GDP and happiness

Gayle Allard. Professor. Instituto de Empresa

22 November 2003

Is there a relationship between GDP and happiness? Has huge growth in GDP per head made us any happier? Studies suggest that for us to be happy, our economic policies should be reoriented.

We have always known, deep down, that money can’t bring happiness. However, economists have been compiling data in the last few years that clearly show the proverb has an empirical basis. These investigations have significant implications for economic policy-making and cast doubt on the objectives that have come to be held as sacred for practically a century of active growth policies.

Is economic prosperity, measured by GDP per head, associated with greater happiness? The latest research suggests this is not necessarily so. In the United States for example, the percentage of the population that considers itself “very happy,” according to surveys, has no correlation to per-head growth in GDP. From 1946 to 1956 the percentage of “very happy” Americans rose in a fairly stable manner. But from 1956 it started falling, despite consistent increase in economic prosperity. Though it rose again in certain years, there has been a general downward trend, from around 42 percent in 1956 to 30 percent at the end of the ’90s. During this same period, GDP per head rose in a spectacular fashion.

Surveys in other developed countries show the same lack of correlation between GDP per head and satisfaction. In Japan, which has carried out happiness polls since the 1950s, the proportion of very happy Japanese did not increase throughout a period in which GDP per head rose sixfold. In Europe, where these have only existed since the 1970s, happiness has not increased either - despite economic “progress” experienced during this period.

If, instead of examining a national evolution over time, different countries are compared in the same year , one relationship stands out: happiness increases on a par with per-capita income until a per-head GDP of approximately $15,000 a year is reached. From that level onwards, any correlation between increased income and increased happiness disappears. The wealthiest nations – the U.S., Switzerland, Norway, Denmark and Germany – revealed comparable levels of happiness to those found in New Zealand and Ireland at the end of the ’90s, although the latter had a significantly lower per-capita income level. (The Spanish declared themselves less contented than citizens of the richest countries. But as Spain nears the $15,000 threshold – $14,860 in 2003 – its population will likely get happier until they reach that level).

Other indicators, apart from those studies mentioned, hint that prosperity has not brought well-being in its wake. The rate of depression has risen in parallel to the per-capita income in the U.S., and some countries have also witnessed rising suicide and alcoholism. Crime and the lack of safety on the streets have increased since 1950 in all industrialized nations. There is a clear correlation between divorce rates and economic and material wealth. The quality of the environment has deteriorated in every nation as development marches on, and problems such as obesity have shot up in the richest nations, despite significant increases achieved in the overall level of the population’s health.

A U.S. institution has attempted to quantify several aspects of well-being in American life and incorporate them into a truer indicator of progress. This is the “Genuine Progress Indicator,” or GPI. This measure starts with the official GDP calculations, then adds an estimate of the value of unpaid work performed in the household and volunteer organizations, plus increased leisure time. It then subtracts the estimated cost of negative factors such as divorce, crime and environmental damage. According to this scale, the United States reached its “maximum” level of progress at the end of the ’60s, when GDP per head was around $26,000 . Ever since, GPI has either remained stable or decreased, despite the fact that GDP per head has practically doubled.

These observations can only lead us to one conclusion. Our virtually exclusive focus on continuous increase in GDP as the prime indicator of a country’s economic success, is totally erroneous. It seems increasingly likely that in our eager pursuit of greater prosperity, we have actually managed to worsen our level of well-being. If we add the fact that continuous growth may not be sustainable for the environment, perhaps the time has come to revise our approach to economic policy-making. As John Maynard Keynes warned us nearly 75 years ago , the permanent problem for humans in a prosperous future will be how to use such unprecedented prosperity to live in a wise, pleasant manner. At three conferences held recently at the London School of Economics , the English economic guru Richard Layard suggested that instead of being obsessed with economic growth, governments should try to set themselves the goal of achieving greater happiness within society. Layard proposed this could be attained through policies aimed at increasing employment and job satisfaction, pursuing greater social equality, strengthening family unity and thus contributing to the physical and mental health of all their citizens.


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