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.Does Economic Growth Make You Happy? (Times Literary Supplement)
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.
These negative effects of economic growth on contentment levels are well known. More radical is Turner’s attack on our way of measuring wealth. GDP measures the volume of marketed output, not its quality. But it is the improvement in quality which is chiefly important for satisfaction. Taking his cue from the economist Roger Bootle, Turner argues that a large fraction of GDP, especially in finance, law and “branding”, measures “distributive” rather than “creative” transactions; that is, it measures transfers between groups and individuals rather than net additions to income. “The clever lawyer who wins a case for his client achieves a redistribution from the opposing client but doesn’t create greater social value.”
Inequality within societies does matter for happiness, however. Studies show that, in any society, the rich are happier than the poor, and that at the same average income levels, more equal societies record greater levels of happiness. This throws the onus of increasing welfare or satisfaction on distribution. But modern capitalist society, especially in its Anglo-American version, produces growing inequality: over the past thirty years the very rich have pulled away from the moderately rich, the average from the median, and the median from the bottom. Why have the rich gained and the poor lost ground?
Terrific article, in review of a book that posits the following:
... [Adair Turner's] 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.Worth reading in full. And speaking of Easterlin, mentioned above, here he is in The New York Times on China:
CHINA’s new leaders, who will be anointed next month at the Communist Party’s 18th National Congress in Beijing, might want to rethink the Faustian bargain their predecessors embraced some 20 years ago: namely, that social stability could be bought by rapid economic growth.Why is this? Well, here are some reasons:
As the recent riots at a Foxconn factory in northern China demonstrate, growth alone, even at sustained, spectacular rates, has not produced the kind of life satisfaction crucial to a stable society — an experience that shows how critically important good jobs and a strong social safety net are to people’s happiness.
Starting in 1990, as China moved to a free-market economy, real per-capita consumption and gross domestic product doubled, then doubled again. Most households now have at least one color TV. Refrigerators and washing machines — rare before 1990 — are common in cities.
Yet there is no evidence that the Chinese people are, on average, any happier, according to an analysis of survey data that colleagues and I conducted. If anything, they are less satisfied than in 1990, and the burden of decreasing satisfaction has fallen hardest on the bottom third of the population in wealth. Satisfaction among Chinese in even the upper third has risen only moderately.
Before free-market reforms kicked in, most urban Chinese workers enjoyed what was called an “iron rice bowl”: permanent jobs and an extensive employer-provided safety net, which included subsidized food, housing, health care, child care, pensions and jobs for grown children. Life satisfaction during this period among urban Chinese, despite their much lower levels of income, was almost as high as in the developed world.When Growth Outpaces Happiness (NYT)
The transition to a more private economy in the 1990s abruptly overturned the iron rice bowl. Hundreds of thousands of Chinese who worked at inefficient and unprofitable state companies were laid off. The loss of jobs also meant the loss of the employer-provided safety net. Growing numbers of rural migrants took city jobs that provided no benefits. Among urban workers still employed, concerns about job security and the continuation of benefits mounted. Life satisfaction in urban areas declined markedly.
Worries about job security are reflected in feelings of financial satisfaction. In 2007, only 27 percent of Chinese in the lowest third of the income distribution expressed satisfaction with their financial situation, down from 42 percent in 1990. Evidence of a fraying social safety net is indicated by the decline in self-reported health among the bottom third: those reporting that their health was good or very good dropped to 44 percent, compared with 54 percent in 1990.
Sacrifice social stability and overall happiness to make a winner-take-all society in the name of "innovation" and supposedly all will be better off. Unfortunately, it happens to be tearing the world apart right now. I can't help but note that it seems like both the average American and the average Chinese person got fucked over by this deal, with a small core of elites benefiting. It also gave us oceans of foreclosed homes in America and empty cities in China, along with overproduction and debt crises. It's true: what begins as tragedy ends as farce. And see this:
Happiness in America has become the overachiever’s ultimate trophy. A vicious trump card, it outranks professional achievement and social success, family, friendship and even love. Its invocation can deftly minimize others’ achievements (“Well, I suppose she has the perfect job and a gorgeous husband, but is she really happy?”) and take the shine off our own.
This obsessive, driven, relentless pursuit is a characteristically American struggle — the exhausting daily application of the Declaration of Independence. But at the same time this elusive MacGuffin is creating a nation of nervous wrecks. Despite being the richest nation on earth, the United States is, according to the World Health Organization, by a wide margin, also the most anxious, with nearly a third of Americans likely to suffer from an anxiety problem in their lifetime. America’s precocious levels of anxiety are not just happening in spite of the great national happiness rat race, but also perhaps, because of it.