Layard's Lectures

Home | Introduction to Happiness | Utility | Important Economists | Richard Layard | Layard's Lectures | Sweden

Richard Layard's Lectures (Happiness: Has Social Science a Clue?)

1st Lecture: "What is happiness? Are we getting happier?"

Definition

• Layard defines happiness as feeling good - enjoying life and feeling it is wonderful. He defines unhappiness as feeling bad and wishing things were different. He believes that there are countless sources of happiness, and countless sources of pain and misery.
• He believes that all of our experiences have a dimension which correspond to how good or bad we feel.

The fluctuation of mood

• People's feelings fluctuate from hour to hour and from day to day.
• But can people identify what feelings they are feeling? In other words, do the feelings which people report correspond accurately to reality?

Evidence from neuro-science

• To understand how the economy actually affects our well-being, we have to use psychology as well as economics.
• Layard says that we need to be sure that when people say they feel something, there is a corresponding event that can actually be measured. Thanks to work done by psychologists over the last 20 years, in which they have been studying feelings in great depth - measuring them, comparing them across people, and explaining them - we know that the feelings which people report correspond closely to activities in the brain which we can measure. The main finding is that positive feelings correspond to brain activity in the left side of the pre-frontal cortex, and negative feelings correspond to brain activity in right side of the pre-frontal cortex.
• 

The desire to feel good

• Approach and avoidance
  • Psychologists believe that we are always, often subconsciously, evaluating our situation and the elements in it. They also believe that we are attracted to the favourable elements and seek to have them or to prolong them; and we are repelled by the unfavourable elements and seek to avoid them or try to bring them to an end.
• There is a subconscious, evaluative mechanism in all of us that tells us how happy we are and it then directs our actions towards improving our happiness. From the various possibilities open to us, we choose whichever combination of activities will make us feel best.
• This is similar to the economic model of happiness. We want to be happy and we act to promote our own happiness, given the possibilities open to us.

The overall social outcome

• The standard economic model
  • Private actions and exchanges can make someone happy without effecting anyone else's happiness.
  • The higher the real wage, the happier the population.
• What is wrong with this model?
  • The standard economic model assumes that everyone has constant tastes. It does not take into effect that our wants, once we are above the required level to survive, are largely affected by society. Our wants are major factors affecting our happiness.

Trends in happiness

• When asked: "Would you say you are very happy, pretty happy or not too happy?"
  • 
    • The percentages are practically unchanged over the period of 21 years.
• Happiness and income
  • 
    • People in the US have got no happier in the last 50 years. They have become much richer, they work much less, they have longer holidays, they travel more, they live longer, and they are healthier, but they are no happier.
  • In Japan, since 1950, there has been no change in happiness despite a 6-fold rise in GDP.
    • The same is true for the majority of European countries.
• Relation between happiness and income
  • Within any community, there is actually a clear relation between happiness and income.
  • 
    • The rich (top quarter) are substantially happier than the poor (bottom quarter).
    • This would lead you to believe that when the poor became richer, as they did by 1998, they would also have become happier, but they did not.

Comparing happiness across countries

• 
  • Once a country has over $15,000 of average income, its level of happiness appears to be independent of its average income.

Works Cited

• Layard Essay 1

2nd Lecture: "Income and happiness: rethinking economic policy."

Happiness has not risen in advanced countries in the past 50 years.

In 1975 the rich (top quarter) were happier than the poor (bottom quarter). The same was true in 1998, when both groups were richer than before. But in 1998 each group was no more happy than before, despite their higher income.

A given individual in a given country becomes happier if he is richer, so most people wish to be richer. But at the same time, when the whole society becomes richer, nobody seems to get happier. Why does this happen? There are two mechanisms that describe this phenomenon - habituation and rivalry. You compare what you have with what you have become used to, and as your standards rise the level of enjoyment you get is reduced (habituation). Then you compare what you have with what other people have, and if others become better off then you need more in order to feel as good as before (rivalry).

Habituation

• When your living standards increase, you enjoy it at first but then you get used to it and it makes little difference. But it would be very difficult if your standard of living went back to where it was before. So, when your income rises, you are happy at first, but then you get used to it and then that level of income and that standard of living become the norm and your level of happiness in the long run does not change.
• 
  • People were asked "What is the smallest amount of money a family of four needs to get along in this community?"
  • The believed to be required income rose right along side the actual income.
• This trend results in us working more, and pursuing other things less.
  • Layard believes that the natural way to offset this is to tax spending in order to "discourage excessive self-defeating work."

Rivalry

• People care about other people's incomes as well as their own. People pay attention to their relative income in contrast to others' incomes around them.
• 
  • In this study done at Harvard, the majority of participants chose "A;" They would be happier poorer, given that they were relatively wealthier than those around them.
• People are concerned with their relative income and not just with its absolute level. People want to keep up with their peers in their society and if possible they want to rise above them.
• The rich are generally happier than the poor because from their high position in society the people that they financially compare themselves to include a larger number of people that are poorer than they are.

Rethinking public economics

• The presence of habituation and rivalry require a completely new theory of public economics.
  • In public economic theory taxation distorts leisure and income, effectively making people not work enough.
• Habituation and rivalry point to a different conclusion. They tell us that in an efficient economy, there will be substantial levels of corrective taxation.
  • What is the appropriate level of taxation? There is only little data accumulated on this subject, but Layard suggests that 30% of income should be taxed for rivalry and 30% more should be taxed to deal with habituation. This leaves us with taxes at 60%.
  • This would obviously reduce GDP, by reducing the work effort, due to such high taxation. But this should not matter, because as has been shown above, GDP is a poor measure of well-being.

Equality

• The marginal utility of relative income goes down quickly as income rises.
• Increases in average income only raise average happiness in countries with an average income of $15,000 or less.
• Layard believes that we should reduce the inequality of incomes within and across countries.
  • He believes that this could be possible through substantial taxation.

2nd lecture: [1]

3rd Lecture: "How can we make a happier society?"

In this lecture, Layard focuses on 7 main factors that are affected by happiness

1. Income
   • If a society's income as a whole falls, individuals will not be impacted because every one in the community suffers.
2. Work
   • "Unemployment is a disaster"
     • Trying to keep low unemployment should be a goal for governments
     • In most instances, having any job is better than none
     • Welfare-to-work should be implemented
   • job-security
     • if people have secure jobs, they tend to be happier
     • governments should provide reasonable job security to members of the community
     • pace of work also impacts workers because the pressure for them to reach certain targets. This pressure leads to stress
     • Although everyone does not have the same preferences, everyone wants job security
3. Private Life
   • geographical mobility
     • economists favor geographical mobility but there are some problems with people always moving
     • increases family break up and criminality
   • growing up and staying in the same community creates closer ties amoung individuals. Individuals in these communities are more trustworthy
   • individuals that move around a lot sometimes become less bonded to others
4. Health
   • mental health is very important to happiness
     • mental disorders lead to unhappiness such as depression
5. Community
   • Happiness is not only affected by how you treat yourself but how you treat others as well
   • how you perceive others is important too
   • issue of trust
     • people are happier if they can trust others
6. Philosophy of life
   • over the years there has been a decline in religious belief
   • an individual can obtain happiness from not being self interested but rather from the good fortune of others
7. Freedom
   • Communist governments were not well received by the people which caused unhappiness
   • post-Communism countries, such as Hungary, are much happier with their government

3rd lecture: [2]

These lectures were accessed through the London School of Economics and Political Science website, at http://www.lse.ac.uk/.

Happiness studies main page: [[3]]