Posted by For more than 30 years, it has been a truism of social science that, once our basic needs are met, money doesn’t buy happiness, or even upgrade despair. In one well-known survey, people on the Forbes 100 list of the richest Americans were only slightly happier than the American public as a whole; in an even more famous study, done in 1978, a group of researchers determined that 22 lottery winners were no happier than a control group. This is commonly referred to as the Easterlin paradox, after the economist Richard Easterlin who first proposed it in 1974.
But new evidence suggests that the Easterlin paradox needs some modification:
Last week, at the Brookings Institution in Washington, two young economists — from the University of Pennsylvania, as it happens — presented a rebuttal of the paradox. Their paper has quickly captured the attention of top economists around the world. It has also led to a spirited response from Mr. Easterlin.
In the paper, Betsey Stevenson and Justin Wolfers argue that money indeed tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message,” Ms. Stevenson said, “is that income does matter.”
If anything, Ms. Stevenson and Mr. Wolfers say, absolute income seems to matter more than relative income. In the United States, about 90 percent of people in households making at least $250,000 a year called themselves “very happy” in a recent Gallup Poll. In households with income below $30,000, only 42 percent of people gave that answer. But the international polling data suggests that the under-$30,000 crowd might not be happier if they lived in a poorer country.
Obviously, one should be extremely skeptical of any survey that purports to measure such vague terms as “happiness” or “life satisfaction”. The blinkered belief that a few multiple questions can accurately summarize the general tenor of our life is yet another reminder that Auden was dispensing some wise advice in “Under Which Lyre”:
Thou shalt not answer questionnaires
Or quizzes upon World-Affairs,
Nor with compliance
Take any test. Thou shalt not sit
With statisticians nor commit
A social science.
That said, even if the Easterlin paradox is empirically dubious, there are still some interesting disconnects between money and “happiness,” whatever that is. For instance, since 1950, the number of Americans describing themselves as very happy has declined from 7.5 percent to 6 percent. Even more interesting is fact that, as many countries become more prosperous, depression becomes significantly more common. Other studies have found that rates of depression and anxiety are twice as high among upper-class, suburban teens compared to the national norm. Obviously, differing rates of diagnoses play a big part in these statistics, but I’m not sure if they explain everything.
The lesson is that affluence isn’t an unqualified good. I’m personally drawn to the work of people like Robert Frank, who argue that part of the problem is conspicuous consumption. When someone wears a Rolex watch, they don’t make themselves happy – their dopamine/pleasure neurons habituate very quickly to the luxury good – but they do manage to raise the material expectations of everybody wearing less expensive watches. These people now feel inferior, since their Timex has been devalued by the costlier item. (Such luxury items are known as “positional goods,” since part of their appeal is that they signal your social position.) Multiply this same psychological phenomenon across a full range of consumer products–from clothes to cars, stereos to shoes–and you can begin to see the “hedonic treadmill” that afflicts people in developed countries. Not only do their brain cells automatically adapt to their state of wealth, but those same neurons are constantly being bombarded with a new set of expensive expectations. Of course, not everybody can afford a Rolex or a Lexus, which means that we are constantly being disappointed.
Nevertheless, I still think it’s pretty ridiculous to look at free-market capitalism through the prism of amorphous moods like “happiness” or mental illnesses like depression. The real benefit of affluence is the gift of self-expression. If you have money, you can buy the precise clothes that suit your individual style, or fill your home with furniture that reflects your idiosyncratic taste. You can get the cell-phone that captures your soul and stuff it with all of your favorite music. These acts of consumption might not make us “happy,” but they do provide some important psychological benefits, even if those benefits are tough to measure on a survey.
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