Over the long term, economic growth leads to little or no additional happiness for a country’s residents. Nevertheless, rich people are happier, on average, than poor people. These apparently contradictory facts were first demonstrated by American economist Richard Easterlin, for whom the Easterlin Paradox—a key concept in happiness economics—was named.
This Easterlin Paradox appears to be valid for various developed countries, and will be the the central theme of the farewell lecture to be given by Dr. Maarten Vendrik on 11 September to mark his retirement as Senior Assistant Professor in Public and Microeconomics at Maastricht University’s School of Business and Economics (SBE), a position he has held since 1992.
This paradox states that within a society, rich people tend to be much happier than poor people. But, as countries get richer, they do not get happier.
In his lecture, Dr. Vendrik will discuss how the Easterlin Paradox can be explained in terms of a combination of two underlying dynamic phenomena that he has investigated. The first phenomenon is that, although people become happier initially when their income increases, they become used to this over time and so their happiness level drops again.
They do remain happier than before the rise in income, however. This explains why wealthy people are happier on average than poor people, even when they have become used to their wealth.
But if income increases across the board as a result of economic growth, then a second phenomenon manifests itself, in addition to becoming accustomed to wealth. This is the phenomenon that people’s long-term happiness depends not so much on the absolute level of consumption they can afford with their income, but more on their level of consumption in comparison with that of other people.
When everyone’s income rises, everyone’s consumption level rises, and nobody’s position changes relatively for the better. Therefore, economic growth does not in the end lead to an increase in the average level of happiness of a country’s population.
Yet, Vendrik does not consider economic growth to be useless. In the first place, economic growth reduces unemployment. This has an important effect in terms of happiness, because unemployment is a situation that people do not become accustomed to and that continues to make them unhappy.
On the other hand, this positive happiness effect of economic growth only works in the short term, because years of economic prosperity are always followed by years of stagnation, in which unemployment rises again.
A positive effect of economic growth that does work over the long term, however, is a decrease in the inequality of happiness between people. Economic growth can also be sustainable and create employment in the transition to cleaner energy. This would certainly improve the average happiness of this and future generations.
And finally, economic growth can improve the quality of public services and the functioning of the welfare state. The example of Denmark, which is one of the happiest countries in the world, shows that this can lead to a permanent increase in happiness.
For more information about the lecture, please contact firstname.lastname@example.org.
Dr. Vendrik is a research fellow at the Graduate School of Business and Economics (GSBE), ROA, IZA, Bonn University, and EHERO, Erasmus University Rotterdam. Read more about him on the UM Expert Guide.