Arnold Kling  

Money and Happiness

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Robert H. Frank writes,

Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives.

In the past, I have criticized so-called "happiness research." However, Frank's article at least tries to address those criticisms, and it is well worth reading.

Frank uses an interesting example to illustrate his thinking. He says that most people would rather live in a society where houses are smaller and commutes are shorter than where we end up in a free-market equilibrium. In my case, I happen to spend less time commuting and live in a smaller house than is typical for my income bracket. So I like his example. But I'm still not comfortable with the notion that forcing other people to live like me would make them happier.

For Discussion. Assuming that government intervention is needed in order to move society to an equilibrium in which there is less conspicuous consumption and more inconspicuous consumption, how would happiness be affected by the loss of personal freedom, which is an element of inconspicuous consumption? How would we know whether people were truly happier?

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The author at Different Opinion in a related article titled Arnold Kling Does Not Believe in Happiness writes: Arnold, I don't believe in happiness as a useful concept in economic models. However, I don't believe that people derive utility from their consumption independent of each other either. And taking this into account...has led me to my own opinio... [Tracked on July 28, 2004 4:45 PM]
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    Welcome to this weeks edition of Carnival of the Capitalists! Thank you for stopping by! We've got a long this week, so grab a cup of coffee, or two, and enjoy! Todd at A Penny For posted about the BlogOn conference and comes home with as many question... [Tracked on August 2, 2004 5:26 AM]
COMMENTS (10 to date)
Lawrance George Lux writes:

It would be affected drastically. Commuters will be faced with obtanining permits as expensive as the fuel in their vehicles, unless they use mass transit systems. Retailers will have to bear the cost of home delivery systems, being refused the right to release Inventory except at projected use homesight. Travelers will pay in a high tax per mile ($.25) for personal vehicle travel in distances over fifty miles from registered vehicle use. Housing permits for new constructions will be charged so much tax per cubic foot of space (We are talking about $3 per cubic foot over a defined normal space). The list goes on and on, and is not pretty. lgl

Brad Hutchings writes:

How would we know whether people were truly happier?

We will have a survey and a formula. Duh!

david writes:

What both you and (surprisingly) Frank completely miss is that the current structure of American cities - sprawl, large single family homes, long commutes - isn't due to consumer preferences, its due to a boatload of regulations and government interference at every level of government: Minimum lot sizes, floor-area ratios, minimum parking requirements, mortgage tax deductions, federal subsidy of the highway system, gas taxes that don't cover pollution externalities. Ask any developer trying to build dense housing in American urban cores, the bureaucratic obstacles are enormous. What we get is tract homes, pollution, and onerous commutes.

If the housing market in American cities were free, it would look a lot more like the ideal Frank describes.

beat waydown writes:

yea. nice slant, bro. I have many similar posts meself. re: JOHO post: people you don't want to be around wearing you down. participatory democracy is like a condo assoc. That's as good as it gets. making sure it doesn't get big feet and run amok, like it did in Iraq, is the trouble.

Rob Sperry writes:

How do we know what the market equilibrium is? Regulatory zoning, and the permit process play a large part in determining what can get build and where. In most places its illegal to put office, housing, stores and restaurants on the same block. Those places where it is legal tend to be dense and very expensive an indication that some people value this arrangement.

shoaf writes:

"Different Opinion" thinks there is some kind of "contextual consumptive externality."

"Different Opinion" says there is a "consumption race" that induces the poor to work more and buy more expensive things than they would otherwise. He says the solution is a progressive tax. I think a progressive consumption tax might yield contextual consumptive impacts at the governmnetal level? That is, rich counties might start getting better roads, schools, etc. thus inducing poor neighbooring counties to gain less happiness from their county-owned possessions.

For this reason as well as many others, even if the contextual effect is present, I do not think governmnet interference is justified.

Jason Ligon writes:

The real question is what makes politically motivated happiness researchers happy?

Greater control of everyone's lives for their own good? Security from the chaos of people making willy nilly decisions about their own lives?

To add to what David wrote about the non-free-market realities of housing, towns and cities, I'll add two other points:

* Urban renewal. Billions spent by the government on largely-destructive urban policies, which helped destroy the very appeal of cities.

* The massive amount of money that goes into highway construction and repair has its effects on housing and building patterns too.

What if sprawl weren't being subsidized? I have no idea what the results would be. But I do note that housing in New Urbanist projects (which some free-marketers love to jeer) commands a premium. Let's see. Doesn't economics teach us that "commanding a premium" usually means that there's unserviced demand out there?

Clicked too soon...

And how about the money that the government spends defending our oil-and-gasoline culture? Including, for instance, mideastern wars? How about if those billions were allowed to seek their own level instead of being taken care of (and disguised) by the government? I suspect that's another change that would have a substantial impact on the housing-and-building market.

Yasser writes:

I have another question: If people truly derive more happiness from "inconspicuous consumption", then why do they overwhelmingly opt for conspicuous consumption instead?

Perhaps it has something to do with herding behavior: buying increasingly larger houses, expensive cars, and other trappings of affluence is what most people seem to do - after all, it represents the American Dream.

And maybe people are too myopic to realize that the pleasure derived from conspicuous consumption is ephemeral. As the novelty of a newly-acquired bauble wears off and happiness returns to baseline, the myopic mindset dicates that even more opulent objects should be purchased, in a neverending cycle.

Finally, our evolutionary instincts cause us to focus on attaining greater status and power (presumably because this leads to mating opportunities), and conspicuous consumption is simply the sine qua non of that process.

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