Robert Frank considers the relation between economic growth and happiness in today's NY Times
Does money buy happiness? The rapidly expanding literature on what determines “subjective well-being” appears to suggest a negative answer to this timeless question. Studies consistently find, for example, that when the incomes of everyone in a community grow over time, conventional measures of well-being show little change.
Many critics of economic growth interpret this finding to imply that continued economic growth should no longer be a policy goal in developed countries. They argue that if money buys happiness, it is relative, not absolute, income that matters. As incomes grow, people quickly adapt to their new circumstances, showing no enduring gains in measured happiness. Growth makes the poor happier in low-income countries, critics concede, but not in developed countries, where those at the bottom continue to experience relative deprivation.
All true. But these statements do not imply that economic growth no longer matters in wealthy countries. The reason, in a nutshell, is that happiness and welfare, though related, are very different things. Growth enables us to expand medical research and other activities that clearly enhance human welfare but have little effect on measured happiness levels.
Interpersonal utility comparisons are tricky, to say the least. Later in the article...
Since life is a continuing competitive struggle, this is as it should be. Accident victims who can recover their psychological footing quickly will function more effectively in their new circumstances than those who dwell unhappily on their misfortune. Windfall recipients who quickly recover their hunger for more will compete more effectively than those who linger in complacent euphoria.
...
These observations highlight the weakness of subjective well-being as a metric of welfare. The fact that people adapt quickly to new circumstances, good or bad, is just a design feature of the brain’s motivational system. The fact that a paraplegic may continue to be happy does not imply that his condition has not reduced his welfare. Indeed, many well-adjusted paraplegics report that they would undergo surgery entailing substantial risk of death if doing so promised to restore their mobility. Similarly, the fact that people may adapt quickly to higher incomes says nothing about whether economic growth makes them better off.
Critics of economic growth cite its threat to the planet’s survival. Yet it is not growth per se that threatens, but rather certain kinds of growth. Driving more S.U.V.’s causes harm, but taking more piano lessons does not. Any country with a government not beholden to corporate interests could easily curb environmentally harmful activities through taxation and regulation, redirecting spending toward things that really matter. Across developed countries, higher growth rates are actually associated with cleaner environments, not dirtier ones. The United States is the world’s largest emitter of greenhouse gases not because of its wealth but in spite of it.
Frank is angling for membership in Greg Mankiw's Pigou Club.
But growth’s most compelling promise is continuing progress against premature death, perhaps the most devastating of life’s tragedies. American families with five children in 1800 often saw two or three of them die before the age of 10. That this no longer happens has been a landmark achievement.
Intelligently managed growth will hasten our quest to defeat diseases that continue to strike people down in the prime of life. The mere fact that rising incomes do not bolster self-assessed happiness levels is no reason to abandon this quest.
It certainly is true that progress against premature death is one of the most important results of modern economic growth. But I have to ask if that was a result of intelligently managed growth or just plain growth. Intelligently managed growth sounds a bit too much like social engineering for my tastes. Of course there are limits to what an author can do in one short op-ed column. However, I wish Frank was a little more forthcoming about what he means by "intelligently managed." I wouldn't exactly say that the present growth picture qualifies as intelligently managed. What is the scope of the policies that would make our future growth intelligently managed.
I enjoy Frank's writing, and I certainly am in his camp in praising modern economic growth for what it has done for human welfare even if it doesn't show up in happiness studies. But the end of this column is a little hard for me to swallow. Who will manage the growth? What social welfare function will they maximize? Pigouvian taxes to correct well-defined, measurable externalities are one thing. Intelligently managed growth that taxes some activities and subsidizes others without reference to a specific market failure is quite another.
Two quotes in response to the R.Frank column:
1st, remember that Wealth is a relative concept. Some people define wealth as having "$100 more than what their brother-in-law has." (Author?)
2nd, money does not buy happiness, but at the very least it can chase away the lack of money blues:
"I've been rich and I’ve been poor -- and believe me, rich is better."
-Sophie Tucker, US (Russian-born) vaudeville singer (1884 - 1966)
There's more here: What is Wealth, part II
http://bigpicture.typepad.com/comments/2006/09/what_is_wealth_.html
One thing is for sure: economic *decline* causes unhappiness and lots of social problems...
I like Charles' inverted look at economic growth via economic deline (possibly taking his cue from Hume?) So rather than bash this elusive "happiness" around and mope about the implausibility of ever coming to a consensus about "what is this thing called, happiness?" (Ok, so that devil, Barry, who I like too, made me do it.), it is more instructive to look at behavior that avoids peril, at policies that avoid economic decline.
Speaking of perils and devilish bits:
It certainly is true that progress against premature death is one of the most important results of modern economic growth.
is not so certainly true when one recalls the Terry Schiavo case. It is certainly more true (trade mark pending) that Progress with postmature death (--decadence, esp political decadence) is an even more important result of MEG. That war in Iraq suggests that premature death, as a declining result, has to be sampled with some care to exclude war zones and some entire continents, yes?
Bush Administration, Dying at the Border
This is from “Skeptical Economist”. This is the one of the best articles I have ever read on economics and illegal immigration.
It is no secret that the Bush administration is failing and failing badly. The woes of the administration are legion, Iraq, immigration, the economy, Katrina, health care, gasoline prices, etc. The impact on public opinion is profound. Bush is well on his way to being one of the least popular presidents in U.S. history. His current popularity rating of 31% may be a high water mark. The twenties and perhaps teens are not that far off. Increasingly he has lost, not just liberals and mainstream Americans, but conservatives as well. The key question is why? Why has this once promising administration gone downhill so far and so fast? Is it just bad luck or is their a deeper force at work? In my view, the ideology and practice of Open Borders has condemned this president to complete failure. Could the Bush administration turn itself around by changing its stance on immigration? Yes, but it is exceedingly unlikely to happen. Bush is doomed and may not finish his term in office.
It is clear that the immigration polices of this administration are deeply unpopular and contrary to what the public wants. Clearly, immigration is contributing mightily to the low standing of this president. However, immigration is also directly responsible for the economic failings of this president and is (one step removed) also responsible for the debacle in Iraq. Immigration is also partially responsible for all of the other problems (Kartrina, gasoline prices, health care, Dubai ports, etc.). The links between immigration and what ails Bush (and America) are explained in more detail below. What should be clear by the end, is that immigration is either directly or partially for everything (and there is a lot) that is weighing down this president.
The immigration failures of this administration are obvious. The border is totally out of control and Bush completely refuses to even try to control it. Ordinary Americans are demanding immigration control and Bush has abandoned even the pretense of enforcing our laws (by some measures enforcement has declined by 95% at least, but other measures 100%). Ordinary Americans fiercely resent illegal aliens taking over their neighborhoods, jobs, and schools. Bush actually proposed legislation to replace every American worked with a foreigner who would do the same job for less (the “willing worker” program).
To call the administration out of touch on immigration would be an injustice to the language. Polls show strong support for greatly intensified enforcement. Bush is still trying to have the Kennedy Amnesty bill passed. Why the administration is so committed to policies that the American people regard as toxic is another matter. However, the reality of a president at war with his own people on this issue, should not be in doubt. Astoundingly, Zogby finds that only 17% of Americans approve of Bush’s immigration policies (7). On border security, Bush gets a 16% approval rating.
Immigration is also responsible for Bush’s economic woes. Superficially the economy should be a source of considerable strength for Bush. The high level numbers are actually rather good. Unemployment is down to 4.6% from a peak of 6.3% in June of 2003. GDP growth in Q1 2006 was 4.8%. The economy grew by 2.7% in 2003, 4.2% in 2004, and 3.5% in 2005. The Dow Jones Industrial Average has rallied from a low of 7286 on October 9th, 2002 to a recent high of 11,643 on May 10, 2006. That a gain of 59.8% in less than four years. The S&P is up 57.25% in the same period. Definitely a lot for investors to cheer about, particularly in the aftermath of the Tech Bubble and corporate scandals (Enron, Tyco, Health South, etc.).
The zooming stock market has reflected fast rising corporate profits. Pretax profits bottomed out at $714 billion (annual rate) in 3Q2001 and have since risen to $1,293 billion in 3Q2005 (not adjusted for inflation) (11). As a percent of GDP profits have grown from 7.0% of GDP (3Q2001) to a peak of 10.9% of GDP in 2Q2005 (down to 10.3% in 3Q2005). At 10.9% of GDP, corporate profits were higher than any year since 1968.
The productivity numbers have also been very, very good. Nonfarm productivity has risen by 17% or more since 2001. What the BLS calls multifactor productivity is up almost 8% since 2000. Per-worker/GDP is perhaps the broadest measure of productivity growth. In chained 2000 dollars, per-worker GDP is up by 8.73%. CPI-U adjusted, per-worker GDP has grown by 7.95%. The strong growth in productivity has almost completely offset nominal wage growth. Unit labor costs have only risen by 4.3% since 2001 (9).
Of course, Americans haven’t been shy about spending under Bush. Indeed, it’s been party time for several years as anyone who travels or frequents upscale restaurants can attest. The number tell the same happy story. Personal Consumption Expenditures (PCE) rose by 15.64% from 1Q2001 to 4Q2005. Not bad given that GDP only rose by 13.9% in the same five years (13).
As you can see it is easy to come up with a whole panoply of good economic news. But still… The American people just don’t agree. Poll after poll give gloomy views on the economy. Indeed 59% of Americans rate the economy as only “fair” or “poor” (8). Is the public wrong? Deluded? Confused by liberals? Where it only so. The sad truth is that the economic boom has passed the American people by. Indeed, they are suffering more from the backwash of inflated prices than enjoying any of the fruits. Why? As is all too frequently the case, Open Borders is killing the American Dream by making sure that only immigrants (legal and illegal) and the elites get richer while ordinary Americans get poorer.
This is not some liberal/left-wing fantasy. Indeed the left goes to great pains to avoid using the “I” word when they are talking about jobs/wages/incomes. The sad reality is that from the standpoint of ordinary working Americans, the economy is weak, at best. Some of the facts are downright scary. For example, only 9% of the new jobs created from 2000 to 2005 when to the American people even though Americans accounted for 61% of adult population growth (1). Worse, labor force participation has been falling since Bush took office (10). In January of 2001, it was 67.2%. Now it is 66.1%. You have to go back to the first days of the Clinton administration to find numbers this low (actually 66.2% in January of 1993). Labor force participation does not normally fall in an expanding economy… (12). Indeed, this appears to be the first recovery with declining labor force participation.
Sadly, the minority data is worse. Black male labor force participation has fallen from 69.4% in January of 2001 to 67.7% in May of 2006. Black female labor force participation declined from 60.1% to 59.1% in the same time period. Hispanic labor force participation (both sexes) has also declined, from 69.9% in January of 2001 to 68.7% in May of 2005.
The jobs growth numbers all point in the same direction. This is, by far, the worst recovery in modern history for employment. The last recession ended in November of 2001. Since then (actually the next 48 months) employment has grown by 4.7%. The worst prior recovery enjoyed jobs growth of 6.2%. The average recovery since the 1960s has produced 9.5% growth in jobs. Sadly, the payroll employment data is much worse (14) showing only 2.6% growth over 4 years.
Average weekly earnings peaked back in November of 2003 and have since declined. Amazingly, weekly wages are now back where they were in 1959 and 17% below the high in 1972. Forty six years without a raise. Something to be proud of. Not surprisingly the poverty rate has risen steadily since Bush took office. Back in 2000 the poverty rate was 11.3%. By 2004 it reach 12.7%. The poverty rate always rises in recessions. This may be the first boom with rising poverty (3).
Median household income tells the same tale of woe. Median incomes have declined every year Bush has been in office and are now 3.8% ($1740) below the 1999 level (4). Quite an accomplishment for a president who thinks tax cuts for the wealthy will make us rich.
The superficially nice consumption numbers (15.64% growth in five years) start looking rather dodgy once you look under the covers. Cleary GDP didn’t grow nearly fast enough to pay the piper. Nor did compensation keep pace. Indeed, compensation of employees rose by only 8.3% in the same period. Something had to give. Indeed, the savings rate fell from 2.4% of disposable income in 1Q2001 to -0.5% in 4Q2005 and -1.3% in 1Q2006. Where is the money coming from? Greenspan found the home equity extraction reached $600 billion in 2004 (15)(16) an immodest 7% of disposable income. Are folks using their homes as ATM machines really thrilled with the economy? Does ever rising debt pave the road to heaven? Or would that be hell?
Of course, none of this had to be true. Productivity has risen strongly in recent years (see above). Soaring productivity could have brought large wage and salary gains to ordinary Americans. Productivity alone should have increased incomes by 8% since 2000. No one likes paying $3 for gasoline. However, not too many people would be complaining with fast rising wages. This is not a fantasy. In the 1950s and 60s, wages and median incomes rose right along with the economy. Then we abandoned our borders…
There are other dismal numbers as well (after all economics is the “Dismal Science”). Household inequality has increased under Bush (5). Inequality also went up under Clinton (”no interior enforcement”). Back when we took our borders seriously it declined, from 1947 to 1968. Inequality only started to soar when mass immigration resumed in the 1970s. Predictably, male median earnings fell from 2002 to 2004 and are now lower than they were back in 1973. The percentage of Americans without health insurance has risen from 14.2% in 2000 to 15.7% in 2004. Employment based health insurance fell from 63.6% in 2000 to 59.8% in 2004 (6). Why bother proving benefits when you have illegals?
If the economic statistics weren’t bad enough for Bush, we have the Iraq debacle. Is Open Borders really responsible for Iraq? At least indirectly, the answer is clearly yes. No we aren’t fighting illegal aliens in Ramadi or Sadr city. However, the connection to Open Borders is far from trivial. The easiest linkage is simply the cast of characters. Almost without exception, the cheerleaders for the Iraq war were Open Borders fanatics. Of course, the WSJ and Senor Bush fall into this category. However, you will also find the likes of Fred Barnes (The Weekly Standard), William Kristol (The Weekly Standard), Ben Wattenberg (AEI), and Michael Barone (US News & World Report) in this group.
By contrast, the strongest advocates of immigration reform were generally skeptical of the Iraq war or overtly opposed (Michelle Malkin being a rare exception). What is the connection? Both the Iraq war and Open Borders were/are based on a panglossian view of human nature. If you think America can tolerate massive legal/illegal third world immigration, then the idea that Iraq could be transformed into a model Middle Eastern nation with human rights, free elections, a free-market economy, peace with Israel, and U.S. bases might make sense. Saner voices recognized both ideas as deeply crazy. Crushing Saddam’s murderous and ultimately dangerous (sanctions were fading) regime might have made sense. Pouring American blood into the desolate soils of the Middle East to nurture “democracy” was, and is, folly.
Is immigration responsible for the other problems weighing on the Bush administration? In many cases, the answer is yes, at least to some extent. Only a president deeply wedded to Open Borders would have threatened his very first veto over the Dubai ports deal. A saner administration would have quashed the deal upfront or authorized it only after deep and credible scrutiny. Gasoline prices? The population of the U.S. has risen by 82 million since the mid-1970s when we built our last oil refinery. Most of the growth has been do to immigration. Runaway population growth doesn’t work with highly limited energy development. Something has to give, prices it would seem. A different president would make these choices clear or simply tell the American people that immigration must be stopped until we have a consensus in favor new pipelines, power plants, refineries, offshore drilling, etc. Hard choices in the Pollyanna world of Senor Bush? They don’t exist.
The immigration sickness infecting U.S. health care has already been mentioned. Of course, as the uninsured population explodes the costs fall on taxpayers and those with private insurance. These burdens make insurance even less affordable, pushing more and more folks into the ranks of those without. Why so-called conservatives would demand an immigration policy than can only end with socialized medicine boggles the mind. Perhaps non compos mentis explains it all.
Did Open Borders bring Katrina to the Big Easy? Actually, No. Even the most ardent restrictionists don’t suggest an enforceable ban on category 5 hurricanes. However, in a normal economy the reconstruction work would be providing well paid job opportunities for poor and working class Americans. Such a thing will never happen with Bush in office.
The Bush administration is clearly infected with some kind of “End of History” globalist worldview where mass migration is both inevitable and desirable. In this wonderful future fantasy, borders will disappear and all of mankind will embrace capitalism, free markets, free trade, democracy, etc. Sadly, this Pollyannaish view of the human condition has led to tragedy abroad, and economic failure at home. What should be clear is that the ideology of Open Borders is directly and indirectly responsible for the woes of the Bush administration. As of this late date there is little they can do about it. After 9-11, Bush had a perfect moment in time, to change course and save his presidency and his country. With malice and forethought he threw it away.