Wellbeing economics and post-COVID welfare policy
brain made of money

By David Yarrow

Well-being economics has come back into the public gaze, with prominent think tanks and policymakers suggesting it can help us respond to the profound economic shocks the COVID-19 pandemic has caused. But can the well-being paradigm really serve as a basis for progressive economic thought in the post-pandemic age? In particular, what does it have to say on the key challenges of rapid automation, disruptive digitisation and the likely return of mass unemployment we now face?

Although wellbeing is not a new policy agenda (it was promoted by David Cameron back in the early 2010s), it has gained renewed prominence in the wake of COVID-19. Nicola Sturgeon, for instance, has embraced the concept, signing Scotland up to the ‘Wellbeing Economy Government’ (WEGo) initiative along with Iceland and New Zealand and promoting a ‘wellbeing budget’ for Scotland. Why is this? Firstly, the radical break in normal thinking and practice the COVID crisis has opened up presents a unique window of opportunity to effect a broader paradigm shift in economic thinking. Economic policies (such as the furlough scheme) that would have been considered unthinkably radical only last year have been implemented in a matter of months. Perhaps this momentum can be harnessed as part of a broader change in values and orientation that outlasts the immediate pandemic response. Lockdowns have also vividly demonstrated the indispensable role of work that is currently undervalued (or totally un-renumerated) by the labour market – such as essential retail services, the formal care sector and unpaid childcare – to the normal functioning of the market economy.

All of this seems to support the central argument of wellbeing economics: that we should de-proritise market growth in public policy design, and instead focus on broader, post-material quality of life issues. Indeed, challenging a narrow market-centrism in economic policy, which the salience of GDP in our political discourse so vividly symbolises, has been a critical achievement of wellbeing economics.

But to understand the potential limitations of wellbeing as a policy tool, at least as it is often operationalised, we also need to probe its conceptual and psychological underpinnings. In particular, wellbeing economics rest on a challenge to the ‘revealed preference’ assumptions of mainstream welfare economics. Developed by Paul Samuelson in the mid-20th century, this theory assumed that behavioural choices made in the market under conditions of scarcity revealed the utility that those goods yielded for consumers. A consequence of this conceptual move was that all market-based consumption was seen as utility-maximising, by definition. Therefore, growth in the consumption possibilities available to consumers (measured by GDP) could be taken as a proxy for increases in welfare. Utility was simply preference satisfaction, and with more growth more consumer preferences could be satisfied; hence growth should naturally be the ultimate aim of policymaking.

The well-being economics critique of this theory was first elaborated by Richard Easterlin in the post-war decades. Using Gallup survey data on life satisfaction, he famously found that while up to a certain point happiness (“utility”) indeed increased with income, this empirical relationship seemed to break down once a certain basic standard of living was reached. The positive psychology movement subsequently built upon this premise. Key figures like Martin Seligman, Richard Layard and Paul Dolan utilised large-N statistical data on life experiences and emotional states to directly measure utility. Thus, they showed how actual hedonic outcomes often diverge dramatically from revealed preference assumptions of orthodox welfare economics. Driven by the lure of advertising and consumerism, we make ‘sub-optimal’ hedonic choices, such as opting for flashy, status-driven conspicuous consumption rather than the relational or experiential goods that actually maximise our utility. Fortunately, wellbeing economists (advising governments) stood ready to step in and correct these hedonic market failures, through nudging and similar behavioural policy interventions, ensuring our true happiness is maximised.

Importantly, however, well-being economists left the basic neoclassical view of human psychology intact. Moreover, this is a profoundly under-socialised and ahistorical view of human nature. It seeks to uphold the neoclassical vision of a utility-maximising hedonistic atom, but this time armed with the positivist, scientific measurement tools to properly understand and perfect it.

What does this mean in practice for the impact well-being economics might have on contemporary policy debates? Most significantly, it means that the well-being economics agenda, while billed as a progressive and radical form of expertise, contains a potentially deeply conservative bias. This is because, in the absence of an institutionally embedded or historical conception of human psychology, flourishing and wellbeing, its policy recommendations tend to naturalise the status effects and hedonic outcomes of already existing economic institutions and practices.

Applied to the problems of welfare policy, and in particular, to the core problem we are likely to face in the post-COVID years of high levels of automation-driven disruption and technological unemployment, this means it will systematically bias in favour of certain policy responses and against others. Since wellbeing data measures the correlation between life satisfaction and other lifestyle variables, it will tend to suggest promoting the sorts of lifestyles that make people feel secure and happy within existing institutional arrangements. Moreover, these contingent institutional outcomes risk being naturalised as timeless and ahistorical truths about human psychology.

As an example, take the current debate between two radical progressive welfare policies in response to automation-driven unemployment: UBI and the jobs guarantee. The first of these, UBI, relies upon a radical break with the institution of wage labour, on the decoupling of the right to an income from the possession of a full time, salaried job. It relies upon making the institution of Fordist wage work – a legacy of the industrial age – less central to our distributive systems and our conception of citizenship rights and duties. As Guy Standing, one of its central advocates, has argued:

“Surely a progressive should want to minimise the time we spend in stultifying and subordinated jobs, so that we can increase the time and energy for forms of work and leisure that are self-chosen and oriented to personal and community development…Rather than jobs per se, the primary challenge is to build a new income distribution system, recognising that the old one has broken down irretrievably”.

The jobs guarantee, by contrast, retains the institution of wage labour intact as the foundation of welfare and citizenship rights, instead seeking to ensure universal access to this distribution system. The well-being economics literature will naturally bias towards this type of reform over a basic income, because well-being data will tend to demonstrate exactly the status effects, security and peace of mind that having a job is a prerequisite for within current welfare institutions, and conversely, the shame, precarity and exclusion that accompanies unemployment. For instance, as a European Commission report on well-being evidence concluded:

“While market-generated income is positively correlated with happiness, there is no such effect for the transfer component. The insignificant effect of transfer income is consistent with the positive consumption effect being cancelled out by a negative social stigma effect…Short-term investment in policies to reduce unemployment may well [therefore] yield substantial long-term wellbeing rewards”.

As we see, a consequence of the ahistorical psychological underpinnings of wellbeing economics is that the commitment to universal wage labour is justified as an objective psychological good, rather than merely one possible response to automation and technologically-driven labour market disruption. What such studies are capturing is not really (or solely) the hedonic content of waged work, but rather its institutional effects – the role it plays in mediating access to welfare and citizenship goods in our society, as it is currently structured. But to prove that people who have secure jobs are happy, in a system in which income, purchasing power and citizenship rights have been coupled to the performance of formal wage labour, cannot be used to infer that the same would hold true in a world in which these things had been de-coupled.

As this example highlights, understanding the intellectual history and psychological/behavioural foundations of wellbeing economics is important to understanding the political work this form of expertise does in contemporary policy debates, and the different potential post-pandemic welfare futures it may promote or delegitimise. While wellbeing economics has been useful in critiquing the GDP-centric growth paradigm of mainstream economics, if it is to serve as a force for radical change in the post-pandemic world, it must reclaim a more socially embedded, institutional and historical understanding of human psychology.

About the author

David Yarrow is a Lecturer in Political Economy at the University of Edinburgh. His research examines the impact of post-growth ideas on global economic governance. More broadly he is interested in how economic expertise frames the challenges of automation and post-industrialism in democratic politics. This work has been published in Review of International Political Economy, New Political Economy and Journal of Cultural Economy.