Wealth

Can Money Buy Happiness?

Economists probe the nexus between wealth and well-being.

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“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 of more cash because she believes that 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 that while incomes in various countries had increased, reported well-being and life satisfaction on surveys had not. In other words, more money didn’t make people happier. For four decades, the Easterlin Paradox has more or less been the conventional wisdom.

So why doesn’t more dough produce more delight? Later researchers argued that 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. Other researchers argued that rising incomes put people on a hedonic treadmill. The claim is that when people’s incomes increase they get a short-term boost in happiness, but once they get used to their new riches and their aspirations grow, their level of happiness drops back to where it was before the raise.

Looking over cross-country comparisons of income and happiness, London School of Economics professor Richard Layard concluded [PDF], “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.

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. The researchers find that within individual countries richer people are happier than poorer; people in richer countries are happier than people in poorer countries; and over time increased economic growth leads to increased happiness. “These results together suggest that measured subjective well-being grows hand in hand with material living standards,” they conclude.

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 happinessâ€"certainly not at Layard’s $15,000 per capita income.

How much happier on average are people living in rich countries compared to those living in poor countries? 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. For what it's worth, World Happiness Database reports that the U.S. averages 7.4 points on the happiness scale. If rich countries are happier places that would strongly suggest that they got that way by means of economic growth.

Since 1970 total world product has more than quintupled (in constant 2005 dollars) from $ 11 trillion to $57 trillion today. At the same time world population has increased from 3.7 billion to 7 billion, which means that the globe’s average annual per capita income has increased from about $3,000 to over $8,000. Taking into account the trends in all of the well-being survey data, the researchers do find, “Over recent decades the world has gotten happier, and nearly all of the gains are attributable to gains in GDP (gross domestic product).” 

There is one outlier in the trend data collected by Stevenson and Wolfersâ€"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. On the other hand, according to their data from the General Social Survey, 86 percent of Americans in 1972 said they were either pretty happy or very happy. The figure was 89 percent in 2006.

What Stevenson and Wolfers did find is that differences in levels of happiness among some demographic groups narrowed. “Two-thirds of the black-white happiness gap has been eroded, and the gender happiness gap has disappeared entirely,” they note. The gender difference evidently diminished because American women became a bit less happy than men over time. And the college educated became happier whereas Americans with only a high school education or less became less happy. The researchers speculate Americans have been unsettled by “a host of economic, social, and legal changes” that have offset the gains in American happiness that one would ordinarily expect higher incomes to have produced.

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.”

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  1. Not to pick nits, but the 3 percentage point gain is misleading. It’s harder to go from 86 percent to 89 than from 40 percent to 50. When things are already pretty good, it’s going to take a LOT to significantly increase happiness. Also, it’s going to be hard to pass the 90 percent level, simply because there are a lot of people who aren’t going to be happy even if the Olsen twins took turns giving them head while swearing never to act or appear in public again.

    1. “there are a lot of people who aren’t going to be happy even if the Olsen twins took turns giving them head while swearing never to act or appear in public again.”

      That’s FUNNY!

  2. The capital one baby is a girl.

    1. M: I’ll take your word for it. It’s fixed. Thanks.

      1. No prob. I think most of us thought the Capital One baby was a boy, but the most recent commercials featuring the same baby reveal her to be a girl.

  3. Can money buy whiskey?

    Why, yes, I believe it can.

    Therefor, money can buy happiness. Case closed, and you are very welcome.

    1. And more money can buy better whiskey. =)

  4. I don’t believe these surveys of happiness. Assume, at $50K, someone is maxed out on the survey’s level of happiness — say, a 5 out of 5. They start making $250K, and are happier, but they still show up on the survey as a 5 out of 5.

    Trying to measure a subjective thing like happiness using numbers seems rife with errors and bias, especially when the researcher WANTS the numbers to come out one way, to support lefty redistributionist policies.

  5. A few years ago, I upgraded from a beater Camry to an Avalon. I still get a huge kick out of driving such a nicer car. Don’t fucking tell me money can’t make you happier.

  6. It is possible to use money in ways that make you less happy. And it is possible to make compromises in the pursuit of money that diminish your overall happiness — for example, neglecting meaningful relationships in the pursuit of a bigger Mercedes.

    But, some people fucking things up and making poor choices doesn’t mean that more money isn’t better, all else being equal.

  7. I lol’d at women becoming less happy.

    Their financial independence and personal liberty increased, yet they are the most ungrateful harpies in the history of mankind.

    Humanity thumbs its nose at true gender differences at the peril of civilization itself.

    women sold feminism bill of goods, which leads to
    unhappy women raise terrible children, which leads to
    social decline, poverty, crime

    we think our education problems are a function of teachers or class size, when its really about mothers abandoning their gender role so factories have more workers.

    We are NOT happier than 1950’s america, in spite of some fabled that 89% of us are happy. our country has less moral fiber. The goalposts on “happy” have simply moved. ppl are just lying today. more poor than ever in USA, yet 89% say they are happy. yet we are more godless than ever. c’mon now. thats just not a believable storyline for evolved homo sapiens.

    1. Tell us more about how godless feminism is corrupting our country, culture, and natural fluids.

      1. Yes, really.
        The original ideav behind feminish is individualistic – it’s about women being free to live full lives instead of being bound to family and duty.

        It’s too bad it got corrupted and turned into just another mooching identity group clamoring for a share of the government teat.

        1. Had conservatives paid any attention or given any support to the feminist movement, maybe there would be more small-government-feminists.

          1. Had there been some small-government-feminists, conservatives might have given them the time of day.

            1. And had we not given them the vote they would not have brought silliness to politics and could have been better served staying home and practicing kegels.
              If they had no cooter there’d be a bounty on ’em all.

    2. What factories? What jobs?

  8. On the other hand, according to their data from the General Social Survey, 86 percent of Americans in 1972 said they were either pretty happy or very happy. The figure was 89 percent in 2006.

    So, if the people in 1972 who said they were very happy are even happier in 2006, does that mean their happiness levels are unchanged because both times they said they were “very happy”?

  9. Additionally, shitty laws might make people less happy, but not have much impact on their overal income.

    Free speech rights, beyond whatever economic effects they might have, also improve quality of life.

    Similarly, apartheid lowers quality of life for the disfavored group of people, beyond whatever negative income effects it might have.

    Finally, laws that restrict what you can spend your money on have effects on happiness beyond their income effects. People in Washington that can now legally buy weed instead of booze may realize happiness benefits without increasing their income.

    It’s interesting stuff, but it’s also really hard to isolate variables.

    1. Not to mention the TSA. That’s at least a negative 5 percentage points right there.

  10. Maybe money can’t buy happiness or love.

    But it can buy some pretty interesting substitutes.

  11. Apparently not, looks what it got Romney. If Romney wasnt such a LIAR he may have stood a chance!

    http://www.Anon-Webz.tk

    1. One of your off days, Anon-bot?

  12. “These results together suggest that measured subjective well-being grows hand in hand with material living standards”

    Gee, no shit?

    The only people actually confused by this are academic economists making 200k a year with tenure. As Woody Allen once said, money is better than poverty, if only for financial reasons.

  13. ‘I been rich and I been poor. I’d rather be rich’.
    My experience says that’s true. Dunno what the limit of happiness is, but I’m sure happier with money in my pocket than the alternative.

  14. My experience:
    There are three components to happiness: health, love, and money. If you’ve got all three, you’re set.

    1. And big tits. Don’t forget big tits.

      1. Oh wait. That’s what you meant about being set.

  15. John Lennon was asked in an interview if his newly made millions were a problem for him. He responded “You try havin’ that problem, luv.”

  16. “As average per capita incomes have increased from around $20,000 in 1972 to $42,000 today, average American happiness has hardly budged.”

    Average income isn’t a meaningful metric to compare to. Median might have been a little better. Then try *after tax* median income.

    It would have been much more meaningful to compare happiness scores in an after tax earning brackets controlled for inflation.

    1. bbdd: Good point. I will keep this mind for any future comparisons.

      1. There was a study in the news a year or two ago, that said rising incomes made people happier, but only up to 25K. After that happiness levels depended on personality.

        I’m too lazy to look it up, but it wasn’t that long ago and it was all over the news (Yahoo, Google, etc.)

    2. This is the point I came to make. If most of the income growth has been at the top, then average incomes will have little effect on average happiness. If the top 5% is WAY happier, it still won’t move the needle very much.

      Please note that I’m totally OK with income inequality, as long as it’s not due to crony capitalism.

  17. More money means I might be able to pay the IRS on time for a change and maybe save for retirement and buy a house. Hell no none of that would make me happy, I like worrying about how I am going to pay for a medical procedure or god forbid if my truck breaks and I can’t go to work I’ll have even less money and I’ll be happier. The idea of more money doesn’t bring satisfaction is a part of the socialist agenda be content with less since other people have less than you still.

  18. If more money doesn’t equal more happiness, what the fuck is the point of our first world society with our big shiny economy? Raping the Earth and your fellow man to “produce wealth” mis-applies human energy and potential and leaves people spiritually empty. The happiest people are primitive hunter-gatherers who share everything and don’t overproduce to the point where they can afford to be too idle and comfortable, leading to depression like a tiger in a concrete cage is unhappy far away from nature and its fulfilling challenges.

    1. If only we could gambol freely about plain and forest….

      1. I’m a veteran lurker of the reason.com comment sections (libertarianism fascinates me…) and I hate that I sound like that guy. At the same time, its how I really feel. We’re all just distracting ourselves with glowing screens until we die or kill ourselves.

        1. And some of us could kill others of us and make a huge positive happiness difference.
          But then, we’d miss you, like a prolapsed testicle.

  19. I’m the marketing assistant for Robert Scheinfeld, a NY Times bestselling author who just wrote a new book on how to be happy. It’s called “The Ultimate Key To Happiness.” It offers a v-e-r-y different approach to defining what happiness really is, and a very different step-by-step path to experience it all the time, no matter what’s going on around you. The Internet has gotten so complex. So many options. Can anyone here share ideas for how to get the word out there about this important new book? I’d love to hear your ideas. I’m sure there are tons of ideas I’ve never thought of before.

    1. You could leave comments on blog posts about happiness.

  20. Over recent decades the world has gotten happier…

    I blame violent video games, the Internet and cable TV.

  21. I don’t believe these surveys of happiness.
    http://www.hqew.net

  22. “Give me control of a nation’s money supply, and I care not who makes its laws.” –Rothschild in 1744

  23. I think money can buy happiness if you want to be happy.

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