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Growth doesn't make you happier.

by Colman Thu Jan 19th, 2006 at 04:14:16 AM EST

Andrew Oswald writing in FT.com:

Economists’ faith in the value of growth is diminishing. That is a good thing and will slowly make its way into the minds of tomorrow’s politicians. Led by the distinguished psychologist Edward Diener of the University of Illinois, a practical intellectual manifesto signed by many of the world’s researchers, entitled Guidelines for National Indicators of Subjective Well-Being and Ill-Being, has just begun to circulate on the internet. That document calls for national measures of separate facets of well-being and ill-being, including moods and emotions, perceived mental and physical health, satisfaction with particular activities and domains, and the subjective experience of time allocation and pressure.

First, surveys show that the indus trialised nations have not become happier over time. Random samples of UK citizens today report the same degree of psychological well-being and satisfaction with their lives as did their (poorer) parents and grandparents. In the US, happiness has fallen over time. White American females are markedly less happy than were their mothers. Second, using more formal measures of mental health, rates of depression in countries such as the UK have increased. Third, measured levels of stress at work have gone up. Fourth, suicide statistics paint a picture that is often consistent with such patterns. In the US, even though real income levels have risen six fold, the per-capita suicide rate is the same as in the year 1900. In the UK, more encouragingly, the suicide rate has fallen in the last century, although among young men it is far greater than decades ago. Fifth, global warming means that growth has long-term consequences few could have imagined in their undergraduate ­tutorials.

None of these points is immune from counter-argument. But most commentators who argue against such evidence appear to do so out of intellectual habit or an unshakeable faith in conventional thinking.

Some of the world’s most innovative academics have come up with strong evidence about why growth does not work. One reason is that humans are creatures of comparison. Research last year showed that happiness levels depend inversely on the earnings levels of a person’s neighbours. Prosperity next door makes you dissatisfied. It is relative income that matters: when everyone in a society gets wealthier, average well-being stays the same.

A further reason is habituation. Experiences wear off. A joint intellectual effort by psychologists and economists has got to the bottom of the way human beings adapt to good and bad events. Some researchers believe that after a pay rise people get used to greater income and eventually return to their original happy or unhappy state. Such hedonic flexibility also works downwards. Those who become disabled recover 80 per cent of their happiness by three years after an accident. Yet economics textbooks still ignore adaptation.

A final reason is that human beings are bad at forecasting what will make them happy. In laboratory settings, people systematically choose the wrong things for themselves.

We've known a lot of this since 1899, but since we couldn't measure it we put it aside for a century.

A good LTE in the same FT:

Rich nations need to rediscover wisdom of the great economists

By Paul Rayment,
Former Director of Economic Research, UN Economic Commission for Europe,

Sir, Michael Prowse ("Britain overlooks the human factor in productivity", January 12) rightly draws attention to the relation between fairness and productivity and reminds us that corporate Britain, despite all the boasting and macho-management rhetoric since the 1980s, is not mucho when it comes to raising productive investment and productivity.

Mr Prowse is surely right to ask why people should be expected to give their best when the boardroom walks away with huge salaries and other benefits that bear little or no relation to their marginal productivity or any other measure of performance while the rest of the workforce is expected to accept increased insecurity (also known as "flexibility") and to show public-spirited restraint when seeking a salary increase.

This is not a petty question that can be brushed aside with disdainful remarks about the "politics of envy". What the boardroom seems to be in danger of forgetting is that the corporate sector is part of a larger social and political reality from which the market economy draws its legitimacy, not the reverse.

The issue, however, is a general one for all free-market economies, not just the UK. A prime reason for the difficulties with the Doha round of trade negotiations is that many developing countries see the promotion of global markets by the European Union and the US as narrowly self-serving: the rich want free access to developing-country markets for their goods, services and capital but are slow to reciprocate when liberalisation concerns areas where the poorer countries have a competitive advantage and where the rich have always managed to exempt themselves from the principles and rules they urge on others.

Western politicians and their advisers need to rediscover the wisdom of earlier generations of economists, from Adam Smith to Lord Keynes, and statesmen, from Bismarck to Roosevelt, who understood that if capitalism could not be reconciled with a socially acceptable distribution of its costs and benefits the entire system would be compromised.

Adam Smith, who today would probably find himself well to the left of Tony Blair, put the matter very clearly in his Theory of Moral Sentiments (which those who claim Smith as the godfather of globalisation should realise is really part one of his Wealth of Nations): "Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it . . . Justice is the main pillar that upholds the whole edifice".

Today, we have growth without fairness. In our world of plenty (in the West, at least), where relative wealth is just as important, if not more, than absolute wealth, no wonder that unhappiness is on the rise, along with "macho management"...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2006 at 04:56:44 AM EST
We've been talking about this here at ET since our inception, mostly vis-a-vis GDP and growth, about finding some other way to measure progress. I would be kidding myself to think someone out there is listening to US here on this...but it is good to see this converstaion starting in the wider press too!

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Thu Jan 19th, 2006 at 06:54:36 AM EST
It's an ongoing debate in the academic world and has been for some time.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2006 at 07:01:27 AM EST
[ Parent ]
A very good post Colman. This is indeed an issue that we need to look at. Other economists have been looking at the question and other social scientists as well.

Jerome's article that has the Adam Smith quotes is also on target. It still amazes me how much of what Smith really said gets swept under the rug. The Smith that gets hauled out as the absolute voice of the absolute free market has become a characature.

The difficulty with so much of the current free market advocates is that they have come to see the market has morally neutral and actors within it as amoral. (This isn't exactly what I mean, but I can't find other words.) Smith, on the other hand, understood a market working according to market laws but moral actors had to work within this market.  

by gradinski chai on Thu Jan 19th, 2006 at 07:58:11 AM EST
I think Smith understood the market as a tool of society rather than a form of magic. He was writing in such a different time.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2006 at 08:10:36 AM EST
[ Parent ]
Another academic who has been working in this area for most of his career:
Robert H Frank

He also writes a column for the NY Times. The most relevant book would seem to be "Luxury Fever".

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu Jan 19th, 2006 at 10:45:10 AM EST
I've posted this before, but its worth another look:

[T]he whole World Values Survey, which grew out of the European Values Survey in 1981, is concerned with tracking value evolution across the globe, which is commonly seen as a two-step process. Though it is often simply referred to as "modernization," a more precise description differentiates between two stages.

The first is modernization, which involves the transition from agriculture to industrial societies, dominated by increases in income that translate into increased well-being. The second is post-modernization, which involves a shift in emphasis toward quality of life, self-expression and self-determination. . . .

The two-phase structure is very evident in the following graph of GNP and perceived well-being:

which is schematized thus:

To me, the point is not that productivity growth or economic growth are not important, but that in developed economies like the US or EU, we should focus on taking more of that growth in non-material goods. What sociologist Fred Block calls qualitative growth:

Quality Production and Non-material Goods: "The second key principle is the expansion of the qualitative dimensions of output, including satisfactions that are not directly embedded in commodities."

  • Intrinsically satisfying work
  • Voluntary leisure time
  • Economic security
  • A safe and clean environment
  • A plenitude of community and voluntary services

"Qualitative growth would seek to reverse the underproduction of these satisfactions, while also systematically increasing the quality of all kinds of commodity outputs."

"Most of the growth dividend from the positive feedback dynamic would be used to increase not the quantity of economic output but the quality."

"These improvements in quality would, in turn, contribute to the expanded development of human capacities that makes the economy more productive."

Reconciling Growth with Sustainability

  1. "Shifts in the nature of consumption (services) and technological advances make possible a reduction of pressures on the environment."

  2. Under qualitative growth, "environmental improvement is one way in which continued growth could occur. . . . no longer treat[ing] the environment as something completely external to the economy."
by TGeraghty on Thu Jan 19th, 2006 at 11:17:09 AM EST
As someone who is no longer working I've been spending a fair amount of time thinking about the concept of wealth.

In my case my future "happiness" is not so much determined by the increase in my personal wealth by acquisitive acts (like working harder or becoming an entrepreneur), as by assuring that I have adequate resources to last.

Since the future is unknown the amount of resources required is unknowable. If one has an outlook that thinks that society will remain relatively stable then the simplest course of action is to convert investments into an annuity and live off the proceeds. This was the norm in the UK at the start of industrial revolution for the well to do middle class. The land owner class could depend on ground rents. The poor starved and died.

The annuity model fails if inflation rises and the value of the annuity stays constant. (There are variable annuities, but this just changes the assumptions). In this case one is forced to accumulate more wealth than would actually be needed as a hedge. If this the is mindset of many people when they are still working then it means they will divert more of their current income into retirement funds than they would need to do otherwise. So, this issue applies to everyone, not just those who are retired. The implied insecurity leads to a decrease in "happiness".

I wonder how much of this determines the attitudes of people when making economic decisions. Certainly the rapid collapse of defined benefit retirement plans in the US must be having investment implications.

A life where health and old age needs are guaranteed would seem to compensate for much in the way of the pursuit of wealth as a marker for happiness.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu Jan 19th, 2006 at 02:18:20 PM EST
Hubbert was thinking beyond peak oil, it seems.

I'd like to hear from ppl who know more about finance than I do about the idea and implementation of steady-state economics.

(and, btw, Colman, I'm waving hello to you...hope you're doing well.)

by fauxreal on Thu Jan 19th, 2006 at 06:51:21 PM EST
I would be interested in hearing why this would be considered desirable.

The steady-state model seems to me to lean towards the "pastoral" model, where some point in time (now, presumably, or perhaps some other golden age in the past) is considered ideal and the economy designed to freeze one to that point.

Is the steady-model based on a moral argument? Or on an economic argument? What specifically is wrong with unending economic growth? What's wrong with everyone being as rich as a Chirac or a Bush?

by asdf on Thu Jan 19th, 2006 at 08:16:25 PM EST
[ Parent ]
I don't usually cuss but... it's about friggin' time.

the growth mantra is insanity, in the sense that it pits ideology against physics.  ideology loses every time;  which means that people lose, are losing every day.

see also Barefoot Economics Manifesto

more later...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Thu Jan 19th, 2006 at 07:41:50 PM EST

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