The Economics of Happiness

In a conversation with Trent, I used the term "end-stage capitalism." He asked me what I meant by that. I explained what I meant – and that's the topic of this essay – but afterwards, I wanted to understand what most people meant when they use the term. That's a perfect job for AI. ChatGPT has read everything written about this up to early 2023 and knows, probably better than any human, what the median understanding is. ChatGPT said it "is a term used to describe a perceived phase in the development of capitalist societies where... [the] consequences of capitalism have reached an extreme or critical point." It followed up with a seven-point list of possible consequences. None of them were what I'm most concerned about.

My thinking on this topic was influenced by reading Thomas Sowell's Basic Economics – recommended by my friend Peter. Sowell's book covers basic economic principles. Sowell's emphasis on explaining economic thinking in a non-technical way makes it a good introductory text. There's an interesting chapter that makes a convincing argument that banking may be the most profound technological development in human history. It also includes chapters that are a clear reminder of why economics is sometimes thought of as "the dismal science."

I'm not going to argue with any of the conclusions about the most efficient way of allocating scarce resources that could be used for alternative purposes. On average, even if not for individual people, the primary objectives of economics seem pretty solid. On the whole, over a long stretch of time, the "dismal" conclusions of economics really do seem like the best we can do.

Economics has done a remarkable job over the last two centuries. When people talk about what the United States' founding fathers were reading, they frequently mention Locke, Rousseau, or Paine. Adam Smith's The Wealth of Nations was published in 1776. Its influence can be seen in the writings of Benjamin Franklin and Alexander Hamilton. The U.S. rose to power in the world of the Enlightenment and was influenced by the founding works of modern economics.

For two hundred years, economics has been the invisible hand guiding us from agriculture to industry to information theory. It drove the spirit of innovation that gave us interchangeable parts, the telegraph, the rail network, the automobile, the computer, and the internet. That two hundred years has brought us to what I think is a critical point in capitalism. All of those previous inventions made human labor easier. They improved quality of life. They – on average, over a long enough period of time – made humans happier.

My fear and the thing I was talking to Trent about when I used the words "end-stage capitalism" is that we've reached a point where improvements in efficiency are coming at the cost of human happiness. Instead of innovating ways to make human work easier, we are improving efficiency by making human work harder and less satisfying. We've produced enough data in enough spreadsheets to conclude that this is the profitable path forward. Because human happiness isn't priced into those spreadsheets.

Sowell has a section of his book where he dismisses thoughts like this as a misunderstanding of economics. He argues that happiness is a subjective experience that varies greatly among individuals. What brings happiness to one person may not bring happiness to another, making it difficult, if not impossible, to assign a universal or objective price to happiness. This subjectivity means that any attempt to measure happiness in economic terms is inherently flawed.

I don't think I'd argue that you can accurately put a price on human happiness. I do think that you can determine the cost difference between a happy human and an unhappy human. There's research that supports the contention that happy humans are more productive than unhappy humans. In my own experience, I feel like I do more productive, better work when I'm happy. I'm confident that I'm less productive when I'm unhappy. I suspect there's a lot we don't know about human happiness. Maybe before we commit to an economic path where we make marginal gains by marginally reducing the happiness of humans, we should figure out whether the cost of marginally increasing the happiness of humans is even more profitable. Economics, I'm talking to you here. Maybe this is an opportunity to be a less dismal science.