in longevity may not be reflected in the measures. As such it is less clear that these measures are as useful in the analysis of longer-term trends.
Nezih Guner CEMFI Agree Very confident
Empirical analysis, macro or micro, can definetly make greater use of subjective well-being measures. If a particular policy is consistently associated with lower levels of subjective well-being measures over time and across different countries, we should ask ourselves why.
Gianluca Benigno London School of Economics Disagree Not confident
Peter Bofinger Universität Wurzburg Agree Very confident
Ray Barrell Brunel University London Agree Confident
Well being measures have been with us for some time, and we have long run consistent series for a number of countries. Some well being measures clearly have a role to play in empirical macroeconomics, more particularly as variables to be explained, but also in some cases as explanatory variables. One must be careful, however, not to use them in a mono-causal explanation, for instance with greater equality being associated with greater wellbeing. This may well involve a causal chain, but both may reflect a greater sense of identity (as discussed by Akerlof and Kranton in Identity Economics and by Sen in Identity and Violence) in a society, and hence be the outcome of other economic and social processes. As welfare is the outcome of economic processes, it is important to measure it, and indicators of life satisfaction and happiness may well be good indicators of outcomes. Deaton suggests (in The Great Escape for instance) that life satisfaction is a better well being measure than happiness, and it depends upon levels of incomes, health standards and political freedom. Such measures can also be used as explanatory variables in studies of industrial strife, as explanations of productivity differentials and of labour market participation decisions. Their use will broaden our understanding of what we do and why we do it. The links between unemployment and life (dis)satisfaction and (un)happiness are clear, and they suggest that policy makers should use longer term aspects of macro and micro policies to help reduce unemployment, even at some cost to other goals such as the level of productivity and its short term growth rate.
Pietro Reichlin Università LUISS G. Carli Disagree Confident
My view is that these surveys are based on complex and heterogeneous criteria reflecting our own ethical, political value judgements as well as aspirations and transitory conditions. I am very skeptical about the meaning of an index derived from the aggregation across individuals of these type of evaluations.
Panicos Demetriades University of Leicester Agree Confident
They should be taken into account alongside everything else, but should certainly not dominate the thinking of policy makers. They can be a useful "add-on", if used consistently.
Alan Sutherland University of St Andrews Agree Confident
David Bell University of Stirling Agree Confident
There does seem to be sufficient corroborative evidence to support this conclusion, though perhaps only weakly. Economic arguments still explain only a small proportion of the variance in subjective well-being. The metrics used to capture this concept are still fairly crude. They require further research, which is only likely to be fruitful if economists are prepared to engage with other disciplines, notably psychology.
Tryphon Kollintzas Athens University of Economics and Business No opinion Not confident
Martin Ellison University of Oxford Disagree Confident
It depends on what is meant by macroeconomic empirical analysis. If I interpret this as studying the aggregate behaviour of the economy over time then I struggle with the reliability of well-being measures over time. But there can be insights behind the aggregate, for example in understanding how hard certain subsections of the population are hit by recessions. This could be regional or across employed/unemployed individuals.
Harry Huizinga CentER, Tilburg University Neither agree nor disagree Not confident
John Driffill Birkbeck College, University of London Agree Confident
They are reliable enough to give useful insights. You would not want to use them alone, or have them replace measures of GDP, but the use of several subjective measures, alongside GDP and other conventional measures, would be informative. They can be used to make comparisons over time. Dis-aggregated data would be particularly useful as different groups within society might be affected by macroeconomic developments in different ways.
David Cobham Heriot Watt University Disagree Confident
Michael Wickens Cardiff Business School & University of York Strongly disagree Confident
Happiness might give further insights into the well-known limitations of GDP as a measure of welfare, but it should not be the focus of economic policy. There are several methodological reasons for this. 1. The original happiness literature was in reality a measure of unhappiness: envy over income differentials, illness, divorce, being unmarried etc. None of these is a natural macro policy objective. 2. There are no macro instruments to achieve greater happiness. 3. It suggests an extreme socialist agenda of income equality rather than conventional wealth generation. This would be a massive change in society's objectives which cannot be casually brought about by the Treasury's macro policy. It all reminds me of one of the low points in macro policy when in the 1970's many academics were pushing the argument that inflation was a sociological rather than an economic phenomenon. Is this another attempt to hijack macroeconomics?
Richard Dennis University of Glasgow Disagree Not confident
Stefan Gerlach BSI Bank Neither agree nor disagree Very confident
I don't know enough about this topic to have a view.
Claudio Michelacci EIEF Disagree Confident
Paolo Surico London Business School Neither agree nor disagree Confident
Philippe Martin Sciences Po, Paris Agree Confident
Wouter Den Haan London School of Economics Agree Not confident
Paul De Grauwe London School of Economics Disagree Confident
Patrick Minford Cardiff Business School Disagree Not confident
For most policies in macroeconomics, to which I limit my comments, we have quite specific objectives related to welfare such as economic instability, or growth or inequality. It is hard to see how we can design a model that predicts 'happiness' without going through these mediating measures. The happiness measures are not necessarily useless but the point I am making is that what we really want to know is the specific effects of policies on the key features such as the above. If in spite of improving economic policy in these dimensions there was no associated movement in 'happiness' as in the Easterlin paradox, the reason could well be that the we simply cannot measure the subdivided happiness caused by this improving dimension.
Sir Charles Bean London School of Economics Disagree Confident
While GDP has considerable limitations - and is certainly not satisfactory as a measure of welfare - we are a long way off having a measure of happiness or well-being that is widely accepted and sufficiently reliable to base macroeconomic analysis around. Of course, that doesn't mean we shouldn't undertake further research in order to get a better understanding as what drives such measures.
Gernot Müller Eberhard-Karls-Universität Tübingen Disagree Confident
David Miles Imperial College Agree Not confident
Fabio Canova BI Norwegian School of Management Disagree Confident
there is still too much heterogeneity in the perception of people regarding what the question means
Kate Barker British Coal Staff Superannuation Scheme Disagree Very confident
In the UK at least, we have not enough track record of some of these surveys to make use of them adequately to assess the impact of economic shocks or policy changes. However, it would be useful for this to develop, and this purpose strongly to inform the development of the surveys.
Fabrizio Coricelli Paris School of Economics Disagree Confident
Ethan Ilzetzki London School of Economics Agree Not confident
John VanReenen London School of Economics Agree Not confident
Per Krusell Stockholm University Disagree Very confident
I mostly think we should base policy analysis on revealed-preference arguments, which means we should look at observable economic behavior. My view on this can be changed as more research is produced but it is too early to switch to direct survey-based measures.
Harris Dellas University of Bern Strongly disagree Extremely confident
Tim Besley London School of Economics Agree Very confident
Give useful insights "yes", determine the answer "no". Anyone who looks at these issues could learn a lot from Angus Deaton's Hicks Lecture first: http://scholar.princeton.edu/deaton/publications/financial-crisis-and-well-being-americans
Giuseppe Bertola Università di Torino Strongly disagree Confident
Jürgen von Hagen Universität Bonn Agree Confident
They seem sufficiently reliable in the sense of producing consistent and robust correlations with macroeconomic variables that make intuitive sense. Whether they are reliable in the sense that these correlations are stable over time and do not change when subaggregates are considered remains to be seen.
Francesco Caselli London School of Economics Agree Confident
An exclusive focus on well-being measures would be madness, but as part of a dashboard of indicators it could alert us of things the more standards measures are missing. If I was forced to pick a uniqeu measure of economic performance, however, it would be neither GDP nor well-being, but median household income.
Jagjit Chadha National Institute of Economic and Social Research Disagree Confident
I am not at all sure that subjective measures or the self-reported sense of well being measure accurately material progress. if we are trying to understand output, income or expenditure there are other more obvious problems in the measurement of a digital, service sector economy.
Lucio Sarno Cass Business School Agree Not confident
Jan Eeckhout University College London Disagree Confident
Robert Kollmann Université Libre de Bruxelles Disagree Very confident
I am not convinced that, for macroeconomic analysis, subjective well-being measures add significant and reliable information to data on income, consumption and employment. There are immense (and growing) shortcomings in the measurement of the most basic macroeconomic variables (GDP, prices, capital stocks, productivity). The top priority should be to address those shortcomings (this will require a drastic increase in funding for statistical agencies).
Tony Yates University of Birmingham Neither agree nor disagree Confident
They are interesting enough to give us insights into how they relate to macro measures, but not yet, in my view, useful for policy analysis. In other words, I would not yet want to invite policy makers to put any weight on these measures as against stabilising resource utilization conventionally measured.
Jean Imbs Paris School of Economics Neither agree nor disagree Not confident
Elias Papaioannou London Business School Neither agree nor disagree Confident
Akos Valentinyi University of Manchester Disagree Very confident
Gino A. Gancia CREI and Universitat Pompeu Fabra Disagree Confident
Sweder van Wijn... Universiteit van Amsterdam Agree Confident
There is enough evidence to suggest it does matter and that is not perfectly correlated to GDP. That merits further research about its determinants and on how/whether policy can influence it.
Richard Portes London Business School and CEPR Strongly disagree Extremely confident
Bentham's utilitarianism foundered on the impossibility of interpersonal comparisons. Unfortunately, some of the economics literature ignores this issue and postulates a social welfare function that is the sum of individual utilities. Happiness research goes even further. In my view, happiness is not interpersonally comparable, nor additive across individuals, nor intertemporally comparable even for a single individual because of its subjectivity. There are plenty of indices out there which use reasonably objective data measuring aspects of well-being - e.g. the UN Human Development Index.
Sylvester Eijffinger CentER, Tilburg University Neither agree nor disagree Very confident
Subjective well-being measures are interesting (sub)indices for happiness and well-being but are not mature and reliable enough as objectives for macroeconomic empirical analysis and policies.
Simon Wren-Lewis University of Oxford Strongly agree Very confident
Survey measures of subjective well-being are useful indicator measures of well being. GDP is also an indicator of well being. All indicators have their deficiencies, which means using a range of measures when appropriate. For example, conventional happiness or life satisfaction surveys may indicate changes rather than the level of our well being, which could explain the Easterlin paradox. But these surveys remain very useful indicators.
Omer Moav University of Warwick Agree Confident
Omar Licandro University of Nottingham Disagree Very confident
Andrew Mountford Royal Holloway Strongly disagree Extremely confident
Costas Milas University of Liverpool Agree Confident
Jim Malley University of Glasgow Agree Confident

Well-being and macroeconomic policy

Participant Answer Confidence level Comment
Jordi Galí CREI, Universitat Pompeu Fabra and Barcelona GSE Agree Not confident
Ricardo Reis London School of Economics and Columbia University Disagree Confident
This is a much higher bar than the previous question, since it suggest that quarter-to-quarter, or at least year-to-year, measures in happiness should guide the fine tuning of policies. (This is what I understood as macroeconomic policies, as opposed to long-run investments, which were covered in the previous question). For higher frequencies, I am not convinced that the signal-to-noise in the happiness measures is large enough to be a good indicator.
Fabien Postel-Vinay University College London Agree Confident
Michael McMahon University of Oxford Neither agree nor disagree Not confident
I am enthusiastic that such well-being analysis can shed light on under-considered interlinkages that matter for macro policy. For example, there is emerging evidence that happier workers are more productive (Oswald et al ) and so when thinking about the UK productivity puzzle, thinking about industrial policy and R&D incentives should be combined with thinking about reforms to improve mental health support over workers lives. Such research may also affect decisions about the rate of adjustment in social welfare programs. Too fast a reduction in benefits, or other policy changes which cause larger stresses (for example to working parents) may be associated with negative productivity consequences. A concern also relates to the Lucas critique. Most of the research that I am aware of from well-being analysis concerns the analysis of historical relationships. While these have shed light on (in many cases causal) relationships, we cannot be certain of the robustness of such relationships in the face of targeted policy changes. So while I welcome the use of such quantitative well-being analysis as complements to the current processes used to evaluate macro policies, I remain somewhat more cautious about the current precision of such analysis to use it as the core way to determine policies.
Nezih Guner CEMFI Disagree Confident
While I think that empirical analysis, macro or micro, should make greater use of subjective well-being measures, I do not think that they can yet play a role in guiding policy. Macroeconomic policies work well when they have clear objectives, and when we understand their pros and cons clearly. I do not think insights from the quantitative well-being analysis satisfies these criteria yet.
Gianluca Benigno London School of Economics Disagree Not confident
Ray Barrell Brunel University London Agree Confident
Quantitative well being analysis should clearly be one guiding factor behind longer term macro economic policies that affect employment and growth. However, it is hard to give a weight to well being as compared to output per head, and hence care has to be taken in discussing and designing policy frameworks. Fiscal policy can obviously be used to help increase wellbeing by reducing deviations of unemployment from its sustainable level, and this can best be achieved by limiting the speed at which excessive deficits are eliminated. The content and composition of fiscal policy can be made to help reduce sustainable unemployment and raise well being. Much of this would have to be done with labour market policies, buy the provision of low wage public sector related jobs as an alternative to benefits would do much to reduce unemployment. This would be particularly important for the young unemployed. Designing monetary policy regimes that take account of well being is academically much easier than it is for fiscal policy, but much less productive for society. Monetary policy cannot easily reduce sustainable unemployment, but if used carefully it can reduce cycles in employment. This can be achieved by allowing long periods of adjustment to inflation overshoots rather than making unemployment a specific objective of monetary policy. Having a well being related unemployment objective would require giving the central bank a target for sustainable unemployment, but as we have no idea what this is, we could just cause ourselves the problems we created in the 1970s. Low and stable inflation are also factors determining well being, and that should perhaps remain the primary or only objective of monetary policy. In all these areas we should remember that we probably cannot design an optimal policy because we cannot collect enough information on the driving factors for our goals or know enough about the relative importance of goals. We can however, make decisions about what might be better or worse amongst a number of alternatives.
Pietro Reichlin Università LUISS G. Carli Disagree Confident
Given the difficulty of defining well-being and, most importantly, understanding what is the value of aggregate measures of well-being, I doubt that policy makers should base their choices on quantitative well-being analysis. The danger is that political choices (that should be selected through the democratic process) may be disguised as technical solutions.
Panicos Demetriades University of Leicester Neither agree nor disagree Confident
They are already playing a role, by complementing hard data with survey views, at least when it comes to monetary policy. I am not convinced that we need to attach even more weight to them, those who advocate their great use are very obviously conflicted (they have built their careers on them, if not their egos).
Alan Sutherland University of St Andrews Agree Confident
David Bell University of Stirling Agree Confident
I have an interest in this question in that I am a joint author of a paper on the well-being trade-off between inflation and unemployment (see below). We find that unemployment entails higher well-being costs than does inflation. Clearly this has a bearing on macroeconomic policy and we do feel that central bankers should take this kind of evidence into account when making decisions. Blanchflower, D. G., Bell, D. N., Montagnoli, A., & Moro, M. (2014). The Happiness Trade‐Off between Unemployment and Inflation. Journal of Money, Credit and Banking, 46(S2), 117-141.
Martin Ellison University of Oxford Strongly disagree Very confident
I think that policymakers still unfortunately need to take a paternalistic approach at times. I find it difficult to believe that happiness has been as flat as the survey evidence suggests. How would things be if we did things in reverse and required people today to return to the standard of living if the 1970s? I cannot imagine that many people would happy driving an Austin Allegro again! Other sciences have less problems with the paternalistic approach, as seen for example in the anti-vaxxer debate. I am also concerned that a focus on happiness may stifle innovation in the economy. Some people feel uncomfortable with the way the world changes as they get older, which may lead them to report low levels of happiness in surveys. But it would be wrong to direct policy towards preserving the happiness of these older generations, who already have considerable weight and influence on policy.
John Hassler Institute for International Economic Studies (IIES), Stockholm University Agree Not confident
I do think that measures of happiness derived from surveys contain useful information for researchers as well as policy makers. Therefore, they should be used in policy evaluation and other empirical analyses. Measures of happiness and well being are, however, likely to satisfy Goodhart's law, namely that if they become the target of policy they cease to be a good measure of welfare. This speaks in favor of using different measures of welfare, including also GDP and the distribution of income.
Tryphon Kollintzas Athens University of Economics and Business Agree Very confident
Harry Huizinga CentER, Tilburg University Agree Not confident
John Driffill Birkbeck College, University of London Neither agree nor disagree Confident
It may be too strong to argue that they should play an "important" role. I would agree that they should play some role, but doubt that it should be an important one. For example, very strong evidence that some policy is causing or would cause a reduction of subjective well-being, using a variety of different measures, should be examined very carefully. Even if it caused a substantial increase in GDP, one might want not to implement it.
David Cobham Heriot Watt University Disagree Confident
Michael Wickens Cardiff Business School & University of York Strongly disagree Extremely confident
See previous answer. The objective is naive and there are no instruments to achieve such an objective.
Richard Dennis University of Glasgow Disagree Confident
Stefan Gerlach BSI Bank Neither agree nor disagree Confident
Philippe Martin Sciences Po, Paris Neither agree nor disagree Confident
This depends strongly on which macroeconomic policy. This would not be warranted for monetary policy for which aggregate inflation (and potentially employment and financial stability) should remain the sole targets. For fiscal policy well-being should be one the main objectives.
Claudio Michelacci EIEF Disagree Confident
Paolo Surico London Business School Agree Confident
Wouter Den Haan London School of Economics Agree Confident
Paul De Grauwe London School of Economics Disagree Confident
Patrick Minford Cardiff Business School Disagree Confident
My reason relates to what I have said. I cannot see that we can get a fine measure of the effects of macro policies on wellbeing. We can however estimate how policies might impact on economic volatility and consumer welfare conventionally measured.
Sir Charles Bean London School of Economics Disagree Confident
Measures of happiness or well-being certainly may have value in considering the design of microeconomic policy interventions (and here I favour a 'scorecard' approach rather than combining several indicators into an arbitrary single aggregate). But I don't think they are likely to add much value in informing the design of monetary policy or the overall stance of fiscal policy.
Gernot Müller Eberhard-Karls-Universität Tübingen Disagree Confident
David Miles Imperial College Agree Not confident
Knowing how much misery is caused by involuntary unemployment is surely relevant to a range of government (and perhaps central bank) policies and direct questions on well-being seem likely to be an important source of information on this.
Fabio Canova BI Norwegian School of Management Neither agree nor disagree Confident
measures of happiness are strongly correlated to measurable indicators. it is sufficient to use these indicators appropriately
Kate Barker British Coal Staff Superannuation Scheme Agree Very confident
This is now a very connected world, in which discontent can become more apparent. Policymakers need to be more alive to the issues which are really disturbing citizens and localities. These surveys may help, and may guide not so much macroeconomic policies but the micropolicies of tax and spatial issues.
Ugo Panizza The Graduate Institute, Geneva (HEID) Disagree Confident
I am worried about a variation of "Goodhart's law" (When a measure becomes a target, it ceases to be a good measure). As mentioned in the text, measures of subjective well-being have become better and better with time. However, such indicators they are easier to manipulate than standard macro variables (such as GDP, unemployment etc.). If such indicators were to become policy objectives or become important element of policy evaluation there would be strong incentives to manipulate them.
Fabrizio Coricelli Paris School of Economics Disagree Confident
Ethan Ilzetzki London School of Economics Disagree Not confident
The wellbeing of society should be the ultimate objective of policy, including macroeconomic. I do not feel, however, that wellbeing analysis as currently conducted is the way forward. People differ in what makes them happy. Drivers are happier with better roads while others might be happier with better public transport. The role of democratic politics is to confront and hash out these convergent views and interests. Aggreagting very heterogeneous indicators over which interest differ into decreasingly transparent indexes (like GNH) isn't the way forward. I do believe that we have learned some policy relevant facts from the happiness literature, like the importance of unemployment and mental health and I would be happy to see these insights affect policy. But ultimately, we should be looking at a variety of indicators and will and should continue to disagree on what makes for a good society.
Per Krusell Stockholm University Disagree Very confident
For the reasons I gave in the response to the previous question, my answer here is that happiness measures should not be used (yet). The fact that "unhappiness following unemployment persists into the next employment spell" can be rationalized using other observables, e.g., wage changes or wealth changes. I do believe that unemployment is a big problem in our societies and can cause depression, suicide, etc. but then I would favor direct measures of these phenomena.
John VanReenen London School of Economics Agree Not confident at all
Harris Dellas University of Bern Strongly disagree Very confident
Tim Besley London School of Economics Agree Very confident
There is a case of using a range of data to evaluate policies but not one to the detriment/neglect of others and we need to use the data intelligently and cautiously. It is a case of discretion not rules in this case. Also happiness and well-being are not the same thing as the passage above seems to suggest. Moreover, let's not pretend that there is any single metric that trumps all others. We need to be pluralistic which, in many ways would be a break from the past. Amartya Sen has been arguing for a plural "capability approach" for years and I still think that his framework is the most persuasive overarching intellectual framework in the area.
Giuseppe Bertola Università di Torino Strongly disagree Confident
Jürgen von Hagen Universität Bonn Disagree Very confident
I see at least two problems here. First, general, macroeconomic correlations between happiness and measures of economic performance tell us nothing about the impact of infrastructure projects in specific regions on happiness in that region, nor do they tell us much about the impact of unemployment on the group of unemployed people. To implement the recommendation behind this question one would have to have time series of regional happiness indeces and happiness indeces for individual groups of people in the labor market. Second, the nature of democracy is that the majority decides which policies are implemented and which are not. Taking democracy seriously, one would have to have happiness indeces representing the voters who elected the government currently in power. Using aggregate happiness indeces would undermine democracy. It is the task of the politicians to decide what increases the well being of their voters. They may use aggregate happiness indeces and macroeconomic analysis based on them to inform their choices, but we should not replace democracy by the use of quantitative indeces. After all, it is not implausible that policies making one group more happy make other groups less happy. The question then is how do we weigh one against the other. Democratic elections are the current, constitutional answer to this and economists should respect that answer.
Francesco Caselli London School of Economics Neither agree nor disagree Confident
I don't think we are anywhere near the position of being able to predict the impact of various policies on well being. Hell, we are finding it hard enough to predict it for economic activity or consumption or labor supply! So I don't think the maximization problem solved by the government to set specifici policies should (yet) have quantitative measures of well being as the objective function. However I am sympathetic to using these measures as one (among many) criteria to give weights to varous "intermediate" targets, such as consumption, unemployment, inflation, etc.
Jagjit Chadha National Institute of Economic and Social Research Disagree Confident
We do use well being analysis because we tend to examine the welfare of the median household using their utility function when we try to understand the implications of different policy plans. That said there may be case for looking at the utility of different parts of the income and wealth distribution but that should be related again to the utility function not some ad hoc subjective construct.
Lucio Sarno Cass Business School Agree Confident
Jan Eeckhout University College London Disagree Confident
Robert Kollmann Université Libre de Bruxelles Disagree Confident
Jonathan Temple University of Bristol Disagree Not confident
Tony Yates University of Birmingham Disagree Confident
I think the study of well being is an interesting field, and perhaps useful for assessing the quality of delivery of key public services like health and social care, where one can measure well being for an individual before and afterward. But I don't feel that the measures are instructive enough to be targets for macro policy instruments.
Mirko Wiederholt Goethe University Frankfurt Agree Not confident
Jean Imbs Paris School of Economics Neither agree nor disagree Not confident
Evi Pappa European University institute Disagree Not confident
Kevin Hjortshøj... Oxford University Agree Confident
If economists are going to persist in being utilitarians then they should think about what actually makes human beings happy! I'm not saying that we have a clear enough handle on this yet, but I am answering yes in an aspirational sense.
Elias Papaioannou London Business School Agree Confident
Akos Valentinyi University of Manchester Strongly agree Very confident
Gino A. Gancia CREI and Universitat Pompeu Fabra Disagree Confident
Sweder van Wijn... Universiteit van Amsterdam Disagree Confident
We simply do not know enough about its determinants and its relation to policy instruments to guide policy makers
Richard Portes London Business School and CEPR Agree Confident
Of course we should use both aggregate and granular data on well-being - e.g. measures of household incomes, consumption, access to social benefits, inequality etc. and how they might be affected by macroeconomic policies. But this is quite different from self-reported assessment of 'happiness' - see my answer to question 1.
Sylvester Eijffinger CentER, Tilburg University Neither agree nor disagree Very confident
More empirical research should be done on the correlation between more subjective self-reported measures of happiness and well-being and more objective and scientific measures, such as those derived from CT brain scans.
Simon Wren-Lewis University of Oxford Strongly agree Extremely confident
The central role of spells of unemployment for happiness is an excellent example of why these measures are useful in influencing policy. Arguments that such data is not 'well understood' is I'm afraid part of a regrettable tendency in macro to ignore empirical evidence. In this particular case recent empirical studies which show that unemployment can influence the earnings of the children of those unemployed indicate exactly why the happiness results make sense. Central banks should pay much more attention to this happiness data than the implications of what governs social welfare in very simple microfounded models.
Omer Moav University of Warwick Agree Not confident
Omar Licandro University of Nottingham Agree Confident
Costas Milas University of Liverpool Agree Confident
Jim Malley University of Glasgow Disagree Confident
Andrew Mountford Royal Holloway Strongly disagree Extremely confident