How to make policy when happiness is

the goal14th Journées Louis-André Gérard-Varet,

Aix-en-Provence, 15 June 2015Richard Layard

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Assumption1. Happiness is the overarching good“The care of human life and happiness… is the only legitimate object of good government”.

Thomas Jefferson 2. For a given , we prefer a lower SD(H) (social justice)

1+2. Social welfare = H cardinal (Concave)

3

Agenda

Measurement Causes Policy evaluation Some policy implications

Happiness:

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1. MeasurementTypical Question: Overall, how satisfied are you with your life nowadays?(where 0 means ‘not at all’, and 10 means ‘completely’)

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1. MeasurementEvidence of validity of answers1. Correlate with objective measurements of

brain function2. Tally with friends’ assessments3. Predict (e.g. life expectancy, productivity)4. Can be explained (by e.g. income,

unemployment, family situation, health)H cardinal

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1950 1960 1970 1980 1990 20005.5

6.0

6.5

7.0

7.5

Reported happiness over time in the United States

Mea

n H

appi

ness

in S

urve

y (0

-10

Scal

e)

AIPO (1950-1970)

NORC (1963-1976)

GSS (1972-2006)

Year

7

1970 1980 1990 2000 20105.5

6.0

6.5

7.0

7.5

Reported life-satisfaction in West Germany

Mea

n H

appi

ness

in S

urve

y (0

-10

Scal

e)

Source: Eurobarometer and German Socio-Economic Panel. Mean life satisfaction reported on a 0-10 scale

Eurobarometer 1973-2007

GSOEP 1985-2006

Year

8

Reported life-satisfaction in France

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2. Causes: IncomeAcross individuals within countries (CS + panel)

Income has a positive effect and explains under 2% out of the 20% of explained cross-sectional variance.Comparators’ income has a negative (and often equally large) effect, especially in richer countries. Confirmed by neuroscience.So relative-income effect helps explain flat time-series.

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Diminishing marginal utility of income

Best functional form

H = α log Y etc.

Argues for greater equality.

Source: Layard, R., Nickell, S.J. and Mayraz, G. (2008). 'The marginal utility of income', Journal of Public Economics, Special Issue: Happiness and Public Economics, vol. 92(8-9), pp. 1846-1857.

Y

H

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2. Causes: Income cont.Across countriesCross-section. Poor countries are less happy but for many reasons besides income.Time series. Uncertain. Wolfers v. Easterlin.

World happiness up .15 of a within-country SD over last 40 years.

0 5000 10000 15000 20000 25000 30000 3500030

35

40

45

5055

60

65

70

7580

85

90

95100

Income and HappinessComparing Countries

RussiaUkraineZimbabweMoldova

GeorgiaRomania

BulgariaBelarusAlbaniaLatvia

PakistanMacedoniaTanzania

BangladeshAzerbaijan Turkey

LithuaniaEstonia

SlovakiaPoland

IranIndiaJordanUganda

Morocco Peru

EgyptAlgeria

ChinaPhilippines

VietnamNigeria

Indonesia

South AfricaDominican Republic

CroatiaBrazil

VenezuelaEl Salvador

Colombia Mexico

Chile

Uruguay

HungaryGreece South KoreaIsrael

SpainPortugal

New Zealand

SloveniaArgentina

Czech RepublicItaly Japan

GermanyFrance

BelgiumNorway USA

SwitzerlandNetherlandsIreland

Canada

Austria

DenmarkFinlandAustralia

UKSingapore

Sweden

Ave

rage

of p

erce

nt “

happ

y”

and

perc

ent “

satis

fied”

Source: Layard (2011), Happiness: Lessons from a New Science (2nd Ed)

Income per head ($ per year)

Differences Between Countries

Partial correlation coefficients

Life-satisfaction

Positive feelings

yesterdayLog GDP per head 0.28 –Healthy life expectancy 0.25 0.24Social support 0.29 0.43Freedom 0.15 0.49Absence of corruption 0.18 –

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2. Causes: Income cont.Conclusion(1) Long-run growth valuable but no more

than many other things.N.B. Higher growth does not provide

finance for more doctors, nurses, teachers and social workers.

(2) Short-run economic fluctuations are very bad and should be avoided even it reduces LR growth.

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2. Other CausesExternal

WorkFamily lifeCommunity engagement

InternalPhysical healthMental health

Individual life-satisfaction at 34: Current influences

Physical health

(recorded 8 years earlier)

Emotional health

(recorded 8 years earlier)

LIFE-SATISFACTION AT 34

IncomeNot

unem-ployed

Education level

Married/ Cohabiting

Crimi-nality

.06 .09 .04 .12 -.07 .07 .20

Source: Layard, R., Clark, A.E., Cornaglia, F., Powdthavee, N. and Vernoit, J. (2014). 'What predicts a successful life? A life-course model of well-being', The Economic Journal, vol. 124(F720-738).

ECONOMIC SOCIAL PERSONAL

(partial correlation coefficients)

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Physical health problems (bottom 10%)

Ever diagnosed with depression/anxiety

Unemployed

Poor (bottom 10%)

0 10 20 30 40 50 60

22

48

7

20

Percentage of those in misery having the stated characteristicsAustralia

Physical health problems (bottom 10%)

Ever diagnosed with depression/anxiety

Unemployed

Poor (bottom 10%)

0 10 20 30 40 50 60 70

14

61

13

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United States

Flèche and Layard (2015) “Does more of those in misery suffer from poverty, unemployment or mental illness?”, CEP Discussion Paper

Individual life-satisfaction at 34: Influences from childhood

Emotional develop-

ment of child

LIFE-SATISFACTION

Family socio-economic features

Family psychological

features

Cognitive development

of child

Behaviour of child

Source: Layard, R., Clark, A.E., Cornaglia, F., Powdthavee, N. and Vernoit, J. (2014). 'What predicts a successful life? A life-course model of well-being', The Economic Journal, vol. 124(F720-738).

.06 .03 .05 .09 .17

(partial correlation coefficients)

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Background+

Childhood

Adult characteristic

s

Life-satisfaction

A model of the life-course

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3. Policy evaluationAssume public expenditure is given. Therefore cost-effective- ness analysis, with a cut-off.

Undertake project if

> λ

3. Policy evaluationIssues1. Hopefully an RCT gives SR effect, which

combined with the model gives .

2. Calculating Net Cost also requires a life-course model.

3. Weighting is a political issue.

4. Life-course model is priority for social science.

This could ultimately be main approach for

HealthSocial CareEmploymentLaw and orderEnvironmentRedistribution

where choice provides little evidence.

But revealed preference approach provides much better evidence on

TransportBusiness policyEducation

Health evaluationQuality-adjusted life years require ratio scale for H

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4. Policy implications: new priority for mental health and social engagement

1.Mental illness should get parity of treatment in healthcare

2.Preventive mental health vitalParentingCouples therapySchools should promote wellbeingYouth services

3. Employment policy crucialApprenticeship guarantee + youth job guarantee.

NOT EXPENSIVE (ESPECIALLY IN NET TERMS).

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Economic cost of mental illness

40% of all disability

40% of all absenteeism

40% of all incapacity benefits

The main illness of working age.

Mental illness is

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Degree of disability in each age group (Numbers per 1,000)

Source: World Health Organisation (WHO). (2008). The global burden of disease: 2004 update. Geneva: World Health Organisation. Western Europe

0-14 15-29 30-44 45-59 60+0

10

20

30

40

50

60

70

Mental

Physical

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Treatable: e.g. Cognitive Behavioural Therapy (CBT)

Cost €1,200 for 10 sessionsRecovery rates within 4 months Anxiety 50% mostly

permanent (better than pills)

Depression 50% (with lower risk of relapse than

pills)

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Implication: no net cost to government

Gross cost < Savings on disability benefits + lost taxes

Gross cost < Savings on excess physical healthcare if person has given physical condition + mental illness

Savings due to psychological therapy91 U.S. trials

Cut annual physical healthcare costs by 20% (equivalent to €1,400).

In 28 studies, data on cost of therapy showed savings exceeded cost in 26/28 cases.

Chiles, J.A., et al. (1999), "The impact of psychological interventions on medical cost offset: a meta-analytic review", Clinical Psychology: Science and Practice, 6(2): 204-220.

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Improving Access to Psychological Therapy

2008 No evidence-based treatments available in National Health Service

2008-15 6,000 therapists trained

2015 400,000 patients treated

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The case for more health expenditure

• In Britain we only authorise treatments which cost less than £40,000 per Quality-Adjusted Life Year (QALY).

• That cost reduces total life-satisfaction by 0.06 SDs of one year’s life-satisfaction.

• One extra QALY increases life-satisfaction by 5 SDs of one year’s life-satisfaction.

• We should spend more.

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Will politicians listen?Life-Satisfaction (LS) affects voting Incumbent vote share

= 0.64 LS + 0.36 Economic Growth

- 0.06 Unemployment + 0.15 Inflation.

Source: Eurobarometer. All variables standardised. Controls include previous vote-share. See Ward, G (2015) “Is happiness a predictor of election results?”, CEP Discussion Paper No. 1343.

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Individuals

www.actionforhappiness.org