Sunehri zulfon, nasheeli ankhon ki desh ko khokar;
Main hairaan hoon woh zikr waadi-e-kashmir ke karte hain. (After losing Bangladesh, I am troubled to learn they still go on about the Kashmir valley.) - Habib Jalib
Thursday, 28 November 2013
Happiness: the silver lining of economic stagnation?
A study suggests that national wellbeing peaks at £22k average income. But that doesn't mean there's no point in pushing for wealth
More money, more problems? Photograph: Roger Tooth for the Guardian
It's time to rewrite the story of the financial crisis. Far from being a disaster movie, it was in fact a tale of salvation. As for the green shoots of recovery we are now seeing, they are virulent weeds to be stamped out.
That would seem to be the conclusion to draw from a new study that suggests ever-rising national wealth is the source of decreased life satisfaction. Looking at data from around the world, Warwick University's Eugenio Proto and Aldo Rustichini of University of Minnesota conclude that average wellbeing rises with average income only up to around £22k per head per annum. After that, it slips back again. Britain is more or less at that sweet spot, which suggests economic stagnation may be an excellent way of avoiding the problems of poverty without acquiring the problems of wealth.
You may well be sceptical. Even the authors acknowledge that many people "still prefer to live in richer countries, even if this would result in a decreased level of life satisfaction". In other words, people are overall more satisfied by less life satisfaction, which suggests we should take the whole concept of "life satisfaction" with a pinch of salt.
Any attempt to measure wellbeing in a robust way is fraught with problems. One of the most obvious is that people naturally rank their contentment relative to what appears to be a reasonable expectation, and that varies with time and place. That's why, when offered to rank their life satisfaction a scale of one to 10, most choose around seven or eight, irrespective of era or nation.
Even setting aside these doubts, there are more important reasons to be cautious about how we interpret the data. What it does appear to show, and which almost all studies support, is that having a low income is more of a problem that having a high one is a benefit. From a public policy point of view, that suggests the priority should continue to be raising the life chances of the worst off, not those of the better off, or even the "squeezed middle".
If we achieved that, is it really the case that there would be no point in then increasing wealth even more? Not so fast. We have to ask what explains the levelling-off in perceived quality of life. Proto and Rustichini suggest that the key is "higher GDP leads to higher aspirations … driven by the existence of more opportunities or by comparison with the Joneses". But this "sets up a race between aspiration and realisation; when realisation is lower than aspiration, the psychological cost paid is disappointment". Worse, this creates a feedback loop, as the let-down further widens the aspiration-realisation gap.
What should be clear is that this is not an inevitable consequence of greater wealth. Some individuals learn to treat their material comfort as a blessing and are not concerned by the prospect that they could have yet more, or that others already do. The materialist treadmill is not one we are obliged to get on once we reach a certain level of income.
In short, the problem is explained by the familiar idea that money is not valuable in itself, but only for what it can do. The failure of western societies to convert greater wealth into greater wellbeing is in essence a failure to use our wealth wisely. This should not surprise us. The majority of people alive today and throughout history have not been accustomed to plenty. Humanity is on a steep learning curve and many of the lessons we need to learn go against our natural tendency to acquire first and ask questions later.
That's why the debate about the relative merits of increased GDP and "gross domestic happiness" are misguided. They are not mutually exclusive options. The optimal strategy would be one in which we grew wealth but harnessed it better to enable people to really flourish, rather than just have more stuff. What we should be afraid of is the pointless march of a narrow materialism, not the resumption of economic growth in itself. A richer world in which the money was well spent is something with which we should all be well satisfied.