Thursday, October 26, 2006

Happiness, Welfare, and Economic Growth

Does money buy happiness? The rapidly expanding literature on what determines “subjective well-being” appears to suggest a negative answer to this timeless question. Studies consistently find, for example, that when the incomes of everyone in a community grow over time, conventional measures of well-being show little change.

Many critics of economic growth interpret this finding to imply that continued economic growth should no longer be a policy goal in developed countries. They argue that if money buys happiness, it is relative, not absolute, income that matters. As incomes grow, people quickly adapt to their new circumstances, showing no enduring gains in measured happiness. Growth makes the poor happier in low-income countries, critics concede, but not in developed countries, where those at the bottom continue to experience relative deprivation.

All true. But these statements do not imply that economic growth no longer matters in wealthy countries. The reason, in a nutshell, is that happiness and welfare, though related, are very different things. Growth enables us to expand medical research and other activities that clearly enhance human welfare but have little effect on measured happiness levels.

Critics of economic growth cite its threat to the planet’s survival. Yet it is not growth per se that threatens, but rather certain kinds of growth. Driving more S.U.V.’s causes harm, but taking more piano lessons does not. Any country with a government not beholden to corporate interests could easily curb environmentally harmful activities through taxation and regulation, redirecting spending toward things that really matter. Across developed countries, higher growth rates are actually associated with cleaner environments, not dirtier ones. The United States is the world’s largest emitter of greenhouse gases not because of its wealth but in spite of it.
Good stuff. The article goes into some example of how welfare and happiness are different. A worthy read.

via NYTimes


crush41 said...

Next to physical health, relative wealth is the strongest determinate of self-reported happiness.

How do we close the wealth gap in the US?

- End unskilled, low IQ immigration.
- Make tax credits like the EEIC progressive (in that they grow as wealth increases rather than as it currently does, phasing out as income increases.
- Find other ways to encourage the wealthy to have more children and the poor to have fewer.

We need to increase the supply of professionals and decrease the supply of menials. Fewer laborers increases the going rate for that labor. More professionals lowers the relative rate each can charge the laborers. And the professionals are more likely to innovate, etc. The aforementioned work toward this.

Fat Knowledge said...

Interesting ideas.

How would you make the EITC (I think you mean earned-income tax credit, didn't you?) progressive? Are you saying income + EITC together should be progressive? I agree with that, but I assumed that is how it is already setup. If you are making $5 an hour you get $5 an hour extra in EITC. If you make $7 you would get $3.50.

I don't see how you make the EITC without income being progressive without becoming regressive at some point.

You wouldn't happen to have the source for physical health and relative wealth being the strongest determinants of happiness easily available would you?

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