Maybe Money Does Buy Happiness After All
David Leonhardt reports in the NYT on the Stevenson and Wolfers paper I blogged last week. This gives me hope that the conventional wisdom is starting to shift with the evidence. It’s worth noting that although the new Gallup World Poll has been very useful, the evidence isn’t really new. Here’s Ruut Veenhoven in the discussion we had on happiness almost exactly a year ago in Cato Unbound:
Time series data on happiness are much improved lately and now present a different picture.[2] Happiness appears to have risen in many nations over the last forty years. The greatest increases have been observed in non-Western nations such as Brazil, Egypt, India, and Mexico, with an average gain of about one point on a scale from 0 to 10 since the early 1960s. Happiness has also risen in the eight EU nations that have participated in the Eurobarometer survey since 1973, with a gain of about 0.3 points in 33 years. A similar trend is observed in the United States, where average happiness also rose 0.3 points since the early 1970s. However, compared to the first happiness surveys conducted in the late 1940s, American happiness seems to have hardly improved.
This is, in broad outline, the same story Stevenson and Wolfers are telling.
This past weekend I was at a conference that discussed a number of papers from the past decade or two drawing on the happiness literature. It is truly maddening how the measure least likely to be informative — the trend in average national self-reported happiness — is what gets top billing, over and over again. It has been crystal clear in the data basically forever that there is a positive correlation between average income and average national happiness. And that within countries there is a positive correlation between individual income and happiness. The evidence has always been strong that money makes a significant positive difference for happiness. Upon seeing a flat trend in average happiness over time as average income rises, you’d think the right thing to do would be to ask what is wrong with THAT measure. A ceiling effect? Scale renorming as expectations rise? But no. The measure that suggests income growth really does us no good, that must be right. So let’s hold that fixed and then try to explain away the significance of the strong within-country correlation by making up ill-supported just-so stories about zero-sum status races.
Now that it is increasingly clear that there is a cross-national connection between income and happiness, that it doesn’t exhaust itself at $15,000, that just about every country that has gotten richer has gotten happier, and that within these countries, richer people tend to be happier than less rich people,
I’m sure we can all look forward to a new set of ingenious theories that avoid the obvious interpretation of the data, which is that, other things equal, having more money makes life better.
[UPDATE: Here's Justin Wolfers' first blog post about the Easterlin paradox and his and Betsey's paper at the Freakonomics blog.]
April 16th, 2008 15:44
I always like Michael Caine’s remark: “I’ve been rich and I’ve been poor. Rich is better.” (Sophie Tucker said much the same sort of thing back in the ’40s.)
April 16th, 2008 16:11
I have a tangential question, though admittedly I’m not confident it’s relevant. The data suggest a positive correlation between income and happiness, and from this we conclude that money can indeed buy happiness, etc…
But, at the individual rather than national level, I wonder if there’s a differing impact on happiness between earning money and simply having it. Yes, I realize that for most people it’s the same thing, as higher-earning people will over time build up more net worth than peers lower on the income scale.
But not for all. Younger high-earners, for instance, can have less wealth than older people who may earn less. Is there a difference between their happiness levels?
Or, holding other variables constant, how about two people of roughly similar age with the same net worth–but one earned all of her money and another was given part of it?
I guess I’m just asking if the act of making money (perhaps because of the esteem-reinforcing value-creation it implies) affects happiness differently than having money given to you. Is there any evidence one way or the other?
Thanks, I very much enjoy this blog.
April 17th, 2008 11:49
I’m sure some will say that the rich are happier because they have the awesome opportunity to pay more taxes, and that makes them feel better.
They’ll be glad to continue to expand this opportunity for all of us.
April 17th, 2008 13:04
Upon seeing a flat trend in average happiness over time as average income rises, you’d think the right thing to do would be to ask what is wrong with THAT measure. A ceiling effect? Scale renorming as expectations rise? But no. The measure that suggests income growth really does us no good, that must be right. So let’s hold that fixed and then try to explain away the significance of the strong within-country correlation by making up ill-supported just-so stories about zero-sum status races.
Sorry Will, but this is just crap. I’m as glad as anyone else that improved data are now giving us a better picture of what’s going on here, and as frustrated as anyone else that a lot of the holes in the Easterlin result haven’t gotten as much attention as they deserve. But just because the beliefs conducive to your political views are now being vindicated, doesn’t mean it was obvious all along that you were right and they were wrong, or that the theories that were developed to explain the paradox are as silly as you seem to imply.
Comparison effects and adaptation were perfectly legitimate as potential explanations of the Easterlin result. So, if you’re going to start throwing stones about people ignoring legitimate hypotheses on the basis of political convenience, you might want to step outside that glass house first. In fact, there is still very good individual-level evidence for comparison effects (the evidence for adaptation strikes me as more ambiguous). Just because such effects don’t render money irrelevant to SWB, doesn’t mean they’re not important.
Moreover, to the extent that the “new” results are based simply on better data, they seem to give little credence to your “ceiling effect” or “scale renorming” hypotheses — which would suggest that your gloating is even less justified. You might have been right, but not for any reason you deserve credit for.
P.S. Apologies for the snarky tone, but it’s no worse than yours in this post.
April 17th, 2008 13:14
Anon,
The short answer is yes, sort of. Income (earning money) appears to have a distinct effect from wealth (having money), or consumption (spending money/having stuff). But it’s not entirely clear whether this effect is because people get self-esteem from the act of earning or because, to the extent that individuals’ current income is a signal of their future income, it provides them with a sense of security about their futures. Probably a little of both.
April 19th, 2008 08:36
[...] Maybe Money Does Buy Happiness After All So let’s hold that fixed and then try to explain away the significance of within-country correlation by making up ill-supported just-so stories about zero-sum status races. Now that it is increasingly clear that there is a … [...]
May 4th, 2008 12:24
Is there a good book or paper summarizing the current literature on happiness?
July 21st, 2008 13:07
[...] which seems to confoud previous “happiness research” findings of a disconnect between money and happiness, while Joshua Gans points to much earlier and more succinct research on the question by Tim and [...]