The Economics of Human Flourishing

I am currently working on a couple of new posts about the American Dream in terms of the unifying narrative that is the American Dream, especially in the context of this political season, and how the American Dream is as much about the journey than it is about the destination. I also have an extra post on the beautiful game of football, or soccer, to indulge my love for the game. But today I wanted to share an essay I recently published in Profectus magazine on the Economics of Human Flourishing. It’s a sort of manifesto on a field I’m trying to established with the Archbridge Institute, but more importantly, the pillars of the economics of human flourishing are the same ones underpinning the American Dream.

I hope you like it and as always feel free to email me with any feedback or comments.

The economics profession has become extremely specialized. Economists might think we’re making the father of economics, Adam Smith, proud by fostering a further “division of labor” as the field compartmentalizes into ever-more-specialized areas of study, and economists become experts in more nuanced and limited areas. However, as Ronald Coase warned a few months before his passing in 2012, we should worry more about saving economics from the economists. In his own words, “The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.”

Smith wrote The Theory of Moral Sentiments (1759) long before his famous work The Wealth of Nations (1776), and that for a reason: he wanted to understand the full picture of individuals and society—not just wealth. Or, as Nobel laureate Vernon Smith and Bart Wilson have dubbed it, Adam Smith wanted to study “Humanomics,” how humans simultaneously live in two worlds: the personal social world, where we interact with our close circles of friends, family, and community; and the impersonal economic world, where markets dominate how and why we make choices. Bridging both worlds was Smith’s original focus. Coase also remarks that both Adam Smith and, later on, another influential leading economist, Alfred Marshall, kept economics as “both a study of wealth and a branch of the study of man.”

However, the problem according to Coase is that “today, a modern market economy with its ever-finer division of labor depends on a constantly expanding network of trade. It requires an intricate web of social institutions to coordinate the working of markets and firms across various boundaries. At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.”

There has long been a discussion in economics about whether the field is more positive (focusing on “what is”) or normative (focusing on “what ought to be”) in nature. Another focus has been on what economists do; do we merely worry about the relationship between multiple ends and scarce means—one of the most famous definitions by economist Lionel Robbins? The American Economic Association calls it “the study of scarcity, the study of how people use resources and respond to incentives, or the study of decision-making. It often involves topics like wealth and finance, but it’s not all about money.”

On the other hand, the public at large expects economists to not only worry about the distribution of scarce resources, but to also be able to predict the economic future of countries and societies, something economists don’t have a good track record with.

I wouldn’t dare challenge an accomplished Nobel laureate such as Coase, and I agree that the ever-increasing specialization of the field could be hurting economics, as we divide the profession into too many silos that are dangerously disconnected from each other. But I remain hopeful, because there exists an opportunity to address all these concerns and focus on a new field of study that can reunite the varying complex sections of economics: the economics of human flourishing, a field that is shedding a positive light on world events and the improvement of economic lives.

The “economics of human flourishing,” which was first examined by Nobel laureate James Heckman, has focused on incorporating the study of men and women back into economics. In Heckman’s view, the focus is on building human capital and skills to achieve flourishing lives in today’s economy. His work has centered on skills development across the lifecycle, how early childhood is crucial for skills development, and how families play a vital role in that endeavor. Skills development is certainly an essential aspect of study for the field of social mobility, but the economics of human flourishing encompasses a more holistic view of social mobility that includes both skills development and other areas of life and markets.

I define the economics of human flourishing as the study of how markets, people, organizations, and institutions support the economic foundations of social mobility and human flourishing. The economics of human flourishing is about bridging academic silos within economics, as well as bridging economics with other fields such as philosophy, psychology, history, and other social sciences. The economics of human flourishing is concerned with helping people climb the income ladder, yes, but it is also about achievement, purpose, aspiration, and the personal characteristics necessary to thrive in our current economy.

It represents a change of framework and narrative. People are not looking to economics to learn how they can assign their scarce resources to multiple needs. They look to the discipline to understand how the economy works, and so they can apply that knowledge to achieve more flourishing lives. They wake up every morning, not thinking about the economy and its workings, but considering how to have a better life for themselves, their families, and their communities.

The proper functioning of the market will certainly lead to better, richer, and fuller lives, but that is not the focus of the day-to-day participants of the market. People look to economists for explanations and predictions; they want some modicum of predictability in an uncertain world. Expectations about the future influence decisions that people make today. They want to project themselves into the future—to envision a better life—and determine if their work and aspirations are taking them towards that more fulfilling life. For all these reasons, a properly functioning economy and understanding of economics at the micro and macro levels is key, but not for the reasons many economists think. It’s a normative rather than positive view. People want what should be, which is more dynamic, not the static what is.

The economics of human flourishing stands on four pillars: entrepreneurship and economic growth, rule of law and institutions, education and skills development, and social capital. At the same time, these pillars stand on a multidisciplinary foundation of principles such as freedom, agency, and responsibility, which form the key building blocks of a flourishing life. Before delving into each of these pillars, it is important to examine the current state of research on social mobility.

One of the primary research programs on social mobility today focuses on measurement. In economics, social mobility is usually measured through intergenerational mobility. To make a long story short and simple, social mobility is calculated by measuring how many people outearn their parents’ incomes as adults. Studies focus on measuring a parent’s income at around 32–40 years of age, depending on the study, and then comparing the adult child’s income at that same page. If a child earns more income than his parents at the same age, he has upward economic (or social) mobility.

There are other ways to measure social or income mobility, like intergenerational elasticities, which show how much of an adult child’s income is dependent on the parent’s income. So, a more elastic, or dependent, relationship between the two incomes means that there is not a lot of upward mobility. Another useful measure could be intragenerational mobility, which shows how much people grow economically throughout their lifetime—so just tracking their own income across time. To summarize, measurement instruments are important and certainly have their place in these discussions, but they cannot be the field’s entirety. Measurement fails to capture the reasons behind higher or lower levels of mobility. The same can be said of higher median or average wages, which have also been a focus of discussion for social mobility and the American Dream.

At the same time, the field of social mobility has become associated with the static, zero-sum issue of income inequality. The policy solutions most commonly cited by scholars of income inequality are often directly or indirectly at odds with enabling permanently better economic conditions that will allow more people to climb the income ladder, escape poverty, and achieve more upward social mobility. Some of these solutions focus on closing the income gap by equalizing outcomes downward or providing more welfare to help people climb up the first step of the ladder. However, these measures only temporarily alleviate inequality or poverty while doing little to provide better conditions in the long term for people to achieve success. Many policies addressing inequality don’t consider the unintended consequences produced by them, which could erect barriers to mobility instead of removing them. Expanding opportunities for upward social mobility, particularly for those at the bottom, should be the focus.

Four Pillars

Now, let’s turn back to the four pillars of social mobility and the economics of human flourishing.

Entrepreneurship and Economic Growth

The first, entrepreneurship and economic growth, includes the fundamental building blocks of a functioning market system that drive economic growth and provide more paths to social mobility and human flourishing. When discussing social mobility, people usually focus on welfare, taxes, and redistribution, which as discussed above, have only a short-term impact on people’s position in life. Ultimately, the main source of income for most people is a job. That should be the focus of study as the primary vehicle that propels people to become more upwardly mobile.

Research has shown a decline, or at least stagnation, in social mobility rates in the United States in recent decades. The trend started in the late 1970s and early 1980s, when people born in those decades came to face lower mobility rates than the previous generation faced in their thirties. At the same time, business dynamism rates, which analyze how many new firms enter the market compared to how many firms die each year, have also been declining since the 1980s, when about 12 percent of all firms were new, as opposed to about 8 percent more recently. In addition, occupational licensing prevalence started to rise, with one in 20 jobs requiring a license in the 1950s; in 2023, one in five jobs required a license to work. When we have less entrepreneurial activity and more barriers to entrepreneurship, there is less dynamism to enable people to explore pathways to earning an income and climbing the income ladder.

Economic growth is still one of the main drivers of social mobility, as a flourishing and growing economy fuels more job creation and job growth. It has been well-documented that economic growth led to the spectacular decline of poverty over the past two centuries, and more recently, growth has enabled more people around the world to escape poverty and become upwardly mobile—in countries like China and India, this represents millions of lives bettered. That economic growth has been fueled by increasing access to markets in developing and developed countries and by an abundance of energy sources, technology, and goods that can transform our lives. As Tyler Cowen has said, we need an attachment to growth, as growth is a precondition to many paths to a flourishing economy and life.

There is much more that can be said about these specific areas of economics research, but under the holistic view of the economics of human flourishing, we need to connect the vast literature on these topics more directly to social mobility. Entrepreneurship and growth are good for their own sake; but they are also good because they enable us to aspire, build, and pursue more opportunities and a flourishing life.

Institutions and the Rule of Law

A second pillar of the economics of human flourishing is the rule of law and institutions. In a broad sense, this represents how legal frameworks serve as a pre-condition for functioning societies and markets. Excluding people from accessing stable political and legal institutions in their countries is hugely detrimental to economic development, and in this case, human flourishing. In the economics profession, the subfield of institutional economics has been established by leading scholars such as the aforementioned Nobel laureate Ronald Coase and fellow laureate Douglass North. Recently, the work of scholars such as Daron Acemoglu, James Robinson, and others has taken center stage.

Previous work I conducted examines the relationship between the rule of law and property rights protections, economic mobility, and income inequality. I show that countries with better rule of law measures tend to have more mobility and less inequality. Some of the top performers on rule of law and anti-corruption include Denmark, Finland, Norway, and Sweden, which are also four of the best-performing countries on measures of social mobility and income inequality.

In recent work by my colleague Justin Callais and his coauthor, Vincent Geloso, social mobility is found to improve with more economic freedom, especially through the channel of legal system quality and the protection of property rights. While it may be intuitive to think that places with better legal systems and institutions provide more opportunities for their citizens to thrive, it is nevertheless an important point that is often overlooked in this space. Economic activity and business opportunities that generate more jobs and lead to higher economic mobility require sound institutions that do not engage in overly burdensome and complex legal shenanigans, which can devolve into rent-seeking, cronyism, or unproductive entrepreneurship, in the words of William Baumol. In places with better protection of property rights and higher quality legal systems, one’s earnings are less determined by the incomes of one’s parents, meaning individuals can better determine their own lives.

Education and Skills Development

Third, we have education and skills development. Education is one of the few areas that has received much attention in relation to social mobility; there are many areas of research showing the link between education and social mobility. What needs to improve, as it relates to human flourishing, is the interrelated nature of education with other spheres of life and even other disciplines, including what it means to build more human capital in a holistic way.

Here, one of the key ideas to keep in mind is that schooling is not education. One of the purposes of education is to develop skills and skill formation for the labor market. Schooling plays a role in that development, but other variables also promote skills development in our early and later years. If we confuse schooling with education, we focus on only a small piece of this essential pillar. We must broaden our thinking to ask whether those years of schooling entail real skills learning, whether the quality of the education is adequate, or whether the schooling itself will lead to valuable job opportunities later in life. Some of the most recent research by Raj Chetty and his team at Opportunity Insights has shown how school quality and family structure, among five key variables, are correlated with greater levels of social mobility.

Most of the literature in the education and skill formation areas focuses on K-12 and four-year degrees or even graduate education. Fewer resources are devoted to assessing other skills development paths including community college and training in technical careers, but these types of education are also useful in helping people achieve mobility. There is a lot of research on school sorting based on zip codes, and many research avenues compare school systems, charter schools, and school choice. When it comes to post-secondary education, we should consider a person’s return on investment for that education. These and other economic questions related to education should be thought about holistically as additional paths to social mobility.

One of the least appreciated but most important areas of skills development research is the work of Nobel laureate James Heckman. In showing that the early years, 0–5, matter a great deal for skills development, he highlights not schooling but the role of family structure and parental engagement in developing those skills early in life that will impact people throughout the life cycle. Many inequalities can be observed early in life. Early childhood education and skills development starts at birth and through the most crucial years of a child’s life. In many cases, one of the most important features is parental engagement in their children’s lives. Family structure and parental engagement play an important role in determining intergenerational mobility; the disparities and inequalities that we see in those early years between 0-5 can be clearly seen later in life as well.

The importance of family structure as part of the social mobility literature has received some attention, but not as much as it warrants given how crucial it is in the work of Nobel laureates like James Heckman and Gary Becker. More recently, Melissa Kearney’s book, The Two-Parent Privilege, has reignited some of these debates by demonstrating the importance of family structure on a number of life outcomes. What they all show is that even though there is more household income with two earners, what matters is not necessarily the money but that there is also more time to dedicate and engage with the children, more psychological resources and stamina, and more complementary skills and innate characteristics between the parents that can support the skill-formation process in children.

All of these areas are crucial in economics, but viewing them as a holistic endeavor and in an interdependent way will go a long way for the economics of human flourishing to provide more insightful and impactful avenues for research and policymaking.

Social Capital

The last pillar I consider for the economics of human flourishing is social capital, which highlights how families, friends, and communities support one another to address issues through bottom-up, localized, and individualized solutions rather than top-down government policy.

There are many social scientists who have written on social capital, like sociologist James Coleman, economist Glenn Loury, and political scientist Robert Putnam. But again, these areas are not connected to other aspects of the economics of human flourishing. Social capital is a measure of the networks of relationships held by people in society—what “humanomics” considers the social aspect of life. It studies how individuals come together to achieve certain goals or to connect with one another. Communities with higher social capital are able to thrive because people are able to coordinate activities more easily and collaborate more closely. Societal bonds are stronger, and trust is improved, which is crucial for those interpersonal activities and even markets in the first place.

There is also a big role for the independent nonprofit sector and charities that are helping people on the ground. Their role is often not visible in policy conversations but is key, as there are many barriers to human flourishing that are personal in nature and that will not be solved by government policy. There is a real economic impact if charities, for example, can help people overcome addiction and re-engage in the labor markets, support people who have broken family structures, or provide direction to people who are returning to the labor market after being incarcerated. There should be more research on the impact of nonprofits and charities that help those at the bottom of the income ladder.

There is much more to be done in this sphere to connect the areas of social capital, charities in the independent sector, and communities to the more traditional research programs in economics, as crucial building blocks in the economics of human flourishing.

Multidisciplinary Field

One of the main purposes of the economics of human flourishing is to build bridges across these four pillars—which are currently silos of economic research programs—and across disciplines. The field includes other aspects that should undergird the study of flourishing in ways that lean more on philosophy, psychology, or even sociology. We cannot flourish if we don’t have agency or a guiding meaning and purpose in our lives. We cannot flourish if character and value formation doesn’t go hand-in-hand with skills formation. And we cannot flourish if key soft skills such as grit and self-discipline are not part of building more human capital.

Lastly, the economics of human flourishing is also about the importance of narratives; more importantly, in building a new narrative—a narrative not only of what economics can or should accomplish but a new and aspirational narrative that can better provide a positive-sum view of the world and economic affairs. In many ways, those economic narratives provide psychological fuel and strong foundations to help societies improve and grow. When people feel under threat, they turn inward and focus on security instead of dynamism.

Currently, narratives around the dangers of automation and AI are leading to fear of economic security. Proposals such as a Universal Basic Income or other job “guarantees” would only lead to the search for more security at the expense of dynamism and innovation, which inevitably leads to more insecurity. Disparities in outcomes reveal inequalities that fuel zero-sum thinking, often leading to proposals that erect more barriers to mobility instead of providing solutions to increase them.

Zero-sum thinking is more concerned with security than growth, more focused on fear than openness. Positive-sum thinking, on the other hand, means focusing on how we can all grow the pie, increase various paths to flourishing, and lift barriers to lift lives—no one needs to come down in order for someone else to go up.

We need to argue against narratives about degrowth that don’t consider the tradeoffs and the negative impact that would come—and in many cases have already come with a push to reduce growth.

Lastly, we need a better narrative to promote the importance of agency. If we believe everything and everyone is against us, that structural barriers impede our path to flourishing, no amount of economics will lead people to take action and responsibility over their own lives. Daniel Khaneman, who passed away in March 2024, reminded us of the many psychological foundations that can impact how we study and research economics. Well, one of the most important psychological ingredients is agency.

Conclusion

To go back to Coase: There are “unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.”

The economics of human flourishing is about building bridges between academic disciplines to create a holistic understanding of how economics helps understand how people can fulfill their human potential. Instead of being against something—against some idea or against scare resources—we need to be for someone, for people finding their path to flourishing, for helping to remove barriers and uncover paths that lead to more upward mobility, achievement, and human flourishing.