Tony and Gordon want you to be happy

We're richer than ever, we've just been on a giant spending spree, but we're still miserable. Can ha

What makes you happy? The government is dying to know. As ministers try out a bit of pleasure-seeking for themselves on Cape Cod or in the south of France, they may well be reflecting on the latest policy buzzwords - "happiness economics". Maybe it will explain to them why - when things have only got better - the electorate persists in being so ungratefully miserable.

Ministers and Treasury officials have been seeking inspiration from Andrew Oswald, professor of economics at the University of Warwick and one of the leading proponents of this new discipline. His happiness research has made headlines in the past. He famously put a price on a happy marriage - worth £70,000 of extra income a year, he said. Oswald has also calculated the costs of restoring happiness after becoming unemployed (more than £100,000 a year - far in excess of any lost income). In the same vein, he calculates that compensating for the unhappiness resulting from widowhood would, on average, require an additional annual income of £170,000. More recently, his research has led him to conclude that the job and life satisfaction of highly educated people is lower than their less educated peers.

Such apparently quirky calculations are beginning to excite interest. For what is the point of good fiscal management, rising incomes and a healthy economy if, as happiness research suggests, a sense of well-being continues to elude us?

We might think it obvious that government should concern itself with how to make voters happy (if only to ensure re- election), but this has not traditionally been so. Politicians - and economists - have tended to look at how to ease dissatisfaction - by reducing unemployment or alleviating the miseries of a non-functioning national health service. The assumption is that if governments remove the public causes of misery, the general trend of rising incomes will do the rest.

But evidence is mounting that however much they tell us we are better off, we are increasingly disaffected and cynical. This becomes apparent in low voting turnouts or our unwillingness to engage in civic duties (sitting on juries or parish councils, for example) or in the more anecdotal evidence that a new generation of twentysomethings feel they work too hard, are suffering "quarter-life crises" and fear an adulthood of debt and hard work.

"What people want to know now," says Oswald, "is why, if we're all so rich, are we dissatisfied? Why isn't everyone happy?"

People increasingly see happiness as a right, rather than a lucky genetic inheritance or the reward for a carefully planned life. This is particularly evident in the partying, clubbing lifestyles of younger age groups - though it is by no means restricted to them. Today's pensioners - at least those lucky enough not to depend on the dwindling state payment - are dedicated hedonists when it comes to holidays, hobbies and general consumption, even though most would have been brought up to believe in moderation and restraint and saving for the future (even for future generations). But there is no longer any shame attached to "extravagance" or "conspicuous consumption". Few people would recognise "spendthrift" as an insult. And it has taken the most dramatic of market shocks to start to slow the big spending spree of the past eight years.

As the television and billboard advertisements make clear, we have not only been buying shampoo or ice cream or flat-screen televisions - but happiness. The days when beauty products promised softer hair or glowing skin seem strangely innocent compared with current marketing messages. A shampoo now will make you sexy, high-status ("because you're worth it") and lovable. An ice cream will not necessarily claim to be tastier than its rivals; instead, it promises to transport you to eternal irresponsible youth and ecstatic sex.

We spend vast amounts on trying to buy a happy lifestyle because we can, and few would deny that it is a cause for celebration that the vast majority of us now enjoy access to better food, quality clothing, smarter cars and elegant homes, and that we can take more holidays and weekend trips and spend more than ever on entertainment and leisure.

But none of it makes us any happier. According to research by Oswald and the US economist David G Blanchflower, reported levels of well-being in the United States have actually declined over the past quarter of a century of rising incomes, with women the biggest losers. In the early 1990s, 34 per cent of those interviewed in the General Social Survey described themselves as "very happy". By the late 1990s, the figure was 30 per cent. In Britain, life-satisfaction levels over the same period have remained more or less constant, with around 33 per cent describing themselves as "very satisfied" with life (though with men reporting lower levels of happiness than women).

Professor Richard Easterlin of the University of Southern California, an early happiness theorist, argued in a paper last year that this is because our wants increase according to our means. Our sense of well-being, instead of following an ever-upward trajectory, stutters along on the horizontal, waiting for the next increase in income to be swallowed up by the next unmet need. As Samuel Johnson put it in 1776: "Life is a progress from want to want, not from enjoyment to enjoyment."

Dr Johnson notwithstanding, these ratcheting expectations of increasing material wealth are a very recent phenomenon. Earlier generations may have experienced fluctuating fortune in their lifetime, but had no expectation of radically changing their lot in life. God and the bosses kept the masses praying and toiling throughout most of the past millennium, while bourgeois morality kept the middle classes of the United States and Europe miserably well-behaved.

The 1980s and 1990s changed the material expectations of young people in work, particularly as experienced in Britain and the US. Social divisions began to merge, as children from working-class backgrounds found their computer-games savvy could command huge salaries and bonuses. They were no longer on the outside looking in. They were in the wine bars and trendy, expensive restaurants, popping champagne corks with abandon.

All this ought to have triggered a major increase in the nation's happiness. However, Oswald and others have found that economic growth seems not to buy happiness for the citizens of a country that is already rich. In individual terms, higher incomes do bring higher rates of happiness in poor countries, but the evidence is less strong in rich countries. Those dotcom millionaires were not necessarily any happier than before (though researchers have found that a rise in pay does bring happiness if colleagues get less - if everyone gets 10 per cent, we remain unmoved).

Naturally, happiness economists do not argue that improvements in income - personal or national - are unimportant. Rising standards of living bring considerable benefits, including lower infant mortality, better health, a cleaner environment. We are better-educated, travel more and today's children have many more options than their parents. But, that we are not also happier is intriguing to academics and governments alike.

"Some people find all this a bit flaky," admits Oswald. "But all important work looks flaky for the first decade. I tell my students to try to be flaky. That's where the best ideas come from." And , flaky or not, some very eminent academics seem prepared to examine these ideas. Next month, a handful of academics from Britain and the United States will attend a two-day conference on the "Economics of Happiness" at the London School of Economics. They will include Richard Layard, professor of economics at the LSE and a member of the House of Lords; Daniel Kahneman, professor of psychology and public affairs at Princeton University; Professor John Skorupski, head of philosophy and anthropology at the University of St Andrews; the economist Professor Richard B Freeman of Harvard University - and Oswald. The two-day discussion, ranging through such arcane subjects as "happiness regression equations", is unlikely to be easy listening for the non-practitioner.

According to Oswald, the group will certainly look at ways in which happiness economics could shape public life; he believes that the findings will one day shape government policy. "Politicians make happiness judgements all the time," he says. "They just do it unscientifically."

Additional research by Anushka Asthana