Does Economic Growth Make You Happy?
Does Economic Growth Make You Happy?
Adair Turner is the jewel in the crown of British public servants. He is one of a tiny minority in public life today capable of thinking and acting at the highest level. Economics after the Crisis, based on three lectures he delivered at the London School of Economics in 2010, is a thinking person’s delight, not least for the clear and lucid way in which Turner sets out his arguments. His book challenges the three main planks of what he calls the “instrumental conventional wisdom”. The first is that the object of policy should be to maximize Gross Domestic Product per head; the second, that the primary means of doing this is to create freer markets; the third, that increased inequality is acceptable as long as it delivers superior growth. The attack is devastating, leaving little of the policy edifice of the past thirty years standing.
The case against making increased GDP per capita the overriding policy objective is that it doesn’t deliver the increased happiness or welfare if promises. In 1974, the economist Richard Easterlin published a famous paper, “Does Economic Growth Improve the Human Lot?”. The answer, he concluded, after correlating per capita incomes and self-reported happiness levels across a number of countries is probably “no”. In a refinement dating from 1995, Easterlin found no relationship between income and happiness above an average per capita income level of between $15,000 and $20,000. Other findings confirm Easterlin. Data from the UK show that from 1973 to 2009, there was a continuous rise in GDP per head, but no increase in reported life-satisfaction. What is more, some of the “happiest” countries are also the poorest. However, inequality within countries does matter for happiness: the rich in the UK are on the whole happier than the poor.
Why, above a quite low income threshold, does a person’s happiness not increase with more income? The intuitive explanation must be that rising incomes produce dissatisfactions which offset the pleasure which the increase affords. Turner discusses some of the ills of wealth. The richer societies are, the more “status” goods people want, but because status is relative there is never, so to speak, enough of it to go round. The same is true of “positional” goods. “If the supply of pleasant homes is restricted then you have to seek to win in the relative income competition.” But there are only a few winners. Growth in wealth also worsens the environment, thus degrading the benefits it seems to make more generally available.