EA - Does Economic Growth Meaningfully Improve Well-being? An Optimistic Re-Analysis of Easterlin’s Research: Founders Pledge by Vadim Albinsky

Link to original articleWelcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Does Economic Growth Meaningfully Improve Well-being? An Optimistic Re-Analysis of Easterlin’s Research: Founders Pledge, published by Vadim Albinsky on September 27, 2022 on The Effective Altruism Forum. Acknowledgments I would like to thank Michael Plant, Matt Lerner and Rosie Bettle for their helpful comments and advice. Summary Understanding the relationship between wellbeing and economic growth is a topic that is of key importance to Effective Altruism (e.g. see Hillebrandt and Hallstead, Clare and Goth). In particular, a key disagreement regards the Easterlin Paradox; the finding that happiness[1] varies with income across countries and between individuals, but does not seem to vary significantly with a country’s income as it changes over time. Michael Plant recently wrote an excellent post summarizing this research. He ends up mostly agreeing with Richard Easterlin’s latest paper arguing that the Easterlin Paradox still holds; suggesting that we should look to approaches other than economic growth to boost happiness. I agree with Michael Plant that life satisfaction is a valid and reliable measure, that it should be a key goal of policy and philanthropy, and that boosting income does not increase it as much as we might naively expect. In fact, we at Founders Pledge highly value and regularly use Michael Plant’s and Happier Lives Institute’s (HLI) research; and we believe income is only a small part of what interventions should aim at. However, my interpretation of the practical implications of Easterlin’s research differ from Easterlin’s in three ways which I argue in this post: Easterlin finds small coefficients in his preferred regressions of changes in countries’ happiness on changes in GDP. He concludes that these coefficients have low “economic significance” and that increasing economic growth is not a good way to make people happier. However, even if we take these coefficients at face value, they still represent a very meaningful increase in wellbeing within the effective altruism framework, consistent with the impacts of unconditional cash transfers on individuals. The benefits become very large when aggregated across all the people in a country for many years. We also have reason to doubt Easterlin’s results, in that they are highly sensitive to small changes in methodology. We perform two variations on his regression that fully accept his methodology of only including “full cycle” countries, but update it slightly, reversing the result. If we replicate his results counting one more country as a “transition” economy, the Easterlin paradox largely disappears. If we repeat his analysis with new data from 2020 instead of 2019, the paradox also seems to largely disappear. It may be difficult to find things we can influence whose change over time will have a higher correlation to a country’s change in happiness than changes in GDP. Even if we accept that boosting GDP does not meaningfully increase happiness, other potential means of boosting national happiness may increase it even less. If we rerun Easterlin’s analysis using three interventions Easterlin and Plant suggest (health, pollution, and a comprehensive welfare state), their implied impacts on national happiness are much smaller than the impacts for GDP or negative. However, I have low confidence in this conclusion, and think it is a very valuable project to identify the interventions that are most likely to have an impact on happiness. 1. Taking Easterlin’s results at face value and estimating impact Easterlin and O’Connor (2022) rely on two regressions for their conclusions, both comparing annual changes in a country’s happiness to annual changes in per capita GDP. The first measures happiness using a “life satisfaction” survey question on a smaller set of countries from 1981-2019 and the second u...