An economist wonders why we pay so much attention to the economy, as if it could solve all our problems.
by Claude Lavoie. Originally published on Policy Options
January 29, 2024
(Version française disponible ici)
Economic considerations are at the heart of all political decisions. Subsidies, reluctance to widen the social safety net or further protect the environment – everything seems designed to ensure stronger growth in our consumption.
We bow to the demands of business lobbies. Billions are given to big businesses. Governments will even choose to relocate families, despite the negative impact on their mental health, rather than force a company to comply with environmental regulations.
Why is this? Because elected officials – and their constituents – believe that improving well-being only happens when people’s wallets are fatter. But isn’t it often said that money can’t buy happiness?
It is an age-old debate, but a trove of data sheds light on the subject. And it shows that having more money does increase your well-being, up until you reach an income threshold that allows you to live comfortably, with a roof over your head and enough to eat. Beyond this threshold, which most of us have reached, having more money increases well-being, but only temporarily, and only if you’re making more money than your friends.
Not only must we keep up with the Joneses, we must surpass them.
Research shows that economic growth has little long-term impact on life satisfaction in advanced countries. So, should we stop worrying about the economy? Of course not.
A well-functioning economy encourages innovation and ensures we use our limited resources as efficiently as possible. Strong growth helps ensure that everyone has enough income to live comfortably and to take advantage of the infrastructure that improves our quality of life. Also, since we compare ourselves with other regions as well as our nearby neighbours, having an average income comparable to or higher than that of other countries makes us more satisfied with our lot.
The problem is that economic considerations often take on disproportionate importance, to the detriment of other considerations. Again, research shows that there are roughly five important factors that affect our quality of life: our financial situation, our physical and mental health, our sense of belonging to a community, the quality and beauty of our living environment, and the quality of our governance.
It’s also important to ensure that everyone enjoys a good quality of life – again, it’s relative status that matters – and that this quality of life is sustainable for future generations.
All these factors are interrelated in a complex system. The economy cannot be strong if many people have mental health problems, if the government is corrupt, or if we are unable to trust each other. And a strong economy enables most people to have meaningful work, a key determinant of mental health.
The cost of well-being
It’s with that context in mind that governments in several countries have adopted multi-dimensional decision-making frameworks to ensure that their policies effectively improve citizens’ well-being, not just their wallets.
The best-known example is New Zealand’s “well-being budget,” but many other places are following suit. In Quebec, the G15+ collective is doing a lot of work to encourage governments to put well-being at the heart of their decisions. Many researchers across the country are pushing in the same direction.
Canada adopted a quality-of-life framework in the 2021 budget. To be useful this framework needs to be used in the decision-making process. The limited space given to it in the last federal budget and the little enthusiasm it produced suggest that it is merely being used to tick boxes rather than being incorporated as a useful tool. It’s a shame.
Sometimes it is difficult to choose among contradictory priorities. Is a policy that greatly enhances the economy, but has negative effects on the environment, better for people’s quality of life than another policy that has less economic but also less environmental impact? Or another policy that has no economic or environmental impact, but improves mental health?
How to compare the cost of cutting down trees with the benefit of maintaining jobs in certain industries or regions? It’s much easier to focus solely on the economy, or to avoid transparency about the reasoning behind choices.
Should we be surprised, then, that while the economy is delivering record employment rates, our mental health is declining, the quality of our river water is deteriorating, our greenhouse gas emissions are rising, government services are worsening, confidence in our institutions is eroding, and people’s life satisfaction is not improving?
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This article first appeared on Policy Options and is republished here under a Creative Commons license.