The Easterlin Paradox

atkins-bookshelf-cultureAlthough the Beatles provided the answer to the question: “does money buy love?” (the answer is no — can’t buy me love) every generation grapples with the inescapable question: does money buy happiness? In an essay, Does Economic Growth Improve the Human Lot? Some Empirical Evidence (published in 1974), economist Richard Easterlin attempted to answer the question: will raising the income of all people increase the happiness of all? His conclusion was the formulation of the Easterlin Paradox that states: as income increases, after a certain point, happiness does not increase. In other words, happiness reaches a saturation point. Specifically, after World War II Americans experienced a steady increase in income between 1946 and 1970; however respondents did not report an increase in happiness. Interestingly, during the decade after 1960, self-reported happiness actually declined. Thus, the Easterlin Paradox validates the claim that money does not buy happiness. At last, the have-nots can justifiably rejoice.

In a world driven by consumerism and materialism (assisted by magazines that incessantly promote the life of the rich and famous —  indirectly perpetuating the shallow “keeping up with the joneses” mentality), the Easterlin Paradox did not sit well, initiating several new studies to reassess the relationship of wealth to happiness. Researchers Michael Hagerty and Ruut Veenhoven evaluated new data and published their report, Wealth and Happiness Revisited (2003), concluding that “entire nations can become happier with economic growth and its covariates.” The authors do distinguish between expenditures on education and leisure that lead to long-term happiness and expenditures on consumer items that only lead to short-term happiness. At last, the haves can justifiably rejoice.

The conclusion by Hagerty and Veenhoven was also supported by a followup study in 2008 by economists Justin Wolfers and Betsey Stevenson. Wolfers’s and Stevenson’s analysis of similar data showed a clear relationship between wealth and happiness: as income increases, happiness increases without reaching a saturation point. In an interview with Boson.com (the web edition of the Boston Globe), the researchers elaborated on their work: “Our key finding is that rich people tend to be happier than poor people, and in roughly equal measure, rich countries tend to be happier than poor countries. Previously, people believed that there was strong evidence for the former proposition, but not for the latter. The problem was that when comparing rich people with poor, economists typically relied on samples of thousands of people, and when sample sizes are this large, these differences are clearly statistically significant. By contrast, the early international comparisons involved only a handful of countries, and despite the richer countries being happier than the poorer countries, the sample size was small enough that this difference was not deemed statistically significant. With today’s larger samples, it is clear that rich countries are in fact significantly happier than poor countries.”

Perhaps everyone, whatever their socioeconomic status, can find some comfort in Bobby McFerrin’s song “Don’t Worry, Be Happy.”

Read related posts: Experiencing Happiness in Life
The Sword of Damocles

For further reading: Nations and Households in Economic Growth by Paul David and Melvin Reder, Academic Press (1974).
The Myths of Happiness: What Should Make You Happy, but Doesn’t, What Shouldn’t Make You Happy, but Does by Sonja Lyubomirsky, Penguin Press (2013)
2.eur.nl/fsw/research/veenhoven/Pub2000s/2003e-full.pdf
boston.com/bostonglobe/ideas/articles/2008/11/23/a_talk_with_betsey_stevenson_and_justin_wolfers/?page=full

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