Counterparties: But are you happy?
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One of the most common economic assumptions is that, broadly speaking, economic growth makes us all happier. Grow GDP, the argument goes, and we all get more stuff, and more stuff makes us happier. But a recent paper, as Izabella Kaminska writes, says “economists [may] be considering too narrow a set of determinants of well-being”.
The Chairman of the FSA, the UK’s chief financial regulator, Adair Tuner (lead author of the eponymous 2009 review into the financial crisis) has been even more direct in his criticism, once calling most financial activity “socially useless“. Robert Skidelsky writes that Turner’s new book, Economics after the Crisis, attacks three basic economic tenets:
The first is that the object of policy should be to maximize Gross Domestic Product per head; the second, that the primary means of doing this is to create freer markets; the third, that increased inequality is acceptable as long as it delivers superior growth. The attack is devastating, leaving little of the policy edifice of the past thirty years standing.
Turner is not alone on the first point. None other than Fed Chairman Ben Bernanke has endorsed including well-being and quality of life into economic measurement. Joseph Stiglitz has gone so far as to call the obsession with GDP a “fetish“. The OECD has championed its “Better Life Index“, under the brave assumption that humans should be provided with things like housing and a clean environment.
There’s some recent evidence that supports the Happiness School of Economics. China’s GDP has quadrupled in the last twenty years, but economics professor Richard Easterlin says that happiness hasn’t increased with it: “If anything, [Chinese] are less satisfied than in 1990, and the burden of decreasing satisfaction has fallen hardest on the bottom third of the population in wealth”. China is not alone: over the last forty years, happiness has fallen in countries where income has increased.
Easterlin is not a newcomer to this issue — he’s been studying the connection between economic growth and happiness since the 1970s. His work is the basis of the so-called Easterlin Paradox, the idea that rich countries don’t get happier when they get richer.
Most of the recent gains in GDP have gone to the rich, and Kevin Drum’s short version of the financial crisis points to the direct role of inequality in causing the meltdown. Meanwhile, Martin Wolf, also pointing to recent economic research, wonders if we can continue to assume that indefinite growth is possible at all. “For most of history, next to no measurable growth in output per person occurred”, he notes. — Ben Walsh
On to today’s links:
The Atlantic has comments enabled for an article written in 1870 – Michael J. Altman
Jerry Seinfeld’s hilarious letter to the NYT on the usage of the word “really” – NYT
The FT is likely for sale after Pearson CEO steps down – Bloomberg
What Nate Silver reads – Atlantic Wire