An economist I recently lunched with muttered that the flood of research by economists on happiness was making him depressed. Since about 2000, economists have gone on a binge of writing books and articles about how people answer questions such as, “Taken all together, how would you say things are these days—would you say that you are very happy, pretty happy, or not too happy?” The news has even reached David Brooks and inspired an mini-screed from The New Republic‘s literary editor about the philistinism of “equation-makers” dealing with “realms of human experience in which their methods have no place.”
What has brought tough-minded economists to the point of studying something so, well, “mushy”? It has to do with the perennial question, Can money make you happy? And there IS an historical connection.
What’s with the Happiness Binge?
Since economists specialize in studying money, it’s no surprise that a big issue for them is whether money can buy happiness – although in the old days, they would have said “buy utility.” One motivation for this flood of research seems to have been a loss of faith in the standard approach of (micro-)economics.
Economists’ official definition of economics is “the study of how people choose to use resources.” And the operating assumption has been that people expend their resources rationally in accordance with their preferences. Thus, we know what people prefer by what they choose; what they choose tells us what gives them utility.
However, recent work in “behavioral economics” has undermined this nifty formula. Researchers have shown that people commonly make choices that do not make them happy. For example, they buy things that they quickly regret; they buy things on impulse; they make seemingly irrational choices.
One implication is that you cannot really discern people’s utilities from what they choose. As two major figures in the field put it in 2006, “people often make choices that bear a mixed relationship to their own happiness. . . . [T]heir choices do not necessarily reflect their ‘true’ preferences, and an exclusive reliance [by economists] on choices to infer what people desire loses some of its appeal.” Therefore, let’s find out people’s preferences, what makes them happy, by – here’s a great new idea – asking people whether they are happy and seeing what seems to correlate with giving upbeat answers. Does, in fact, more money lead to more happiness?
Psychologists and sociologists had been studying happiness and what makes people happy for several decades – but never mind. (There is, amazingly enough, the World Database of Happiness, which has cataloged research findings going back to at least the mid-1960s. And there is a Journal of Happiness Studies.) Also, psychologists and sociologists had found that one has to respect the fact that people’s answers to “How happy would you say you are?,” while useful, are very “noisy” – but never mind.
Money Does So Matter
One apparent finding from the happiness studies that has made it out from the journals to the general media is that, past a moderate amount, more money does not make people any more happy. The implication is that if you’re already a middle-class earner in America, more pay raises aren’t going to do anything for you.
de.wikipedia.org . Doenertier82
There are a few explanations about why that might be so. For example, there’s the “hedonic treadmill” notion that people get used to each new level of affluence, so there’s no net gain. They keep chasing greater happiness but just stay in place. There’s the relative comparison explanation: People get their happiness from feeling that they are ahead of other people, but if everyone gets richer, no one gets ahead.
This notion that more money does not make already-affluent people happier is useful for those who argue for restraining consumerism, for eco-friendly policies, and for the simple life. But some researchers think the claim is wrong. It is true that the happiness returns to money decline as money increases; a $10,000 pay raise when you make $100,000 won’t give you as much of charge as it would if you made $50,000. But nonetheless, it’s worth, on average, a few more smiles.
This debate brings us to the historical angle.
Why Did Happiness Stay Flat?
This money-happiness issue gets often debated around historical data. Researchers look at changes over time in the average national report of happiness and compare it to changes over time in wealth. Richard Easterlin wrote the classic paper, “Does Money Buy Happiness?,” in 1973 (The Public Interest, v. 30), the centerpiece of which was his report that while the per capita income in the United States grew between the late 1940s and 1970, Americans’ average happiness on surveys did not. Later researchers extended this window and the “Easterlin Paradox” through the 1990s (for example, Robert Lane).
But other researchers, notably the curator of the World Database, Ruut Veenhoven (e.g., here, and un-notably, me), have challenged that conclusion. Better data and better measures of average income suggest that American happiness tracked Americans’ earnings reasonably well. (One must remember, too, that other things probably affected Americans’ happiness over the last half of the last century, such divorce rates and crime rates.)
Recently, economists Betsey Stevenson and Justin Wolfers put together and analyzed what seems to be the most comprehensive set of data on the Easterlin question. They conclude: “We find economic growth associated with rising happiness” over time, with “no evidence of a satiation point” where extra income fails to bring extra happiness.
Implications
Somewhere in the background of this academic debate is a muted but real political struggle, one that divides the Left. One side says we’ve reached the point where money can’t really buy people more happiness; economic growth just fuels the rat-race and pollutes the planet; the agenda should shift to less material concerns, what are often called quality of life issues like a cleaner environment. The other side says that that there are plenty of people, even in the U.S., who are far from reaching a plateau of income; that economic growth is necessary to make their lives better and — yes — happier.
While this argument revolves around many issues, one is this seemingly ivory-tower question of whether more money leads more people to more often say that they are “very happy.”
