Economic growth doesn't make us happier

Reassessing the reassessment of the Easterlin paradox.

Written by Noah Carl.

In 1973, the economist Richard Easterlin published a paper titled ‘Does economic growth improve the human lot?’ He analysed the scanty data that were then available on subjective well-being (self-reported happiness, life satisfaction) and reached three key findings:

1. Within countries, the rich are happier than the poor.

2. While there may be an association between income and happiness across countries, it’s weaker than the association within countries.

3. Average happiness does not increase over time with economic growth.

The inconsistency between these three findings, especially the first and the third, became known as the “Easterlin paradox”. To explain the paradox, Easterlin hypothesised that our subjective well-being is primarily determined by our relative status, not our absolute income. So while the rich are happier than the poor, average happiness doesn’t trend upward as everyone gets richer.

In the following decades, more and more data on subjective well-being became available and people started to question Easterlin’s findings. In 2008, Betsy Stevenson and Justin Wolfers (a husband-and-wife team of economists) published an article arguing that there really wasn’t much of a paradox to explain.

Analysing data from several international datasets, they obtained evidence contrary to Easterlin’s second and third findings. Specifically, they found that the cross-country and over-time associations between income and subjective well-being were about as strong as the association within countries. In other words, richer countries are happier than poorer ones and people do get happier over time. This led Stevenson and Wolfers to conclude that our subjective well-being depends far more on our absolute income than our relative status.

Since the publication of their article, even more data has become available. What does it show? The usually-excellent researchers at Our World in Data would have us believe that it has largely vindicated Stevenson and Wolfers. But they are mistaken.