You might not expect the man who controls the United States money supply to say that money shouldn't be the most important thing on your mind. But that was a major theme of Federal Reserve Chair Ben Bernanke's message this weekend to graduates of the University of South Carolina. He didn't speak about interest rates or inflation: he spoke about happiness. While it was only a commencement speech, and not a major economic policy announcement, his statement was interesting in the context of a recent concern about how talented minds view the labor market.
The speech wasn't on what makes us happy in general, but the economics of happiness. Bernanke uses his speech to explain that economics cares about more than just money. And anyone who has studied economics should have already learned this lesson. People are not profit-maximizing -- they're utility-maximizing. And utility is just a fancy word for happiness. Our utility individual function determines our behavior, since we pursue what makes us happy.
For example, if someone offers you $1 million to never speak to your best friend again, you might not be very likely to take it (depending on how much you actually like your best friend!). The happiness you derive from having a best friend might outweigh how much joy that money would bring you. Insofar as economics hopes to understand people as rational actors, utility functions, not monetary profit functions, must considered.
Bernanke also says something pretty interesting related to this, particularly relevant for these new grads:
We all know that getting a better-paying job is one of the main reasons to go to college, and achieving economic security for yourself and your family is an important and laudable goal. But if you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful! Having a larger income is exciting at first, but as you get used to your new standard of living, and as you associate with other people in your new income bracket, the thrill quickly wears off. Some interesting studies of winners of large lottery prizes, even in the millions of dollars, found (as you would expect) that they were happy and excited on learning that they had won. But only six months later they reported being not much happier than they were before they won the lottery. The evidence shows that, by itself, money is not enough. Indeed, taking a high-paying job only for the money can detract from happiness if it involves spending less time with your family, stress, and other such drawbacks.
This speaks to a common situation that has been talked about since the financial crisis brought awareness of Wall Street salaries into focus. There's been something of a brain drain of the best and brightest to investment banking jobs, due to the high salaries they provide. Lured with the offer of riches, many graduates find themselves drawn to a career of finance, even though their true passions may be elsewhere. Yet, once they get used to the lifestyle of wealth, they're trapped: they can't go back to eating at the Cheesecake Factory and drinking Kendall Jackson.
Bernanke appears to disapprove of the flight of such new graduates to high paying jobs just for the money. He recognizes that this might not bring as much happiness. And indeed, he practices what he preaches.
Without doubt, Bernanke is one of the best economic minds of our time. He could have made hundreds of millions of dollars on Wall Street had he chosen that path. Instead, he has lived a life of academia and public service. He taught at Stanford and Princeton before coming to the Fed. Even now, as chairman, he only makes a paltry $199,700. That might sound like a lot to most of us, but it's approximately the minimum starting salary of a 25-year-old investment banking associate.
So clearly, Bernanke could be doing much better financially. But he wouldn't have been happier. His speech this weekend indicates that he is believes he made the right choice for a fulfilling life by pursuing his passion for academic and policy-driven economics.