Justin Wolfers and Betsey Stevenson discussed their happiness research on CNBC today.
Arguably the most important finding from the emerging economics of happiness has been the Easterlin Paradox.
What is this paradox? It is the juxtaposition of three observations:
1) Within a society, rich people tend to be much happier than poor people.
2) But, rich societies tend not to be happier than poor societies (or not by much).
3) As countries get richer, they do not get happier.
Easterlin offered an appealing resolution to his paradox, arguing that only relative income matters to happiness. Other explanations suggest a “hedonic treadmill,” in which we must keep consuming more just to stay at the same level of happiness.
Either way, the policy implications of the Paradox are huge, as they suggest that economic growth may not raise well-being by much.
Given the stakes in this debate, Betsey Stevenson and I thought it worth reassessing the evidence.
We have re-analyzed all of the relevant post-war data, and also analyzed the particularly interesting new data from the Gallup World Poll.
Last Thursday we presented our research at the latest Brookings Panel on Economic Activity, and we have arrived at a rather surprising conclusion:
There is no Easterlin Paradox.
The facts about income and happiness turn out to be much simpler than first realized:
1) Rich people are happier than poor people.
2) Richer countries are happier than poorer countries.
3) As countries get richer, they tend to get happier.
Moreover, each of these facts seems to suggest a roughly similar relationship between income and happiness.
What explains these new findings? The key turns out to be an accumulation of data over recent decades. Thirty years ago it was difficult to make convincing international comparisons because there were few datasets comparing rich and poor countries. Instead, researchers were forced to make comparisons based on a handful of moderately-rich and very-rich countries. These data just didn’t lend themselves to strong conclusions.
Moreover, repeated happiness surveys around the world have allowed us to observe the evolution of G.D.P. and happiness through time — both over a longer period, and for more countries. On balance, G.D.P. and happiness have tended to move together.
There is a second issue here that has led to mistaken inferences: a tendency to confuse absence of evidence for a proposition as evidence of its absence. Thus, when early researchers could not isolate a statistically reliable association between G.D.P. and happiness, they inferred that this meant the two were unrelated, and a paradox was born.
Our complete analysis is available here. An excellent summary is available in today’s New York Times, here, with a very cool graphic, and readers’ comments. Other commentary is available in the F.T. (here and here), and Time Magazine.
Given the broad interest in this topic, I thought that I would spend the next couple of days blogging about our new findings on the links between income and happiness. Tomorrow, I’ll describe comparisons of rich countries and poor countries. I’ll follow that up with separate posts describing comparisons of rich and poor people, and then assessing how happiness changes as countries get richer or poorer.
and 
. You can also watch it on 
Maybe it’s the old “We were poor, but we didn’t know it” thing.
Maybe that’s why children, not seeing class distinctions so easily, are more content.
Or why you are not nearly so happy when you find that your best friend on the job, who does what you do and started the same day, makes a few thousand more than you do.
It’s only when you realize what you don’t have, or what you can’t have, or what others have that you don’t, that this whole problem kicks in. As long as you aren’t aware that there is color TV, black and white does just fine.
And it’s true, money does buy happiness…to some degree. Certainly being able to hire a maid to clean the house would make my wife much happier. And not having to tussle over bills and expenditures. Of course, all the money on earth won’t buy happiness in the case of, say, a child that is incurably sick, or the lose of a beloved parent (even though wealth may have some light effect by enabling one to bring certain resources and therapies to bear that a poor person much forego).
But my goal is to be as the Apostle Paul, who said, “I have learned that in whatsoever state I am, to be therewith content.”
As Mark Twain said: “Work consists of whatever a body is obliged to do . . . Play consists of whatever a body is not obliged to do.”
If you have to work, then that work is probably less likely to make you happy. If you do work that you enjoy or keep working even though you have enough money not to work, you are transferring yourself into the “not obliged” category.
For those of us that are “obliged” to work to survive, I think this is a fair question to gauge happiness in relation to money:
“If you kept the same job, but were paid X dollars more, would you be happier?”
The graphic really does explain the data well. I would also like to see the same happiness data plotted against the the Gini coefficient as suggested by oddTodd (1). I notice that Venezuela is perhaps the most “happiness-efficient” outlier. Perhaps there are cultural clusters – a brief glance shows Latin America in toto seems to be above the average in happiness efficiency.
All things considered, happiness data have to be taken with a grain of salt – if someone asked me how i felt (even if they specifically said In General) a lot would depend on how I felt at that particular time. If you did the polling at Christmas in Europe, you might get different answers than in March.
Uh, so does this mean I should sell out?
I agree with Adam Herbst- perhaps the data has evolved along with ‘globalization’- that is, as stratification increases worldwide, there is a greater ‘happiness gap’ that develops between rich and poor (with less middle ground to confound the data)- the third world is being forced out of relative happiness due to the deterioration of local subsistence economies and commodity price crises (food and energy)- the only way to bridge the gap is to empower workers to sustain local civil societies, thereby regaining their relative happiness- otherwise the happy get happier and the sad get madder
The answer to the paradox is that there is a false dichotomy between happiness and unhappiness
Removing unhappiness from one’s life does not necessariily result in happiness. Similarly, removing some aspects of happiness from one’s life does not necessarily result in unhappiness (strictly speaking, only “less happy”).
Continuing the idea, many of the problems that bring about unhappiness could be resolved with money. A hungry man could buy food, a homeless man could rent a place, an “ugly” woman could get surgery, a “lonely” man could pay for an escort, etc…
While these purchases might not ultimately lead to happiness, they certainly do address the root of some unhappiness.
Could it also be that with the advance of communications technologies people’s internal comparison set has changed?
Imagine that the basic psychology is right – that what matters to happiness is relative income (or relative status). In the earlier data sets, people were using their local setting (their country say) in determining what their relative status was.
But now, with wider availability of television, internet, etc, people in poor countries now have a good idea of what life in rich countries is like, so they now use that in determining their relative status. They don’t come out too well, so poor countries are now less happy relative to rich countries than they were. It seems like that could also explain the data.
Hmm, continuing the thoughts of some others above, if log income is a significant driver of well-being then redistribution and social justice seem well justified, even at the expense of some loss of GDP.
Maybe we can replace GDP with sum-log-income?