Economics Has It All Wrong

Life is not about doing our best, subject to constraints

When I was in college, I had a sweatshirt that said, “The One Who Dies with the Most Toys Wins.” While I knew, even at the time, that this was a cynically materialistic message, I still liked it. Partly this was because my father was a huge collector of actual toys. And partly it was because I just thought the shirt was funny and didn’t take it very seriously. But I also liked it (I must confess) because it was the mid 1980s and, materialism being a sort of runaway train at that time, the message on the shirt had a trendy, meme-like quality that made me feel like a world-weary hipster wearing it.

That said, I didn’t grasp at the time the message’s deeper significance: that The One Who Dies with the Most Toys Wins is actually how traditional economics seems to think people should want to live their lives.

The game you can’t win

Traditional economics believes people live life as if it’s a game. Each player begins the game with a budget constraint—that is, a certain amount of money to spend—and a time constraint—the recognition that they are mortal and so time is scarce. The object of the game is to win. And you win by maximizing your satisfaction—or, as economists say, “utility”—subject to your constraints.

If you’ve followed me so far—and particularly if this game sounds familiar to you—then you probably understand how you’re expected to play it. Since money is scarce, the successful player is the one who makes the best use of the money they have to get the things that give them the most satisfaction. And since time is scarce, the successful player is also the one who makes the best use of the limited time they have to indulge in the most satisfying peak experiences. This explains why the most competitive players at this game—the “leader board,” if you will—are people who create bucket lists and then go feverishly about their lives (and around the world) checking items off the list. (Trust me: if you really mean to win this game, you’ll need a bucket list!)

So here’s the big reveal: you can’t win this game. Just as the massive NORAD computer in the movie War Games concluded about global thermonuclear war, the only way to win the game that I have described is not to play.

Numerous writers have remarked on how accumulating possessions is not a recipe for happiness. In The Overspent American, the economic sociologist Juliet B. Schor writes about what she calls “the upward creep of desire.”¹ She documents how, as Americans have seen their living standards improve, their sense of what possessions are necessary to “the good life” has ratcheted upwards.² Tellingly, when surveyed on an individual level, people report that the minimum they would need to be satisfied with their situation is almost always something more than they currently have.³ In Luxury Fever, the economist Robert H. Frank ties the drive to accumulate more and more to the dependence of satisfaction on relative position: we are, in short, only happy if we are doing well relative to other people. But because everyone is propelled by this same drive, almost no one can be happy.⁴ The message of these books is clear: the “most toys” game can’t be won. Or, if it can, it is probably not a happy person who wins it.

Other writers have written about the futility of trying to accumulate experiences. Of people who prepare bucket lists, Oliver Burkeman writes in his book Four Thousand Weeks, “[I]t remains the case that their fulfillment… seems to depend on their managing to do more than they can do…. It’s an attempt to devour the experiences the world has to offer, to feel like you’ve truly lived—but the world has an effectively infinite number of experiences to offer, so getting a handful of them under your belt brings you no closer to a sense of having feasted on life’s possibilities.”⁵ In other words, the upward creep of desire exists for time use as well as for the acquisition of things.

More economics = less happiness

Let me be clear: my point is not that most people in industrial societies go about trying to accumulate meaningless things or experiences, as these authors describe. What I am saying is that the behavior of consumers as modeled by economists is glaringly similar to what these authors describe. And so the behavior of consumers—again as modeled by economists—is not the behavior of people who really mean to be happy.

To be sure, “maximizing subject to constraints” does a good job of describing many necessary life activities—not just for humans, but for other animals. If you’re a cheetah, you won’t survive long if you don’t hunt and kill as many springboks and gazelles as you can—subject to the constraints of your energy, abilities, and the length of the day. Neither can people in subsistence agriculture survive if they don’t maximize the effective use of their arable land subject to their constraints. Even in our advanced, non-subsistence society, you had better work hard if you want to keep a job. And you had better make wise choices in the marketplace if you don’t want to deplete your family’s resources too fast.

But the thing is this: while maximizing subject to constraints is often helpful or even necessary for living, it is not where one’s happiness in life comes from. Personally I find this rather damning for a science that claims to describe how people become “satisfied.”

In fact, the more time we spend playing the hapless game that economics enjoins us to play—the game of decision-making under scarcity—the less happy we become. This is in part because we have limited attention. If we’re paying attention to how to maximize subject to our various constraints in life, then we’re not paying attention to the beauty and mystery of the world we live in. But worse than that, the very act of perceiving the world as a problem subject to optimization commoditizes the world and so dulls its beauty and mystery. There is—to invoke a word economists love to use—a tradeoff between true meaning in life and economizing. I believe this is exactly what the poet William Wordsworth was getting at when he wrote, “Late and soon, getting and spending, we lay waste our powers.”⁶

Behavioral economics stumbles on the secrets of life

But where traditional economics may be clueless about—and even downright antagonistic to—the actual pursuit of happiness, a relatively new branch of economics called behavioral economics offers some hope. This is not because behavioral economists have successfully labored to crack the secret code of happiness. Rather, it is because they have, as a by-product of their research, quite inadvertantly uncovered one or two clues to living a happy life. Let me share these with you.

1. Losing your reference point

One clue is nestled in a behavioral economics concept called reference dependence. The main idea is that a person, broadly speaking, becomes happy not by doing as well as they can but rather by doing well relative to some reference point. That reference point could be their own expectations, or the observed level of other people’s success, or one of various other possible benchmarks. You might think therefore that the best advice for how to be happy is to strive to do well relative to your reference point. But that’s not truly helpful at all. Indeed, if your reference point is other people’s success, then trying to “do well” means playing the relative position game that Robert H. Frank told us we probably can’t win.

Rather, the secret seems to be to lose your reference point.

Often, we have ideas of what we like to do: activities we prefer to engage in, music we prefer to listen to, foods we prefer to eat, and so on. These preconceived preferences make life easy: they give us a roadmap to follow as we go about life. But they also create ready reference points. When we proceed to do the expected things, our happiness can only be significant if we outperform our reference points. And since, on average, our experiences will be average, life doing the usual thing is going to be… average. It’s not going to be thrilling, because we can’t consistently outperform.

We lose our reference point by going in a radically different direction—experimenting with new things, saying yes to new experiences. The key element involved is a certain amount of letting go, of giving up control and letting things take their course. Depending upon your perspective, this can seem quite frightening. And, in fact, if you let go properly, you should experience a certain amount of free fall and fear. But the disorientation gives way to exhilaration as you experience a moment without any reference point, a moment that you can take fully at face value. Such moments are inevitably vivid, unique, and prepossessing.

I had such a moment recently. I had put on a Spotify track by the jam band King Gizzard and the Lizard Wizard while I was preparing to clean up after a meal. I had never listened to this band before and don’t consider myself a fan of jam bands. The 20-minute-long extended track I put on sounded strange: I didn’t know if I liked it at all, and moreover I wasn’t sure I wanted to know. But despite my impulse to switch to something more familiar, I let it play on as I did the dishes—not ignoring it, but rather allowing it to affect me however it would. I don’t know when it happened, but at a certain point I looked out the window and saw the wind blowing through the trees. I felt the wind coming through the open window and at the same time felt the music click into place with the things I was seeing and feeling. I stopped doing the dishes and just stood there. The moment stretched out and the world outside the window expanded. I was entranced. I probably stood like that for no more than 30 seconds, but it seemed quite a bit longer—and honestly I couldn’t tell you how long it was.

2. Not narrow-framing your life

A second clue comes from a behavioral economics concept known as framing. Research shows that the judgments people make are influenced by how they frame what they observe. Judgmental errors can arise when people frame things narrowly, looking at choices in isolation rather in a “big picture” way. A particular problem in evaluating risks is that people frame the risks narrowly, failing to see how a set of risks (for instance, risks taken over time) relate to one another.⁷

But narrow framing is a threat to more than just how we make decisions involving risk. It can mean the difference between feeling driven and burnt out on the one hand and living a truly inspired and meaningful life on the other. When life is framed as a game to win, anything that doesn’t get one ahead is ignored. One’s focus is constantly fixated on the elements necessary to achieve a set of goals or to gain an advantage. Scant attention is left over for noticing the beauty of a spring day or the enjoyment in a chance conversation with a neighbor. Such a life can end up consisting of one drab day after another.

Many of us cling to framing our lives in terms of the next goal or milestone because we fear that our happiness will be severely compromised in the long run if we are not always striving to achieve one objective or another. We perceive that happiness lies in the achievements - the wins. But this perception is itself a narrow frame! To be sure, setting goals can be helpful for achieving worthwhile ends—such as personal growth, raising our children, and making the world a better place. But as we become preoccupied with our to-do lists we can quickly forget that the real enjoyment in life is in its daily moments.

When you let go of the game, amazing things all around you announce themselves. These are things that had always been there, because the world is a truly amazing place. They were merely outside the frame - and so you didn’t see them.

Last thought: the spring wind

It can be strange—especially if you’re an economist like me—to think that the idea of maximizing subject to constraints is all wrong. After all, whoever you are and whatever you may want out of life… shouldn’t you be happiest if you come up with a bulletproof plan and then work your hardest to get there? I mean, how can that not be the way?

As I write this on a beautiful day in May, I am reminded that, as mighty as a bulletproof plan and the will to achieve it can be, there is one thing mightier: a spring wind. For, exactly as the singer-songwriter Greg Brown seems to have fortold in his song “Spring Wind,” a spring wind just blew my list of things to do away.

1. Schor, J.B. The Overspent American: Why We Want What We Don’t Need. New York: HarperCollins, 1998, p. 143.

2. Schor (1998), p. 17.

3. Schor (1998), p. 99.

4. Frank, R.H. Luxury Fever: Why Money Fails to Satisfy in an Era of Excess. Princeton, NJ: Princeton Univ. Press, 1999, pp 146-58.

5. Burkeman, O. Four Thousand Weeks: Time Management for Mortals. New York: Picador, 2021, pp. 46-7.

6. Wordsworth, W., “The World Is Too Much with Us.”

7. See Kahneman, D. Thinking Fast and Slow. New York: Farrar, Straus and Giroux, 2011, pp. 334-6.