This article was published in the September issue of an international global economics journal. The author @legalaware came top in the MBA examination at BPP in economics and marketing in May 2011.

Book Review: The pursuit of happiness: Toward an economy of well-being – Professor Carol Graham, Brookings Institution Press, Washington D.C. Brookings Focus Books.

Graham’s “Pursuit of happiness” is a punchy crystallisation of emerging themes in the measurement of happiness, and the possible usefulness of the study of happiness in itself and for the development of global economic policy. As a reader, one may easily get the impression that Graham wishes to rebutt one fundamental assumption; that the “pursuit of happiness” is simply a policy fad or fashion. In what is an immaculately referenced work of scholarship, Graham provides a balanced appraisal of the current literature on ‘the economics of happiness’, comes to clear and useful conclusions on the published research, and signposts future possible avenues for discussion. Graham’s ‘license-to-operate’ in such a fertile intellectual exercise is evidenced by her grasp of the most senior players in the world of economics, and a deep sense of respect towards them. One senses too that this respect is reciprocated. She is also able to intertwine her thesis with strands from other fields, most notably philosophy, in producing a rich tapestry which does not mean that the economics is suffocated inadvertently by other disciplines. Far from being a “dismal science”, Graham provides much reason for optimism for those people involved in this burgeoning field of economics, and indeed establishes herself, entirely appropriately, as an inspiring leader.

Graham is currently a senior fellow and the Charles Robinson Chair at the Brookings Institution, a College Park professor at the School of Public Policy at the University of Maryland, a research fellow at the ‘Institute for the Study of Labor’. Her previous books include, “Happiness around the World: The Paradox of Happy Peasants and Miserable Millionaires” (Oxford University Press, 2010), and “Happiness and Hardship: Opportunity and the Insecurity in New Market Economies” (Brookings Institution Press, 2001, with Stefano Pettinato).

Graham has written extensively, and is a renowned expert on issues including poverty, inequality, insecurity, the political economy of market reforms, subjective well-being, and the economics of happiness. In “Happiness around the World: the Paradox of Happy Peasants and Miserable Millionaires”, Graham explored what we know about the determinants of happiness across and within countries of different development levels, including some counterintuitive and surprising relationships.

Her professional standing is outstanding. Graham has testified in the United States Congress several times on the economic situation in Latin America and has discussed related topics on NBC News and CNN amongst many others. Her work on well-being has been reviewed in The New Yorker, Science, The Washington Post, The Financial Times, and Newsweek, again amongst many others. She is an associate editor of the “Journal of Economic Behaviour and Organization”, and on the editorial board of the “Journal of Applied Research on Quality of Life”.

Graham’s most recent book, “The Pursuit of Happiness: An Economy of Well-Being” (Brookings Institution Press, 2011), raises the challenges posed by the use of measures of happiness as comparative well-being indicators. Economists are increasingly using happiness surveys to understand the debates on happiness and policy. Graham was a pioneer in the economic study of happiness, and she has been involved from the start in discussions about applying this approach to economic policy-making.

The book is well-written and very accessible book, and immaculately researched avoiding bias and imbalance. She crucially examines the pitfalls of delving into the policy realm with happiness research and indicators. In a carefully formulated argument, Graham explores what we know about the determinants of happiness, across and within countries at different stages of development. She then takes a look at just what we can do with that new knowledge and clearly presents both the promise and the potential pitfalls of injecting the “economics of happiness” into public policy-making.

 Fad, fashion or fertile area for discussion?

A problem that Graham faces is that she began her work long before happiness became so fashionable in economics research and policy. In his inaugural address, President Barack Obama said that all Americans “deserve a chance to pursue their full measure of happiness.” In subsequent speeches, he has emphasised that people will pursue their “own version” or “own measure” of whatever makes them happy.

It seems reasonable, of course, to aspire for people to become happier, but should happiness supplant economic growth as an objective of government policy? The kingdom of Bhutan already uses “gross national happiness” as its preferred measure of progress. The British government even apparently has an office in Whitehall studying how to track well-being, using happiness as a base. Finally, in the United States, the Centers for Disease Control and Prevention is incorporating novel measures of well-being into national health statistics.

Despite the potential contributions that happiness research can make to policy, Graham emphasises that a sound note of caution is necessary in directly applying the findings, both because of the potential biases in survey data, and because of the difficulties associated with analysing these kinds of data in the absence of controls for unobservable personality traits. In addition, happiness surveys at times yield anomalous results which provide novel insights into human psychology—such as adaptation and coping during economic crises—but, according to Graham, these do not translate into viable policy recommendations.

One way to gauge that effect is through what has become known as the economics of happiness – a set of new techniques and data to measure well-being and contentment. Hundreds of thousands of people are surveyed and asked how happy or satisfied they are with their lives, with possible answers on a scale between very unhappy and very happy. The ideas are filtering through to politicians and the public. Most recently,  as reviewed by Graham, the Sarkozy Commission – led by Nobel Prize-winning economists and sponsored by the president of France – issued a worldwide call for the development of broader measures of national well-being. The idea is to develop metrics that can be compared across countries and over time, like GDP, but instead emphasise rather more than income.

Structure of the book

“The pursuit of happiness” is indeed a very clever, if often used, tagline, originating, as Graham explains, in the Declaration of Independence for the United States of America (1776). Thankfully, for the reader, Graham offers an useful note on the terminology of terms often used in this field, such as “happiness” and “well-being”, which makes sense of the discussion on the measurement of well-being which follows. The structure of the book makes for very easy navigation through the start-of-the-art of the field of the economics of well-being.

The economics of happiness

Somewhat counter-intuitively perhaps, part of the challenge of establishing the economics of happiness as a science comes from understanding accurately its relationship to other subjects.

Most academics in the field appear to converge on the notion that happiness and well-being can only be successfully researched and explained, if done through an inter-disciplinary approach. Graham has some success in achieving this.

Her discussion of philosophy comes up as a recurrent theme in the book, however there are some areas which appear to be somewhat neglected.  Many ethicists make arguments for how humans should behave, either individually or collectively, based on the resulting happiness of such behaviour. Utilitarians, such as John Stuart Mill and Jeremy Bentham, advocated the greatest happiness principle as a guide for ethical behaviour. While psychologists have been using surveys of reported well-being to study happiness for years, economists only recently ventured into this arena. Early economists and philosophers, ranging from Aristotle to Bentham, Mill, and Smith, all incorporated the pursuit of happiness in their work.

It possibly would have been perhaps useful for Graham to explain with a higher degree of precision what the scope of her discussion is, and why she has decided to omit certain issues. She nonetheless does not evade difficult issues in the literature which impact upon policy. An undercurrent in Graham’s work is that the globalisation process, mediates the effects of inequality and poverty on well-being. Globalisation is a major engine of growth, at least in the aggregate, and therefore plays a major role in reducing poverty; however, it is globalisation also introduces or exacerbates other factors that affect people’s well-being as much if not more than income growth.

Graham explains successfully her central thesis that, as economics grew more rigorous and quantitative, more parsimonious definitions of welfare took hold. Utility was taken to depend only on income as mediated by individual choices or preferences within a rational individual’s monetary budget constraint. The study of happiness or subjective well-being is part of a more general move in economics that challenges these narrow assumptions. Happiness economics—which represents one new direction—relies on more expansive notions of utility and welfare, including interdependent utility functions, procedural utility, and the interaction between rational and non-rational influences in determining economic behaviour. Graham introduces this topic, like all her topics, in a totally unassuming and unthreatening way, including reference to the ever-endearing “homo economicus”.

Enmeshed within her work is the potential impact that her quantitative and qualitative research might have on national policies, and this is inevitably an aim of chapter 5.  Graham is successful, in my view, in giving an account of the tensions between her new ‘dismal science’ and government policies, and the attention of the reader is politely drawn to other policy directions (such as libertarian paternalism or “Nudge” by Cass Thaler and Richard Sunstein, and “The Social Animal” from David Brooks).

Graham’s influences

For more than a decade, Graham in a number of successful academic collaborations has been studying happiness around the world, in countries as different as Afghanistan, Chile and the United States. Graham evidently finds it remarkable  how similar the forces driving happiness are in various countries, regardless of a nation’s level of development.

Graham has identified a number of consistent patterns: a stable marriage, good health and enough (but not too much) income are good for happiness. Unemployment, divorce and economic instability are terrible for it. On average, happier people are also healthier, with the causal arrows probably pointing in both directions. Finally, age and happiness have a consistent U-shaped relationship, with the turning point in the mid- to late-40s, when happiness begins to increase, as long as health and domestic partnerships stay sound.

However, Graham, in keeping with her previous published work, points out some glaring inconsistencies. While there are stable patterns in what leads to happiness, there is also a remarkable human capacity to adapt to both prosperity and adversity. Thus people in Afghanistan, a war-stricken country with poverty like that of sub-Saharan Africa, are as happy as people in Latin America, where typical social and economic indicators are a good deal stronger. Kenyans, meanwhile, are as satisfied with their health care as Americans are with theirs. Being a victim of crime makes people unhappy, but the impact is smaller if crime is a common occurrence in their society; the same goes for corruption and obesity. Freedom and democracy make people happy, but the effect is greater when they’re used to such liberties than when they are not. The bottom line, according to Graham, appears to be that people can adapt to tremendous adversity and retain their cheerfulness, while they can also have virtually everything – including good health – and be miserable.

There is a stellar cast of academics who have impacted on Graham’s programme of research. Reassuringly it is immediately obvious to the reader where Graham’s work ends, and where the work of others begins. Graham makes it very clear what her substantial contribution to the field has been, without taking any of the credit for the work by others who have influenced her. The respect that she has for other members of the academic community is obvious, and helps to establish her as a central figure in the field of economics sciences. For example, Graham readily acknowledges that Richard Easterlin was the first modern economist to re-visit the concept of happiness, beginning in the early 1970s. Indeed, Easterlin posits that Graham has directly asked whether happiness should be a goal of public policy, and describes Graham’s work has “eloquent”.

Easterlin, in his original study, revealed a paradox that sparked interest in the topic but is, as of yet, unresolved. While most happiness studies find that within countries wealthier people are, on average, happier than poor ones, studies across countries and over time find very little, if any, relationship between increases in per capita income and average happiness levels. On average, wealthier countries (as a group) are happier than poor ones (as a group); happiness seems to rise with income up to a point, but not beyond it.

Graham’s approach, which relies on “expressed preferences” rather than on “revealed choices”, is particularly well suited to answering questions in areas where a revealed preferences approach provides limited information. Indeed, it often uncovers discrepancies between expressed and revealed preferences. The research has a powerful context. For instance, Prof. Amartya Sen’s ‘capabilities-based approach’ to poverty, for example, highlights the lack of capacity of the poor to make choices or to take certain actions. In many of his writings, Sen indeed criticizes economists’ excessive focus on choice as a sole indicator of human behaviour. Prof. Sen himself won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 1998. Understanding the limits to choice approaches—and willingness to use the information contained in preferences expressed in well-being surveys — may help us better understand the divergence between economists’ generally positive assessments of the globalisation process and those of the typical layman (or woman) experiencing the process, according to Graham.

Graham additionally observes, with the help of others, that individuals are remarkably adaptable, no doubt, and in the end can get used to most things, and in particular to income gains. The behavioural economics literature, for example, shows that individuals value losses disproportionately to gains (see Kahneman, Diener, and Schwarz, 1999, among others). Daniel Kahneman and Vernon L. Smith won the Nobel Prize in economics in 2002, and the classic, “Well-being: The foundations of hedonic psychology” is cited in Chapter 1.

Graham is clearly impressed by David Blanchflower too. Blanchflower and Oswald (2011) have based their review on the results of broadly based international surveys of self-reported happiness, focusing on the United States and Europe. In keeping with Graham’s views, they argue that indices of national happiness (based on individually administered self-reports of subjective happiness) might be more meaningful indicators of national well-being than economic measures such as gross domestic product (GDP). In fact, Blanchflower and Oswald make extensive reference to the Report by the Commission on the Measurement of Economic Performance and Social Progress, in which Stiglitz and his associates argued convincingly for international authorities to assess subjective measures of happiness instead of using more traditional economic indices.

The person who shared the Nobel Memorial prize in economics with Stiglitz in 2001, has himself has previously opined about this work that,

“Since 1776 the ‘pursuit of happiness’ has been the great world question. Here, reflecting on modern survey techniques and results, Graham drills deeper. What does happiness mean? For example, is it opportunity for a meaningful life? Or, is it blissful contentment? And why does it vary, as it does, across individuals and around the world? How does the perception of happiness differ in countries as disparate as Cuba, Afghanistan, Japan, and Russia? Graham is opening up a whole new frontier in economic and social policy.”

Nonetheless, Graham, in keeping with her previous conclusions published elsewhere, feels that there is no consensus about which interpretation is most accurate. Yet numerous studies, which demonstrate that happiness levels can change significantly in response to a variety of factors, suggest that the research can yield insights into human well-being which provide important, if complementary, information for policy-makers. Even under the rubric of set point theory, happiness levels can fall significantly in the aftermath of events like illness or unemployment. Even if levels eventually adapt upwards to a longer term equilibrium, mitigating or preventing the unhappiness and disruption that individuals experience for months, or even years, in the interim certainly seems like a worthwhile objective for policy.

Some highlights

One thing that people have a hard time adapting to, however, is uncertainty. People seem to be much better at dealing with unpleasant certainty than with the uncertainty of how bad a particular health condition or economic downturn will get. Graham’s (relatively recent) survey research, with colleagues Soumya Chattopadhyay and Mario Picon, shows, for example, that average happiness in the United States declined significantly as the Dow index dropped with the onset of the financial crisis in 2008. According to their calculations, happiness fell 11% compared with its pre-crisis levels, reaching its lowest point in mid-November 2008.

Graham highlights that when the market stopped falling and some stability was restored in March, average happiness recovered much faster than the Dow; by June, it exceeded its pre-crisis level, even though living standards and reported satisfaction with those standards remained markedly lower than they were before the crisis. Once the uncertainty ended, people seemed to be able to return to previous happiness levels, while making do with less income or wealth.

Yet, if people can stay happy with less money, they can also become discontent with more. This is the “paradox of unhappy growth”. In research with economist Eduardo Lora, Graham found that, in countries with similar levels of per capita income, respondents experiencing higher economic growth rates were found, on average, less happy than those with less growth. One explanation proposed by Graham is the following: rapid economic growth typically brings greater instability and inequality with it, and that makes people unhappy.

Limitations of the book

There are very few limitations of the book, which may in fact be strengths of the book. Graham does give due regard to psychological methods: the economics of happiness is an approach to assessing welfare which combines the techniques typically used by economists with those more commonly used by psychologists. It relies on surveys of the reported well-being of hundreds of thousands of individuals across countries and continents. This approach relies on more expansive notions of utility than does conventional economics, highlighting the role of non-income factors that affect well-being. It is well suited to informing questions in areas where revealed preferences provide limited information, such as the welfare effects of inequality and of macroeconomic policies such as inflation and unemployment.

Graham, instead, does not refer overtly to politics or religion much, but this may be simply because Graham wishes to focus her thoughts without potentially offending particular groups of readers. Economic freedom correlates strongly with happiness preferably within the context of a western mixed economy, with free press and a democracy. “Socialist” East European countries were less happy than Western ones, even less happy than other equally poor countries. It would be inaccurate to consider the ex-Soviet states as socialist, however, as socialism indicates that the workers own the means of production, which under the Soviet Union was not the case.

Graham deliberately does not discuss the enormous field of “the science of well-being”. For example, the psychologist Prof. Martin Seligman has provides the acronym PERMA to summarize many of Positive Psychology’s findings. It also turns out that happiness forms a central theme of Buddhist teachings. For ultimate freedom from suffering, the Noble Eightfold Path leads its practitioner to Nirvana, a state of everlasting peace.  In Catholicism, the ultimate end of human existence consists in felicity (Latin equivalent to the Greek eudaimonia), or “blessed happiness”, described by the 13th-century philosopher-theologian Thomas Aquinas as a “Beatific Vision of God’s essence in the next life”.

The writing style means that Graham frequents certain topics on more than one occasion (for example, a comparison between Aristotle and Bentham philosophy, and the “happy peasants and frustrated achievers”). Whilst this approach might present the text as a coherent argument which spans across all five chapters, the danger is that the reader is left feeling a bit disorientated, as to whether or not he or she has read the same points twice.

Finally, I felt that there are a few parts of the discussion which appear to have received very little coverage in this book, such as the role of personal life events on the happiness on an individual, or the impact of common conditions (such as ageing or dementia) on an individual’s well-being (or quality-of-life). In Graham’s defence, however, discussion of such topics would be to be take Graham’s discussion of the ‘economics of well-being’ more into the ‘cost of well-being’, which may be an area which has to be confronted at some stage. This could even make an interesting future book, if Graham and colleagues are able to find reliable econonometric measures for well-being which could guide policy?

Conclusion

One is wary about saying that this book is a “seminal contribution to the literature”, when Graham’s books and academic papers have all been greeted with the highest acclaim. Nonetheless, in my view, Graham clearly provides a convincing case that, even if there is a bandwagon effect in people wishing to be seen to studying and applying the research from happiness and similar concepts, the literature is making great strides. The case for this is even more compelling given the particular stakeholders involved in advancing the field. Whilst Graham clearly acknowledges the interdisciplinary nature of the topic, she provides “clear blue water” between economics and other disciplines.

The book is a superb introduction for anyone who wishes to get up to speed with the field of happiness economics in the year 2011, and will appeal to readers from a diverse range of backgrounds. Graham’s style is uncluttered, articulate, extremely informative, interesting, and, in places, even very entertaining. The text is elegantly crafted, with some fascinating and classic quotations, which are all entirely relevant to Graham’s overarching thesis. This book will do much to enhance the reputation of economics, and will leave the reader with the conclusion that it is far from a “dismal science”, and certainly very far removed from any notions of the concept from Thomas Carlyle.

References

Blanchflower, David. and Andrew J. Oswald (2011). “International happiness: An introduction and review”. Academy of Management Perspectives , 25, 6–22.

Easterlin, Richard A. (1974). “Does economic growth improve the human lot? Some empirical evidence” In David PA. & Melvin, W.R. (eds.) Nations and households in economic growth, pp. 98-125. (Palo Alto, Ca: Stanford University Press).

Graham, Carol, Soumya Chattopadhyay, and Mario Picon. (2010b) “The Easterlin Paradox re-visited: why both sides of the debate may be correct.” In Ed Diener, John Helliwell, and Daniel Kahneman, eds., International Differences in Well-Being. (Oxford: Oxford University Press.)

Graham, Carol and Eduardo Lora, eds. 2009. “Paradox and Perception: Measuring Quality of Life in Latin America”. Washington, D.C.: The Brookings Institution Press.

Kahneman, Daniel, Ed Diener, and Norbert Schwarz (1999), Well- Being: The Foundations of Hedonic Psychology, New York: Russell Sage Foundation.

Sen, Amartya. (1993). “Capability and Well-Being”. In M. Nussbaum and A. Sen, eds. The Quality of Life, pp. 30–53. (New York: Oxford Clarendon Press.