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Wealth Inequality Means We're Less Joyous Over Rising GDP - Study

Tom Burroughes, Group Editor, 23 February 2016

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In comments that are likely to fuel demands for tax redistribution, academics from the UK and US argue that rising GDP will not boost wellbeing as much as it should if inequality is rising.

Rising inequality in wealth blunts the supposed positive effects of an expanding economy, academics argue in a report that is likely to drive calls for wealth redistribution.

Research by Selin Kesebir, assistant professor of organisational behaviour, London Business School, and Shigehiro Oishi, professor of psychology, University of Virginia, finds that a country's economic growth only makes its citizens happier if the gains are evenly spread.

"We find that an increase in GDP only makes us happier if wealth is evenly distributed. Countries with growing income inequality often fail to increase average happiness, even if they succeed in boosting GDP. We know that happier people are also more productive, so this really matters. Even wealth distribution should create a virtuous cycle - more happy people, more productively contributing to the country's economic growth,” Dr Kesebir said.

"When wealth is concentrated among a small group it evokes a sense of unfairness among the rest of society ," Dr Kesebir said.

The comments add to those such as those of controversial French academic Thomas Piketty, whose book Capital in the 21st Century claimed that the richest owners of capital will see their capital outpace overall GDP growth and eventually produce a social and political backlash.

Piketty's arguments are controversial because it is claimed there is no reason why, over the long run, capital growth should outpace the growth of an overall economy. This is because capital, to grow, must be applied to labour and other factors of production. Capital-owners typically run down their assets in old age rather than accumulate them for no reason, particularly as risk appetite fluctuates over timespans. Another point of controversy is that redistributive taxes, so those on the free market side of the argument say, actually lead to the richest paying a smaller, rather than larger, share of total revenue, as well as hurting growth.

In the latest research, the academics examine the relationship between GDP per capita and happiness in two different data sets covering 34 nations in total. These sets consist of 16 developed nations and 18 developing Latin American nations.

The researchers found that economic growth had a less positive and more negative effect on happiness as income inequality increased, a finding which potentially has implications for economic policy in both developed and emerging nations.

(To see a review of the Piketty book by this publication, see here.)

 

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