The Easterlin Paradox

The whole world is in search of prosperity. All around the globe, ministries of finance, central banks, prime ministers, and president, promise to deliver growth, and governments rise and fall depending on the rate of GDP growth that they were able to deliver. In the 1970s, Richard Easterlin thought to ask, for the first time, the obvious question: Has this obsessive effort for growth paid off, in terms of increasing human happiness? Studying the question in depth, he came to startling conclusions, now famous as the Easterlin Paradox. One conclusion is that a massive amount of economic growth has indeed occurred. Today, in the wealthier countries, the general public enjoys facilities and conveniences which were once available only to a small percentage of the richest people, the princes and the aristocrats. Think of air conditioners, cars, washing machines, foods and drinks from around the globe, health facilities, and so on. The second is the paradox that the general level of public happiness has not increased. Easterlin gathered a large amount of data from diverse sources to establish this paradox, of increasing economic prosperity without corresponding payoff in levels of general happiness and public feeling of satisfaction with life. He looked at suicide rates, depressions, alcoholism, crime, and many other indicators of life-satisfaction and welfare. All of the data was consistent with the broad picture of economic growth without corresponding increase in happiness.

The Easterlin Paradox is hugely important. As sages throughout the ages have explained, wealth is a means to an end, and not an end in itself. An early paper of Easterlin "Does Money Buy Happiness?" answers in the negative. The impact of this finding is reflected in the approach of Bhutan. They now go after the goal of increased Gross National Happiness (GNH), instead of the GNP like the rest of the world. However, most economists and policymakers have refused to accept these results, and continue to pursue policies for growth, disregarding the strong empirical evidence that this policy does not produce the desired results. The few academics who have understood and accepted the Easterlin Paradox have created an entire new discipline known as "happiness (well-being) studies", which attempts to explain the why of these startling results. They have come up with two explanations, known as the "Setpoint Theory" and "Comparative Utilities".

Setpoints: According to the Setpoint Theory, people quickly get accustomed to a certain way of living as being "normal". It is only changes from this normal that cause happiness or sorrow. Loss of customary standards leads to sorrow, while gains lead to happiness. Thus, the happiness caused by an increased standard of living is only temporary. An initial jolt of happiness is followed by habituation to the new standard, at a higher level. For instance, people who live without air-conditioners in the heat do not miss them. Upon introduction, the cool air brings great pleasure. However, after habituation, living with air-conditioners becomes the normal, and going out into the heat creates great discomfort. The long-run effects on happiness are harmful because paying for operating expenses of the air-conditioners requires additional labor, or increase of time spent on wage-slavery. At the same time, the new normal setpoint means that instead of air-conditioners bringing happiness, previously normal heat brings unhappiness. The process is very similar to that of drug addiction, where the initial doses bring ecstasy, but later, the drug becomes a necessity, and lives are sacrificed to feed the habit. Today, we talk a lot about progress and higher standards of living, but the costs we pay to maintain these standards are evident in the extraordinary amount of work that everyone has to do. In comparison, data shows that the most primitive societies of hunter/gatherers worked a lot less and enjoyed a lot more leisure.

Comparative Utility: The second reason for the Easterlin Paradox discovered by researchers of happiness is comparative utility. It is not what we consume which matters, but how it compares with the general level of consumption in our reference group. This creates a rat race phenomenon where everyone works hard to get ahead of others, but everyone ends up in the same place, in terms of relative standing. Thus, a lifetime of effort trying to get ahead is wasted. In the terminology of economic theory, a strong negative externality is created by trying to get ahead of others. If one person on the block gets happiness by building a luxurious palace, a thousand others become unhappy. Their reference point has been raised higher, and what was a happy if humble home, now appears like a hovel in front of the new standard for comparison. We waste our lives in this meaningless race for riches.

Radical consequences result from absorbing and acting upon this wisdom in our personal as well as collective lives. The Easterlin Paradox shows us that it is foolish to target increasing GNP per capita as a means of increasing societal welfare - a century of experience proves that this does not work. Bhutan's approach to directly target happiness is a more subtle mistake, because happiness is not a goal which can be achieved by striving for it. Happiness research shows that it is not the race for riches, but our family, community, and network of social relationships that give us the greatest happiness. If we strive to strengthen families, communities, and social networks, by creating awareness of our duties and social responsibilities towards each other, happiness will follow. Today the trends are in exactly the opposite direction, where we are all motivated to spend more and more time to earn more and more money, while neglecting our family and friends who are the genuine source of happiness. The rising tide of consumerism leading to increased exploitation of people and planetary resources for production of commodities is threatening to destroy humanity itself by making the planet inhabitable. There is still time to oppose the trends, and spearhead a movement for simple living, in harmony with our fellow humans and our planet. This is urgently needed today to reverse the movement towards empty lives spent in a meaningless rat race, as well as the environmental catastrophe which looms.