Rewatch Short Cut with Richard Layard: The Benefits of Wellbeing as a Public Policy Objective

For many people, the idea that the ultimate goal of a society should be the wellbeing of its people is an intuitive one. But for a long time, scientists had no good way of measuring happiness. As a result, they relied on income as a proxy for societal success, with GDP per capita as the primary target. However, as a large body of empirical evidence shows, income explains only a small fraction of the variance in wellbeing across countries. Today, policymakers around the world, including the European Commission and Germany, are increasingly turning to measures of progress ‘beyond GDP‘.

But what produces a happy society and a happy life? More than 15 years ago, leading economist Richard Layard set a milestone with his book ‘Happiness’. Now he has followed up with a new important publication. In ‘Wellbeing: Science and Policy’ Layard and his co-author Jan-Emmanuel De Neve analyze major new data on how to measure happiness.

Their findings have enormous implications for government, society, and the economy. The science of wellbeing challenges the prevailing economic narrative, according to which people do what is best for their own wellbeing and the process of voluntary exchange leads to the greatest possible wellbeing for all parties. On this basis, laissez-faire will solve most problems. Today we know that people are not so good at pursuing their own interests. They become addicts, or exercise little. People are also highly influenced by how decisions are presented to them, so their preferences are often not clearly defined. And in the short term, people are loss averse – which can lead to greater losses in the long term.

The second important point is that everyone is affected to a large extent by how other people behave. This is a case of what economists call “externalities” – things that happen to you that do not occur through voluntary exchange. Economists have always emphasized that “externalities” require government action, but they have not always recognized the pervasiveness of externalities in human life.

Where traditional economics falls short, wellbeing science allows us to understand what is key to a happier society. It helps us identify the factors that matter most to our wellbeing and how they can be changed for the better, and it provides a yardstick against which we can test whether particular policies generate enough human wellbeing relative to their net cost to the state.

In ‘Wellbeing: Science and Policy’, Layard and De Neve make concrete suggestions about how policymakers should spend their money if they want to increase wellbeing. They show that there are many wellbeing enhancing policies that cost little, though some of them are grossly underfunded, among them psychological therapy, especially for children, elderly care, or community services. And they show why policy makers should care not only about what influences wellbeing, but about how wellbeing influences everything – from our health to our voting behavior to economic productivity.

We invited co-author and LSE economist Lord Richard Layard to discuss his insights at our New Economy Short Cut with Alessio Terzi from the EU Commission’s economic unit and Nicola Brandt from OECD Berlin.