The so-called “Easterlin Paradox” has been in the news recently. A clever new paper by Betsy Stevenson and Justin Wolfers, both of the University of Pennsylvania, has been making the rounds, arguing that the survey data on subjective happiness has been misinterpreted, and that a careful re-examination of the evidence suggests that the “hedonic treadmill” economic historian Richard Easterlin imagined is a myth and that enhanced material well-being probably leads to greater happiness for most people, after all.
It was in 1973, that Easterlin, himself then a professor at the University of Pennsylvania, ventured that once a society reached a certain level of wealth, further growth wouldn’t make people happier. They would just work harder to keep up with the Joneses. Citing evidence from thirty surveys conducted between 1946 and 1970, covering nineteen countries (including eleven in Asia, Africa and Latin America), he noted that greater happiness went with higher income within countries; nothing unexpected about that.
The surprise was that rich countries did not report themselves to be happier on average than poor ones. Raising the income of the country and everyone in it didn’t seem to produce an increase in average happiness, Easterlin said. Apparently what most people cared about was their position relative to all others. Like the famous example of the football game, in which everyone in the stadium stands to obtain a better view, until no one is better off, income distribution was a matter of relative standing. “To the outside observer, economic growth appears to be producing an ever more affluent society, but to those involved in the process, affluence will always remain a distant, urgently sought but never attained goal,” he wrote. Instead of encouraging economic growth, perhaps governments should be seeking to assure that everyone would remain seated.
This idea of a satiation point, beyond which greater wealth wouldn’t bring more net happiness to society, was very much in the air in the 1970s, an era dominated by the Club of Rome and The Limits to Growth. The economic concept of satiety itself, “the steady state,” had an excellent pedigree, as central to the writings of optimists such as John Maynard Keynes and John Stuart Mill, who welcomed it, as to pessimists such as David Ricardo and Thomas Malthus, who dreaded it.
The “hedonic treadmill” even had a familiar (watery) counterpart in the passage that concludes The Great Gatsby, beloved of generations of undergraduates, in which the author describes evenings that Jay Gatsby spent staring at the green light that shone across the way at the end of the unattainable Daisy Buchanan’s dock:
Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that’s no matter – tomorrow we will run faster, stretch out our arms farther. … And then one fine morning – So we beat on, boats against the current, borne back ceaselessly into the past.
About the same time, William Nordhaus and James Tobin, both of Yale University, published a counter-argument, an article titled “Is Growth Obsolete?” It was lost in the flurry of the next 25 years. Now Stevenson and Wolfers have dusted off the issue of growth and put assessments of subjective well-being back at the center of their stage. (Benjamin Friedman, of Harvard University, made the case for growth from quite a different angle a couple of years ago in The Moral Consequences of Economic Growth.)
As interesting as is Stevenson and Wolfers’ argument with Easterlin, however, I have to say I am not persuaded by the potential of half a century’s worth of questionnaires to shed much light by itself on why we want growth, and why some countries seem to want it much more than others. Are you very happy? Fairly happy? Not so happy? These questions don’t begin to excavate the way people think about their choices. Compared to whom? Compared to what?
Besides, I have been reading Peter Gosselin’s High Wire: the Precarious Financial Lives of American Families, with its closely-told stories of disappointment and loss, especially the twinned stories of a Pittsburgh father and son. Richard Coss worked steadily as a union machinist for thirty years; his son, also named Richard, has seen one good job in banking after another evanesce, until after a series of layoffs, he becomes chief financial officer of Light of Life Rescue Missions, which operates shelters for the homeless, at half his former salary. I thought back to the events that really set in motion the changes of the last quarter century that caused the tumult whose effects on various lives Gosselin describes.
Before there was airline deregulation, before Drexel Burnham Lambert launched the takeover wave, before the end of the banking industry’s Regulation Q, before the advent of Windows, the operating system software that rearranged the computer world, there was Mayday, 1975, when a loose coalition of institutional money managers teamed up with the US Justice Department to demolish fixed commissions and end nearly two centuries of dominance of American capital markets by the small cartel that ran Wall Street.
That in turn reminded of the wonderful image with which Thomas Hughes began American Genesis: A Century of Invention and Technological Enthusiasm 1870-1970, his masterful history of social and technical change. In a quotation, the historian and critic Perry Miller describes how Americans, exhilarated by the thrill of the new ways,
flung themselves into the technological torrent, how they shouted with glee in the midst of the cataract, and cried to each other as they went headlong down the chute that here was their destiny….
Here was the key question: What kind of a country is this, anyway? Why do we do what we do? What is there to say to the poor clobbered souls in Gosselin’s book? (As he puts it, “How could such revolutionary changes have taken place with so little discussion?”) Having put his book down late one night, I returned the next morning with renewed enthusiasm to the most enthralling book I have read in a good long time, Still the New World: American Literature in a Culture of Creative Destruction, by Philip Fisher. It has made rooms I have lived in for years look new.
First, a word about Fisher. He’s a professor of English Literature, whose book before this one was about museums and abstraction in art. True, he lived and taught in Pittsburgh for many years, before moving to Cambridge, Massachusetts, where he teaches now at Harvard. So he was a witness to that city’s periodic industrial metamorphoses. But what does he know about economics? The answer, of course, is plenty. Being a sharp observer can take you a long way in a field that has relatively little instinct for introspection. Among the interests he lists are Game Theory and the Novel.
I should explain that, a few years ago, in writing a book about how economists think about growth, I could do no better in contrasting alternative visions of the nature of human time on earth than to describe a pair of metaphors: on the one hand, the individual human life cycle– birth, youth, adulthood, senescence and death; on the other, a story about the species – growth as an ever-expanding frontier of new opportunities and challenges, as exemplified by the space opera Star Trek. Such growth might not continue forever, but it would continue far beyond the horizons of those living today.
In Fisher, I found a treasury of ideas and parables helpful for imagining this latter condition – a “permanently unsettled rhythm of creation and destruction,” as he put it. The groundwork for understanding it had been laid in the nineteenth century by such quintessentially American writes as Ralph Waldo Emerson, Walt Whitman and Mark Twain. They knew, Fisher writes,
that there are different truths when we know ourselves to be late in time, near the completion of the world (or of our own country), ready to fit a few last details somehow onto a crowded page, and when, being near the beginning of time, we find ourselves still studying a sketch of what someday might be realized, but only if we have the freedom and the power to grasp the consequences of being truly in a still new world.
And it is a measure of their success in describing the popular mood that for the entire hundred and fifty year period since they wrote that the taste for “newness itself” has “overwhelmed the party of nostalgia, delay, opposition, and elegiac celebration of a vanishing or vanished past in favor of a rush to the future.”
The Easterlin-like figure in this literature is Frederick Jackson Turner, author of The Significance of the American Frontier, who famously argued to a session of the American Historical Society meeting at the Columbian Exhibition in Chicago, in 1893, that the “can-do” spirit associated with the United States during the eighteenth and nineteenth centuries had been formed at the meeting point of civilization and the western frontier, and that, once the frontier was closed, once the internal spaces of the nation began filling up, a new mentality would emerge, much more like that of the European world that the settlers had left behind. Eventually, Emerson, Whitman and Twain and others of their ilk would become quaint reminders of what the future had seemed like when America was young and the future as unbounded.
Turner was wrong, Fisher says. The unmistakable newness of America in the nineteenth century made it possible for its authors to sketch a philosophy for living permanently with newness, in the form of competitive technological capitalism. It was in those years that “America became a culture willing to pay the deep costs of obsolescence and lost towns as part of what might be called the bargain of invention,” he writes. And in a series of chapters on the Charles River Bridge decision, on Emerson and Whitman, on Melville and slavery, on Twain, Henry James, William Dean Howells and the rise of professionalism, on regionalism and realism in literature, he produces one compelling insight after another from the cornucopia of American literature, none more dazzling than the gloss he puts on the famous episode in which Tom Sawyer paints his Aunt Sally’s fence. The scene could be called “a young person’s guide to the American orchestra,” writes Fisher and, in his hands, so it is. No one who has read Still the New World can be mystified by the direction the United States had taken since the 1970s and the era of The Limits to Growth. Nor will they be surprised at the next lunge in the direction of the new that the nation is preparing to make – the election of its first African-American president.
Economists Stevenson and Wolfers have been clear about their intention to follow the question of growth and subjective well-being where it leads – in the direction of the many social science disciplines that border economics – psychology, anthropology, sociology and the rest. Here’s hoping that economics’ new openness extends to literature as well, for there are few sharper witnesses to the human condition than our poets, novelists and essayist, past and present. Game theorists can expect to learn more from Philip Fisher than he will learn from them.
Meanwhile, don’t feel bad for Dick Easterlin, professor at the University of Southern California and still active in the field. The Easterlin Paradox wasn’t his only big hit. His 1980 presidential address to the Economic History Association, “Why Isn’t the Whole World Developed?” was both penetrating and prescient. When Robert Lucas posed it rather more technically a few years later, it touched off a wave of curiosity in economics that still hasn’t completely run its course. About the same time, political leaders supplied answers of their own, most notably Deng Xiaoping, who famously asserted “To get rich is glorious.” Last week Easterlin was on vacation — rich, at least relatively speaking, and happy.