Economists, Go Away

Despite our participation in the free market being a positive summed game when we gain wealth, this does not mean that the disparities that unbridled capitalism allow do not have effects on our health and happiness.  [Musings 9/2020]

I started with this quote exactly one year ago, and I am now closer to understanding the effects.  In looking at status as a relative phenomenon and not an absolute one, this turns the economists’ concept of well-being on its head.  First, when economists talk about capitalism being a positive-summed game, they mean when we participate in market transactions that both parties benefit.

When we emphasize “competitive markets,” we lose people who think in terms of zero-sum outcomes. The focus on competition evokes concerns about fairness and empathy for losers, rather than an appreciation that the cooperative outcomes these markets facilitate by providing opportunities for improving everyone’s wellbeing. [Susan E. Dudley]

Of course, when we exchange goods and services we benefit by increasing our utility and satisfaction in life.  Whether or not our well-being increases when we play the game is an empirical question; economists have no business using the word well-being so loosely in order to extol the virtues of the free market.  Short-term happiness is usually increased but not long-term happiness.

Second, economists say that the proverbial pie isn’t fixed and can increase when a nation experiences more economic growth per capita.  Both ideas use the reasoning that capitalism isn’t a zero-summed game and that our well-being improves.  I am making two claims here that well-being depends on how we measure and define it and life’s happiness can’t easily be summed up.

Well-Being Is Abused

If anyone bothers to look at the studies of how happiness is related to consumption, education, and income, then they would realize that happiness comes with interpretation and qualification.  Well-being is usually defined as subjective wellbeing, which is a measurement of life satisfaction, positive affect, and lack of negative affect.  It is a surprisingly reliable and valid measurement.

Economists base all of their well-being studies on “point-of-time” studies and not on “life-cycle” studies.  They do this because increased income from point-of-time studies results in a positive correlation with well-being (happiness).  That is, the more money we make, then the happier we will be.  This has been replicated over and over again.  But this is not so with a life-cycle study.

Mainstream economists’ inference that in the pecuniary domain “more is better,” based on revealed preference theory, is problematic. An increase in income, and thus in the goods at one’s disposal, does not bring with it a lasting increase in happiness because of the negative effect on utility of hedonic adaptation and social comparison. [1]

The quote spells out what a life-cyle-type study reveals.  It reveals that over one’s lifetime we adapt, known as hedonic adaptation, to our set-point of happiness.  That is, we are like on a treadmill, where any gains in short-term happiness, leave us no better off in the long run.  The second point in the quote above is what I’ve been discussing for the past two posts on relative status.

Our well-being, in this case, short-term happiness, is affected after we get an increase in salary, but we adapt to this new happiness because we only create higher standards to compare by afterward.  Furthermore, I always feel better as long as I’m making more than who I compare my income with.  But economists are silent on these factors which usually have the effect of lowering well-being.

We Can’t Sum Life

The idea that there are winners and losers in capitalism is something that we may actually hear from economists.  We do judge one another by how far we have come, but hopefully, this is based on how far we are capable of going.  The point I want to make here is that the economists are misleading us when they link positive-sum games and a bigger slice of pie for everyone with well-being.

Maybe they can get away with “better off” since capitalism has raised our standard of living which is mainly our material living standards.  At this point, I don’t want to comment on health statistics beyond what I have presented on relative risk of death.  But what I do want to do is illustrate further how the concept of well-being that the economists use is impoverished to serve their ends.

If we break down happiness further, then we will see that it is a process.  We feel first—either positive or negative affect—and then we rewrite history convincing ourselves that we are either satisfied or not with meeting some standards.  But then psychologists weigh in and say that that is not enough.  What if we add all of the other factors that affect our well-being as I have laid out below.

  • Engagement
  • Relationships
  • Meaning and purpose
  • Accomplishment

It is these very parts that give life meaning and purpose, and they significantly affect our well-being.  We are misled into believing that more money will bring us more happiness because, in the long run, we adapt to it.  This illusion causes us to focus an uneven amount of time and effort on money-making instead of meaning-making and relationships.  But I can’t part with my OLED screens.


[1] Easterlin, Richard.  “Explaining Happiness”.  Proceedings of the National Academy of Sciences of the United States of America, Sep. 16, 2003, Vol. 100, No. 19 (Sep. 16, 2003), pp. 11176-11183

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