David R. Henderson  

Richard Epstein on Happiness, I

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"I'll be miserable for five years as long as you make me wealthy."

I've always been a fan of Richard Epstein's thinking. I hadn't known, however, that he had thoughts on the "happiness" literature. I learned a lot about much of that literature from a recent Russ Roberts podcast with Epstein. I highly recommend the whole interview. I can't do justice to the whole podcast in one post and so here is my first installment.

These are some of the key thoughts, along with the approximate point he states these thoughts:

9:00. Researchers who find little connection between either income or wealth on the one hand and happiness on the other have failed to take account of the short-run tradeoffs people make to get wealth. Think of the person whom a company wants to motivate to get on an airplane at the drop of a hat and fly halfway around the world to close an important wealth-creating deal. To motivate that person, the company has to pay a lot. The person gives up current happiness for future wealth and future happiness. Outside work, that person has very little of a life. Query him about his happiness, and he will probably say he's not very happy. But he has a plan: to accumulate wealth and then take it easier later. Thus the quote, from Epstein, at the top of this post.
Epstein does not point out, but I'm sure he would agree, that this tradeoff highlights the unfairness of the graduated income tax system compared to a flat tax rate. The person gets hammered during his high-income years even if his lifetime income is the same as that of someone with a more-normal workweek and a flatter pay gradient.
Incidentally, when Epstein tells his story, he uses examples of people whom virtually all of us would regard as very high-income. But the more general point is about variability. When I was 18 years old, my net worth, not including the value of my books, was about $20. I needed to make about $2,000 in 1969 dollars to pay for room and board, tuition, and books for my last year in college. I knew enough about the way the world worked to know that the way to make a lot of money quickly was to go where other people didn't want to go but where employers wanted people. So my friend, Don Redekop, and I, one hour after writing our last final, hitchhiked from Winnipeg to Thompson, Manitoba. He got a job building a mine and I got a job in a mine. I took every overtime hour I could and sometimes worked double shifts. By mid-August, I had enough for my last year of college plus a trip to the U.S. to go to an Intercollegiate Studies Institute seminar. When I think back about that time, I get the warm fuzzies and think how neat the job was. But a year ago, I found a box of letters I had written my father. In my letters from that summer, I expressed how miserable I was.

11:00. Given that people make these tradeoffs, the appropriate strategy for those who question whether they're making the right tradeoffs is to give people information rather than coerce them.

19:00. Sometimes when we make big decisions, we are most strapped for resources when we need them most. That's when we need friends, family, pastors, etc. When Epstein made this point, I could hear the humanity in his voice. I had the sense that he would be, or is, an awesome parent.


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COMMENTS (9 to date)
BlackSheep writes:

I subscribe to your post. Epstein podcast on happiness blew me away as well. After reading some literature on happiness gatherings, it was the medicine I needed to put them in perspective.

D writes:

How novel...work now to pay for what you'll want and need later. And this passes for brilliant economic thought? This guy should stick to law.

Michael writes:

A minor correction, but Epstein's actual quote was: "I'll be miserable for five years so long as you make me rich."

The Sheep Nazi writes:

For some people, yes, that is quite novel. If you listen to the whole podcast you will find that this is the point Epstein is trying to drive home. People vary, widely, with respect to how much of their present they are willing to give up, in return for how much future they expect to get back. This is not a brilliant insight, just a commonsense one; but, you know, we can always use some more of that.

David R. Henderson writes:

It's hard for me to use the term "The Sheep Nazi" with a straight face but here goes. I agree with him, but beyond that, Epstein's point is that few of the happiness researchers thought of that: so it wasn't obvious to them.

The Cupboard Is Bare writes:

The willingness of an employer to negotiate terms that will make a prospective employee happy depends to a large extent upon the number of qualified applicants that are available for a given position.

Also, given the fact that employers will frequently renege on terms that are negotiated verbally, it is recommended that a contract stating the terms of employment be prepared prior to the applicant's acceptance of a position.

Unfortunately, the availability of qualified applicants will also determine the willingness of the employer to enter into a contract.

I know someone from Europe who was surprised to find out that most people in the U.S. did not have contracts drawn up prior to employment (I am not talking about union contracts). Apparently, in Europe it is a common practice for contracts to be drawn up and then renegotiated every few years. What was interesting to note was that European employers operating here in the States tend to negotiate two different types of contracts...contracts with Europeans generally include more time off with lower wages while contracts with U.S. citizens have less time off with higher wages.

Ricardo Cruz writes:

Cupboard, beyond the dynamics of supply and demand determining the wage the employee will command, I don't see how it directly affects the terms of contract. Say, an employee values air conditioning at $200, it costs the employer $100 to provide it, then both parties will benefit by getting such term into the contract in order to get some of that $100 surplus. Of course, to the extent such terms of the contract are negotiated individually, it's itself governed by the pay differential dynamics, since the extra lawyer, management, time, etc needed will consume some of that surplus.

Ricardo Cruz writes:

Mr D writes «How novel...work now to pay for what you'll want and need later. And this passes for brilliant economic thought? This guy should stick to law.»

I wrote the first comment as BlackSheep. It truly is a refreshing podcast after you go through the happiness literature. Either way, can't believe that's all you've taken from a 1 hour long podcast.

MikeL writes:

How novel...work now to pay for what you'll want and need later. And this passes for brilliant economic thought? This guy should stick to law.

It was a novel thought to me. I wish that someone had sat me down at a young age and explained the world in these terms. I might have made better decisions.

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