The Paradox of the Richer Who Were Not Happier - An RC Inspired by IIM Indore

In 1974 the economist Richard Easterlin published a paper whose title sounded like a dare, 'Does Economic Growth Improve the Human Lot?' Its finding looked contradictory. Within any one country, richer people reported greater happiness than poorer people. Yet among wealthy nations, those with higher average incomes did not show clearly higher average happiness, and countries that grew richer over the years did not show their people growing happier. The pattern became known as the Easterlin paradox, and it has been argued over ever since.

The paradox invites an attractive explanation. People judge their incomes against the incomes around them, so a rise in everyone's income leaves everyone's position unchanged. A person feels richer than a neighbour, not richer than the past. If so, growth that lifts all households together would buy little contentment, and a policy aimed purely at growth would be chasing a target that moves as fast as it is approached.

Two economists, Betsey Stevenson and Justin Wolfers, challenged the paradox. Using the Gallup World Poll, the largest and most recent sample of countries, and later the World Values Survey, they found a clear link between national income and life satisfaction. Wolfers also faulted Easterlin for leaving out transition economies, whose collapses in income came with falls in happiness, and which make the link steeper when they are included. They argued that the largest and most recent evidence available ought to settle the matter.

The defence turns on what is asked. The economist Carol Graham argued that the question about the best possible life, which Wolfers and Stevenson favour, carries a relative element and tracks income most closely. Questions about daily happiness and emotion track it far less. Daniel Kahneman and Angus Deaton found something similar among Americans in 2010, where evaluations of life followed income more closely than reports of how people felt. The answer, it seems, depends on the question.

The answer, it seems, depends on the question.

A vivid example shows how this can happen. Graham reports that Afghans scored above the world average on an open question about happiness and were about 20 percent more likely than Cubans to say they had smiled the previous day, yet they scored far lower on the question about the best possible life. If the measure is the smile, Afghanistan looks cheerful. If the measure is the ladder, it looks bereft. Neither measure is false, and neither is the whole of a good life.

Graham's verdict was modest. She wrote that both camps had limitations and that neither was simply wrong, while crediting Easterlin with starting the debate. That is an unusual ending for a dispute over a number, because it implies that the same data can support a paradox and its refutation, depending on whether wellbeing is treated as a mood or as a verdict.

The practical stakes are large. A ministry that wants citizens to be richer and a ministry that wants them to be happier may read the same survey and disagree about what it says. Governments that track gross domestic product assume that more of it is better for citizens, and governments that track happiness assume that more of it is better still. If the answer depends on which question is asked, the choice of question quietly becomes a choice of policy, and nobody has yet shown which question deserves to decide.