Les Échoes
Thursday 10 April 2008
Nicolas Sarkozy don't invent anything new when he asked two winners of the Nobel economics prize, Joseph Stiglitz and Amartya Sen, to construct growth indices that more faithfully reflect French citizens' well-being than do those based on Gross Domestic Product (GDP). He was very significantly preempted on that front by the king of Bhutan, Jingme Singye Wangchuk, who had decreed as early as 1972 that "gross national happiness" should be a more important concept than GDP. The United Kingdom's Office of National Statistics is already working on producing different indices of Britons' well-being.
There is at present a florescence of research studies on the relationship between money and happiness. Richard Easterlin, economics professor at the University of Southern California, has studied the results of numerous polls attempting to measure the subjective sense of well-being for the populations of different countries. His conclusions aroused a great deal of controversy. According to Easterlin, once a minimum level of wealth is achieved, there's not any connection between a society's level of economic development and the happiness of its members. In the same way, he finds no correlation between growth in its standard of living over time and a society's happiness. So, the proportion of Americans who describe themselves as "very happy" has remained fairly stable over the last fifty years in spite of a spectacular increase in American GDP per person since the end of the Second World War.
However, within a given society, the wealthiest people appear to be the happiest. These paradoxical results may be reconciled, supposing that an individual's level of happiness does not depend on his absolute level of wealth, but his wealth relative to the other members of his society. If an individual's income grows at the same speed as his neighbors', he won't be any happier. On the other hand, if his income grows faster than the average, he'll be in Seventh Heaven. If these results are correct, the implications for economic policy are important. Economic growth in the classic sense of the term no longer appears as a priority. And our attachment to relative wealth makes the growth in income inequality still more painful for us, giving another justification for redistributive income policies.
Quite recently, the Wharton School's Justin Wolfers and Betsey Stevenson (1) revisited these questions with new data bases including more observations. Unlike Easterlin, they find a robust and positive correlation between income per person and happiness. In their study, the richest countries are the happiest on average; the wealthiest households are also the happiest within each society; and happiness grows over time with GDP. There are exceptions, of course: Belgians seem to become unhappier in spite of the growth in their wealth. But overall, growth seems to favor happiness. So are we back where we started? Not altogether. For one thing, it's obvious that the correlation Wolfers and Stevenson found between income and happiness is partial. Other variables, omitted from their study, would be just as positively linked to their happiness index.
More fundamentally, we should wonder about the validity of indices of happiness constructed on information from polls. Can the results of these polls be aggregated at the level of a country? That seems problematic. To be very happy or moderately happy can mean different things to the different people polled, according to who they are, their age, their country. To average such qualitative data is inappropriate. To construct happiness indices in such an arbitrary way on the basis of polls and then to use them to define economic policies seems risky. A more promising path would be to construct indices of well-being such as those developed by the United Nations. The human development index, for example, incorporates GDP per person, education and life expectancy. Although imperfect, such indices have the advantage of being built from objective and easily quantifiable data. Thus, they are more difficult for politicians to manipulate!
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Hélène Rey is a professor at the London Business School.
(1) "Economic Growth and Subjective Well-being: Reassessing the Easterlin Paradox," Brookings Economics Panel, April 2008.
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