"I saw a report that talked about well-being and health and the things that people really care about," the professor said. "Why doesn’t economics ever concern itself with things like that?"

(Art by Matt Mahurin.)

After a brief sputter, I managed to reply that economists are at the forefront of the investigation to find out what it is that makes people happy. In the United Kingdom, one leading economist, Richard Layard, the founder-director of the Center for Economic Performance at the London School of Economics and an advisor to the government, has even suggested that the government expand the availability of taxpayer-funded psychotherapy; his idea is currently under consideration.

I suspect that many people want to see economists embrace the issue of well-being, mainly because they anticipate we will confirm the belief that money does not enhance society’s happiness levels, thus proving that our emphasis on the importance of economic growth is also somehow flawed.

We can point to widely cited findings that confirm happiness levels in a country rise with the level of income, but only to a certain point (at approximately an average annual GDP of $15,000 per capita). Beyond that, happiness stops rising with incomes, which presumably means wealth does not buy happiness, even in the world’s richest countries. These results are unsurprising: Average GDP is the kind of variable that can rise without limit, but it’s hard to imagine bliss increasing in increments of 2 percent or more per quarter perpetually.

Overloaded With Options
Today researchers give the so-called paradox of choice much attention in happiness studies. Barry Schwartz, a professor of social theory at Swarthmore College in Pennsylvania, uses this term for the title of his book, which draws on psychological experiments and questionnaire results that indicate too much choice makes consumers feel stressed and helpless.

Many psychology experiments suggest that, in some circumstances, when people have too many consumer choices, they don’t make rational decisions and fall victim to the "hedonic treadmill." That is psychology-speak for the rat race, where individuals get caught up in making more and more money, even though it isn’t making them any happier.

Layard has also gone so far as to recommend more taxes on high-income individuals to encourage people to jump off this treadmill. Likewise, Robert Frank, a professor of economics at Cornell University, has suggested new taxes on luxury goods to discourage excessive consumption.

Happiness stops rising with incomes.

It is good news that economists ponder what wealth creation is actually for, but highly selective evidence forms the basis for the money-doesn’t-buy-happiness bandwagon. The case for luxury taxes is based on psychological, rather than econometric, results. We also see that people quickly become habituated to changes in their circumstances, so huge investment returns or a large liquidity event will make individuals happier only for a year or two. While evidence verifies that too much choice when buying consumer goods such as wine or watches can cause stress, we also have plenty of evidence from the implosion of planned economies to show that lack of choice makes people very unhappy.

Personally, I don’t want economics professors and governments deciding which cars or boats should be available to me. What makes me suspicious of the motives of the happiness gurus, however, is the fact that they single out items like cars, but dismiss expenses such as books, charitable causes and other areas where we face an explosion of choices. Their selection reveals their own views of what is meaningful in life, rather than an objective assessment of evidence.

It is great that economists are leading the happiness debate—a sign of an exciting renaissance in my subject. But it will be a shame if those with prior political agendas hijack the issue. Many deep questions exist about the relation between money and happiness, and societies should examine them. A serious, unbiased assessment of the whole range of evidence by empirical social scientists would be a tremendous contribution.

Diane Coyle is author of The Soulful Science: What Economists Really Do and Why It Matters and runs the London-based consulting firm Enlightenment Economics.