Thursday, September 12, 2013

Happiness and Economic Growth

The evidence shows that growth does little or nothing to increase happiness after people reach a level of middle-class economic comfort that the average American reached decades ago. The economist Richard Easterlin first noticed in 1974 that surveys showed Americans had not become any happier since the 1950s, despite decades of growth and rising income across all economic classes. This finding still holds up today: American’s self-reported happiness peaked in 1958, and it has jogged up and down a bit but has never reached that peak again. Though our per capita GDP has more than doubled, we are not as happy as we were a half-century ago.  
International comparisons prove the same point. Beginning in 1990, the World Values Survey asked people in many nations how happy they are. The graph shows the results of a recent survey, comparing the happiness rating from this survey with the per capita GDP of each nation at the time. We can see that, in lower income countries, the happiness rating generally increases as income increases, but after countries reach about one-half of the United States’ per capita GDP, happiness no longer increases significantly as GDP increases.

This result is not surprising. In poor countries, more income is needed to provide people with decent housing, food, education, health care, and other essentials; it makes sense that people will become happier as they can afford more of the necessities and basic comforts of life. But when people reach about one-half of the average American’s current income, they have enough to make them comfortable, and there is relatively little benefit to consuming even more.

America’s per capita income in the 1960s was less than one-half of what it is today (after correcting for inflation),  and Americans felt very prosperous at the time: In 1958, a best-selling book called America “the affluent society,”  and the economic boom of the 1960s made the nation feel even more prosperous. Though there was still poverty in the country, the average American of the 1960s had the necessities and comforts needed to live a good life.

Once you have the basic elements of economic comfort, such as good housing, health care, and education, and you also have enjoyable luxuries, such as music, books, and travel, consuming even more does not bring significant benefits - but growth continues to cause massive environmental costs even after it stops bringing significant benefits.