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Gross National Happiness?

On a recent road trip, I was listening to a bunch of Taylor Swift and Andy Williams’ CDs and what struck me was how different the topics of the songs were. Andy’s covers were far more upbeat (with songs like ‘Happy Heart’ and ‘For All We Know’) whereas Taylor has lots of ‘somebody done me wrong’ songs. Of course, it’s dangerous to generalise but then I saw a study from the University of Innsbruck finding that songs have become “gloomier” and “angrier” compared to 50 years ago - which made me think about what it tells us about the wider concept of happiness.

Pursuing happiness is at the centre of our existence. There’s lots of evidence happiness is good for us – happy people live longer, are healthier, more resilient, more creative, are better leaders and are more sociable. Which is where economics comes in. Despite often being portrayed as the ‘dismal science’, economics is in fact all about happiness. The economic problem is about how to maximise utility (or happiness) with limited resources. So, economics can be thought of as the ‘art of happiness’. But measures of happiness have been flat or falling in developed countries. So, what gives? Is economics failing us? This became a big issue in the 2000s with lots of books on happiness. There is now even a regular ‘World Happiness Report’ using Gallup surveys attempting to gauge happiness.

Rampant prosperity

The 19th century saw the start of rapid global economic growth.

This really took off in the 20th century as technological innovations such as electricity, the internal combustion engine and silicon chips came together to rapidly boost productivity. Consequently, real income or Gross Domestic Product (GDP) per person surged globally. This in turn led to a massive rise in material prosperity with, eg: large climate-controlled homes; high speed affordable travel; high quality and variety of food; a huge array of goods; a massive increase in lifespan, and instant communication and entertainment.

But stagnant happiness in recent decades

Despite the huge surge in material prosperity there is little evidence that happiness levels in developed countries have improved in the last fifty years. This is illustrated in the chart below for the US which shows the percentage of people who say they are “very happy”, versus real GDP per person. As income has gone up over the last 50 years, happiness has fallen.

It’s a similar picture for Australia, although we only have Australian happiness data (from the World Happiness Report) for the last 20 years.

Stagnant or falling happiness is confirmed by rising trends in crime rates, depression diagnoses, suicide rates & drug abuse. This doesn’t mean there is no link between income and happiness. The next chart compares income levels and happiness across countries. At low levels of income, extra income can have a big positive impact on happiness. But for countries beyond a certain level (around $US50,000), extra income has little impact.

This is not to say that happiness is not high in rich countries. In fact, according to the World Happiness Report for 2024 Finland ranks #1 as the happiest and Australia ranks #10 with the US at #23. Lebanon and Afghanistan rank at the bottom at #142 and #143. It’s just that in rich countries variations in income across countries have little impact on happiness. Other findings from the happiness studies are as follows:

  • Rich people are happier than poor people. This does not mean that society as a whole becomes happier as aggregate income for everyone rises. This has become known as the Easterlin paradox.
  • People compare themselves to others (keeping up with the Joneses) in determining their happiness so if average incomes rise, they may feel no happier, which may explain the Easterlin paradox.
  • Women tend to report higher life satisfaction than men, but also experience more negative emotions, suggesting they are less happy.
  • Married men are happier than unmarried men, but it’s less clear for women with some studies showing the opposite.
  • Younger people in the US, Canada, Australia and NZ are the least happy age group. This is a major change from 20 years ago and may be due to the rise of social media giving rise to increased anxiety and depression amongst the young, particularly young girls. Poor housing affordability may also be impacting.
  • Progressives are sadder than conservatives – possibly because they are more empathetic and focused on a more negative world view.
  • Physical & outdoor leisure, shopping, reading books, seeing relatives, listening to music and attending sporting and cultural events are associated with higher happiness. Time on the internet and TV is not.
  • People in individualistic societies are happier and freedom to make life choices contributes to happiness.
  • People adapt to their situation with evidence we are born with a genetically pre-set level of happiness to which we return to after good events (like winning the lottery) and bad (like having an accident).

Some have claimed that most people are on an “hedonic treadmill” of working ever harder to attain material wealth in the belief this will make them happier only to find it doesn’t but resolving to work even harder.

From GDP to Gross National Happiness?

Many argue these findings present a challenge for economists. Economics is about maximising ‘utility’, or happiness. But since happiness is hard to measure, economists assume a good proxy is income and consumption. If consumption is positively correlated with happiness, then policies to boost economic growth will boost happiness. But, if not, this may be misplaced. There are two schools of thought in relation to all of this. The first is to argue economic policy needs to be refocused on broader measures of wellbeing such as Gross National Happiness. The second argues that it is up to the individual to learn how to become happy. The first approach would mean a radical change in economic policy with proposals to boost happiness like these: tax excessive work (as it doesn’t lead to happiness); re-distribute income (because inequality leads to envy and keeps people on the ‘hedonic treadmill’); reduce the focus on competition and rivalry; spend more money on public goods such as parks; refocus on community; limit advertising to information to avoid creating demand for stuff we don’t need; and switch to focusing on Gross National Happiness.

This would have big implications for investors, as these policies would lead to slower profit growth and lower returns from growth assets.

Legislating for happiness makes little sense

However, there are good reasons to be sceptical of proposals for government policy to target happiness:

Firstly, happiness is very hard to measure, making some of the findings referred to above questionable, and impossible to define objectively. Nationally determined concepts of happiness, such as Bhutan’s Gross National Happiness concept, depend critically on subjective judgements that governments (or ethnic or religious majorities) may define to suit them. This can be used to justify religious or ethnic persecution and can be used to advance authoritarian aims.

Secondly, just because we get used to something doesn’t mean we should stop doing it. Rising material wealth may not permanently boost happiness beyond a certain level because we adapt to it. It would have been expected that the huge increase in healthy lifespans or the increase in measured leisure time would have boosted happiness, but it hasn’t. That does not mean we should cut back on health spending or reduce leisure. Policies to increase happiness by cutting work effort or income by redirecting people to other activities may flounder as those activities have the same problems as money, ie, people just get used to them.

Thirdly, while material progress may not be boosting happiness it is doubtful stagnation will either. Curiosity and the desire to advance are fundamental to humanity. Introducing policies to reduce work effort may reduce happiness by suppressing a sense of achievement. Oppression of individual advancement may explain low happiness in socialist countries.

Fourth, restricting choice in favour of officially mandated happiness guidelines may actually reduce happiness as evidence suggests that freedom to make life choices contributes to happiness.

Finally, we are partly dealing here with the outworking of success. The rise in affluence has given people in rich countries the time and money to search for happiness. It should also be recognised that the problems with social media and the decline in happiness it may be contributing to is also a problem of the economic success that gave rise to the technology, wealth and time that facilitate their use. Finding better ways to live with the success that has given rise to social media – a bit like the rules we set around driving cars – is arguably better than threatening to reverse it.

This is not to say that governments should not attempt to measure and boost wider measures of social welfare beyond GDP. But there is a danger in trying to legislate for happiness. There is nothing new in the concept that material wealth won’t lead to lasting happiness. Most religions have long been pointing it out. Buddha long ago observed that most human suffering comes from desire, and this has to brought under control to achieve happiness. But seeking happiness and enlightenment is up to individuals, not the state. Maybe Thomas Jefferson was on to something when he wrote in the US Declaration of Independence that all people had the right to “Life, Liberty and the Pursuit of Happiness” with the implication that happiness is something we can only pursue.


Dr Shane Oliver is Head of Investment Strategy and Chief Economist at AMP. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs.


Tony Dillon
May 06, 2024

Two points mentioned briefly in an excellent article here, worth expanding upon :

“People adapt to their situation with evidence we are born with a genetically pre-set level of happiness to which we return to after good events (like winning the lottery) and bad (like having an accident)”

I listened to a podcast once, that theorised that our capacity for happiness is largely biological. That it’s genetic. That under neutral conditions, we all sit somewhere on a happiness spectrum according to our inherited genes. While there isn’t an identifiable happiness gene as such, resting levels of feel-good hormones such as serotonin and endorphins can contribute to one’s level of happiness. I think we all know people who seem over-the-top happy most of the time, and those who don’t. Luck of the draw perhaps.

“Buddha long ago observed that most human suffering comes from desire, and this has to be brought under control to achieve happiness.”

In another happiness podcast, it was suggested that we are constantly focused on the future and the belief that happiness is contingent upon achieving certain conditions or goals. And even if we reach certain goals, we then move onto higher pursuits. We are never satisfied, and worry or plan constantly about how we are going to get to the ‘next level’. According to Buddhist teachings, this constant fixation on the future and the pursuit of happiness, which we never seem to reach, can contribute to our suffering because it distracts us from experiencing contentment and peace in the present moment. Hence Buddhism teaches meditation as an act to clearing one’s mind on a path to end suffering. I often look at my little grandchildren and think how happy they are living in the moment, oblivious to what their future might hold. Losing this naivety as we age it seems, is to the detriment of our happiness.

May 04, 2024

Hi Shane ... very interesting piece

I am dubious as to graphs reflecting situations pre-19th century. Life changed for so many following industrialisation.

Interesting that the Scandinavians living with long dark winters are happiest.

But I wonder whether us more "enlightened" folk who read Firstlinks are exposed to MUCH more information and opportunities for different lifestyles than previous generations.

I had a client who asked me to sell his complete share portfolio because he could not bear to watch the guy on the ABC TV news talking about the daily ups and downs of the market.

Living in Australia, generally, we are so much better off than most places elsewhere; this should reflect in our Happiness !

May 04, 2024

Australia is slowly turning to [editor deleted]. Australia in the 80's and 90's that I remember was a different Australia. The current Australia is not better.

May 04, 2024

A key limitation to society happiness is the continuing loss of trust in Government, institutions and governance that surround us.
Lack of trust equates to lack of happiness regardless of wealth.

May 06, 2024

Hi Mal,

Not sure where you got this concept from as I've not heard it before, although I'm inclined to agree.

Those who have lost trust have to contend with living in an environment that they see as unfavourable, with odds stacked against them.

And those who do still trust are continually being reminded by governments and their mouthpiece media channels of all the doom and gloom and woes and challenges that seem to fall upon us like a never-ending string of 'bad luck' for which they take no responsibility (climate change, inflation, killer viruses, etc.)

Rory S
May 03, 2024

There's a great, related article in the AFR today: Americans have more money, Europeans have more time. Which is better?

John Abernethy
May 03, 2024

Thanks Shane for a thoughtful article.

I have written in the past about economic prosperity that is sometimes measured by residential property prices.

I have often posed the question whether rising residential property prices is a measure of economic success or economic excess?

If an average person cannot afford to buy a home then the answer is obvious and the result is declining happiness across average households and/or average citizens.

Paul Gulliver
May 03, 2024

Shane, as you said small sample group, but neither Bob Dylan nor Leonard Cohen were particularly happy 50 years ago.

May 04, 2024

:-) Imagine how Pete Townshend feels " I hope I die before I get old"

Good article though.

May 03, 2024

Money is only good to a certain point, the rest is relationships and experiences. The Buddha was a heck of a psychologist!

G L Yoong
May 02, 2024

Thanks for your thought-provoking article.
We need to pause sometimes from our busy lives to think about the issues you have brought up, and make our own adjustments in life.


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