By far the best overview of the happiness literature from an economics and policy perspective is Frey & Stutzer’s Happiness and Economics. Frey, a first class constitutional theorist, explores the big impact policy can have on happiness, but warns against construing the happiness function as an approximation of that unicorn of social science, the social welfare function, and then trying to maximize it. F&S point out that the goal of maximizing social welfare has traditionally faced three problems: (1) empirical emptiness; (2) aggregation (Arrow social choice stuff); (3) incentive compatibility (Buchanan public choice stuff). The happiness data perhaps solves (1), but it does not solve (2) or (3). Folks like Layard are particularly inept with respect to (3). Here’s what F&S say:
Missing incentives. Deriving optimal policies by maximizing a social welfare function only makes sense if the government has an incentive to apply the optimal policies in reality. This is only the case if a “benevolent dictator” government is assumed. (Brennan and Buchanan 1985). From introspection as well as from empirical analysis in political economy (see, e.g., the collection of papers on political business cycles in Frey 1997), we know that governments are not benevolent and do not follow the wishes of the population, even in well-functioning democracies, not to mention authoritarian and dictatorial governments. Hence to maximize social welfare corresponds to a “technocratic-elitist” procedure, neglecting the crucial incentive aspect.
This criticism applies particularly when one tries to derive optimal policies by maximizing happiness.
This point cannot possibly be emphasized enough. Even if your theory of value, or your philosophical standard for policy evaluation, is “correct” in some metaphysical sense, this gets us almost nowhere. Why? First, people, especially agents of the state, must understand and broadly agree that it is correct. This is exceedingly unlikely. Second, people, especially agents of the state, must be motivated to reliably act in accordance with its prescriptions. But if understanding and agreement is unlikely, then motivation based on them is unlikely. It may be conceivable to structure incentives so that it is as if agents of the state were motivated by a commitment to a single normative standard, but it is usually unrealistic.
Here is F&S’s approach:
There is a solution on hand that overcomes the problems posed by the impossibility theorem and by the government’s missing incentives. Constitutional political economy (e.g., Buchanan 1991, Frey 1983, Mueller 1996, Cooter 2000) redirects attention to the level of social consensus where, behind the veil of ignorance, the basic rules governing a society–the fundamental institutions–are chosen or emerge. At the same time, the approach shifts from a (vain) effort to directly determine social outcomes to shaping the politico-economic process by setting the institutions.
. . . The fundamental institutions shape the incentives of policymakers. Once these basic institutions are in place and the incentives are set, little can be done to influence the current politico-economic process. Economic policy therefore must help to establish those fundamental institutions, which lead to the best possible fulfilment of individual preferences. Research in positive constitutional economics helps to identify which institutions serve this goal, and whether they do in fact systematically affect happiness.
F&S’s research shows that procedural aspects of government, such as the directness of democratic participation and the degree of decentralized federalism, are themselves determinants of happiness. The Swiss are among the happiest people in the world not only because they are fabulously wealthy, but because the canton system allows for direct democratic rule of over local jurisdictions, with little interference from the central state.
Very good. It’s an attractive line to persue.
But if we can’t get agreement, understanding, and motivation, at the first-order level, then how can we assure it at the level of constitutional institution creation? (I’ve long agreed with those who say that Hayek couldn’t provide adequate explanation of why the U.S. constitution isn’t an instance of “constructivist rationalism”.)
People may like (e.g. Swiss) constitutionally decentralized institutions. But this affection is an article of tradition, common sense, and accumulated experience leading people to believe that the institutions are maximizing social welfare.
American libertarian’s faith, on this score, is constantly being called into question. Notice the intellectual contortions that one has to go through to defend federalism PER SE in the American context. Just think of the Raich (medical marajuana) decision for starters.
(Plus, our economic and political institutions ARE UNDENIABLY getting more centralized and its disingenuous and a little obscurantist to argue that we could just go back to greater decentralization.)
I’d rather say that, ideology aside, we have a fair bit of agreement and understanding at the first-order level. Government selfishness and bad incentives are a problem, but so are those in the “private sector”. It’s best not to think of a government deciding on and utilizing a social welfare function. Better to think of government as just one part (especially deadly) part of the country’s attempt to vaguely agree on a social welfare function and implement it.
I don’t think I disagree too much with the spirit of this post, contrary to appearnances (maybe).
Clarification: Raich is a case where federalism dictates the libertarian position. (The Supreme Court decision illustrates the deterioration of federalism.) The sodomy and interstate wine sales (dormant commerce clause) cases are ones where federalism gives the anti-libertarian result… thus demonstrating the difficulties of consistent federalism.
Very good. It’s an attractive line to persue.
But if we can’t get agreement, understanding, and motivation, at the first-order level, then how can we assure it at the level of constitutional institution creation? (I’ve long agreed with those who say that Hayek couldn’t provide adequate explanation of why the U.S. constitution isn’t an instance of “constructivist rationalism”.)
People may like (e.g. Swiss) constitutionally decentralized institutions. But this affection is an article of tradition, common sense, and accumulated experience leading people to believe that the institutions are maximizing social welfare.
American libertarian’s faith, on this score, is constantly being called into question. Notice the intellectual contortions that one has to go through to defend federalism PER SE in the American context. Just think of the Raich (medical marajuana) decision for starters.
(Plus, our economic and political institutions ARE UNDENIABLY getting more centralized and its disingenuous and a little obscurantist to argue that we could just go back to greater decentralization.)
I’d rather say that, ideology aside, we have a fair bit of agreement and understanding at the first-order level. Government selfishness and bad incentives are a problem, but so are those in the “private sector”. It’s best not to think of a government deciding on and utilizing a social welfare function. Better to think of government as just one part (especially deadly) part of the country’s attempt to vaguely agree on a social welfare function and implement it.
I don’t think I disagree too much with the spirit of this post, contrary to appearnances (maybe).
Clarification: Raich is a case where federalism dictates the libertarian position. (The Supreme Court decision illustrates the deterioration of federalism.) The sodomy and interstate wine sales (dormant commerce clause) cases are ones where federalism gives the anti-libertarian result… thus demonstrating the difficulties of consistent federalism.