It seems the government has moved on from higher education and on to our higher feelings: it is proposing to measure our happiness.
The first and most important thing is to deal with the Easterlin Paradox. this is the contention that above a certain level, happiness does not increase as GDP does. So, once we\’ve got past a certain level of GDP, we shouldn\’t worry about (and certainly not concentrate upon) all getting richer as measured by GDP but do something else: sing Kumbaya according to most of the proponents.
However, the most important thing to know about the Easterlin Paradox is that it is in fact wrong.
In 2008, economists Justin Wolfers and Betsey Stevenson, both of the University of Pennsylvania, published a paper where they reassessed the Easterlin paradox using new time-series data. They conclude like Veenhoven et al. that, contrary to Easterlin\’s claim, increases in absolute income are clearly linked to increased self-reported happiness, for both individual people and whole countries. The statistical relationship demonstrated is between happiness and the logarithm of absolute income, suggesting that above a certain point, happiness increases more slowly than income, but no \”saturation point\” is ever reached. The study provides evidence that happiness is determined not only by relative income, but also by absolute income.
Yes, most certainly, there is decreasing marginal utility of income/wealth/GDP. But it is decreasing, not flatlining.
So the entire concept that we should stop worrying about economic growth is wrong. Simply, plain, flat out, wrong.
This doesn\’t, of course, mean that we should only worry about economic growth. Freedom, liberty, the arts, staring calf-like at the waning Moon with an inamorata, these are all also to be valued.
But it does mean that the arguments put forward in, say, The Spirit Level (to say nothing of their incredibly patchy evidence) fail. For they do take that flatlining of happiness to be true and thus that we can do whatever is needed about inequality, even at the expense of further economic growth. But reintroducing the point that happiness increases with growth means that we have reintroduced a balancing item.
We may want to do something about inequality (or we may not) but whatever it is that we do, thus in the minds of the proponents increasing aggregate happiness, now needs to be measured against the effects upon growth, the reduction of which will reduce aggregate happiness.
So when you hear people telling you that money doesn\’t buy happiness you\’ll know they\’re selling you a pup. For it does, Easterlin don\’t have a Paradox.