The Economics of Gratitude
By Erik W. Matson
In an earlier post, I commented on the relationship between ethics and economic education. Economic education should serve as an input into our ethical reflections. It can help us discern effective means for obtaining a given set of ends. This is especially important in public policy, where our ethical intuitions about appropriate rules translate poorly to high levels of social complexity. Economics helps us appreciate the gains of indirection and the limits of direct control. If we wish, for example, to promote higher overall wages, the best way is not to legislate higher wages directly, but to encourage economic growth.
Economics in the classical tradition further shapes our ethical sensibilities by informing our pre-analytic vision of social processes. It teaches us to see the world as an arena for mutually beneficial exchanges, rather than a battlefield of zero-sum competition red in tooth and claw.
As studying economics can refine our moral judgments and vision, so too does it have the potential to enhance and improve our conditions—our pursuit of happiness. But its potential here, I believe, lies mostly in a nonobvious direction.
To begin with some obvious points, a sound grasp of economic thinking can improve your day-to-day choices. Internalizing the concept of opportunity cost—which holds that the true cost of an action is what you give up in taking it—helps make a better use of your resources, especially time. There is a remark commonly attributed to George Stigler: “If you never miss a flight, you’re spending too much time in airports.” Not all books are worth finishing, and it is okay to walk out of movies before they end.
Opportunity cost thinking serves as a healthy prophylactic against the adage that we should always do our best. Not so. A thing is worth doing well when the benefit outweighs the cost of doing it well. And many things simply aren’t worth doing at all. If you do what you do best and trade for the rest, your income and that of your trading partners will rise—that is the often-neglected principle of comparative advantage.
A sound grasp of economics also improves financial decision-making. Interest transfers income across time and represents the opportunity cost of holding cash, which rises with inflation. Compound interest—as Einstein may or may not have remarked—is truly the Eighth Wonder of the World. The long-term returns to saving when young are extremely high.
Picking stocks is generally a fool’s errand, and many financial advisors are much less useful than advertised. It is difficult to beat the market in the long run, and funds that do so usually charge high fees and erode the returns. Owning a house is not necessarily better than renting, at least financially. Houses are not particularly strong assets. They are highly leveraged and illiquid, and if you have a mortgage, you must pay to own them.
But for all that it might improve your decision-making and financial literacy, the study of economics probably won’t make you rich. (Economists and financiers who say otherwise are usually selling something.) In a market economy, high incomes flow from productivity, innovation, and exertion. In a controlled economy, they come from political connections. Knowledge of economics might contribute to productivity and innovation, but only marginally. It does little for work ethic or social networks. Even the most knowledgeable, innovative, and productive among us, moreover, are not immune to bad luck and the general convulsions of macroeconomic shocks.
In an essay titled “What Should Economists Do?” James Buchanan recounted that his undergraduate teacher at the University of Tennessee, Frank Ward, had an adage clipped to his door: “The study of economics won’t keep you out of the breadline; but at least you’ll know why you’re there.” But even if economics does keep you out of the breadline, that is not, in my view, its main contribution to happiness.
If we take happiness broadly, as both mundane satisfaction—what economists call “utility”—and a sense of flourishing and fulfillment, then material wealth plays a role. Affluence and convenience contribute to happiness within limits. But the more significant components of happiness are social and spiritual.
A commonly neglected spiritual dimension of our happiness lies in our attitudes, postures, and the framing of our circumstances. Positive attitudes, constructive framing, and habits of hopefulness—a glass-half-full outlook, as it were—lead towards contentment. Negativity and despair lead to misery.
One way to habituate positivity is through the practice of gratitude. Gratitude entails a recognition of a benefit and an acknowledgment that its source lies outside yourself. The correlations between gratitude and happiness are both positive and strong across many empirical studies.
Economics can enhance our pursuits of happiness by affording us opportunities for gratitude. These come as we recognize the absolutely miraculous and historically anomalous benefits of modern life and the minuscule roles that we, as individuals, play in producing them. Modern medicine, indoor plumbing, electricity, air conditioning, dishwashers, washing machines, on-demand transportation, pocket-sized supercomputers, low-cost but high-quality clothing, ample food—all these products and more are readily available in developed countries, even to many considered poor.
The study of economics has the power to shake us from our complacency. G.K. Chesterton wrote in Orthodoxy that the world is full of magic. He found it in flowers, rain, the sunlight. He might, if pressed, have admitted to seeing it down the aisles of a grocery store.
Beyond allowing us to marvel at the sources of modern prosperity, which emerges from the decentralized interactions of billions of people, the study of economics casts light on the institutions that cause and sustain the modern economic miracle. Here, too, many of us have reason for gratitude. The whole system of market exchange depends on shared conventions of property and contract, enforced by a system of predictable and relatively impartial rules. The results of the market cannot be replicated by central planning, even carried out by supercomputers or artificial intelligence. The system of market exchange depends, in other words, on freedom. That we have, at least in the West, stumbled upon a set of social arrangements that protect and sustain that freedom is perhaps an even greater marvel than the economic miracles they have produced.
Freedom and plenty, beyond the wildest imaginations of our ancestors: that most of us enjoy both should inspire immense gratitude and a degree of personal contentment. It should also make us vigilant in our efforts to understand and preserve the cultural, social, and political variables that make our lives of freedom and bounty possible.
Erik Matson is a Senior Research Fellow at the Mercatus Center and Deputy Director of the Adam Smith Program at George Mason University. He additionally serves as a lecturer in political economy in the Busch School of Business at The Catholic University of America.