Money can buy you happiness

February 07 2013 04:01 AM

For years, many economists agreed, arguing that economic growth doesn't generate more well-being for ordinary folk, a conclusion which came to be known as Richard Easterlin's paradox, after the academic who first described it in the 1970s.

Yet it turns out that once again the establishment got it spectacularly wrong.

Economic growth – and the higher gross domestic product (GDP) and improved wages that accompany it – does improve happiness, according to several recent papers by top economists.

The truth, it turns out, is that the aspiring classes were right all along. The richer we are, the happier we are.

One especially brilliant piece of research – by Daniel Sacks, Betsey Stevenson and Justin Wolfers – demonstrates that happiness improves as incomes rise.

The paper shows that richer citizens report higher well-being than their poorer compatriots; that people in richer countries are happier than those in poorer nations; and that GDP growth boosts well-being. Most remarkably of all, there is no maximum wealth threshold at which point higher incomes cease to boost well-being.

These findings are confirmed by an excellent paper from Ruut Veenhoven and Floris Vergunst.

Using statistics compiled as part of the World Database of Happiness, they discover a positive relationship between GDP growth and happiness.

GDP and happiness have gone up in most countries, and average happiness has risen more in nations where the economy has grown most.

These results are devastating to the anti-growth crowd, and to those who say that it is pointless, too stressful and unsustainable for countries to focus on boosting their GDP.

They should also shame UK Prime Minister David Cameron, who famously wanted to replace a focus on hard-headed GDP with a softer emphasis on a new measure of national well-being.

Separate research, by Jan Delhey and Christian Kroll, shows that traditional measures of economic output, while crude, are actually "surprisingly successful at predicting a population's subjective well-being".

This is also terrible news for one influential strand of thinking on the Left, which claims that people are only happy if they feel richer than their neighbours. Such proponents of "happiness economics" therefore argue that working harder to earn more is tantamount to running to keep still, because everybody else is engaging in the same supposedly pointless race.

Frighteningly, they deduce from this false premise that the answer is to treat emotions such as envy and jealousy as suitable grounds for confiscating incomes, and to tax higher earners much more heavily, with French-style 75pc tax rates, to penalise those silly enough to want to get on in life.

The good news is that this bonkers ideology has now been entirely demolished by the new research.

The best way to promote happiness is to maximise economic growth – and, crucially, to make sure that as many people as possible in society take part and are able to enjoy higher incomes and thus improved well-being.

There should be a new rule: each and every new regulation and tax should be judged against how it will affect GDP. Any policy that damages the economy, even slightly, or imposes even the smallest extra cost on job-creators, should be ditched.

Without substantial amounts of growth, it will also become impossible to keep spending more on healthcare without hiking taxes.

Without growth, our culture will gradually mutate back into one of managing decline, rather than one which embraces aspiration, entrepreneurialism, progress, technology and growth.

Yet we still have to listen to all of the tired old excuses for why pro-growth policies, especially those of a supply-side variety, should be blocked. We are told that measures to boost job creation and investment will help the rich, so therefore should be blocked; that we need to endlessly punish bankers, even if it reduces credit availability even more; that even skilled workers should not be let in to work here if they come from the wrong countries; and so on.

These are all obsolete arguments from an age of prosperity, even though we are now stuck in an age of austerity. The world may look very different today, at least to those struggling to make a living, but it is scandalous how little appetite there still is for tearing down barriers to economic expansion and job creation.