The Happy Factor
Everyone wants more dough, but does it produce more delight?
Wednesday, November 21, 2012
“Everybody wants more cash!,” declares Capital One bankcard TV pitchman Jimmy Fallon. Except for the cute baby, that is, who throws Cheerios at Fallon when he offers 50 percent more cash back. Perhaps the Capital One baby is a devotee of the Easterlin Paradox and rejects the offer because she believes more cash doesn’t buy more happiness.
In his seminal 1974 article, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” economist Richard Easterlin noted while incomes in various countries had increased, reported well-being and life satisfaction on surveys had not. More money didn’t make people happier. For four decades, the Easterlin Paradox has more or less been the conventional wisdom.
Later researchers argued relative income is what really matters for a person’s overall life satisfaction. The implication is that if relative socioeconomic positions don’t change when everyone gets richer together then average happiness in a country doesn’t increase. Getting out ahead of the Joneses makes a person happier, but just keeping up with them doesn’t.
Looking over cross-country comparisons of income and happiness, London School of Economics professor Richard Layard concluded, “Above $15,000 per head, higher average income is no guarantee of greater happiness.” The upshot is that fostering economic growth is futile: When everyone becomes richer, no one becomes happier. In addition, Layard argues that your income competition with the Joneses is a negative externality, because the Joneses’ success lowers your relative income, making you feel less happy. Novelist Gore Vidal summarized this observation with his quip, “Every time a friend succeeds, I die a little.” If the Easterlin Paradox is real, the Capital One baby is right to reject more cash since it likely won’t produce more happiness.
“GETTING OUT AHEAD OF THE JONESES MAKES A PERSON HAPPIER, BUT JUST KEEPING UP WITH THEM DOESN’T.”
In recent years, however, additional research has called the Easterlin Paradox into question. Maybe more cash does make people happier. Especially salient are analyses done by University of Pennsylvania economists Daniel Sacks, Betsey Stevenson, and Justin Wolfers. In their updated 2010 study, ‘Subjective Well-Being, Income, Economic Development and Growth,’ the three compare subjective well-being survey data from 140 countries with those countries’ income and economic growth rates.
Interestingly, the researchers find that a 20 percent increase in income has the same impact on well-being, regardless, of the initial level of income: going from $500 to $600 of income per year yields the same impact on well-being as going from $50,000 to $60,000 per year. Obviously, this means that at higher levels of income it takes more money to buy an extra bit of happiness, but the three researchers find no point at which more money will not buy more happiness – certainly not at Layard’s $15,000 per capita income.
On a zero-to-10 point life satisfaction scale, Stevenson noted people in poor countries average three points; those in middle-income countries score around five or six points; and rich country citizens report happiness levels between seven and eight points. (World Happiness Database reports that the U.S. averages 7.4 points on the happiness scale.)
There is one outlier in the trend data collected by Stevenson and Wolfers – the United States. As average per capita incomes have increased from around $20,000 in 1972 to $42,000 today, average American happiness has hardly budged.
Nevertheless, recent findings in happiness research appear to vindicate the wisdom of novelist Gertrude Stein’s wry observation, “Whoever said money can’t buy happiness didn’t know where to shop.”
RONALD BAILEY is Reason Magazine’s science correspondent.