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Does economic growth make us happier?


The following reference to the work of Richard Easterlin [1] has been extract- ed from a paper by Asad Zaman and Mehmet Karaçuka [2]:

“In Easterlin’s (1974) seminal paper, he finds that within any one country, in cross sectional studies, there was a strong correlation between income and happiness. One would easily conclude that money can buy happiness. How- ever, looking at a cross section of countries, one comes to a different conclusion …

“For 10 of the 14 countries surveyed, the happiness ranking is about the same, even though the income per capita changes by a factor of 30 from $140 to $2,000 …

“The finding of strong correlation between income and happiness disappears when comparisons are made across countries. Similarly, there is no correlation between happiness and income in the long run within a single country … Easterlin (2001) cites several studies which show that, despite tremendous increases in GNP per capita, the level of happiness in European and Latin American has remained virtually constant over decades.

“The startling implication of these empirical findings is that the stress being placed on economic growth is entirely misplaced. Growth has no clear relation to happiness. The profession of economics, as well as policy makers all over the world are directly threatened by these findings, which suggest radical changes in how to organise economic affairs …

“The implicit proposition of utility theory that the sole route to happiness is maximisation of consumption contradicts with the empirical evidence: this proposition is true only in the short run. This short run validity creates a dangerous illusion of long run validity; understanding this has dramatic policy implications. If happiness is determined by relative comparisons, then one can achieve greater happiness by reducing inequalities, and also by reducing the standards of living for everyone. This will lower the bench- mark and make it easier for everyone on the planet to be happy in comparison with this benchmark. ”

  1. Richard Ainley Easterlin is a professor of economics at the University of Southern California. He is best known for the theory named after him, the Easterlin paradox.

2. Asad Zaman and Mehmet Karaçuka (2011), “The Empirical Evidence Against Utility Maximization” (SSRN Electronic Journal). The following is the abstract from this source: Current Economics Textbooks and Economists justify a theory of consumer behaviour based on utility maximization on a priori grounds. This methodology follows Lionel Robbins’ idea that economic theory is based upon logical deduction from postulates which are ‘simple and indisputable facts of experience’. But strong evidence has emerged from many different lines of research that these ‘simple and indisputable facts of experience’ are contradicted by human behaviour. In this article, we summarize some of main contradictions between predictions of utility theory and actual human behaviour. Efforts to resolve these contradictions continue to be made within orthodox frameworks, but it appears likely that a paradigm shift is required.

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