Happiness and economic growth

Will Wilkinson lays into Andrew Oswald’s argument that governments should pursue happiness rather than economic growth. There’s one passage I want to dispute. He asks economists:

Tell me, is your faith in the value of growth diminishing? Do you think the world would be a more happy or a less happy place if world GDP growth slowed, such that the incomes of all the billions of people living in abject poverty (for whom the effect of income on happiness appears to be profound) grew at slower rate?

I think this elides two important distinctions.

1. Between rich and poor nations. No-one doubts that higher incomes will be a great thing in sub-Saharan Africa, where they can make the difference between life and death. Andrew’s argument against pursuing growth applies only to richer nations, where the correlation between incomes and well-being is weaker. This paper (pdf) makes the point well for Scotland, where health and well-being are low despite reasonable incomes.

2. There’s a big difference between opposing targeting economic growth and actively welcoming lower growth. One reason why I want politicians to stop promising to increase growth is not that lower growth would do us good but simply that governments have not been able to deliver this promise. This paper (pdf) concludes:

The many policy packages used across…countries did not have significant long-run effects on relative growth rates. We conclude therefore that long-run growth rates are determined by international factors, and are insensitive to national policies, especially for small countries. This implies severe restrictions on the ability of most governments to increase national long-run growth rates.

Of course, this tells us only that the policies governments have tried have not increased growth. Maybe policies they haven’t tried will raise growth.

And here’s a paradox. Maybe policies aimed at increasing happiness will be more successful at increasing growth than have been policies aimed directly at increasing growth.

The idea here is simple. Any happiness-oriented policy will want to build social capital; it’s networks of friends that make us happy.

And guess what? There’s reason to believe that social capital promotes growth (pdf).

Maybe faster growth is one of those things that we can only get if we aim at something else. If so, those who want faster growth should welcome happiness-oriented policies.

Comments

[Mr. Econotarian]

One of the issues is that growth is not an isolated value. Lowered growth policies often result in higher unemployment as population outpaces growth, and higher unemployment tends to lead to discrimination in employment policies (as seen recently in France regarding young immigrants).

[Will Wilkinson]

1. We live in an economically interconnected world. Lower growth in the US and the UK means lower growth in China and Tanzania. Nation states are not economic silos.

2. Ireland? And if governments can't actually deliver growth, why would you think they could deliver happiness.

And let me say that the happiness data is decidely unreliable. As I pointed out, Oswald himself doesn't know if the surveys really indicate if we're not getting happier on average, or simply reflecting some quirk about the way we report subjective states. The evidence for the latter is better than the former. See the Schwarz essay in the Kahnemann well-being volume.

Last, growth has huge benefits in advanced economies aside from the hedonic ones. It is very vulgar mistake to argue as if the only reason we want growth is so we can have high self-reported well-being. That's crazy.