The Rational Optimist: How Prosperity Evolves. Matt Ridley

Easterlin paradox does not exist. Rich people are happier than poor people; rich countries have happier people than poor countries; and people get happier as they get richer. The earlier study simply had samples too small to find significant differences. In all three categories of comparison – within countries, between countries and between times – extra income does indeed buy general well-being. That is to say, on average, across the board, on the whole, other things being equal, more money does make you happier. In the words of one of the studies, ‘All told, our time-series comparisons, as well as evidence from repeated international cross-sections, appear to point to an important relationship between economic growth and growth in subjective well-being’.

      There are some exceptions. Americans currently show no trend towards increasing happiness. Is this because the rich had got richer but ordinary Americans had not prospered much in recent years? Or because America continually draws in poor (unhappy) immigrants, which keeps the happiness quotient low? Who knows? It was not because the Americans are too rich to get any happier: Japanese and Europeans grew steadily happier as they grew richer despite being often just as rich as Americans. Moreover, surprisingly, American women have become less happy in recent decades despite getting richer.

      Of course, it is possible to be rich and unhappy, as many a celebrity gloriously reminds us. Of course, it is possible to get rich and find that you are unhappy not to be richer still, if only because the neighbour – or the people on television – are richer than you are. Economists call this the ‘hedonic treadmill’; the rest of us call it ‘keeping up with the Joneses’. And it is probably true that the rich do lots of unnecessary damage to the planet as they go on striving to get richer long after the point where it is having much effect on their happiness – they are after all endowed with instincts for ‘rivalrous competition’ descended from hunter-gatherers whose relative, not absolute, status determined their sexual rewards. For this reason a tax on consumption to encourage saving for investment instead is not necessarily a bad idea. However, this does not mean that anybody would be necessarily happier if poorer – to be well off and unhappy is surely better than to be poor and unhappy. Of course, some people will be unhappy however rich they are, while others manage to bounce back cheerful even in poverty: psychologists find people to have fairly constant levels of happiness to which they return after elation or disaster. Besides, a million years of natural selection shaped human nature to be ambitious to rear successful children, not to settle for contentment: people are programmed to desire, not to appreciate.

      Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective, says the political scientist Ronald Ingleheart: the big gains in happiness come from living in a society that frees you to make choices about your lifestyle – about where to live, who to marry, how to express your sexuality and so on. It is the increase in free choice since 1981 that has been responsible for the increase in happiness recorded since then in forty-five out of fifty-two countries. Ruut Veenhoven finds that ‘the more individualized the nation, the more citizens enjoy their life.’

      Crunch

      And yet, good as life is, today life is not good. Happy statistics of recent improvement sound as hollow to a laid-off car worker in Detroit or an evicted house owner in Reykjavik as they would to a cholera victim in Zimbabwe or a genocide refugee in Congo. War, disease, corruption and hate still disfigure the lives of millions; nuclear terrorism, rising sea levels and pandemic flu may yet make the twenty-first century a dreadful place. True, but assuming the worst will not avert these fates; striving to continue improving the human lot may. It is precisely because so much human betterment has been shown to be possible in recent centuries that the continuing imperfection of the world places a moral duty on humanity to allow economic evolution to continue. To prevent change, innovation and growth is to stand in the way of potential compassion. Let it never be forgotten that, by propagating excessive caution about genetically modified food aid, some pressure groups may have exacerbated real hunger in Zambia in the early 2000s. The precautionary principle – better safe than sorry – condemns itself: in a sorry world there is no safety to be found in standing still.

      More immediately, the financial crash of 2008 has caused a deep and painful recession that will generate mass unemployment and real hardship in many parts of the world. The reality of rising living standards feels to many today to be a trick, a pyramid scheme achieved by borrowing from the future.

      Until he was rumbled in 2008, Bernard Madoff offered his investors high and steady returns of more than 1 per cent a month on their money for thirty years. He did so by paying new investors’ capital out to old investors as revenue, a chain-letter con trick that could not last. When the music stopped, $65 billion of investors’ funds had been looted. It was roughly what John Law did in Paris with the Mississippi Company in 1719, what John Blunt did in London with the South Sea company in 1720, what Charles Ponzi did in Boston in 1920 with reply coupons for postage stamps, what Ken Lay did with Enron’s stock in 2001.

      Is it possible that not just the recent credit boom, but the entire postwar rise in living standards was a Ponzi scheme, made possible by the gradual expansion of credit? That we have in effect grown rich by borrowing the means from our children and that a day of reckoning is now at hand? It is certainly true that your mortgage is borrowed (via a saver somewhere else, perhaps in China) from your future self, who will pay it off. It is also true on both sides of the Atlantic that your state pension will be funded by your children’s taxes, not by your payroll contributions as so many think.

      But there is nothing unnatural about this. In fact, it is a very typical human pattern. By the age of 15 chimpanzees have produced about 40 per cent and consumed about 40 per cent of the calories they will need during their entire lives. By the same age, human hunter-gatherers have consumed about 20 per cent of their lifetime calories, but produced just 4 per cent. More than any other animal, human beings borrow against their future capabilities by depending on others in their early years. A big reason for this is that hunter-gatherers have always specialised in foods that need extraction and processing – roots that need to be dug and cooked, clams that need to be opened, nuts that need to be cracked, carcasses that need to be butchered – whereas chimpanzees eat things that simply need to be found and gathered, like fruit or termites. Learning to do this extraction and processing takes time, practice and a big brain, but once a human being has learnt, he or she can produce a huge surplus of calories to share with the children. Intriguingly, this pattern of production over the lifespan in hunter-gatherers is more like the modern Western lifestyle than it is like the farming, feudal or early industrial lifestyles. That is to say, the notion of children taking twenty years even to start to bring in more than they consume, and then having forty years of very high productivity, is common to hunter-gatherers and modern societies, but was less true in the period in between, when children could and did go to work to support their own consumption.

      The difference today is that intergenerational transfers take a more collective form – income tax on all productive people in their prime pays for education for all, for example. In that sense, the economy (like a chain letter, but unlike a shark, actually) must keep moving forward or it collapses. The banking system makes it possible for people to borrow and consume when they are young and to save and lend when they are old, smoothing their family living standards over the decades. Posterity can pay for its ancestors’ lives because posterity can be richer through innovation. If somebody somewhere takes out a mortgage, which he will repay in three decades’ time, to invest in a business that invents a gadget that saves his customers time, then that money, brought forward from the future, will enrich both him and those customers to the point where the loan can be repaid to posterity. That is growth. If, on the other hand, somebody takes out a loan just to support his luxury lifestyle, or to speculate on asset markets by buying a