Happiness

Can Money Buy Happiness After All?

New research suggests an old paradox might not be true.

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“Everybody wants more cash!” declares Capital One bankcard TV pitchman Jimmy Fallon. Everyone except for one cute baby, that is, who rejects Fallon’s offer of 50 percent more cash back by throwing Cheerios at him. Perhaps the Capital One baby is a devotee of the Easterlin Paradox?

In his seminal 1974 article, “Does Economic Growth Improve the Human Lot? Some Empirical Evidence,” the 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.

In the four decades since, the Easterlin Paradox has more or less become established as the conventional wisdom. Later researchers argued that what really matters for a person’s overall life satisfaction is relative income. The implication is that if relative socioeconomic positions don’t change when everyone gets richer together, a country’s average happiness doesn’t increase. Getting ahead of the Joneses makes a person happier, but merely keeping up with them does not.

Other researchers argued that rising incomes put people on a hedonic treadmill. When incomes increase, people gain a short-term boost in happiness, but once they get used to the 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 in 2003, the British economist Richard Layard concluded, “Above $15,000 per head, higher average income is no guarantee of greater happiness.” The upshot was that fostering economic growth is futile: When everyone becomes richer, no one becomes happier. Indeed, your competition with the Joneses is a negative externality, because the Joneses’ success lowers your relative income, making you feel less happy. As the novelist Gore Vidal quipped, “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. But in recent years, additional research has cast doubt on the concept. Maybe more cash makes people happier after all.

The most salient work has been done by the University of Pennsylvania’s Daniel Sacks and two other economists, Betsey Stevenson and Justin Wolfers, both at the University of Michigan. In a 2008 study updated in 2010 for the National Bureau of Economic Research (NBER), they compare survey data on subjective well-being with income and economic growth rates in 140 countries. Within individual countries, they found, richer people are happier than poorer people; 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.” So at higher levels of income it takes more money to buy an extra bit of happiness. But the researchers found no point at which more money will not buy more happinessâ€"certainly not at Layard’s $15,000 per capita.

How much happier on average are people living in rich countries compared to people living in poor countries? On a zero- to 10-point life-satisfaction scale, people in poor countries average three points; those in middle-income countries score around five or six points; and citizens of rich countries get between seven and eight points. If rich countries are happier places, that strongly suggests they got that way by means of economic growth. (For what it’s worth, the World Happiness Database reports that the U.S. averages 7.4 points on the happiness scale.)

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 more than $8,000. Taking into account the trends in all of the well-being survey data, the researchers find that in “recent decades the world has gotten happier, and nearly all of the gains are attributable to gains in GDP.”

There is one outlier in the trend data collected by Sacks, Stevenson, and Wolfers: the United States. As average per capita incomes have increased (in constant 2000 dollars) from around $19,500 in 1972 to $37,500 today, average American happiness has hardly budged. According to 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. This stall might reflect the fact that the rise in inflation-adjusted median household incomes has been smaller, moving from $45,000 in 1970 to just $50,000 in 2011.

In a 2008 NBER study, “Happiness Inequality in the United States,” Stevenson and Wolfers did find that differences in levels of happiness among some demographic groups have 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. General Social Survey data show that an average of 34.3 percent of women and 31.8 percent of men reported being very happy in surveys taken between 1972 and 1989. Those averages fell between 1990 and 2006 to 30.9 and 31.1 percent respectively. And college-educated Americans became happier, whereas fellow citizens with only a high school education or less became less happy. The researchers speculate that Americans have been unsettled by “a host of economic, social, and legal changes,” offsetting the gains in U.S. happiness that one would ordinarily expect higher incomes to have produced. 

Nevertheless, the most recent findings in happiness research generally vindicate the wisdom of novelist Gertrude Stein: “Whoever said money can’t buy happiness didn’t know where to shop.”  

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  1. Money don’t get everything it’s true
    but what it don’t get I can’t use
    now give me money!

    1. There’s more to life than looks, you know.
      But not much more.

    2. Man, I adore the Flying Lizards version.

  2. Maybe more cash makes people happier after all.

    Well, it certainly makes me happier. And I don’t give a shit what anybody else is making relative to me.

    1. Cash in your life is like fuel in your car. It won’t tell you where to go, but it makes it a lot easier to get there if you know how to keep from going into the ditches.

      1. Never heard that one before. It is better than ‘ Money wont make you happy, but you sure wont be happy starving.”

      2. I think we’re mixing metaphors here, but I’ll let it pass…(dips raybans) this time (replaces glasses).

  3. If the Easterlin Paradox is real, the Capital One baby is right to reject more cash, since it likely won’t produce more happiness.

    Lack of cash is no fun.

  4. If the Easterlin Paradox is real, then the world is filled with a bunch of covetous fucks who should be ignored anyway.

    Or, what WTF said above.

  5. you can’t buy happiness, but you can buy bacon which makes me happy

    1. And with the fat left over from cooking the bacon you can make bacon bourbon which makes me happy.
      http://bacontoday.com/bacon-bourbon/

      1. Guy I work with brought me some Apple Pie “Moonshine” he made with 151 grain alchohol (can’t buy 190 in Ohio). I’m looking forward to trying that as I’ve never had it, and also looking forward to getting my wife drunk:)

  6. More money also makes it easier to avoid the things that make you unhappy.

    1. *ding*

      You can buy your way out of shitty situations – bad homes, relationships, breaking down cars, medical problems, etc etc with money.

      1. My experience is that up to a certain point that’s true. Above that level it seems to make happy people happier, sad people sadder, weird people weirder, etc.

        1. have you seen my collection of Robotech miniatures?

  7. Richie Rich. I read his comic books occasionally as a kid. I mean, that kid’s family was fucking rich.

    1. A lot richer than Petey Poverty’s, anyway.

      1. He had a servant who would do his least bidding, could and did buy anything, had poor friends who were his slaves, and apparently had a sexual relationship at what–eight?

        1. No one wants to hear your sick fantasies, ProL.

          1. Hey now? Go on, Pro L….go on.

            1. By “no one” I meant we all do, of course.

              1. Ah, yes, sorry – must have a busted meter here.

                1. The only thing Richie lacked that I could see was a money bath. For that, one must turn to Scrooge McDuck.

                  1. We need a crossover, special 4 issue series!

                  2. Richie Rich and Scrooge McDuck: Two of the most prized members of our bemonocled society.

                    1. I’m envisioning a live-action buddy-pic. Gritty.

                    2. Considering Scrooge’s fortune was a self-made, I’m betting he’d HATE Richie Rich, who never worked a day in his life and just goofed around mooching off his dad.

        2. I…I think you may have been reading the wrong comics.

    2. I love that movie just for the scene where, having spent the entire film trying to break into the Rich Family vault, discovers it’s full of bric-a-brac that worthless other than for sentimental reasons and demands to know where all the money, gold, etc. is.

      Mr. Rich responds “In banks” with this perfect “what are you, an idiot?” tone.

      1. Except in the comics, I think they were too rich for banks.

        1. Yes. Richie’s weekly allowance was so much that he had to take a small amount of it to built a vault to hold it. Vaults dotted the entire vast Rich estate.

          1. Okay, tell the truth now, how many of you found libertarianism reading Richie Rich?

            1. I never really considered Richie Rich all that libertarian. It’s really more a left-wing stawman version of a rich person. He’s only rich because he was born into the right family, and we never really see him doing anything to earn his wealth. Moreover it portrays wealth as arrising from hoarding resources for yourself, rather than by meeting the needs of society in an open market place.

  8. The gender difference evidently diminished because American women became a bit less happy than men over time.

    Oh, we want to work and vote and wear pants! Sure you do. Look, I don’t have time to mansplain it, but let’s just acknowledge that all of that was clearly a mistake.

    1. I sure hope you said that with full MALE GAZE in place.

      1. MALE GLAZE

        1. Ewww. So gross. /teenage girl

  9. Mo’ money, mo’ problems?

    Bring on the problems.

    1. Actually problems always compound when your poor. You can’t afford a decent car so you’re cars always having problems. You can’t afford to fix the problems so they get worse and turn into bigger more expensive problems. The cops are giving you tickets because your taillights out because you can’t afford to fix that, and you can’t afford to pay any of your tickets so they pull you over impound your car and throw you in jail. So you lose your job and your impound fees compound until they cost more than your car is worth. Losing your job makes you late on your credit card payment so they double your interest rate on what you owe. Ah, the good old days:)

  10. There’s a knowledge component to this that isn’t explored in this article. Happiness is heavily influenced by one’s knowledge, and there’s been a ‘knowledge revolution’ since the days of that earlier research mentioned in this article.

    In 1970, it’s probable that the person eking out a bare living in, say, southern Sudan had less knowledge of the way an American or German lives than a present-day South Sudanese person does.

    If that old-time Sudanese person thought their circumstances to be close to the norm for everyone, their level of contentment would likely be higher than the modern person who knows what “the other half” lives like.

    1. Happiness = Reality/Expectations.

  11. This is going to sould like some retarded pithy formula invented by a self-help guru.

    However, I’ve come up with my own formula for happiness, based on personal experience.
    The three ingredients of happiness (you may all barf) are:
    1. Love.
    2. Health.
    3. Money.

    If you’ve got all three and you’re still not happy, then you’re fucked in the head (technically that would fall under 2 though). If you’ve only got two of the three, then you’re probably less than happy.

    Now all I need to do is write a cheesy book and cash in.

    1. Throw in flow as promulgated by Csikszentmihalyi possibly in a nice environment (bought by money?) and you have something there.

      1. Well, flow is something you control internally. It’s up to YOU to create flow.

        My formula deals with external factors. Factors that are dependent (to some extent) on luck and other people. Once you’ve got all three, you should be able to make yourself happy unless you’re a total incompetent at life.

    2. I know people who don’t have any of those things, and are perfectly happy. It’s all relative to your expectations. Money buys happiness if you expect to have a certain level of income. Same with love. If you think everybody should love you, and they don’t, you’re not going to be happy.

      Health, though, I’m not so sure. It’s hard to be happy if you’re sick.

      1. Of course I discount the possibility that you might be on drugs.

        Enough heroin will make you happy even if you are a homeless destitude cancer patient with no friends.

    3. How about laughter? I recently bought a new car and it came with a couple of months of free xm raido which I was not planning to keep. I found these Comedy stations on them that I listen to on the way back and forth to work. It definately makes a difference in my mood if even for just a short while. I’ve also noticed taking breaks from the news lightens up my life as well. Generally, I think just not taking everything, every situation and especially not yourself so seriously definately doesn’t hurt.

  12. For about 6 years after my divorce I was so broke, I couldn’t pay attention. BTW, there’s not much more frustrating than to have a decent (I say decent, not great) salary and still be broke. Marriage: not a wise financial decision.

    Then a little over a year ago my last parent died, and I inherited a chunk of their estate.

    Because I was able to pay off some old debts, no longer have a car payment, plus some other incidental stuff I now live within my income, and I don’t touch the inheritance.

    But ask me if I’m happier for having that estate money as backup.

    I’ve always said, people who say money doesn’t buy happiness have always had it– or never been without it.

    1. …money doesn’t buy happiness have always had it– or never been without it.

      3rd option – they were happy without money at some time.

      1. Rosebud.

      2. Absolutely. I was happy when I was broke. But it sure felt good to not be broke anymore.

        Like Forrest Gump said, “You know, one less thing.”

      3. Option 3 is largely impossible.

        Unless you mean happy without *MUCH* money.

        Scraping by at subsistance level it is effectively impossibe to be happy because the unanticipated emergency is so devastating for you that it is impossible to stop worrying about the negative things that can happen

  13. Pffft. All emotions come from within. You won’t be happy until you decide to be happy.

  14. o/~ You’re dead for a real long time
    You just can’t prevent it
    So if money can’t buy happiness,
    I guess I’ll have to rent it! o/~

  15. I’m self-employed. When money is tight, and clients aren’t paying, it’s tough to be happy. The big thing to me is responsibility. If I were only responsible for myself, it would be easier to take. Then again, when the money is better and I can do cool things for the wife and kids, it’s more satisfying than just doing it for myself. I guess having family makes the highs a little higher and the lows are lower.

    1. This.

      If it were just me to worry about I could be quite happy on $25K a year, the fact that I can’t let my kids go to the cool thing all their classmates are going to because I can’t afford it makes me miserable.

  16. I can’t believe no one has quoted the wisdom of Mae West:

    “I’ve been rich and I’ve been poor, and honey, believe me, rich is better.”

  17. I do always find it funny that the same people who rail against materialism and consumerism are the same people who rail against economic inequality. One must eschew all worldly goods to be truely happy and if one doesn’t, then we’ll take those goods from them and keep it for ourselves?

  18. The short term happiness thing defintely applies to ny wife. She’ll fall in love with some item whether it’s a house or a car or whatever. She loves it for six months then doesn’t like it anymore and wants something else. I often wonder how that applies to me:)

    1. I often wonder how that applies to me

      Think of yourself as a claw hammer and those things she wants new every 6 months as nails that need to be pounded in or taken out.

      So long as that claw hammer still functions she sees no need to throw it out…plus a claw hammer pretty much cannot be improved upon so you are safe from obsolescence or fad.

      Your wife has the good sense not to throw out functioning tools…she is a keeper.

      1. That’s a good way to look at it:) 23 years and counting.

  19. Call no man happy until he is dead.

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    1. Who’d a thought 30 year ago we’d all be sitting here drinking Chateau de Chasselas?

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  22. (PART II of my above comment)

    Note that SSW argue that the Easterlin hypothesis should be tested in a slightly different way: if the coefficients from the within-country cross-section, the between-country cross-section, and the national time-series differ significantly, then the Easterlin hypothesis is falsified.
    I cannot say that SSW’s version of the test is wrong. But I am not convinced that the more straightforward way of testing the Easterlin as described above is wrong, either.

    When SSW use their version of testing the Easterlin hypothesis, they find that the between-country coefficient is not significantly different from the coefficient of the panel regressions in 6 of 7 data sets (the exception is column 3).
    However, I would definitely not subscribe to how they interpret their results in the latest “Emotion” article: “we find that those countries which enjoyed faster economic growth, on average experienced greater growth in well-being. This general conclusion holds across all the data sets we have studied”. In my opinion, this is simply not true. The result for some data sets is that there seems to be no significant relation between GDP per capita and well-being.

  23. (PART I of my extended comment)

    Let’s talk a closer look at the analysis of Sacks, Stevenson, and Wolfers (SSW).

    The precise version of the Easterlin hypothesis is “at a point in time both among and within nations, happiness varies directly with income, but over time, happiness does not increase when a country’s income increases” (Easterlin et al., 2010, PNAS).

    To me, a test of the Easterlin hypothesis is fairly easy: if I find a significantly positive relationship between well-being and a country’s income (measured as GDP per capita) over time, then the Easterlin hypothesis is falsified.

    In their latest analysis (http://www.sole-jole.org/12513.pdf), SSW analyze 7 data sets (Table 1). In 4 out of the 7 datasets they do not find a significant relationship between GDP per capita and subjective well-being with panel regressions (columns 2, 5, 6, 7; except the coefficient in column 6, row 3).
    So we see no significant evidence in 4 of 7 data sets, that happiness increases when a country’s income increases. My interpretation from these results would be that the Easterlin hypothesis can be rejected in 3 datasets, but it cannot be rejected in 4 datasets. In any case, this evidence is not robust enough for me to say that “economic growth and growth in well-being are clearly related” (as SSW do in their newest article in “Emotion”).

  24. (PART III of my extended comment)

    SSW write in the “Emotion” article: “sensitive to the difference between a precise zero and a large but statistically insignificant number, we focus on quantitative comparisons, rather than statistical significance”. First, the quantitative comparisons in the 2011 working paper are all supported by significance tests. Second, if the economic significance (i.e., the magnitude of the coefficient) really matters more to SSW than the statistical significance, why are they not discussing the 4 negative coefficients in Table 1 at all?
    SSW state the stylized fact in the “Emotion” article that “there is no satiation point beyond which the relationship between income and well-being diminishes”. Using U.S. data, Kahneman and Deaton show in a 2010 PNAS article, that emotional well-being satiates after a certain income level. SSW know the work of Kahneman and Deaton and even cite it in their 2011 working paper. Ignoring it in the Emotion article seems not to be good scientific practice to me.

  25. (PART IV of my extended comment)

    SSW write in the “Emotion” article: “a regression of (standardized) well-being on income reveals that each doubling of income increases well-being by 0.34 standard deviations, identical to the cross-country gradient”. This assumes that the logarithm with base 2 is used. However, most statistics software uses the natural logarithm as default. This means that the results cannot be interpreted as a result of doubling income, but as a result of a 2.7-fold increase in income (since the base of the natural logarithm is e = 2.71?). This is a sizable difference, in my opinion. SSW do either not say which type of logarithm they are using, or they switch between types (see notes of Table 1 in the 2011 working paper). Anyway, I’m quite sure they use Stata as statistics software, which calculates the natural logarithm as default, and I would be very surprised if they would not use the natural logarithm throughout their analyses.

  26. (PART V of my extended comment)

    Note also that some of the clustered standard errors in the work of SSW could be biased downward (i.e., too small, leading to a probably false inference about the existence of a relationship). This is because the theory behind the calculation of clustered standard errors works only if the number of countries (clusters) is large (approx. bigger than 50). See for example Jeffrey Wooldridge’s 2003 article in the American Economic Review. In Table 1 of SSW’s latest working paper the number of countries is below 50 in columns 3, 4, 6, and 7 of Table 1 in the 2011 working paper. Especially the significant result in column 3 should be cross-checked with methods that try to avoid the downward bias.

    SSW also try to reconcile their results with the latest defense of Easterlin et al. (PNAS, 2010). The last row of Table 3 finds the “strongest results”. But why is the limit 12 years and not 11 or 13? Such arbitrary choices sound suspicious, and I would like to see if this result is robust if other limits are chosen.

  27. (PART VI of my extended comment)

    From what SSW write in their latest “Emotion” article, one could think that Easterlin has not recognized that in the cross-section or in the between-country analysis higher income leads to higher well-being. This is simply not true. From his very first article in 1974, Easterlin has always said that higher income leads to higher well-being in the cross-section, but over time he sees no evidence for a relationship between happiness and national income. Thus, writing a sentence like “In short, cross-national comparisons show no Easterlin Paradox.” (p. 1184 in the “Emotion” article) disregards that the paradox only exists if the cross-section result is put in contrast with the time-series result. Easterlin has clearly pointed to this issue in his 2010 PNAS article, and I wonder why SSW are imprecise in this regard.

  28. (PART VII of my extended comment)

    Note also that the latest two working papers of SSW have not yet been cross-checked by fellow scientists. Moreover, the latest version of the working paper I found is tagged as “preliminary and incomplete”. The analysis in SSW’s latest article in “Emotion” is partly based on their 2010 and 2011 working papers, which have not yet been published. Before somebody I can trust to be really competent in the field has not checked the work, I wouldn’t buy it as a “new and stylized fact”. This is not to say that SSW’s results are wrong, but saying that own unpublished work is a “fact” seems a bit bold in the world of science.

  29. (PART VIII of my extended comment)

    The “panel of panels” (Table 2) seems an innovative idea to me, and the results suggest the interpretation that Easterlin hypothesis is not true on a global level. I would be curious to see what experts in the field think of the “panel of panels” approach. In any case, that might prove that on a global level, economic growth is positively related with higher well-being. Personally, I am more interested in what is true for my own country than in the general, global result. For the U.S., Stevenson and Wolfers have stated earlier that the U.S. seems to be an exception where the hypothesis cannot be rejected (2008 Brookings paper). SSW are more interested in the global result, and see the U.S. exception as “more of an interesting outlier than a key example”. I guess the reader has to make a personal decision if he/she thinks the U.S. exception is important or not.

  30. (PART IX of my extended comment)

    My bottom-line is: SSW, and especially Stevenson and Wolfers have proven in other previous work that they are talented and careful scientists. And I would not say that they are wrong in their income-happiness analysis. But, dear journalists, before you buy the “new facts” as facts, it could be worthwhile to be a little more patient until somebody has thoroughly scrutinized SSW’s recent work (especially the 2010 and 2011 working papers). Once the work went through a referee process and is published in a journal, you can just be a little more sure that economic growth really buys happiness.

    But maybe it’s not so important for journalists to wait, because if somebody finds out that SSW’s work was indeed preliminary and incomplete, then it would be worth another headline. Just my two cents worth.

  31. “Money” is the root of all evil. A monetary system that is based on debt will end in disaster. That is what our system is today. A piece of paper. When you are on your death bed, you won’t say “I want my money here I want to say goodbye” no you will ask for the ones that you love to be there to comfort you as you slip into oblivion. Invest in relationships, in family, in love. No amount of money can buy happiness. I’m not poor, but I’m sure as hell not rich in monetary means, but I’m the richest man I know in friendship, love, family. I’m happy as I’ve ever been, and I’ve had over a million in the bank. I was not happy because it is never through 100% honest means a person acquires wealth like that and hoards it. That is pure evil. I find it SICKENING that while the world had a “global recession” the 10 richest families made enough money to end hunger in the world 100 times over. There wasn’t a recession, it was a robbery. And we are still being robbed! These men with all this money and power, they STILL aren’t happy! What does this tell you? It tells you that we as a people can be happy with no money at all. I could be happy with not but my family, friends, and others I love, the food, water, shelter and clothing to keep our basic needs met. Ever lived off the land? I have. Just got back from an expedition a couple weeks ago, most wonderful time of my lifes. If you truly believe money could equal happiness. Please. Rethink your life.

  32. relative income. The implication is that if relative socioeconomic positions don’t change when everyone gets richer tog

  33. socioeconomic positions don’t change when everyone gets richer

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