Careful making us an aggregate happiness machine

By Infometrics 22/10/2013


Last week Matt Nolan discussed the idea that being too target focused can be dangerous (Infometrics link here):

Instead of targeting an arbitrary set of outputs that treat New Zealand like a machine, policy should be based on the inherent trade-offs that exist for the policy question we are asking.  Focused research on the costs and benefits of educational achievement, health outcomes, benefit policy etc – these are the ways we can incrementally improve policy, and build a better society together.

These outputs may suggest to us there is an issue that deserves investigations– but they should not be seen as an end to themselves.

Policy justified on the basis of the target of an arbitrary GDP or happiness index doesn’t do this, and instead threatens to tie our outcomes closer and closer to someone else’s view of what is right, what is just, what is happiness, and what wellbeing.  Instead the aim of government policy should be to ensure people in society have the ability to reach, and access to, choices that allow them to gain wellbeing.

A factor that often gets missed when discussing policy options in public is that the real “target” is not observable.  If we are not careful about the way “observable” things translate into the underlying issues we really care about, we will make a lot of false policy conclusions.

One of the reasons economists use a counterfactual that involves no government involvement is because of the idea of “revealed preferences” – that individuals will make choices that reveal the value they place on things.  Individuals know (at least to a greater degree) what they value, while the rest of us cannot hop into the minds of others and figure out what they value.

A clear view of trade-offs, and the use of markets to help ensure people reveal preferences, gets us a long way. Given that we can then go about considering the views of co-ordination that Matt also touched on last week.