Life satisfaction and economic growth.

Richard Easterlin coauthored a seminal study in 1974 that attempted to explain why the happiness score in the United Sates and elsewhere had stayed constant while per capita income had gone up. His explanation was that economic growth has a positive effect on happiness with other things being equal; however, it also raises aspirations, and aspirations have a negative effect. Aspirations are determined by society, particularly reference group income. The combination of these two effects gives rise to a Hedonic Treadmill.

He now has coauthored a study on China, an excellent setting for investigating the relationship between economic growth and life satisfaction. Over the period of economic reform, starting in 1978, income per capita rose 10-fold, China’s Human Development Index score improved impressively in all three dimensions, and through its steady, evolutionary reforms, China avoided the hardship that would have accompanied an economic revolution. Surely the Chinese people became happier as a result?

On the contrary, his latest results bear some erie similarities to the unequal effects of our current economic downturn on low versus higher income citizens:

Despite its unprecedented growth in output per capita in the last two decades, China has essentially followed the life satisfaction trajectory of the central and eastern European transition countries—a U-shaped swing and a nil or declining trend. There is no evidence of an increase in life satisfaction of the magnitude that might have been expected to result from the fourfold improvement in the level of per capita consumption that has occurred. As in the European countries, in China the trend and U-shaped pattern appear to be related to a pronounced rise in unemployment followed by a mild decline, and an accompanying dissolution of the social safety net along with growing income inequality. The burden of worsening life satisfaction in China has fallen chiefly on the lowest socioeconomic groups. An initially highly egalitarian distribution of life satisfaction has been replaced by an increasingly unequal one, with decreasing life satisfaction in persons in the bottom third of the income distribution and increasing life satisfaction in those in the top third.