Growth, what is it good for if it brings little joy?

Communists in Beijing and capitalists in Washington share one goal in common, raising economic prosperity for their citizens. Econocrats from the Ministry of Finance and Treasury speak the same language of increasing GDP and improving national competitiveness.

They can almost agree on the mechanism to achieve greater economic prosperity as well - the free market. However, Beijing calls it "socialist market economy with Chinese characteristics".

But faith in free market ideology was severely tested in the aftermath of the global financial crisis. The former Chinese vice-premier in charge of economics and finance, Wang Qishan, told Hank Paulson, the former US Treasury secretary, "our teacher [the US] is in trouble".

The financial crisis that brought the world to the brink of a collapse provoked much soul-searching among politicians and regulators. One of the most profound was by Adair Turner, the former head of Britain's Financial Services Authority.

Turner challenges fundamental assumptions underpinning modern economics as well as the most crucial objectives of economic policy. He is no leftie - in fact, he is Lord Turner of Ecchinswell - and spent most of his career inside the citadels of capitalism, such as McKinsey, Merrill Lynch and BP.

For decades, politicians and policy-makers assumed the most crucial objective of economic or national policy was to increase economic growth as measured by standard national income accounting, such as GDP per capita.

Bill Clinton and Tony Blair immortalised the spirit of the time with the famous catch-cry, "It's the economy, stupid."

The shared assumption across the political spectrum was that economic growth would result directly in increasing wellbeing, welfare, happiness for citizens and therefore would lead to political success for the party best able to deliver it, Turner argued in his book Economics after the Crisis: Objectives and Means.

But that assumption is wrong, at least for rich countries. More material prosperity does not necessarily make people happier, or lead to a significant increase in contentment. There is a strong body of evidence to suggest that the correlation between happiness and income starts to taper off around $20,000.

Survey data from many rich countries, including Australia, show there has been little or no improvement in happiness or life satisfaction, despite the significant increase in GDP per capita over the past half century.

For example, Australia's GDP per capita increased from $US6992 in 1975 to $US49,206 in 2008, a sevenfold increase. Yet, Australians' satisfaction with life as measured by surveys barely moved from 7.7 out of 10 in 1975 to 7.9 in 2008.

So it makes more sense for developing countries such as China to pursue an economic policy of relentless growth rather than rich developed countries like Australia.

Why is there a breakdown in the relationship between income and life satisfaction? Turner turns to the theory of satiation - of declining marginal benefits.

"One winter coat keeps you warm; two winter coats don't keep you warmer, but give you a second-order benefit of fashion and style," he writes.

This poses us a crucial question about the ultimate objective of economic policy. Do we just grow for the sake of growing or should economic policy address broader issues of lifting welfare and happiness?

Australia's premier economic agency - the Treasury - has attempted to address this issue through its "wellbeing framework", championed by its wombat-loving former secretary Dr Ken Henry.

Henry urges policymakers to look at economic policy development through a holistic perspective rather than simply through GDP or income growth.

A good policy should lift opportunities for people which include more than the level of goods and services that can be consumed, but good health and environmental amenity, leisure and intangibles such as personal and social activities, community participation and political rights and freedoms, says the framework.

Policy must also address the distribution and sustainability of these opportunities, so all Australians have the opportunity to lead lives meaningfully in society.

Some hard-nosed politicians and economists including former Treasury staffers have dismissed these ideals as touchy-feely nonsense and a distraction from Treasury's main task of managing the budget and collecting tax.

However, these Henrian ideals are precisely the economic objectives championed by Turner, economic freedom and a wide set of employment opportunities.

For the past three decades, economic freedom to innovate, to start new businesses and to compete was regarded as the means to achieve faster growth. However, it is not clear that economic growth, beyond what has been achieved in rich societies, will make their citizens happier or more satisfied.

Turner argues that economic freedom should be treated as an end in itself. The spirit of inquiry, to change and to work for oneself are innate human desires and growth is merely a byproduct of that. This is not to indulge in hair-splitting philosophical debates but to question the fundamental objectives of economic policy. If maximisation of income - the official ideology of the past three decades - is not the objective, this has serious implications for our public policy.

First on the issue of macro-economic management, if maximisation of long-term growth is not the objective, minimisation of recession and maintaining stability should matter the most. It has clear implications for the financial services industry. We must find a new balance between financial innovations and financial system stability, with a strong bias towards the latter.

Climate change will impose a severe cost on humanity if left unaddressed. However, tackling the issue will involve sacrificing future economic growth.

Five years after the collapse of Lehman Brothers, it is time we reconsider the objectives of our economic policy. If growth alone does not deliver greater happiness, then why should we bow before the altar of GDP? A good starting point might be to pay more attention to Henry's wellbeing framework.

Ross Gittins is on leave.