Friday, July 24, 2009

Easterlin paradox

Easterlin paradox is...let himself say it:

Richard Easterlin of the University of Southern California: "If you compare the rate of economic growth as the independent variable, let's say, with the rate of change in happiness, the expectation based on the cross-section would be the higher the rate of economic growth, the greater the improvement in happiness. When in fact you look at the data, the relationship is nil. There is no significant relation between the growth rate of GDP per capita and the rate of improvement in subjective wellbeing or happiness. That's for the developed countries."

Thinking about this... , I guess it is an easy comment but... could it be that economic growth has no end (a country can growth for centuries, as it has happended) and happiness scale are limited to 10. I mean, economic growth can be 3% per year during decades but if we consider a 3% growth for happiness rating and two decades, starting from a high level like 7, we would have at the end of the period a 12.64 rate. An impossible given the limit of 10.
Surely there are ways to do surveys without using limited scales like asking 'times felt sad this month'. Thus, it is better to go to Easterlin own's speculative explanation of this paradox(as is still a mistery):

"there are two factors at work, [...] one factor is that as people's incomes go up, their material aspirations rise. So if their aspirations stayed the same, and their incomes went up, they'd closer to achieving what they considered to be the good life in material terms. But when their aspirations go up, that undercuts the effect of the actual improvement of incomes. So, they end up no happier than before.[...]The other part of the story I think has to do with the domains of happiness other than the material domain. What happens with regard to people's family life circumstances? What happens with regard to people's health circumstances? What happens to their job opportunities?"

You will find this explanations at:

Wednesday, July 15, 2009


Recently, economic growth has been related to productivity. Most of experts agree that productivity comes from innovation and development with research (R+D+I), and those at the same time with imagination.

Imagination can be poisoned with planning, Administration and burocracy. We plan to avoid unforesees but precisely that is imagination, unforeseeable.

However, imagination also can be fertilized,
- with policies encouraging education (or human capital).
- with policies encouraging trust. Tim Harford wrote the following in an article few days ago: "trust in its broad definition would explain basically all the difference between the income of USA and Somalia". Building stable and reliable institutions is a policy that fosters peoples imagination and thus economic growth.
- and finally, generating incentives. Incentives to imagination or also called: economic freedom, civil freedom and political freedom.