In the past, many studies have shown that economic growth and rising incomes in developed countries leads to higher subjective wellbeing and living standards for the public. But new research now shows that the association between rising incomes and higher wellbeing isn’t linear, particularly in developed countries where citizens work hard and consume a lot. In fact, economic growth may have some negative effect on subjective well being and could lead to economic crises.
For the study, which was led by an international team of researchers, the team used the Negative Endogenous Growth (NEG) Model, which suggests that economic growth may erode free and commonly available goods, ultimately replacing them with pricey consumer products. Free goods include natural resources like sunshine, air and water, as well as social resources such as trust, altruism, and honesty.
This negative endogenous growth theory is relatively new, and postulates that economic systems are at risk of economic crises because they produce wealth from the erosion of these free and commonly available goods. This may lead to a decrease in happiness and increase in consumption amongst the public.
In their study, the researchers describe this relationship as a vicious circle. As the economy grows and people’s material wealth increases, costs increase with it. The people engage in competitive consumption and spend more of their time working so they can spend more money and consume more. This leads to them spending less time socializing or relaxing in nature, and may result in them accumulating debt instead of building up their savings.
Through this analysis, the study’s authors identified a few social indicators that may signal negative endogenous growth, and could lead to economic crises. Their indicators reflect the level of consumption, people’s values, work-leisure balance, quality and intensity of social relations, and subjective wellbeing. The study examines how these indicators change in developed economies over time.
For many decades, the living standards of the average U.S. citizen have been on the rise. But has happiness been on the rise as well? Using U.S. survey data from 1972 to 2006, a long-term study reported a decline in the subjective wellbeing for women compared to men. Other studies have found that happiness levels have remained largely unchanged in America since the early 1970s. However, over in Europe, the reported trends are more positive, and the overall levels of subjective wellbeing have been increasing in many countries.
The Easterlin paradox states that life satisfaction does increase with average incomes, but only to a certain point. Thus, people with relatively low incomes are more likely to see their happiness increase with more money. Happiness is contingent upon social connections, as well as material objects. In the U.S., studies have shown disturbing declines in certain areas of social capital, such as social ties, trust, and participation.
The study’s authors also find that a possible precursor of a crisis is a change in people’s values. One study found that the proportion of Americans who believe it’s very important to have a high-paying job and a lot of money increased by almost 50% between 1970 and 1990. Another factor they discuss is the work-leisure balance. America has one of the longest working weeks of any country, whereas labor unions in Europe have been successful in advocating for a shorter working week.
In order to decrease the risk of future crises, some of today’s modern economies might be in need of reform. ”Some countries’ higher economic productivity compared to others can signal that their economic systems are not entirely consistent with subjective well-being and basic human needs and thus may be more susceptible to crises,” says Francesco Sarracino, a senior associate researcher at the Higher School of Economics. There is a need for the promotion of social capital and reducing inequalities as well as promoting economic growth.