The Squabble Resumes: Does More Wealth Make a Nation Happier?

By Andrew Moseman | December 14, 2010 6:31 pm

Big group of young jumping people.A new study out this week has rekindled an old economics fight: When countries get richer, do they get happier?

For Richard Easterlin, the answer has always been “no.” He became famous in economics circles beginning in the 1970s for articulating his namesake idea, the “Easterlin paradox.” He found that when you compare rich countries to poor countries, the people in the wealthy nations were more satisfied. But when a country’s economic position improved over time, the people in that country didn’t get happier.

“If you look across countries and compare happiness and GDP [gross domestic product] per capita, you find that the higher the country’s income, the more likely it is to be happier,” Easterlin said. “So the expectation based on point-in-time data is if income goes up, then happiness will go up. The paradox is, when you look at change over time, that doesn’t happen.” [LiveScience]

Now Easterlin is back with a new study in the Proceedings of the National Academy of Sciences, one that extends his argument to even more countries.

The new study, Easterlin said, is the broadest finding about the paradox so far. The researchers gathered between 10 and 34 years of happiness data from 17 Latin American countries, 17 developed countries, 11 Eastern European countries transitioning from socialism to capitalism and nine-less developed countries. They found no relationship between economic growth and happiness in any case. Even in a country like China, the researchers wrote, where per capita income has doubled in 10 years, happiness levels haven’t budged. South Korea and Chile have shown similarly astronomical economic growth with no increase in satisfaction. [LiveScience]

Why should this be so? Easterlin’s explanation lies with the idea that one’s expectations for what the good life entails, or “aspirations” as he puts it, don’t rise and fall with the fluctuations of the economy. That is, just because a recession sinks the stock market back to 2004 levels doesn’t mean that you’d be satisfied with the stuff and the quality of life you had then now that you’ve tasted more. Conversely, he argues, an immediate jolt in your pocketbook would inflate your mood, but eventually you’d get used to the new standard of living and come to expect it as your baseline. So, in this hypothetical scenario, your overall affluence rose in the long term but your happiness did not.

That all sounds good in theory. But as long as Easterlin has been advocating his paradox, others have insisted that the effect is not real. One economist in opposition is Justin Wolfers, whose own work finds that opposite: there is a direct connection between economic development and a long-term increase in life satisfaction. You can read Wolfers’ full take at The New York Times’ Freakonomics blog, but in essence he says:

Easterlin’s Paradox is a non-finding.  His paradox simply describes the failure of some researchers (not us!) to isolate a clear relationship between GDP and life satisfaction. But you should never confuse absence of evidence with evidence of absence. [The New York Times]

While the economists spar over the data, there is another question: Is the data any good? The researchers use the well-regarded World Values Survey, but the slipperiness of “happiness” is a problem that vexes all who attempt to quantify it and box it up and chart it out on nice little graphs.

Commenting on the new results, Alexander Gorban, a mathematician at the University of Leicester, said it was difficult to quantify happiness because of the problem of comparing material and subjective wellbeing. “Unfortunately, both are very difficult to put in numbers. It is a priori clear that subjective happiness or satisfaction is a very fragile and non-universal concept strongly influenced by cultural and even linguistic intercultural differences. Moreover, the material wellbeing is also not easy to quantify.” [The Guardian]

So we’re not reliable well-being self-reporters. Furthermore, Gorban notes, the studies rely on gross domestic product (GDP) as their indicator of a country’s economic state. But GDP is not necessarily an indicator of an average person’s relative affluence, especially in societies (like, say, the United States) with growing class disparities.

Nevertheless, Wolfers studies have found that there is no satiation point with money and happiness. That is: The more money you already have, the lesser the happiness gain from getting more money. But there is no point, he says, where more money brings zero gains in happiness.

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Image: iStockphoto

  • nick

    I imagine many billionaires are happier than I am. But are they billions of dollars happier than I am?

    Or are they happier? I have a tiny bank account and no property to worry about. They, on the other hand, have billions of dollars of investments and companies to worry about, high taxes, etc.

    Is a monk who has attained enlightenment happier than me, or a billionaire?

    I’m going to guess that, until we can look in a person’s mind and see the activity of ‘happiness,’ whatever that may turn out to be, this will be a very hard issue to quantify. Dopamine system stimulation generally equates to happiness-feeling in a person. So is a coke or meth addict ‘happier,’ when under the influence, than anyone else can be without those drugs?

  • Brian Too

    Isn’t the problem with Maslow’s Hierarchy of Needs? When you satisfy lower level needs the person immediately moves on and starts to focus on higher level needs. Therefore there is always some ‘unmet need’ in an individual’s life.

    Perhaps unmet higher needs should cause less unhappiness than unmet lower needs. Resulting in increased overall happiness. However I’m just not sure that’s true in the real world.

  • Jayarava

    Perhaps the causal relationship, if there is one, goes the other way. Happy people are responsible for more productive economies?

  • YouRang

    I like Gorban’s point particularly–GDP is a TERRIBLE indicator of wealth!!! If the GDP goes up but the disparity increases more, one would expect the most unhappy people to become more unhappy. And if the GDP goes up but the people with unmet NEEDS rather than unmet WANTS goes up, the likelihood of revolt and terrorism also goes up. So bottom line: measure median happiness and measure standard deviation of happiness rather than average. And in fact measure median UNhappiness rather than median Happiness.

  • Bobito

    Our (USA) GDP is tanking, and I’m less happy than I was 10 years ago. But I am making more money now than I was 10 years ago. My “less happy” is do to concern for the future of my new found baseline (much money I have).

    I do agree that going up is less noticeable than going down because you just continue to reset your baseline. It’s always easier to go forwards than back. Can you imagine how happy you would be now with the first car you had in high school? But at the time, that car was sheer love!

  • Propo

    I wonder if the “paradox” is a result of perception based upon relative vs. absolute wealth. So, in any given snapshot, wealthier people look around and see that they ARE wealthier, which makes them happy. But people who were poorer 30 years ago, and have obtained significantly higher income look around and see that there are still plenty of people who are yet even wealthier now. Thus, they are still “poorer” than others – hence, no more happiness.

    I strongly suspect that a comparison between the satisfaction levels of (a) an average worker in an underdeveloped country and (b) an inner-city, minimum wage earner in the US, would reveal that the first category is MUCH happier than the second, even though the second category actually has a far higher income and far more material wealth than the first. It’s all about expectations/perceptions and the person’s individual sense of what he/she is entitled to.

    This kind of effect is undoubtedly enhanced by the worldwide media portrayals, dominated by “First World” images.

  • Barry Johnstone

    I would think that a “happiness” index would be about equality more than money! Surely being equal is the more important thing.


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