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Will Our Kids Be Better Off Than We Are?

One of the bedrock principles of the American economy is that each generation should be better off than the one before. In terms of material living standards, the nation has done a pretty good job of fulfilling this promise. But the ability to consume goods and services may not be what matters most.

Martin Feldstein, who was once one of my academic advisors, has written a column this week about the question of living standards. He points to likely increases in gross domestic product (GDP) per capita as evidence of rising living standards. He also says that these increases don’t capture all the improvements in the quality and range of products that are sure to come our way.

I think Feldstein is right that material living standards are rising faster than traditional measurements might reflect. (He doesn’t mention whether all Americans will enjoy the higher living standards to the same degree.) Yet material living standards, however we measure them, don’t always correlate with utility – the feeling of satisfaction, happiness, or general well-being that is at the core of all economics.

As any economist knows, material living standards are only useful if they translate into greater happiness. Betsey Stevenson and Justin Wolfers have shown that higher incomes are associated with greater well-being, at least up to about $125,000 in household income. But at least two poorer countries – Costa Rica and Mexico – are also happier, on average, than the United States. Moreover, happiness in the United States seems to have declined between 2005 and 2012, despite increases in per capita GDP.

I doubt that the average happiness of Americans at this moment is very different from their average happiness in the 1950s. At least one study suggests that happiness declined very slightly from 1946 to 1980 and then rose very slightly from 1980 to 2006. Either way, the differences were very small, though material living standards grew throughout the entire period.

So are Americans better off at all than they were decades ago? In one way, yes. Feldstein and I find common ground in the potential for new products to enhance longevity. Utility adds up over time, so living longer opens the doors to higher lifetime levels of utility. And there’s little doubt that life expectancy in the United States is increasing over time and will continue to do so for the foreseeable future.

The longevity argument belongs to a more general point about distinguishing between new products that help and products that hurt. Consider pharmaceuticals: the statins that reduce heart attacks are helping many people to live longer, but the synthetic opioids that entangle thousands of Americans in addiction and crime may, on balance, be hurting us.

These distinctions can be tough to draw, though, given all the potential pluses and minuses of each new product. We like our mobile phones, but they eat up time we could have spent playing with our kids or getting exercise outside. The next generation will have plenty of gadgets when it grows up, but will it be happier? We need to measure that more carefully, too.

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