where and how utility can be generated, this one is going to scrutinize the idea that
more is always better.
In mainstream economics more income always means better lives, as expressed,
for example, in the important indicator of GDP per capita in poverty and welfare
statistics. Yet, the fallacy of conflating income levels with need satisfaction and
well-being can be exposed by crunching the numbers. Researchers have discovered
that the level of reported well-being and happiness (which, in economics jargon, is
called ‘perceived utility status’), stops being causally linked to GDP growth once a
certain level of income per capita is reached. This observation is called the Easterlin
Paradox after Richard Easterlin, the American economist who pioneered research in
this field in the 1970s.
The most striking example of decoupling rising GDP and per capita income from
perceived quality of life was revealed in the results of a Gallup poll in China. Some
15,000 people were interviewed between 1994 and 2005 and the researchers found
that average life satisfaction had gone down despite a rise in real incomes of 250 %
(Kahneman/Krueger 2006: 16).
There has been heated debate over this issue and the quality of data in some of
the measurements over time (time series). However, the first World Happiness
Report (2013) issued by some of the world’s leading happiness and well-being
researchers—John Helliwell, Richard Layard and Jeffrey Sachs—collates a lot of
data from diverse sources and shows that the Easterlin Paradox is not so paradoxical
after all. Once the standard economic assumption that more income naturally means
more happiness is turned into an empirical research question, one comes to find this
leveling off rather logical. The following presents some research results that support
this mindshift.
It was qualitative empirical meta-research conducted on subjective well-being
research that delivered most of the answers that solved the paradox. These affective
theories of well-being have experienced a renaissance since the 1960s. Before that,
modern post-Enlightenment science and the rise of behaviorism approaches in psychology in the 1930s had excluded many of these approaches and insights from
consideration as ‘valid evidence.’ Instead, behaviorism fits well with the goals of
economics as defined by Robbins, explaining choice-making without understanding
people’s deeper motivations in detail. This period also marked an important turning
point when income began to be seen as an important indicator of well-being. The birth
of GDP in the 1940s complemented the turning with a macroeconomic indicator.
The scientific study of subjective human well-being only gradually re-emerged
in the 1960s and it took what was called an ‘affective revolution’ in the 1980s to
reinstall it firmly on the horizon of the social sciences—while economics remained
slow on the uptake (Diener et al. 2009: 15–16).
This revolution was about asking people how they felt. The ‘objective’ conditions such as income, unemployment, and sanitary provision may be captured in
order to understand context but are not elevated to the status of indicators for utility
levels. In an overview article, Daniel Kahneman and his colleague Alan Krueger
argue, “that it is fruitful to distinguish among different conceptions of utility rather
than presume to measure a single, unifying concept that motivates all human
68
3 Why the Mainstream Economic Paradigm Cannot Inform …
more is always better.
In mainstream economics more income always means better lives, as expressed,
for example, in the important indicator of GDP per capita in poverty and welfare
statistics. Yet, the fallacy of conflating income levels with need satisfaction and
well-being can be exposed by crunching the numbers. Researchers have discovered
that the level of reported well-being and happiness (which, in economics jargon, is
called ‘perceived utility status’), stops being causally linked to GDP growth once a
certain level of income per capita is reached. This observation is called the Easterlin
Paradox after Richard Easterlin, the American economist who pioneered research in
this field in the 1970s.
The most striking example of decoupling rising GDP and per capita income from
perceived quality of life was revealed in the results of a Gallup poll in China. Some
15,000 people were interviewed between 1994 and 2005 and the researchers found
that average life satisfaction had gone down despite a rise in real incomes of 250 %
(Kahneman/Krueger 2006: 16).
There has been heated debate over this issue and the quality of data in some of
the measurements over time (time series). However, the first World Happiness
Report (2013) issued by some of the world’s leading happiness and well-being
researchers—John Helliwell, Richard Layard and Jeffrey Sachs—collates a lot of
data from diverse sources and shows that the Easterlin Paradox is not so paradoxical
after all. Once the standard economic assumption that more income naturally means
more happiness is turned into an empirical research question, one comes to find this
leveling off rather logical. The following presents some research results that support
this mindshift.
It was qualitative empirical meta-research conducted on subjective well-being
research that delivered most of the answers that solved the paradox. These affective
theories of well-being have experienced a renaissance since the 1960s. Before that,
modern post-Enlightenment science and the rise of behaviorism approaches in psychology in the 1930s had excluded many of these approaches and insights from
consideration as ‘valid evidence.’ Instead, behaviorism fits well with the goals of
economics as defined by Robbins, explaining choice-making without understanding
people’s deeper motivations in detail. This period also marked an important turning
point when income began to be seen as an important indicator of well-being. The birth
of GDP in the 1940s complemented the turning with a macroeconomic indicator.
The scientific study of subjective human well-being only gradually re-emerged
in the 1960s and it took what was called an ‘affective revolution’ in the 1980s to
reinstall it firmly on the horizon of the social sciences—while economics remained
slow on the uptake (Diener et al. 2009: 15–16).
This revolution was about asking people how they felt. The ‘objective’ conditions such as income, unemployment, and sanitary provision may be captured in
order to understand context but are not elevated to the status of indicators for utility
levels. In an overview article, Daniel Kahneman and his colleague Alan Krueger
argue, “that it is fruitful to distinguish among different conceptions of utility rather
than presume to measure a single, unifying concept that motivates all human
68
3 Why the Mainstream Economic Paradigm Cannot Inform …