When economic growth does not guarantee life satisfaction!

On average, rich people are happier than poor people, and the same is true for countries; But is the growth of the national wealth of countries always accompanied by the growth of the level of welfare and satisfaction of the lives of their people?

Easterlin paradox

Between 1946 and 1970, the United States experienced significant economic prosperity, but field research failed to show an increase in Americans’ happiness and satisfaction with life.

This is where the “Easterlin Paradox” comes into play, a theory named after the well-known economist Richard Easterlin who first introduced it. However, this economic theory states that the growth of countries’ GDP is not accompanied by an increase in happiness/satisfaction with the lives of their people.

There is much disagreement about this paradox, with some researchers dismissing the paradox by pointing to countries where economic growth has been accompanied by growth in life satisfaction.

While some other researchers, such as Easterlin, defend it by giving examples of countries where the conditions of the paradox have been met.

However, the question is, when and why is economic growth accompanied by the growth of satisfaction, and when does it not?

In 2016, Selin Kesebir, a professor at the London School of Business, and Shigehiro Oishi began extensive research to find the answer to the question of whether the missing piece of the puzzle could be income inequality.

In the following, we review the report of the results of this research, quoted by Selin Kesebir.

There are several reasons why increasing income inequality diminishes or even diminishes the positive effects of economic growth. However, in the first place, inequality reduces the sense of trust in others and justice, both of which are based on trust in others and justice. In the second step, income inequality reduces economic opportunities, social mobility, and community health, and increases crime rates; all of these are the main causes of stress and anxiety and the loss of a sense of security and social well-being.

At first glance, the paradox seems to be true of countries with income inequality. To test this hypothesis, patterns were established between existing data from 34 different countries, which were grouped into two general groups, the first of which were 16 countries with developed economies, including France, Finland, Spain, and Japan.

The descriptive pattern found between these countries’ data revealed that when income inequality was at lower levels, on average, per capita GDP growth increased happiness and life satisfaction among the population. And when income inequality was high, GDPP growth had virtually no effect on people’s satisfaction with life, and when income inequality was somewhat statistically ignored, countries’ sense of life satisfaction increased due to economic growth.

The second set of data was provided from data analysis of 18 Latin American countries such as Argentina, Brazil, and Colombia. Studies have revealed that economic growth in these countries has had a negative impact and eventually decreased people’s satisfaction with life.

Even when income inequality was eliminated, unlike the first group of countries, the increase in GDPP still reduced people’s happiness/satisfaction and satisfaction with life.

The data shed light on two things: first, income inequality is detrimental to happiness and is always inversely related to people’s sense of satisfaction with life; second, inequality reduces the positive effect of economic development on happiness and life satisfaction.

In general, for developed countries, the positive relationship between economic growth and happiness with rising inequality disappeared; and for Latin American countries, the negative relationship between income growth and happiness with stronger inequality became stronger.

Why is the relationship between income growth and happiness different in the two categories of countries?

This may be because Latin American countries are moderately poorer than developed economies, or perhaps because income inequality and the gap between rich and poor are widening. Anyhow, the study did not provide an explicit answer to this question. However, we can say with confidence that equating GDP with prosperity is a mistake and that economic growth and getting rich do not always lead to happiness and satisfaction in people’s lives.