Does Economic Growth Meaningfully Improve Well-being? An Optimistic Re-Analysis of Easterlin’s Research

Does Economic Growth Meaningfully Improve Well-being? An Optimistic Re-Analysis of Easterlin’s Research: Founders Pledge. Vadim Albinsky. Effective Altruism Forum, Sep 2022. https://forum.effectivealtruism.org/posts/coryFCkmcMKdJb7Pz/does-economic-growth-meaningfully-improve-well-being-an

Summary

Understanding the relationship between wellbeing and economic growth is a topic that is of key importance to Effective Altruism (e.g. see Hillebrandt and Hallstead, Clare and Goth). In particular, a key disagreement regards the Easterlin Paradox; the finding that happiness[1] varies with income across countries and between individuals, but does not seem to vary significantly with a country’s income as it changes over time. Michael Plant recently wrote an excellent post summarizing this research. He ends up mostly agreeing with Richard Easterlin’s latest paper arguing that the Easterlin Paradox still holds; suggesting that we should look to approaches other than economic growth to boost happiness. I agree with Michael Plant that life satisfaction is a valid and reliable measure, that it should be a key goal of policy and philanthropy, and that boosting income does not increase it as much as we might naively expect. In fact, we at Founders Pledge highly value and regularly use Michael Plant’s and Happier Lives Institute’s (HLI) research; and we believe income is only a small part of what interventions should aim at. However, my interpretation of the practical implications of Easterlin’s research differ from Easterlin’s in three ways which I argue in this post:

-  Easterlin finds small coefficients in his preferred regressions of changes in countries’ happiness on changes in GDP. He concludes that these coefficients have low “economic significance” and that increasing economic growth is not a good way to make people happier. However, even if we take these coefficients at face value, they still represent a very meaningful increase in wellbeing within the effective altruism framework, consistent with the impacts of unconditional cash transfers on individuals. The benefits become very large when aggregated across all the people in a country for many years.

-  We also have reason to doubt Easterlin’s results, in that they are highly sensitive to small changes in methodology. We perform two variations on his regression that fully accept his methodology of only including “full cycle” countries, but update it slightly, reversing the result. If we replicate his results counting one more country as a “transition” economy, the Easterlin paradox largely disappears. If we repeat his analysis with new data from 2020 instead of 2019, the paradox also seems to largely disappear.

-  It may be difficult to find things we can influence whose change over time will have a higher correlation to a country’s change in happiness than changes in GDP. Even if we accept that boosting GDP does not meaningfully increase happiness, other potential means of boosting national happiness may increase it even less. If we rerun Easterlin’s analysis using three interventions Easterlin and Plant suggest (health, pollution, and a comprehensive welfare state), their implied impacts on national happiness are much smaller than the impacts for GDP or negative. However, I have low confidence in this conclusion, and think it is a very valuable project to identify the interventions that are most likely to have an impact on happiness.

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3. The happiness impact of alternative interventions is smaller than the impact of GDP.

Easterlin concludes his latest paper by suggesting that even though he does not believe that GDP growth has a meaningful impact on happiness, that there are a number of better interventions. Michael Plant adds some suggestions to the list in his post, coming up with a set of potential interventions that includes:

“...job security, a comprehensive welfare state, getting citizens to be healthy, and encouraging long-term relationships…[taking] mental health and palliative care more seriously…improved air quality, reduced noise, more green and blue space (blue spaces being water), and getting people to commute smaller distances (Diener et al. 2019). Social interactions could be enhanced via urban design, reducing corruption, increasing transparency, supporting healthy family relationships, and maybe even things like progressive taxation.”

All of these sound like promising ideas, and are a good research agenda for future investigation. However, it may be difficult to find one of these measures that has a higher impact on country-level happiness than GDP using Easterlin’s methodology. To perform an exploratory analysis, I start with Easterlin’s data from his “best possible life” regression (taking his relatively low estimated impacts at face value as I do in section 1.) I then choose three interventions from Michael Plant’s list that seem to have a fair amount of annual data available on OurWorldInData.org: health, pollution and a comprehensive welfare state.[7] I replace annual GDP growth in Easterlin’s regression with annual growth on these three metrics, and perform a separate analysis for each one.[8] Each regression looks at annualized changes in a country’s Cantril ladders scores versus annualized changes in the specified metric for the past 12-14 years. The health regression estimates how much a decrease in the number of years people in a country lose to ill health corresponds to increases in happiness. This regression produces coefficients that are either an order of magnitude smaller than the GDP regression, or negative, depending on whether we exclude countries that have less than 12 years of data. In both cases the r-squared of the regression is essentially 0.. There does not appear to be a way to interpret these results to suggest that changes in health have a higher impact on national happiness than changes in GDP. The pollution regression repeats the methodology for health, but looks at only the changes in the years of life lost to pollution. This analysis actually shows negative results of a magnitude similar to the positive results of the GDP regression. This would imply that increases in pollution are actually associated with countries getting happier. For example, the Republic of Congo and Benin both had large annual increases in happiness despite increasing levels of pollution.[9] The comprehensive welfare state regression examines the impact of changes in a score of whether a country has an adequate safety net. This analysis also shows negative results, however there are very few countries and years for which this data is available and the data appears to be of low quality, suggesting that we should not read too much into this result. In all three of these analyses we do not find any evidence consistent with any of these metrics having a higher impact on national happiness than changes in GDP.

I do not have a high level of confidence in these initial results. There are likely better sources of data, and better methodologies to employ. However, I do think they suggest that it may be difficult to find any interventions of their kind which will imply a larger impact on happiness than GDP using Easterlin’s methodology.