Richard Easterlin died in December at the age of 98. He’s been called “the father of happiness economics”, and it’s hard to disagree. Fifty years ago, after struggling to find an economics journal with any interest in the topic, Easterlin published an article titled “Does Economic Growth Improve the Human Lot?” It planted the seeds of what became known as the Easterlin paradox. Within any given society, richer people are substantially more likely to say they’re happy. The paradox says that despite this fact, richer countries are no happier than poor ones. Nor do countries become happier on average as they become richer.
Like many things with the label “paradox”, Easterlin’s is no such thing. It can easily be explained — too easily, in fact, since many different explanations seem reasonable. One was put forward by Easterlin himself in 1974: “the growth process itself engenders ever-growing wants”.
Richard Layard, co-editor of the World Happiness Report, is more specific: in his book Can We Be Happier? (2020), Layard argues that our society functions as a zero-sum game, where we can only win if others lose. That would explain the pattern claimed by the Easterlin hypothesis.
A second explanation is that the paradox simply isn’t supported by the data. Andrew Oswald, a happiness researcher who believes there is now strong evidence in favour of the Easterlin paradox, nevertheless points out that there is only a faint sign of it in Easterlin’s 1974 article, which reported that Americans had become much richer and slightly happier between 1946 and 1970.
Researchers have since argued that there is a perfectly solid correlation between income and happiness. One famous example is a 2010 study by Daniel Sacks, Betsey Stevenson and Justin Wolfers, which found that more income tended to mean higher wellbeing, with no sign of the Easterlin paradox.
A recent working paper by Ekaterina Oparina, Andrew Clark and Richard Layard also finds countries with a higher average income do indeed have a higher average life satisfaction. In poor countries, this pattern is plain to see. In richer countries, it is indirect: higher income improves wellbeing not because of raw purchasing power but because it is correlated with freedom, longer life expectancy and social support.
A final explanation is that happiness data simply isn’t capable of making comparisons across the decades or across the globe. The French, for example, always complain to pollsters. Easterlin’s original article reported that in 1965 more than half of British respondents said they were “very happy”, but only 12 per cent of those from France. Such comparisons raise as many questions as they answer.
Surely it means something when someone tells a pollster they are happy or miserable, yet it’s unclear that such sentiments can really answer Easterlin’s original question about whether economic growth improves wellbeing.
Perhaps that question has outlived its usefulness. After all, if British policymakers have been obsessed with boosting economic growth for the past two decades, that obsession has yet to bear fruit in the UK’s growth figures. Would they do any better if instead they obsessed over boosting wellbeing?
There is greater promise in using more focused data to shape more focused policy. For example, Layard points to the Avon Longitudinal Study at the University of Bristol, with a rich set of data about children born in the early 1990s, and their family circumstances. “If you were trying to explain emotional health in adulthood,” he told me, “which school a person went to explains as much as everything you know about their parents.”
Perhaps that is because of the ethos of the school, or perhaps there’s another explanation. Either way, it’s hard not to be curious about whether schools could do more to bolster the emotional health of their pupils, long into adulthood.
Another example of a targeted intervention is the widespread use of talking therapies in the NHS, championed by Layard and his long-standing collaborator David Clark. We need more evidence-based, cost-effective public spending like this, and there is no good reason to privilege physical health over mental health; suffering is suffering.
The UK Treasury’s “Green Book” — the manual for evaluating public expenditure — now explicitly allows for the use of subjective wellbeing measures in some circumstances. But it remains to be seen whether that will lead to different spending priorities. My own suspicion is that policies to boost income are better aligned with policies to boost wellbeing than the hippies might have argued.
Consider Layard’s worry about a zero-sum society. That suggests that policymakers should be trying to widen bottlenecks in social mobility. For example, young people now compete for places at elite universities, then struggle to afford homes. Why not, then, expand the best universities and build more homes? Yet a single-minded focus on economic growth would suggest much the same policies.
So does economic growth improve the human lot? I’d say yes, but five decades after Richard Easterlin founded the economics of wellbeing, the question remains unsettled. Thankfully, we have also started asking more focused questions and producing more practical answers.
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