In his new book, A Better Politics, How Government Can Make Us Happier, due to be published at the end of March, Danny Dorling, professor of human geography at Oxford, shows how future generations could be happier, with goals of greater well-being and better health, rather than wealth maximization.
The Easterlin Paradox is a key concept in happiness economics. In the mid-1970s Richard Easterlin, an economist at the University of Southern California, observed that as countries grow richer, as they grow in wealth, we often do not see a parallel rise in subjective levels of happiness in those countries. United States is itself an example of the Easterlin paradox at work. GDP in the U.S. has grown much faster than happiness levels. So clearly, there are many factors at play involving income and happiness. Income equality appears to be just one of him. In the U.S, income inequality tends to be the most pronounced in highly innovative economies such as New York or the Silicon Valley.
Inequality has recently received increased attention from many economists like Piketty who found that it is negatively related to happiness. “While it isn’t exactly a new phenomenon, inequality in our society is getting worse, particularly when we look at the growing gap between the very wealthy and the rest, including those with least. This matters because it appears that growing inequality can make it harder to enact the policies that could most improve our happiness”, writes Dorling.
A recent study from Shigehiro Oishi at the University of Virginia and Selin Kesebir at the London Business School, takes a close look at the connection between economic growth, inequality, and happiness across 34 nations. “Economic growth is typically not shared equally across segments of society and often results in increased income inequality,” the researchers explain. So, although a country’s GDP may be rapidly expanding, only relatively few people are actually benefiting from this economic prosperity.
The study also found that even in the most economically advanced nations, like Denmark, France, and the United Kingdom, higher levels of inequality led to lower levels of happiness. But in less developed countries, like Honduras, Argentina, Costa Rica, Chile, and Paraguay, happiness did not increase alongside economic growth. Why? Even in years of relatively low income inequality, gains in national wealth were still concentrated among a small portion of elites. This also means that for a nation’s life satisfaction to increase, producing more wealth is not sufficient. “The fair distribution of the added wealth may critically determine whether life satisfaction will rise on the whole”, the authors write.
Past a certain point, earning more money won't make you happier? The Busara Centre for Behavioral Economics in Nairobi claimed the existence of such a satiation point beyond which the country could not achieve greater nationwide happiness and people didn't get any happier. The study focussed on unconditional cash transfers to poor rural households in Kenya and Uganda. The researchers found that individuals are generally more satisfied with their life when their own wealth increases. However, their life satisfaction went back to their baseline levels of happiness one year later.
In sum, the relation between economic growth and happiness is still poorly understood. But one thing is fairly clear: if nations want their citizens to be happy, they will have to accomplish the difficult task of ensuring that their income levels are balanced and fair.
Photo: Getty/Mark Wilson