The Economist – ‘Blessed are the rich in spirit’

The Economist | Blessed are the rich in spirit

GDP and life satisfaction

Blessed are the rich in spirit

Money really can buy happiness—and recessions can take it away

Gross domestic product (gdp), the most common gauge of national prosperity, has taken a lot of flak in recent years. Critics say that counting a country’s spending on goods, services and investment misses the full value that citizens get from products such as Google and Facebook. They also note that gdp ignores other aspects of development, including personal health, leisure time and happiness.

These criticisms probably exaggerate gdp’s failure to capture the wealth of nations. Gallup, a pollster, has asked people in 145 countries about various aspects of well-being. Many of these correlate strongly with gdp per person. To take an obvious example, nearly all residents in the top 10% of countries by spending say they have enough money for food, compared with just two-fifths of those in the bottom 10%.

Strikingly, many non-financial indicators also track gdp per person closely. Residents in the top 10% of countries score their life situation as seven out of ten, compared with just four for those in the bottom 10%. They are also more likely to feel supported by their families, safe in their neighbourhoods and be trusting of their politicians—though they complain nearly as much as people in poor countries do about a lack of rest and affordable housing.

Scholars disagree over the extent to which national wealth itself causes contentment. Some countries’ citizens have remained glum even as gdp per person has risen, a paradox noted by Richard Easterlin, an American economist. But one way of testing if money buys happiness is to analyse what happens when it goes away.

Studies of the previous global recession in 2009 suggest that economic hardship does indeed lead to emotional woe. Academics found dips in life satisfaction and other measures of well-being in the United States and several European countries, though the effects were mainly limited to people who lost their jobs. Adam Mayer of Colorado State University found that among Europeans of similar wealth and education, those who had recently become unemployed and struggled to buy staple foods had the worst outlook on life.

Covid-19 will allow economists to probe this pattern further. The imf’s latest forecast points to a fall in global gdp, weighted by purchasing-power parity, of 4.9% this year. If past recessions are any guide, the severe shock will have long-lasting effects. Economies will eventually grow larger than they were before the pandemic, but will be less rich than they would have been otherwise. The virus’s human toll is therefore vast in terms of deaths and dollars. But given the correlation between gdp per person and Gallup’s measures of well-being, it may have an enduring impact on the world’s quality of life too. 

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