Yes, Easterlin was wrong

Easterlin and his Paradox really were wrong.

My own interpretation of this (for which I have absolutely no proof or evidence, just that it does seem to explain everything we do see) is that it isn\’t in fact the level of wealth that increases happiness. It is, rather, that it is increasing: either for the individual or for the society, that does.

We could certainly imagine that decreasing GDP makes people unhappier. Rising unemployment and all that. And it should be possible to explain why flatlining GDP makes people unhappier. Assuming that productivity continues to advance (as technology improvements would usually indicate it will) then static GDP also implies rising unemployment.Obviously these two are not exactly correlated in any one year but rising labour productivity of 1 or 2% a year (lower than the average of the last century or two) would, in the absence of GDP growth, mean unemployment rising by 1 or 2% of the labour force each year.

And as Mr. Dillow (pbuh) continually reminds us, unemployment is indeed something that makes people very unhappy indeed.

In an economy that has rising labour productivity therefore, in order to not have rising unemployment, there must be rising GDP.

This isn\’t the only effect. I\’m also sure that people are more cheerful if they can see that things are improving, that their kids will have it better than they did etc.

As I say, this is an assertion, not a proof. But I really do think that it\’s not levels which are important here, it\’s the direction of travel. Where GDP growth is higher than or at productivity growth people will be happier.

The connection with levels of wealth is that places that have had this for some decades/centuries are going to be rich places. But the mechanism is that it is economic growth itself which produces the happiness.

I do assume that there\’s someone out there who has already made this point more formally. I\’m just too uneducated to know who.

 

6 comments on “Yes, Easterlin was wrong

  1. “In an economy that has rising labour productivity therefore, in order to not have rising unemployment, there must be rising GDP.”

    That’s just a mathematical relationship. Productivity is calculated as GDP per man-hour.

    In the UK we have stagnant (un)employment and falling GDP, therefore we say productivity has fallen.

  2. I think it’s true everywhere. When you’re on a diet. Training for a marathon. The journey is the most emotional experience…

    Maybe it’s why it’s impossible to maintain a status quo.

  3. “I’m also sure that people are more cheerful if they can see that things are improving, that their kids will have it better than they did etc.”
    This is true, but it’s only one mechanism. Change – as Da Fink says in the Times today – also entails the loss of fondly-remembered landmarks; “they paved paradise to put up a parking lot”.
    On balance, the new research suggests Easterlin was wrong – though I’m not sure how much so: see eg this new paper by Ruut Veenhoven:
    http://mpra.ub.uni-muenchen.de/43983/
    Easterlin concedes there’s a short-run link between growth and happiness – consistent with your hopey hypothesis – but sticks to his guns about the long-run:
    http://www.iza.org/en/webcontent/publications/papers/viewAbstract?dp_id=7187

  4. Am I missing something here which stops the whole argument being completely circular? What is wealth. if not the accumulation of things which make you happier? Utility is that which makes you ‘happy’ you have gained something, and so-on.

  5. @ Dave – the problem (according to the anti-growthists) is that there’s a difference between expected utility and experienced utility, so that we accumulate things we expect will make us happy but which in fact don’t.
    So for example, we buy an expensive car but then have to pay a fortune to maintain it (I know!), or we spend long hours at work earning money only to see our family life break down. And so on.

  6. Chris>

    “we accumulate things we expect will make us happy but which in fact don’t.”

    Well then, that’s not becoming wealthy, is it? Seems pretty obvious to me.

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