Saturday, January 12, 2013

Money and Happiness Redux

In my blog Bhutan Suggests to US How to Measure Happiness, I wrote how the leaders of Bhutan spoke before the United Nations and suggested a new measure of happiness, one not based simply on a country's GDP, but one that includes a holistic look at a person's well being. At the end of the post I wrote, "I hope it takes hold: perhaps after academics have found a way to quantify the spiritual . . . " Well, it seems that has happened. While not an academic exactly, senior correspondent Derek Thompson wrote in the Atlantic, Yes, Money Does Buy Happiness: 6 lessons from the newest research on income and well being. I've reprinted the 6 points below, would love to hear a response from Bhutan, am concerned about #6. Particularly in light of the recent report on the health failings of the US as well as its high rates of violence when compared to other developed nations.

From Yes, Money Does Buy Happiness: 6 lessons from the newest research on income and well being.
(1) Richer countries are happier. Here's a simple graph to make a simple point. The researchers plotted 122 countries' responses to a Gallup World Poll on well-being against each nation's real GDP per capita (adjusted for purchasing power) and found a strong correlation.
Upshot: Well-being rises with income at all levels of income, across countries.
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(2) ... But every next dollar won't buy the same amount of happiness. The straight line can be deceptive at first blush. The graph is *not* telling you that every next $1,000 on your paycheck is worth the same gains in satisfaction. Instead, the relationship is logarithmic. That means doubling your income from $1000 to $2000 raises satisfaction by the same amount as doubling your income from $10,000 to $20,000. Not that these findings are as binding as the law of gravity, but this would suggest that, to equal the happiness boost you felt from getting raise from $30,000 to $60,000, another $30,000 wouldn't do the trick: You would have to double your income again, to $120,000.
(3) Richer countries get happier as they get richer. That first graph answers the question: Do countries with more income report more happiness? The answer seems to be yes. But what about a different question: Do individual countries report more happiness as their incomes rise? Also, yes. The next graph looks the 25 biggest countries in the world and shows the linear relationship between well-being and household income.
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(4) There is no "happiness plateau" (or it's much higher than we thought). Those lines tell us three important things. First, the lines go up. More money, more happiness. Second, the lines go up in parallel, more or less. Across language, culture, religion, ethnic background, the same amount of extra money seems to buy the similar amount of extra happiness. Third, the lines go up in parallel and they don't flatten out. There is no "Easterlin plateau", no satiation point, no bright line where money suddenly loses the ability to improve well-being.
(5) Europe's lesson: A steadily rising level of satisfaction from a steadily rising level of income. The graphs below are a bit more pointilist and messy, but they make a similarly compelling point. The Eurobarometer survey, which has measured life satisfaction across the continent since 1973, clearly shows that in eight of the nine countries for which the researchers have the most data, well-being has increased through time with economic growth. Except for Belgium. You're weird, Belgium.
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(6) The American exception is also a lesson: Income inequality is a tax on happiness. The U.S economy has doubled in size since the early 1970s. But self-reported well-being has declined. Huh?
The authors make two reasonable excuses. First, economic growth correlates with improved happiness in most countries, but that doesn't mean GDP is the overwhelming determinant of happiness. Social changes, such as the increase in single-family households, could play an equally powerful role in moving self-reported satisfaction in America. Second, it's well known the U.S. is a world leader in economic inequality and that the fruits of a doubling GDP have hardly been shared equally.  "In European countries, inequality has increased by half" the amount it has in the U.S., the authors find.

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