On December 14, Becker and I blogged about the shortcomings of GDP (Gross Domestic Product) as a welfare measure. A related question is the relation between GDP or other measures of economic prosperity and happiness, or what utilitarians and welfare economists refer to as “utility.” The great utilitarian philosopher Jeremy Bentham defined utility as the excess of pleasure over pain, or equivalently (for he did not confine pleasure and pain to purely physical sensations) happiness.
Most people, including most economists, do not regard per capita income or other measures of economic welfare (such as GDP, which is the market value of all goods and services sold in the United States, whether for consumption or investment, in the course of one year) as an end in itself, but as a contributor to human happiness broadly conceived. They expect the contribution to be positive, however. Most people devote much of their time to trying to increase their income, which suggests that income and welfare are positively correlated. I will question this expectation and this suggestion.
Cross-national comparisons are of limited significance because other things affect happiness besides income, such as health, population density, religious beliefs, quality of public services, internal and external security, family structure, climate, and income equality (given declining marginal utility of income, the more equal incomes are—holding other things constant, an essential qualification, obviously—the higher average utility can be expected to be). Thus the fact that the
However, an important finding in another article by Stevenson and Wolfers, “The Decline of Female Happiness,” available at http://bpp.wharton.upenn.edu/betseys/papers/Paradox%20of%20declining%20female%20happiness.pdf (visited Jan. 9, 2010), is that in the United States men’s happiness is essentially unchanged since 1970, and women’s happiness has declined significantly, so that average U.S. happiness has declined. In 1970, the average woman was happier than the average man; today the reverse is true. In most other developed countries, average male and female happiness has grown, but male happiness has grown relative to female happiness.
The authors adjust for compositional effects in the United States—such as changes in the racial and ethnic composition of the society, labor force participation, education, marriage and divorce, and age—and, surprisingly, find few differences. (One difference is that blacks, especially but not only black women, are happier today than in 1970.) They speculate (plausibly, in my opinion) that because women are on average more risk-averse than men, they find the range of career and relationship choices open to women nowadays a source of unhappiness. The
Probably the most notable finding in the Stevenson-Wolfers study, though not emphasized by them, is that increases in per capita income, at least in the
The reason that happiness has not increased even though per capita income has increased may be that in comparing happiness at year t and at year t + 40, one is asking the inhabitants of two very different societies (whether it is the same person asked at both times or different people). The people at year t didn’t know what conditions would be 40 years hence, and so couldn’t feel unhappy because they couldn’t experience those conditions. If happiness is relative to existing opportunities, a change in those opportunities needn’t affect it.
Happiness moreover is a psychological, which is to say a biological, state, and biological states are not as variable as income is. There are people in the world today who earn $1 a day, and people who earn $1 million a day, but it would be inconceivable than the latter was one million times happier than the former, just as no person in any society can run a million times faster than the slowest runner. The human biology may simply be such that the elasticity of happiness to income is very low.
But one should distinguish between happiness and preferences, and hence between maximizing happiness and maximizing preference satisfaction. People have a strong preference for more income over less and thus for a rising standard of living. Adam Smith argued in The Wealth of Nations that people fooled themselves in thinking they would be happier with more money. Maybe so; but as long as people do have this strong preference, economics can explain a great deal of human behavior.