Growth Is Good

October 1, 2006 • Commentary
This article appeared in the Prospect on October 1, 2006.

David Cameron says, “It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP, but on GWB—General Wellbeing,” by which he means happiness. With Cameron’s endorsement, the cockle‐​warming politics of happiness has officially become a multi‐​partisan affair, no longer the property of Labour peer Richard Layard and other social democrats. And why shouldn’t it be? Certainly no one disputes that there is more to life than money, or more to politics than the size of the economy.

However, Cameron’s contrast implies that increased GWB might have to come at the expense of GDP growth and economic liberalisation. Yet if you really profess to care about happiness, you must care about economic freedom and economic growth too. Our happiness depends on them more than almost anything else.

So‐​called “happiness research” is conducted mostly with surveys that simply ask people how happy they are, and those answers are related to others about income, family situation, jobs and more. The most widely reported result is this: although average real income has more than doubled in developed countries since mid‐​century, average self‐​reported happiness has barely budged. Yet despite the flat happiness trend over decades, at any given time the wealthy are more likely than others to report themselves “very happy,” which has led a number of researchers to conclude that people care more about their relative position on the income ladder than their absolute level of wealth. Since the heartless laws of mathematics guarantee that no more than 20 per cent of the population can squeeze inside the top quintile of the income distribution, no matter how large the economy, it is tempting to think that the size of the economy, or its growth, don’t matter.

It’s precisely this kind of thinking that leads economists like the University of Warwick’s Andrew Oswald to write articles titled “The hippies were right about happiness,” which argue that “new statistical work by psychologists and economists” has established that “once a country has filled its larders, there is no point in that nation becoming richer.”

Is this really what new statistical work shows? A recent study of the self‐​reported happiness of almost 400,000 subjects in the OECD countries by Harvard’s Rafael di Tella and Imperial College’s Robert MacCulloch shows that while no single variable has a whoppingly large positive impact on average happiness over time, none, other than life expectancy, has a larger effect than GDP per head. If becoming richer does not boost happiness, then, according to the statistics, neither does reducing unemployment, increasing welfare benefits, or… anything.

An even more comprehensive 2006 study, published in the Journal of Socio‐​Economics by the University of Regina’s Tomi Ovaska and the University of West Virginia’s Ryo Takashima, indicates that GDP per capita has a relatively modest positive effect on happiness, while GDP per capita growth is a somewhat larger boon. Most strikingly, Takashima and Ovaska show that “economic freedom”—a measure of “personal choice, freedom to compete and the security of privately owned property as its core components”—trumps all other variables. On the other hand, according to Ovaska and Takashima,“size of government” has a negative relationship to happiness. Happiness‐​based policy looks more like Thatcherism every day.

The fact that average self‐​reported happiness has not risen with average incomes does not imply that there is no point in becoming richer. A steady rate of growth may be necessary to keep happiness and other good things at a high stable level. (Imagine a guillotine, on which a kitten is strapped, connected to a bicycle that must be pedalled ever more quickly to keep the blade aloft. Slow down, and the kitten gets it.) In The Moral Consequences of Economic Growth, Harvard economist Benjamin Friedman argues that steady economic growth “fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy”—a list I doubt any politician would come out against.

Friedman argues that when the economic pie expands, and most of us feel wealthier than in the past, we pay less attention to keeping up with the Joneses, we are less jealous of our position in the economic hierarchy, and we are relatively magnanimous towards economic newcomers, such as immigrants. But when slowdown makes us feel we’ve stalled, we’re more likely to feel threatened by those ascending the economic ladder from below and to slam the door and bolt it. Economic stagnation is a recipe for xenophobia, political instability and ugly illiberal populism, which I doubt is a recipe for happiness. So there is a point to a nation becoming richer, after all.

The trouble with happiness research is that it is too often a mirror: we look into the data and see our ideology reflected. No one emerges from the happiness literature politically transformed. A dispassionate inquirer with no preconceptions would find that the happiness data say both too little and too much to build a usefully specific politics. Mostly he or she would find that liberal market democracies are where happiness flourishes most. But we already knew we wanted one of those. We already have one of those. Yet the happiness data don’t tell us whether we ought to prefer the Swedish or the American type of liberal democracy, which is pretty much the main debate.

Perhaps we’ve grown tired of arguing for our favoured policies on the grounds of liberty, equality, excellence, efficiency or justice—the kind of considerations that led us to our convictions in the first place—and feel we need something like Gross Domestic Happiness to make our politics feel fresh. But what does it mean in practical terms to profess allegiance to GDH when the happiness data are too coarse to say anything about how best to reform the healthcare system, whether we ought to go to war in Iraq, or raise welfare benefits? Not much.

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