Sunday, June 15, 2008

The Easterlin Paradox RIP

Back in 1974, the economist Richard Easterlin did some work on happiness. He gathered research from different countries asking people how contented they were and then compared the results to each country’s GDP per head. He found, somewhat to his surprise, that money can’t buy you happiness. Beyond a certain level, increased wealth made no difference to how content people were.

This became known as Easterlin paradox and has become one of the standard weapons with which to critique capitalism. Our absolute wealth did not seem to make us happy and being poorer than the neighbours made us miserable. A new Mercedes gave no joy if the Joneses next door had a Maserati. This idea has been developed further by left-wing thinkers to explain, for reasons beyond natural justice, why economic inequality is a bad idea. Reducing the gap between the rich and poor would actually cheer the country up. Oliver James, a pop-psychologist, took the idea to extremes in his book Affluenza, but being a psychologist of the old school didn’t bother supply any evidence.

Now it turns out that Easterlin paradox is an illusion based on poor data. A much larger survey have revealed a reasonably clear correlation between GDP per head and general happiness. It appears that money does make us feel better.

I have to admit that, despite being a conservative, I was disappointed to hear this. I liked the Easterlin paradox. It was the sort of counter-intuitive conclusion that I find intellectually satisfying. Secondly, it seemed good that money was not all it was cracked up to be. Still, there is hope. Although the Easterlin paradox may be no more, no one is saying that money is all you need for happiness. Family, friendship and intellectual enjoyment are as important as ever. And, if we are honest, the idea that economic growth is not a good thing is dangerous because it amounts to keeping people poor. Hopefully not even Oliver James will be daft enough to suggest that now.

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