Happiness, Growth, and Public Policy: WEAI 2012 Presidential Address

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I. INTRODUCTION

Happiness as a measure of well-being is gradually becoming more accepted by economists and policy makers. (1) It seems appropriate, therefore, to examine some of its implications for public policy. I will address three specific questions:

1. Are economic growth policies sufficient in themselves to raise people's happiness, that is, their subjective well-being (SWB)?

2. Are there other policies that might raise SWB?

3. Can poorer countries afford policies to raise SWB?

My approach, in answering these questions, is to draw on the available evidence, based partly on the happiness literature and partly on my own collaborative research. The answers suggested by the evidence are respectively, no, yes, and yes.

Since Pigou's (1932) classic study "The Economics of Welfare," economists have typically assumed that income growth, as indexed, say, by real gross domestic product (GDP) per capita, raises well-being. A major policy implication is that promoting economic growth advances human welfare. The introduction of happiness measures into the discipline (Easterlin 1974) made it possible for the first time to test this proposition, and the result was surprising--in cross sectional data, happiness and income were positively correlated, as expected, but over time happiness seemingly did not increase despite substantial economic growth. The subsequent four decades have seen an explosion of empirical studies on this paradoxical result as more happiness data have accumulated, and much debate, pro and con (Clark, Frijters, and Shields 2008). The most frequently cited recent work questioning the paradox is Stevenson and Wolfers (2008). Subsequently, this has been updated by Sacks, Stevenson, and Wolfers (2012) and the latter article, referred to from now on as S-S-W, will be the one subsequently discussed. S-S-W report a positive time series relationship of happiness and income not significantly different from the cross-sectional relationship. There is a substantial overlap in the basic data used by S-S-W and those reported on here. As will be seen, the difference in the results arises principally from the time spans studied. I use the longest period available for each country, while S-S-W confine their analysis to periods of about a decade in length.

I take as the measure of economic growth real GDP per capita. Mean SWB is calculated here as the average of individuals' integer responses to survey questions of the type listed in Table 1. The terms SWB, happiness, and life satisfaction are used interchangeably; though not identical in concept, they are closely related (Easterlin 2010, 8-9, 103-04).

Until recently, economists assumed that measures of an individual's external (observable) circumstances, especially one's income, were sufficient to assess well-being, and self-reports of subjective feelings were dismissed out of hand. (2) The 2008 Stiglitz-Sen-Fitoussi Report, commissioned by French President Sarkozy to propose more meaningful measures of well-being, is indicative of the sea-change that has taken place. After advocating the official collection of a variety of objective measures, the Report of the 25-member Commission (including five Nobel prize winners in economics) states:

Research has shown that it is possible to collect meaningful and reliable data on subjective as well as objective well-being.... [T]he types of questions that have proved their value within small-scale and unofficial surveys should be included in larger scale surveys undertaken by official statistical offices. (Stiglitz, Sen, and Fitoussi, 2008, 16)

The subjective measures used here are among the principal ones advocated in the report. For an excellent comparison of the various SWB measures and analysis of their meaningfulness, see Helliwell, Layard, and Sachs (2012, ch. 2).

II. DOES GROWTH RAISE HAPPINESS?

A. The Long-term Relationship

The answer to this question is often based on the bivariate cross-section relation of happiness to real GDP per capita. …