GDP and Well-Being

Poorer nations obviously need economic growth, but the evidence shows that economic growth itself does little or nothing to increase well-being after a nation reaches the level of middle-class economic comfort that America reached decades ago.

In 1974, the economist Richard Easterlin was the first to notice 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. Our per capita GDP has more than tripled since the 1950s, but we are no happier than we were then. In other developed countries, also, economic growth does not increase happiness over the long term.

International comparisons let us see what income level is needed before growth stops increasing happiness. Beginning in 1990, the World Values Survey asked people in many nations how happy they are and how satisfying their lives are, and Gallup began asking a similar question in 2012. The graph compares the results of recent Gallup surveys with the per capita GDP of each nation. 

 We can see that, in lower income countries, the happiness rating generally increases as income increases: there is a strong increase when per capita GDP is less than $20,000 per year and a modest increase between $20,000 and $40,000 per year. But above $40,000 per year or so, happiness does not increase significantly as per capita GDP increases. There are still very small increases of happiness at these high income levels, and some economists have used mathematical tricks to make them visible, but they are so small that they are not visible at all on an ordinary graph like this one. At this point, it seems people would increase their happiness more by increasing their free time than by increasing their income.

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 two-thirds of America’s per capita GDP, they have enough to make them comfortable, and there is relatively little benefit to consuming even more.