Cakes, capitalism & happiness

To celebrate the start of my Christmas holiday, I’ve spent the morning baking: sausage rolls and a lemon drizzle cake. Doing so reminded me of the Easterlin paradox - the puzzle that rising incomes have not greatly increased happiness.

I say so because a new paper by Maurizio Pugno has formalized one explanation for this, which draws on Tibor Scitovsky’s The Joyless Economy.

The idea here is that our leisure can be spent on either comfort goods such as watching TV, shopping or drinking, or creative activities such as baking, playing guitar or gardening.  However, we do too much of the former and not enough of the latter, which is detrimental to our well-being.
One reason for this is that comfort goods can be addictive, with the result that we feel guilty afterwards about over-consuming. This isn‘t just true of alcoholics and shopaholics; we might also feel bad about slobbing out in front of the TV.

Another reason is that pure consumption goods might invite adverse comparisons with others, which make us feel worse off. If your neighbour has an expensive car, you might feel bad in a way that you don’t if your neighbour is a good guitarist or baker. Through this route, economic growth - more neighbours with fancy cars - reduces happiness.

But why do we spend too much time on comfort goods and ordinary consumer spending and not enough on creative activities? One reason, says Pugno is that the latter require investment in “leisure skills” - the ability to play an instrument, garden or appreciate art. Such investment, like any other, is costly. At any point in time, therefore, we might prefer the zero-cost option of comfort goods. But this means we never acquire the skills needed to make best use of our leisure.

I’d add three other mechanisms that exacerbate this problem:

1. The failure of affective forecasting (pdf)- our inability to predict our future happiness. Two aspects of this general failure are relevant here. One is duration neglect; we pay too much attention to the short-term costs of acquiring leisure skills (the burnt cakes or the inability to get a note out of the sax) and so prefer the easy option of watching TV. Another is immune neglect - our failure to anticipate that we’ll get used to some things, and so lose satisfaction from repeating them.

2. Path dependency. If you grow up in a home where your parents came home from work too tired to do anything other than watch TV or go down the pub, you‘ll think of such leisure activities as normal, and so will not think of better ways of spending your time. Because of this, it was not until I was 40 that I laid a finger on a musical instrument. And even today I feel uncomfortable if the TV isn‘t on in the evening.

3. Lack of self-control. Even if we knew that investment in leisure skills would pay off in the future, in the sense of getting greater utility from leisure, our lack of self-control would cause us to under-invest. Bruno Frey has showed (pdf) how this causes folk to watch too much TV.

There is, therefore a strong bias towards over-consumption of comfort goods and under-investment in creative activities - which contributes to the Easterlin paradox.

Herein, though, lies a point which is under-estimated. A healthy capitalism probably requires that this be the case. The shopaholic who feels guilty about her purchases does more good for capitalism that the man who tends to his allotment instead. And the person who’s desperate for work so they can spend is more use to capitalists than the guy who doesn’t mind being unemployed for a while because he can practice his guitar.

In its small way, my lemon drizzle cake sticks it to The Man.

Comments

[Luis Enrique]

this is (almost) all very true - I'll happily defend mainstream utility maximising theory has the right tool for the job in many cases, but it is (obviously!) nowhere near a good description of much of our lives, and I know I am quite a long way beneath maximizing my happiness conditional on my budget constraint, in great part because I don't do enough stuff like sport or playing guitar or joining social groups, for the reasons you describe.

the bit I'm not sure about is that capitalism requires this ... I don't see why if everybody liked to spend time on hobbies, capitalism would fail - labour supply would change but so would demand for goods, afaics you could still have a functional market economy (with private ownership of the means of production) providing people with what they want in that alternative world.

[Luis Enrique]

I've droned on about this in previous comments here and elsewhere, but it's not just leisure, it's work. I believe that the capitalist economy doesn't make work enjoyable enough.

What I mean is suppose I get paid £30,000 but don't enjoy my job, and would be happier with a job paying £20,000 but which brings me more happiness that I value over £10,000, I would choose that job if available, but such jobs are hard (but not impossible) to find. In theory the market ought to offer different combinations of monetary and non-monetary reward, and wages could adjust (i.e. so that furniture made by badly paid happy workers could be competitive against furniture made by better paid unhappy workers) but it does't seem to work like that in the main.

Perhaps its partly our fault for similar psychological reasons, we find it hard to accept lower pay when it would in fact make us happier.

[I recognize that some people are so badly paid that trading down to a worse paid more enjoyable job isn't really feasible.]

this book might be relevant here

http://www.amazon.co.uk/Case-Working-Your-Hands-Office/dp/0670918741

[Tom Addison]

So is reading a comfort or a leisure good? Depends on why you're reading I suppose

Anyway I'm off to the pub. I tell myself that this is merely practicing my social skills and therefore an investment in myself, rather than an equivalent of watching TV.

[Mat]

Yeah, I'm with Luis Enrique here. Totally with you on the analysis, and this being an important addition to utility maximisation. But, the last paragraph is just your priors showing through.

Even granting the assumption that total consumption would fall, if people switched too more creative activities (which isn't clear; the guy on the allotment needs supplies. Although, probably a fair assumption on balance), and that this would more than offset the benefit from increased savings/reduced rates/increased investment. There's no actual NEED for consumption expenditure to be maximized over time for capitalism to function.

[Andrew]

@Mat - I agree completely.

I never understand why the interests capitalism/the interests of capitalists are always conflated with consumption.

Investment in creative activities has theoretically unlimited potential for demand creation (grand pianos and tuition don't come cheap). And since when is watching tv expensive?

Additionally, investment in creative skills may in turn make the labour force more valuable.

And the idea that consumption activities per se make someone desperate for money rather than leisure time is not obviously true.

[Tim Newman]

"I believe that the capitalist economy doesn't make work enjoyable enough."

Compared to work in non-capitalist economies?

[MrWH]

With you most of the way, but I'm not so sure about the capitalism angle. Slumping in front of the TV doesn't do much for the economy, and is the easiest way to fritter time away. But becoming an expert in something -- cake making, music, wine, whatever -- almost always means that the next thing you buy will be a more expensive version of the previous thing. Every hobby has limitless amounts of paraphernalia, after all.

And since every hobby and interest has an industry to support it, so you could even argue the opposite point, and say that capitalism should make it easier for people to live fulfilling lives.

[Kimberly]

I thank you humbly for sharing your wisdom

[Luis Enrique]

Tim N

Good point. I mean I just have the sense there's something we could expect to exist - a greater emphasis on job satisfaction "paid for" by lower wages - that doesn't.

[Tim Newman]

Luis,

I think it does, after a certain point, and that point is different for each individual. Once you get past the point at which you are "comfortable" earning what you do, then earning more does not always become priority. My sister was en route to earning bucketloads as a laywer at Allen & Overy but decided she hated it and quit to become a freelance journalist, which she loves but it pays a pittance. And in my own case, I could earn between 30% and 50% more if I quit my staff job and became a day-rate contractor, but there are several reasons why I don't, some of which are related to job satisfaction.

But yeah, those who are not earning enough to be comfortable are not likely to quit for a lesser paying job they enjoy more. Which is hardly surprising, because there are few badly paid jobs which are enjoyable.

[BeatSchindler]

Agree with you 100%. The capitalist society needs consumers as slave owners used to need slaves. It's the breast sucking the child all over again. Remember, the people who used to sell us cigarettes now own and sell us food. In case you wonder why we're now so fat. Anyhoo, once you awaken you're part of a minority. The road less traveled, the price to pay. On the bright side, once you're awake you realize "Comfort" isn't all it's cracked up to be: http://bit.ly/vddl3Q
With best wishes for a Happy New Year Of Conscious Living :-] Real people need consumerism like fish need bicycles.

[Farmer Jack]

Douglas Coupland said sardonically that America was what he called an 'affluence-obesity equilibrium': if people got any fatter, there would be a flood of claims on health insurance and a subsequent loss of value for share- and stakeholders, while if people consumed any less, there would be a comparable loss of value in the economy's shrinking.

It makes sense to me to say that there has been an under-investment in the capacity for pleasure of the person who watches 'too much' gut TV. One can imagine the bones of a hedonic economics based not on the cash utility generated by a person's economic activities, but on stated reports of happiness. Government contributions to persons' capacity for pleasure would become the subject of an enlarged field of welfare economics. In fact, I am sure that this is how both economics and public policy will go in the West in the new century.

Btw, I am not convinced that the paper Chris Dillow cites establishes causality (just as he hints by describing how people with unstimulating but arduous jobs come home exhausted, unable to do anything but stare transfixed). Dissatisfied people are rather chained to the box.