Personal Wealth Vs Happiness

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The Gallup survey is just one of many. Others show a much weaker link between income and life satisfaction. Using data from the World Values Survey, which dates back to 1980, Stevenson and Wolfers couldn’t identify any statistically significant relationship between movements in G.D.P. and changes in life satisfaction. “I can’t say I’m absolutely certain that greater growth in income causes greater happiness,” Wolfers concedes. “And you can’t say for certain that greater growth doesn’t produce greater happiness.”

Maybe not, but I can say for sure—because Wolfers and Stevenson confirm it—that as people and countries grow richer, each extra dollar of income buys less and less additional happiness. A $100 rise in average income in Jamaica, for example, has three times the impact on measured happiness as a $100 increase in the U.S. Moreover, other economists, including John Helliwell of the University of British Columbia, have shown that nonmonetary factors like working conditions appear to have a much bigger impact on happiness than income. “What we really care about is how big the effect of income is on well-being,” Helliwell says. “The answer is it’s small relative to other things.”

Why is the relationship between money and happiness so complicated? Rivalry and jealousy provide a large part of the answer. What many people care about most is not the dollar amount of their income but their income relative to the income of others in their peer group. As H.L. Mencken put it many years ago, wealth is any income that is $100 more a year than the income of your wife’s sister’s husband. A recent example comes from the former East Germany. During the 1990s, living standards there rose sharply, but reported happiness fell. The likely explanation: After decades of belonging to the decrepit Soviet bloc, East Germans began comparing themselves with West Germans.

Also, as people become richer, they quickly grow accustomed to bigger houses, more powerful cars, and better-made clothes, but their possessions don’t make them much happier. We humans are trapped on a hedonic treadmill. The faster we try to get ahead, the quicker we end up back where we started. Studies show that even lottery winners, after an initial period of adjustment, don’t become much happier.

Fortunately, Helliwell and other researchers—even taking into account rivalry and habituation—have identified some things that make people feel better, such as getting married, being employed in a secure job, having a full social life, and playing an active role in the democratic process. Not very long ago, quality-of-life issues like these were largely beyond the purview of economics, and I, for one, was of the mind that economists should stick to things they know about, like inflation and interest rates. After delving into the happiness literature, I’ve changed my view.

In poor countries, where billions are struggling to eke out an existence, economic growth is the only route out of poverty and degradation. In rich countries, though, it may be time to supplement G.D.P. with other measures of progress. In his book, Layard calls on governments to promote ­family-friendly policies like flexible work hours and more parental leave and subsidize organizations that promote communities, such as sports leagues and good public schools. With more research and a bit of imagination, economists should be able to augment this list. What could be more important than promoting happiness and well-being? As utilitarian philosopher Jeremy Bentham pointed out two centuries ago, the answer is nothing. John McCain and Barack Obama, take note.

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