Over lunch, Justin Wolfers mentioned a hard-to-believe fact: In a data set with an unusually high maximum income category, 100% of the richest people were “very happy.” I decided to track down the data. Despite my incredulity, Justin’s description was literally correct. From a 2007 U.S. Gallup poll:
Yep, 100% of the respondents with family income over half a million a year were indeed very happy. Of course, there were only 8 such respondents. And in the same survey, happiness was virtually flat from $30k to $150k – roughly the 20th through 90th percentiles. Extreme Epiricureanism is both demonstrably false and approximately true.
P.S. David’s thoughts about the ideological compatibility of happiness research and free-market economics make me realize I should have been clearer. Two points:
1. David is correct to observe that diminishing marginal utility of income/wealth is entirely compatible with a suitably internationalist free-market economics. If a dollar means more to a poor man than a rich man, using government to help relatively poor First Worlders at the expense of absolutely poor Third Worlders is morally perverse.
2. Still, the small effect of income/wealth on happiness throughout the income distribution remains ideologically inconvenient for free-market economists. A free-market economy is a fantastic tool for making people rich, but making people rich is a mediocre tool for making people happy.
READER COMMENTS
Christopher Finocchio
Mar 3 2014 at 10:48pm
The richest don’t want to call themselves anything but “very happy” because looking ungrateful looks worse when you’ve had some success.
Happiness has to be expressed on a relative scale, but life’s less miserable than it used to be.
Sam
Mar 3 2014 at 10:50pm
It seems like investigating some well-chosen families of parametric nonlinear models for the influence of wealth (and/or income) on happiness might be fruitful.
Sam
Mar 3 2014 at 10:52pm
Happiness is relative at some point, derived from your position in local status competitions. The pursuit for relative status drives an evolutionary positional arms race. Free markets at this margin are indeed lousy for happiness, as well as efficient use of resources, precisely because arms races are a form of coordination failure.
Sam
Mar 3 2014 at 10:58pm
hmm, apparently the Epicureans understood the costs of status competitions. From Epicurus.info:
“Some seek fame and status, thinking that they could thereby protect themselves against other men. If their lives really are secure, then they have attained a natural good; if, however, they’re insecure, they still lack what they originally sought by natural instinct.”
happyjuggler0
Mar 3 2014 at 11:32pm
Moving from $30K-$40K a year to $40K-$50K a year is clearly a bad lifestyle choice to make. Either that or sample size is way too small….
Sudhir Jain
Mar 3 2014 at 11:36pm
Here is Kahneman’s TED talk where he cites research that shows that “happiness” levels flatten out after the $60K levels http://www.ted.com/talks/daniel_kahneman_the_riddle_of_experience_vs_memory.html
Eugenio Proto
Mar 3 2014 at 11:39pm
Here we show that also the relationship between GDP and Life Satisfaction flattens up quite fast:
http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0079358
see also our VOX column for a description of this literature http://www.voxeu.org/article/gdp-and-life-satisfaction-new-evidence
AS
Mar 4 2014 at 1:15am
Disagree on (2):
Markets make everyone richer. Making everyone richer is the best way to lift people from poverty. Compare being poor in 1900 versus 2000, or central Africa versus North America.
Also, as people become richer (or more productive) they may use their extra wealth to buy more leisure, thus reducing their reported income. But it wouldn’t have been possible without that productivity gain. This weakens the correlation in the data and understates the full benefit of advances in productivity or wealth accumulation.
Pajser
Mar 4 2014 at 1:23am
“If a dollar means more to a poor man than a rich man, using government to help relatively poor First Worlders at the expense of absolutely poor Third Worlders is morally perverse.”
Redistribution on international level is the best choice from moral point of view. But redistribution on national level is still better choice than lack of redistribution.
But why would one redistribute anything on national level? Why not redistribute everything that should be distributed on international level?
Because citizens of wealthy country might have enough altruism for redistribution on national, but not on international level. Redistribution on national level requires far less sacrifices. If USA redistributes 100% of its wealth nationally – all USA citizens will have decent living standard and majority will be better off than today. If USA redistributes 100% of wealth on international level – all Americans will be poor like Africans.
Jameson
Mar 4 2014 at 4:23am
“A free-market economy is a fantastic tool for making people rich, but making people rich is a mediocre tool for making people happy.”
Don’t sweat it, Bryan. Whatever people might say about it, there actually aren’t a lot of good tools for making people happy.
Mico
Mar 4 2014 at 5:38am
Is there any way to disentangle pure income effect (happiness due to money available to spend in one’s spare time), from status, and job satisfaction?
It stands to reason that someone on >$500k/year derives satisfaction from the fact that’s he’s likely to be much more successful than practically everyone in the world, even other successful people. This wouldn’t be true if $500k were to become the median income.
I also tend to find that people very high up in organisations, or who own their own organisations, tend to have high job satisfaction simply because they wouldn’t have lasted long enough to reach that position otherwise.
“2. Still, the small effect of income/wealth on happiness throughout the income distribution remains ideologically inconvenient for free-market economists.”
Also, may I suggest it’s the other way around? Free market economists seem to be mainly driven by a deeper ideological commitment to freedom generally, which without a free market is simply difficult to realise. Socialism, on the other hand, is mainly driven by a desire to equalise incomes, which socialists believe by extension will fix most/all other social problems. If income is less important than we thought, socialism’s issues are less important than we thought. Whereas free marketeers still have a lot to say about personal liberty that is constrained by socialist interventions.
Thomas Boyle
Mar 4 2014 at 8:25am
I’ve said it before, I’ll say it again.
Happiness comes from acting effectively to improve your situation.
It is a result of trend, not value.
The Buddha, and psychologists since him have noted that the result is a hedonic treadmill: you are happy while things are improving. Once you accept that there is no sustainable happiness without constant effort to improve, you have three choices: stop trying, and accept your inner state; keep doing better; or try for a while and accept the same inner state at a higher level of comfort.
Another way to put it is: money doesn’t buy happiness, but it buys a much nicer sort of misery.
But, honestly, stop looking for happiness in a fixed amount of money. That theory has been dead for millennia.
RPLong
Mar 4 2014 at 10:29am
I don’t think we can draw any reasonable conclusion from an eight-person sample. I lean more favorably to Caplan’s position on this one, but let’s at least get enough respondents for the central limit theorem to kick in.
Matt Skene
Mar 4 2014 at 11:40am
They admit in the conclusion that their data is compatible with Kahneman’s results, but it’s not clear they realize the implications. Kahneman’s results were about day-to-day happiness, not about overall life satisfaction. If he’s right that there is a satiation point for this, then this still seems to be important to take into account. I would think helping people on a day-to-day basis is more important than making people feel satisfied with their lives. Life satisfaction is likely to be measured in terms of how one stacks up to others, and so it’s maybe impossible to improve in morally defensible ways. Day-to-day happiness, on the other hand, is likely to be determined by things that accurately reflect hardships we should be concerned about.
While I’m not a fan of government intervention, I would think if Kahneman is right, the data provides great reason for anyone making more than the satiation point to give away almost all their money over that point. Charity is one of the few things shown to improve both measures of happiness. Giving it away will likely make you at least as happy with your like as holding onto it, and it is likely to make you happier in your life while you are doing it. Only if you spite someone would you make yourself worse off to prevent them from becoming better off, so if the data on happiness is correct, it’s pretty hard to justify not being charitable past a certain income.
Andrew_FL
Mar 4 2014 at 12:43pm
That’s not what the diminishing marginal utility of a dollar means.
The the marginal utility an individual personally gets from each additional dollar is less than he or she got from the previous additional dollar. That says nothing at all about whether the marginal utility that individual gets from his next additional dollar is more or less than what someone else with less dollars to start with would get from an additional dollar.
John Becker
Mar 4 2014 at 2:41pm
I agree that increasing wealth is overall a poor tool for making people happy since happiness is often a relative status issue. However, I’ll point out a few ways that it at least helps a little.
1. Increasing wealth means increasing life expectancy which means that the people who are happy have more time on the earth to enjoy their happiness.
2. Increasing wealth means protection from awful events like having a child die. These events can make people very unhappy for years even if their happiness eventually comes back to their baseline level. Similar to the effect of winning the lottery in reverse.
3. Even if you had no guarantees that you would be happier, wouldn’t you choose to live in a wealthier country other things being equal?
4. In most of the world this isn’t a problem anymore, but imagine the hardship of always experiencing hunger. It’s hard to be hungry and happy.
MingoV
Mar 4 2014 at 5:35pm
Problems such as the 100% happy claim would not occur if the numbers in the table had 95% confidence limits next to them).
LD Bottorff
Mar 4 2014 at 9:05pm
Prof. Caplan,
Keep emphasizing that it is morally perverse to use government power to help relatively poor First Worlders at the expense of absolutely poor Third Worlders. As a Christian, it is somewhat dismaying that you, an atheist, have better moral understanding on this issue than most of my fellow Christians.
Pajser,
Redistribution via free markets is the moral choice on national and international point of view. Forced (non-market) redistribution on the international level will make us as poor as the Third World right away. Forced redistribution on the national level will make us as poor as the Third World in a few short years.
Jacob A. Geller
Mar 4 2014 at 10:39pm
Look at what a difference there is between 10-20 and 20-30.
Again, I think the Wolfers Equation is much more relevant in developing countries (and globally) than within developed countries.
Jim Glass
Mar 5 2014 at 12:51am
Still, the small effect of income/wealth on happiness throughout the income distribution remains ideologically inconvenient for free-market economists.
Why? Seriously, what’s the assumption behind this?
This is all a response to the Easterlin argument that if economic growth doesn’t make people happier it is a bad thing, which Wolfers is replying to — but I wouldn’t give that argument even the acknowledgement of a response.
If economic growth *merely* enables more children to survive infancy, slashes disease, increases healthy life expectancy, promotes mass education, develops the sciences and the arts … this is supposed to be “inconvenient” for me? I think not!
The argument “The purpose of economic growth is to make *me* happier, else it is not worth it” may be persuasive to the rich, sheltered and completely self-centered — but geeze, who cares about them? They care enough about themselves. There’s a rest-of-the-world out there.
A free-market economy is a fantastic tool for making people rich, but making people rich is a mediocre tool for making people happy.
Of course, on what scientific basis would anyone expect it to be a better one?
“Happiness” is a biological condition, as are all other emotional states. What other emotional states is the market economy supposed to be responsible for producing?
“Evolution did not design us to be happy. It designed us to survive and reproduce.”, as per the evolutionary psychologists. The same with love, sadness, giddiness, depression, hate … they are *adaptive* via natural selection for *survival* needs. All the real scientific research on them show they are dominantly genetic, and behaviorally-biologically functional in evolutionary terms. Not in market terms.
When did these become the province of markets, so that proponents of markets should be “inconvenienced” by them? That there’s not enough “love” in our society is ideologically inconvenient for free-market economists? Really? Or is it just “happiness”? Why?
The whole discussion is misbegotten. Why should markets take on the responsibility of socio-biology? Markets justify themselves by massively increasing human welfare and personal freedom. That’s all the justification they deserve, or need. It’s enough — more than plenty.
Why any proponent of free markets would feel embarrassed by the inconvenient fact that that is their sole justification is beyond me.
If we saw medical doctors saying “We can cure and prevent disease, but while there is some modest correlation between medical treatment and earned income/quality of job it is slight and far from robust, which is ideologically inconvenient for those who favor curing disease….” what would we think?
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