The good news about New Zealand's economy just keeps on coming. Business confidence is at a record high, employment is increasing, as are wages. 

Our annual economic growth rate is also favourable, at 3.5 per cent, making New Zealand one of the fastest growing countries in the developed world. 

Such economic gains would normally be a cause for celebration, or at least a pat on the back that the economy is heading in the right direction. 

So why isn't everyone happy? 

Last Thursday was International Happiness Day, a time for governments the world over to reflect on their national goals, and more specifically, how their policies create happiness. 

Promoted by the United Nations, the International Day of Happiness calls for a "...new economic paradigm that recognizes the parity between the three pillars of sustainable development. Social, economic and environmental well-being are indivisible. Together they define gross global happiness."   

It seems that such a reflection always causes an existential crisis in advanced economies. The big questions are asked the world over: What is the purpose of government in advanced economies? 

Should the nation's priorities be defined by economic growth? Beyond a certain level of comfort, is economic growth even necessary? 

At first blush, the pursuit of global happiness seems entirely worthy and reasonable. Social, economic and environmental well-being surely ought to be considered necessary for sustainability, especially in developed nations. 

And New Zealand certainly faces threats to its social and environmental well-being, even if our economic well-being is broadly on the right track. 

Brian Martin, Professor of Social Sciences at the University of Wollongong, claims that Australian government policy and happiness research are pointing in very different directions. 

While government policy continues to see economic growth as a primary objective, research on happiness questions the legitimacy of economic growth as a government function, when such growth may not make people happy. 

Such arguments are hardly new. But it is clear that some people who call for an end to, or a de-emphasis on economic growth, do not understand its true breadth and impact. 

In his book The Moral Consequences of Economic Growth, American political economist Benjamin M. Friedman maintains that economic growth does not only enhance material well-being, but also social, political and moral well-being. 
  
Although rising incomes may not be the primary driver of life satisfaction, Friedman argues that it is important in raising living standards, health, level of education, and the sense of general security and resilience. 

However, beyond this there is also a psychological effect: that it is actually the innate nature of humans to want to improve their existence. This means that no matter what level of living standards people enjoy, they will always strive for something better. 

People enjoy the advantages of rising incomes in a relative manner. Because one of the most obvious benchmarks for well-being is people's own past experiences, people who feel they are doing better than they were previously, are more likely to have a greater sense of well-being. 

In other words, psychological studies suggest that people care more about how their well-being is changing, rather than the level of well-being itself. This does not just mean a rise in income, but a rise in quality through innovation. 

Moreover, Friedman argues that such an idea is not original, but has been touted by the widely-considered father of economics, Adam Smith, who in turn attributed the idea to the Stoic philosophers of ancient Greece. 

No matter how high the standard of living is to begin with, once growth stops, it is only a matter of time before people lose their sense of heightened well-being. People will only continue to feel better off under conditions of growth and change. 

While opponents would argue this means that money doesn't make people happy, in actuality it means that stagnation does not make people happy. 

Furthermore, improving one's lot through economic growth need not just be a gain in the pocket, but an improvement in the way tasks are performed, the productivity of workers and capital, and the goods and services enjoyed. 

Economic growth may not make people happier simply by making them richer. But it may make them happier as people strive to attain something greater than what they have now, in every sense of well-being. 

If economic growth is facing a crisis, it is not an existential one. The "crisis" is ensuring that no matter which government is in power, New Zealand continues to foster an environment conducive to growth. 

Only then can growth thrive and achieve its potential of marrying social, economic and environmental well-being.

Source: Economic growth's existential crisis