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The people of the Bahamas score
very highly in the Satisfaction with Life
Index, which was devised by British
psychologist Adrian White to measure
feelings of well-being.a car might experience this as a
loss of status. “Keeping up with
the Joneses” means that as
economies grow, the new wealth
has limited positive impact on
reported happiness. Everyone ends
up in a rat race, frantically trying
to out-consume everyone else.
The more unequal the society,
the worse this becomes.
Challenging the paradox
As interest in the Easterlin paradox
grew during the 2000s, the paradox
began to be challenged. Using data
from a broader set of countries, US
economists Betsey Stevenson and
Justin Wolfers suggested in 2008
that happiness does increase with
income across different countries,
and that rising income also leads
to greater well-being.
In general, researchers have
discovered that while higher
incomes do not translate easily
into increased levels of happiness,
losing incomes has a seriously
detrimental effect on well-being.
Redundancy and unemployment hit
well-being particularly hard, as do
serious illness and new disabilities.
In other words there is some
relationship between GDP and
national income, but it is not a
simple one. As better data has
become available, the notion of
happiness and well-being as a
possible target for government
policy has gained ground. In
turn, this has led to the slow
displacement of GDP as the critical
economic variable of interest.
The argument is simple: if widely-
reported economic variables do
not capture important aspects of
economic and social life, focusing
on those variables could lead to
bad policymaking. If policies were
based on “happiness indicators”rather than GDP alone, new
priorities would emerge. These
might include measures to
encourage a better work–life
balance. Unemployment might be
considered more costly, and greater
measures taken to alleviate it.
Broader measures of well-being
are already in use, particularly
in discussions about developing
countries: for instance, the human
development index combines
income with life expectancy and
education. It has been argued that
a narrow focus on GDP growth
helped to obscure the problems
created by the buildup of debt prior
to the financial crash of 2008. Had
broader indicators been available,
more attuned to perceptions of
well-being and closer to people’s
real interests, the single indicator
of rising GDP alone would not have
been cause for celebration. ■Measuring happiness
In 2007, French President
Nicolas Sarkozy asked
economists Joseph Stiglitz,
Amartya Sen, and Jean-Paul
Fitoussi to investigate the
measurement of social and
economic progress, and to look
at how broader measures of
welfare might be introduced.
Their report, published in 2009,
argued that it is necessary to
shift the focus of economic
policymaking from measures
of economic production (such
as GDP), to measures of well-being and sustainability.
In particular, their report
highlighted the fact that the
gap between common economic
indicators and reported well-
being appears to be widening.
An alternative system
of measurement would, of
necessity, use a range of
different indicators such as
health and the environmental
impact of lifestyles, rather
than attempt to summarize
everything through just a
single number.POST-WAR ECONOMICS
Economic things
matter only in so
far as they make
people happier.
Andrew Oswald
British economist (1953 – )