Money can’t buy you love, but can it buy you happiness?

The common wisdom is that being wealthier as a country (beyond some minimal threshold) doesn’t make its residents happier.  [It's a seeming paradox epnonymously named after Richard Easterlin.]

Angus Deaton’s recent study (“Income, Aging, Health and Wellbeing Around the World”, 2007) claims that this is incorrect; he finds that national level income does make you happier.  (Deaton thinks that the Easterlin paradox resulted from an overly high influence of former Soviet Union and Eastern European countries analyzed in a World Values Survey that have, post Communism, much lower life satisfaction than would be expected at their levels of income, but are less typical of the overall pattern.)

There is still some disagreement about how much this overturns the Easterlin paradox.  Deaton, and the Gallup World survey use a “ladder” question to evaluate life-satisfaction.  The question is of the form: ‘Imagine an eleven-rung ladder where the bottom (0) represents “the worst possible life for you” and the top (10) represents “the best possible life for you. On which step of the ladder do you feel you personally stand at the present time?”   Such ladder questions have tended to be more related to national income levels than the standard ‘subjective wellbeing question’ of the form:  “All things considered, how satisfied are you with your life as a whole nowadays? Please answer using a scale where 1 means extremely dissatisfied and 10 means extremely satisfied.” (This type of question can be asked with different number of points on the scale or labels for the points)

Moreover, Deaton does find that while ‘ladder-type’ wellbeing rises with national income, there is a negative relationship between economic growth and such wellbeing.  It is possible that the process of economic growth is de-stabilizing, anxiety-ridden and enervating, in a way that saps wellbeing in the short-term.

In any event, it should be noted, that at the individual-level it is RELATIVE income (being wealthier than one’s neighbors) that makes you happier, not absolute income.  So if you had the choice of living in a poorer neighborhood where you were wealthier than your neighbors, or living in a wealthy neighborhood where you were poorer than your neighbors, the former is the better strategy for being happy. (See Luttmer, Erzo. F. P. (2005). Neighbors As Negatives: Relative Earnings and Well-Being.)

To read the Deaton paper, see: “Income, Aging, Health and Wellbeing Around the World: Evidence from the Gallup World Poll” (NBER paper, Aug. 2007 by Angus Deaton)
Summary: During 2006, the Gallup Organization conducted a World Poll that used an identical questionnaire for national samples of adults from 132 countries.  I analyze the data on life satisfaction (happiness) and on health satisfaction and look at their relationships with national income, age, and life-expectancy.  Average happiness is strongly related to per capita national income; each doubling of income is associated with a near one point increase in life satisfaction on a scale from 0 to 10.  Unlike most previous findings, the effect holds across the range of international incomes; if anything, it is slightly stronger among rich countries.  Conditional on national income, recent economic growth makes people unhappier, improvements in life-expectancy make them happier, but life-expectancy itself has little effect. Age has an internationally inconsistent relationship with happiness.  National income moderates the effects of aging on self-reported health, and the decline in health satisfaction and rise in disability with age are much stronger in poor countries than in rich countries.  In line with earlier findings, people in much of Eastern Europe and in the countries of the former Soviet Union are particularly unhappy and particularly dissatisfied with their health, and older people in those countries are much less satisfied with their lives and with their health than are younger people.  HIV prevalence in Africa has little effect on Africans’ life or health satisfaction; the fraction of Kenyans who are satisfied with their personal health is the same as the fraction of Britons and higher than the fraction of Americans.  The US ranks 81st out of 115 countries in the fraction of people who have confidence in their healthcare system, and has a lower score than countries such as India, Iran, Malawi, or Sierra Leone.  While the strong relationship between life-satisfaction and income gives some credence to the measures, as do the low levels of life and health satisfaction in Eastern Europe and the countries of the former Soviet Union, the lack of correlations between life and health satisfaction and health measures shows that happiness (or self-reported health) measures cannot be regarded as useful summary indicators of human welfare in international comparisons.

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One response to “Money can’t buy you love, but can it buy you happiness?

  1. Pingback: Money can’t buy you love, but can buy you happiness (II) « Social Capital Blog

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