Gloomy Domestic Product

The Beatles made it fairly clear that money can’t buy you love, but it also can’t buy you much happiness. That’s the latest from the University of Warwick’s Eugenio Proto and his team of economists. In their study, they found that after a country attains an average income of £23,000, happiness stops increasing. But Proto’s radical discovery is that happiness actually decreases once a country is rich enough. Importantly, Britain’s GDP average income is above this ‘sweet spot’.

How do we explain it? ‘There is a sense of keeping up with the Joneses’ Proto argues, ‘as people see wealth and opportunity around them and aspire to having more’. It seems that we can never be satisfied with what we have, casting doubt on GDP as a valid goal for society.

It’s not just greed which is to blame. As countries get richer, their economic (and inevitably social and political) inequalities often expand, and have done so in the UK and US. Proto’s findings echo The Spirit Level, a study arguing that inequality is to the detriment of everyone because of the kind of society it creates, full of social ills. Inequality breeds feelings of inadequacy and inferiority. Given that self-worth is so fundamental to well-being, it is not surprising that more unequal societies are less fulfilled.

Pursuing happiness will involve shifting our focus away from GDP to other, more valuable social and economic goals. If not for happiness, why prioritise GDP? In terms of social goals, countries like Bhutan have been striving for well-being targets instead. But some argue that GDP measures value; we value what we consume or we would not consume it, they argue. But once the complexities of life are considered, such a simple argument fails. What about clever advertising? Then there’s not having enough information about what we buy. And there are mistakes, addictions, and habits. And some of our purchases cause misery that we’re not aware of, in supporting exploitative businesses, or through pollution. We should not place value on someone contributing to GDP in these ways. In short, some activity doubtless produce unhappiness, yet it increases GDP.

We’re a product of our environment, and this includes happiness. Education and equality can be fostered, as can meaningful work and equality of opportunity.

Isn’t measuring society’s happiness just some woolly idea? No: Social failure, which includes dysfunctional families, broken communities, educational failure, wasted potential, stress and depression, is a real and tangible concept. Happiness is not some exclusively private mental state, but is largely derived from society and social relations, and much can be done to increase or decrease happiness or our chances of having better lives. We’re a product of our environment, and this includes happiness. Education and equality can be fostered, as can meaningful work and equality of opportunity.

What can economics do instead? What would pursuing societal happiness involve if not GDP? It seems that given the implications of inequality, climate change and happiness for pursuing GDP growth, there should be other aims. Economic predictability is one such valuable goal. We should look to reduce the crashes and downturns that have rocked countries and continents. They create “lost generations” whereby the young people whose adult lives start during a recession lack the skills and experience to flourish in the economy.

Secondly, if we transport ourselves to post-war Britain, no politician would stand for the kind of unemployment we have seen in the West of late. Full employment was a mantra. It was the conventional wisdom that the state should make sure we all have jobs; individual unemployed people are not responsible for the job market’s saturation. 2.6% was the average jobless rate during the post-war consensus of 1945-1978. From when Thatcher came to power until 1995, the rate averaged 9.6%. If capitalism is not improved by the state, there will always be a large unemployed contingent, no matter how good their qualifications or how hard they work. Without the government stimulating demand where necessary, unemployment will dog the lives of millions.

In 2006, David Cameron argued for a focus on happiness, not just on GDP. His support for the idea shows that it need not be a lefty cause, but could become a staple idea in our political consensus. It’s easy to accept the assumptions of one’s time. But the old economic order has failed almost every one of us, and now, at the peak of its failure, is the time for change.