‘EVERYBODY HAVE FUN. WHAT CAN POLICYMAKERS LEARN FROM HAPPINESS RESEARCH,’ by Elizabeth Kolbert in the New Yorker.

EVERYBODY HAVE FUN

What can policymakers learn from happiness research?

by Elizabeth Kolbert

MARCH 22, 2010

People who are destitute are surprisingly likely to describe themselves as happy.

Happiness Research; Psychology; “The Politics of Happiness: What Governments Can Learn from the New Research on Well-Being” (Princeton; $24.95); Derek Bok; “Happiness Around the World: The Paradox of Happy Peasants and Miserable Millionaires” (Oxford; $24.95); Carol Graham; “Stumbling on Happiness” (2006)

n 1978, a trio of psychologists curious about happiness assembled two groups of subjects. In the first were winners of the Illinois state lottery. These men and women had received jackpots of between fifty thousand and a million dollars. In the second group were victims of devastating accidents. Some had been left paralyzed from the waist down. For the others, paralysis started at the neck.

The researchers asked the members of both groups a battery of questions about their lives. On a scale of “the best and worst things that could happen,” how did the members of the first group rank becoming rich and the second wheelchair-bound? How happy had they been before these events? How about now? How happy did they expect to be in a couple of years? How much pleasure did they take in daily experiences such as talking with a friend, hearing a joke, or reading a magazine? (The lottery winners were also asked how much they enjoyed buying clothes, a question that was omitted in the case of the quadriplegics.) For a control, the psychologists assembled a third group, made up of Illinois residents selected at random from the phone book.

When the psychologists tabulated the answers, they found that the lottery group rated winning as a highly positive experience and the accident group ranked victimhood as a negative one. Clearly, the winners realized that they’d been fortunate. But this only made the subsequent results more puzzling. The winners considered themselves no happier at the time of the interviews than the members of the control group did. In the future, the winners expected to become slightly happier, but, once again, no more so than the control-group members. (Even the accident victims expected to be happier than the lottery winners within a few years.) Meanwhile, the winners took significantly less pleasure in daily activities—including clothes-buying—than the members of the other two groups.

Perhaps, the psychologists hypothesized, people who buy lottery tickets tend to be melancholy to begin with, and this had skewed the results. They randomly selected another group of Illinoisans, some of whom had bought lottery tickets in the past and some of whom hadn’t. The buyers and the non-buyers exhibited no significant affective differences. The members of this new panel, too, rated themselves just as happy as the lottery winners, and reported getting more pleasure from their daily lives.

The researchers wrote up their findings on the lottery winners and the accident victims in the Journal of Personality and Social Psychology. The paper is now considered one of the founding texts of happiness studies, a field that has yielded some surprisingly morose results. It’s not just hitting the jackpot that fails to lift spirits; a whole range of activities that people tend to think will make them happy—getting a raise, moving to California, having kids—do not, it turns out, have that effect. (Studies have shown that women find caring for their children less pleasurable than napping or jogging and only slightly more satisfying than doing the dishes.) As the happiness researchers Tim Wilson and Daniel Gilbert have put it, “People routinely mispredict how much pleasure or displeasure future events will bring.”

FROM THE ISSUECARTOON BANKE-MAIL THIS

hat should we do with information like this? On an individual level, it’s possible to stop buying lottery tickets, move back to Minnesota, and, provided the news reaches you in time, have your tubes tied. But there are more far-reaching societal implications to consider. Or so Derek Bok argues in his new book, “The Politics of Happiness: What Government Can Learn from the New Research on Well-Being” (Princeton; $24.95).

Bok, who served two stints as president of Harvard, begins with a discussion of prosperity and its discontents. Over the past three and a half decades, real per-capita income in the United States has risen from just over seventeen thousand dollars to almost twenty-seven thousand dollars. During that same period, the average new home in the U.S. grew in size by almost fifty per cent; the number of cars in the country increased by more than a hundred and twenty million; the proportion of families owning personal computers rose from zero to seventy per cent; and so on. Yet, since the early seventies, the percentage of Americans who describe themselves as either “very happy” or “pretty happy” has remained virtually unchanged. Indeed, the average level of self-reported happiness, or “subjective well-being,” appears to have been flat going all the way back to the nineteen-fifties, when real per-capita income was less than half what it is today.

Several theories have been offered to explain why the United States is, in effect, a nation of joyless lottery winners. One, the so-called “hedonic treadmill” hypothesis, holds that people rapidly adjust to improved situations; thus, as soon as they acquire some new delight—a second house, a third car, a fourth-generation iPhone—their expectations ramp upward, and they are left no happier than before. Another is that people are relativists; they are interested not so much in having more stuff as in having more than those around them. Hence, if Jack and Joe both blow their year-end bonuses on Maseratis, nothing has really changed and neither is any more satisfied.

America’s felicific stagnation shouldn’t be ignored, Bok argues, whatever the explanation. Growth, after all, has its costs, and often quite substantial ones. If “rising incomes have failed to make Americans happier over the last fifty years,” he writes, “what is the point of working such long hours and risking environmental disaster in order to keep on doubling and redoubling our Gross Domestic Product?”

To suggest that the U.S. abandon economic growth as a policy goal is a fairly far-reaching proposal. Bok concedes as much—“The implications of this critique are profound”—but he insists that all he’s doing is attending to the data. He takes a similarly provocative and, again, empirically driven position in a chapter titled “What to Do About Inequality.” His answer is, in a word, “Nothing.”

Read more: http://www.newyorker.com/arts/critics/books/2010/03/22/100322crbo_books_kolbert#ixzz0jlk4Nsl3

‘GEELY BUYS VOLVO: GOLDMAN GETS THE UPSIDE, YOU GET THE DOWNSIDE,’ by Simon Johnson at baselinescenario .com

Geely Buys Volvo: Goldman Gets The Upside, You Get The Downside

Posted: 30 Mar 2010 03:01 AM PDT

By Simon Johnson

Geely Automotive has acquired Volvo from Ford.  This is a risky bet that may or may pay off for the Chinese auto maker – after first requiring a great deal of investment.

Goldman Sachs’ private equity owns a significant stake in Geely, with the explicit goal of helping that company expand internationally.  Remember what Goldman is – or rather what Goldman became when it was saved from collapse by being allowed to transform into a Bank Holding Company in September 2008 (which allowed access to the Federal Reserve’s discount window, among other advantages).  Goldman’s funding is cheaper on all dimensions because it is perceived to be Too Big To Fail, i.e., supported by the US taxpayer; this allows Goldman to provide more support to Geely (and others).

Our Too Big To Fail banks stand today at the heart of global capital flows.  People around the world – including from China – park their funds in the biggest US banks because everyone concerned believes these banks cannot fail; they were, after all, saved by the Bush administration and put completely – gently and unconditionally – back on their feet under President Obama.  These same banks now spearhead lending to risky projects around the world.

What is the likely outcome?

We know that risk-management at the megabanks breaks down in the face of a boom (remember Chuck Prince of Citigroup in July 2007: “as long as the music is playing, you’ve got to get up and dance. We’re still dancing”).  We know there is a growing boom in emerging markets – including through the overseas expansion of would-be multinationals from those countries.  This is most notably true of state-backed firms from China, but there is also a more general pattern (think India, Brazil, Russia, and more).

The big global banks, US and European, are charging hard into this space – Citigroup is expanding fast in China and India (areas where they claim great expertise); and the CEO of HSBC has moved to Hong Kong.  Many investment advisors are adamant that China will power global growth (never mind that it is less than 10 percent of the world economy), that renminbi appreciation is around the corner, and that the value of investments in or connected to that country can only go up.

There is a very good reason why, between the 1930s and the 1980s, large US commercial banks were severely constrained in their risk-taking activities.  By the 1930s US policymakers had learned the very hard way that we do not want the banks that run our payments system (with the implicit or explicit backing of the government, depending on how you look at it) to be engaged also in high risk equity-type investments – this is really asking for trouble.

The problem is not that all such banking-based risky investments go bad.  Far from it – we’ll first get an apparently great boom, which will suck in all kinds of financial institutions, our future Chuck Princes.  As long as the market goes up, the executives and traders involved will do very well – lauded as geniuses and paid accordingly.

And if some of them fail, so what – failure is essential to a market economy.  But here’s the key problem with having so much of our economy in the hands of financial firms that are Too Big To Fail.  When the next emerging market crash comes, we’ll have to make the 2008-2009 decision all over again: should we rescue our big troubled financial institutions, or should we let them fail – and cause great damage to the economy?

In our assessment (13 Bankers: The Wall Street Takeover and The Next Financial Meltdown, out today), based on the details of financial deregulation over the past 30 years, the prevailing belief system of top bankers, and the big banks’ incentives to take risk, we are all heading for trouble.  The “financial reform” legislation currently before Congress and still prevailing pro-banker attitudes at the top of the Obama administration are really not helpful.  The country’s course was set by a fateful meeting at the White House last March; a resurrected, unreformed, and still crazy system – symbolized by 13 bankers – is in the driving seat now.

At best, this will be another very nasty boom-bust-bailout cycle.  At worst, we are heading towards a situation in which our banks are so massive that when they fail, there is no way the government (or anyone else) can offset the damage that causes.

This time our government debt (held by the private sector) will roughly double – increasing by 40 percentage points of GDP – as a direct result of what the banks did.  We’ve lost more than 8 million jobs since December 2008 – for what good reason?  Next time could easily be worse.

You can disagree with our analysis – provide your own facts and figures, and we’ll have that debate here or elsewhere; the more public, the better from our perspective.  And you should certainly want to improve on our policy prescriptions.  We put forward some simple ideas that can be implemented and would help – our versions can also be communicated and argued widely: if banks are too big to fail, making them smaller is surely necessary (although likely not sufficient).

But don’t ignore the question.  Don’t assume that this time Goldman and its ilk will avoid getting carried away – they are just doing their jobs, after all, and their job description says “make money”; system stability is someone else’s job.

And also don’t presume that, just because the big banks and their friends seem to hold all the cards, they will necessarily prevail in the future.

In all previous confrontations between elected authority and concentrated financial power in the United States, the democratic element has prevailed (see chapter 1 in 13 Bankers; also Monday’s WSJ, behind the paywall).  This can happen again – but only if you stay engaged, argue this out with everyone you know (including your elected representatives), and help change the mainstream consensus on banking definitively and irrevocably.