Probing the Easterlin Paradox


I think we're all familiar with the Easterlin Paradox? After all, it's shouted at us from the newspapers and the left often enough. Higher incomes don't make us happier and thus we shouldn't be striving for higher incomes but for more happiness. That more happiness usually to be provided by whatever pet nostrum about equality, sharing and caring or being kind to kiddies whoever is advancing the argument most favours.

However, it seems that the basic contention itself is wrong. Higher incomes do make us happier:

Using recent data on a broader array of countries, we establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being.....Finally, examining the relationship between changes in subjective well-being and income over time within countries we find economic growth associated with rising happiness. Together these findings indicate a clear role for absolute income and a more limited role for relative income comparisons in determining happiness.

Thus we do want to continue to focus on growing the economy as being richer does make us happier. Full on with capitalism red in tooth and claw then and damn those whining about how we should concentrate on just being nicer to each other.

However, I have a feeling that, on the basis of nothing more than feeling it in my water, it isn't really to do with the level of wealth: it's to do with the growth of it. A country that's been having decentish growth for decades (say, 2 or 3% per capita rises in GDP each year) is one that has appreciable changes in the standard of living over the course of a lifetime. At 2% a year everyone is four times richer at the end of the Biblical three score and ten than they were at the beginning. That's an observable change and one that would, I would argue, engender optimism about the future.

These sorts of growth rates don't particularly mean that today is better than yesterday, nor that tomorrow will be better. But this decade is certainly better than last (note that even the current recession has only taken us back to 2005 standards of living) and the next is highly likely to be better still. We can see that life will be better for us in the future and that it will be better still for our children and on for their. That's the sort of thing which does tend to make people happy: things are better than they were and are still getting better.

The association with rich countries is thus that, well, the rich countries are those places that have been growing at that 2-3% a year for the past couple of centuries. I have a feeling that if growth did halt for a long wnough period of time that our basic assumptions about a better future disappeared then we'd find that high but static wealth did not engender happiness. As I say, this is only a postulate, but I do think that it's the direction of travel that creates the happiness, not the position and the association between happiness and high wealth is simply that the rich happy places have been going in the right direction for many generations now.