Economic growth and the human lot.

I n 1974, Richard A. Easterlin, a coauthor of the work by Easterlin et al. (1) in PNAS, published a seminal article (2) that has generated a huge literature. It sought to explain why the happiness score in the United States (and elsewhere) had stayed roughly constant, whereas income per capita had trended up. This evidence has come to be known as the Easterlin Paradox. His explanation was that economic growth has a positive effect on happiness with other things being equal; however, it also raises aspirations, and aspirations have a negative effect. Aspirations are determined by society, particularly reference group income. The combination of these two effects gives rise to a Hedonic Treadmill. Subsequent literature has provided much evidence (based on increasingly rich microdata but mainly for developed economies) that is consistent with the original findings (3). Relative income is important for happiness, and although happiness always rises with income in the cross-section, it often fails to do so in the time series. It is true that a thorough investigation of many countries found a positive effect of income growth on happiness when imposing the same coefficient on income across countries (4). However, an analysis of the same data without that restriction found that the average value of the country coefficients was not positive (5). Estimated functions show that income is by no means the only determinant of subjective wellbeing (the terms subjective wellbeing, happiness, and life satisfaction are used interchangeably). For instance, a study of Russia and Eastern Europe (6) found that life satisfaction followed a U-shape. It fell sharply when incomes collapsed during their economic Big Bangs, and it recovered less than the subsequent recovery of output would predict. It was argued that the loss of economic security that the centrally planned economies had provided dampened that recovery (6). There is no better country than China for investigating the relationship between economic growth and life satisfaction. Over the period of economic reform, starting in 1978, income per capita rose 10-fold, China’s Human Development Index score improved impressively in all three dimensions, and through its steady, evolutionary reforms, China avoided the hardship that would have accompanied an economic revolution. Surely the Chinese people became happier as a result?