Monday, March 28, 2016

Easterlin (2014) Holds Fast

Richard A. Easterlin, “Happiness and Economic Growth: The Evidence.” USC Dornsife Institute for New Economic Thinking, Working Paper No. 14-03, November 6, 2014.

• This paper covers much of the same ground as Easterlin (2013) – and hence this outline bears a close resemblance to the outline for the previous Easterlin article, too.

• According to the time-series data, rate of improvement in Subjective Well-Being (SWB) does not seem to depend on GDP growth, in: (1) developed countries; (2) developing countries; or (3) transition countries. Doubling the rate of GDP growth does not seem to change the growth of life satisfaction.

• In cross-country studies at a point in time, SWB growth is positively correlated with GDP growth. Combined with the lack of connection in the time-series evidence, we have the Easterlin paradox.

• For Latin American countries, even increases in financial satisfaction do not seem to rise with economic growth.

• In recent decades, China has seen unparalleled economic growth – but there is no evidence that Chinese people have gotten happier; perhaps the opposite, in fact.

• In the short run, there is a positive connection between SWB and economic growth – but there is no long-run connection. Economic growth does not buy happiness.

Sacks, Stevenson, and Wolfers (2012) choose their time periods in ways that drive their results: they capture the short-term connection between SWB growth and GDP growth, but miss the long-term independence. Using the maximum time periods for which data are available restores the Easterlin effect.

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