DOES MONEY MAKE US HAPPY?
Audio podcasts by Prof Richard Easterlin, University of Southern California, and Prof Andrew Clark, Paris School of Economics
At a recent Competitive Advantage in the Global Economy (CAGE) event at Warwick, happiness and wellbeing economists gathered to discuss some of the key questions for the modern world. What are the appropriate goals for a modern society? Should economic growth be a major priority and will it necessarily make us happier? Two academics, Professor Richard Easterlin from the University of Southern California, and the Paris School of Economics’ Professor Andrew Clark, talked about the results of their work, which offers surprising insights into whether money can buy contentment and peace of mind.
 Raising Happiness in Poor Countries - Will Economic Growth Do The job?
Modern China has experienced unprecedented growth. “If you think in terms of the personal experience of individuals who simply are ageing, say, from 25-45, a quadrupling of income in that period is such that you would really expect people in China to be dancing in the streets,” says Professor Richard Easterlin in his talk. Has economic growth made them happier? “The punchline answer is ‘no’.”
In less developed countries, rapid economic growth does not raise the growth rate of happiness. This finding is the same for developed countries and the transition countries of Eastern Europe. “In other words, if you compare countries that have very high rates of economic growth with countries that have very low rates of economic growth you find no significant difference between them in the rate at which happiness grows.” The evidence for this is in studies conducted in 17 Latin American countries; nine countries scattered across Latin America, Africa and Asia; and lastly, in China.
The answer to raising happiness in poor countries, Prof Easterlin advocates in his lecture, is public policy. Evidence from Eastern European countries that transitioned from a communist to capitalist economic system showed that satisfaction with growing material circumstances was cancelled out by a substantial decline in peace of mind with their life, health and job satisfaction. Under socialism, jobs, healthcare and childcare had been assured.
Can less developed countries (LDCs) afford to pay for social security? Germany introduced social insurance in the 1880s to pay for sickness, industrial accidents and pensions. Countries that now account for three quarters of the LDCs’ population have a higher growth level of the GDP per capita compared to 1880s Germany. “Social insurance seems to be affordable in most LDCs and this could increase happiness,” he concludes.
Listen to the full podcast below:
Download
The Easterlin Paradox
People with higher incomes are more likely to report being happy, yet once we have sufficient income to meet our basic needs, happiness does not vary much with the gross domestic product (GDP) per person. Why? In his lecture, Professor Andrew Clark unravelled the mystery and explained what research shows does make us happy. The keys are adaptation and comparison.
In the US the GDP per capita roughly doubled from 1973 to 2003. Data shows that the rise in income didn’t correlate with greater levels of happiness. Yet “if we take any one of these data points and look at the individuals within that country, within that year, richer people are happier. That’s absolutely true in any dataset you take”. This is known as the Easterlin complex.
The answer, according to Prof Clark, is in social comparisons. “It’s not money that brings happiness, it’s money compared to how much other people get that brings happiness and, of course, in the cross section the rich are not only rich, they’re also relatively rich... but as everyone gets richer, no-one gets relatively richer.” We also get used to rising personal wealth. “More money is good, but not for very long. We tend to get used to it. There are income comparisons at work.”
If rising income doesn’t make us happier, then what does? This is a question that Prof Clark has been working on for some time, primarily with respect to social comparisons and adaptation to circumstances. Research into unemployment, which in the UK has been quite high in historical terms since 2005, has shown that unemployment is one of the worst things that can happen to affect an individual’s happiness. What Prof Clark wanted to find out was whether the length of the term of unemployment makes a difference and if it’s better to be unemployed in a high unemployment region. “In other words, if we all became unemployed, does it matter at all because we are all in the same boat?”
The answer is that there are comparison effects with respect to unemployment. It hurts less the more there is of it around, and if you share it with other household members. Unemployment’s effect on happiness is significantly worse if a person is unemployed and their partner isn’t. There is no adaptation to the length of unemployment.
Prof Clark also applied comparison and adaptation theory to marital status, obesity and religion, with some surprising and differing results. Find out what they are by listening to the podcast below. Which areas do you think are key to a nation’s happiness? Where are our politicians and policymakers going wrong? Have your say in the comments section.
Download
A round-table discussion with Professor Andrew Oswald, Professor Richard Easterlin and Professor Andrew Clark on the Economics of Happiness is now available below:
Download
Richard Easterlin is Professor of Economics at the University of Southern California. He is an economist and demographer. He founded the economics of happiness. His ideas have overturned conventional post-war wisdom and have shaped the evolving move away from GDP measures. He is known for the Easterlin paradox where he argued that, contrary to what economics undergraduates have for decades been taught, the evidence suggests that happiness at a national level does not increase with wealth once basic needs are fulfilled.
Andrew Clark is CNRS Research Professor at the Paris School of Economics. One of Europe’s most brilliant social scientists, Clark has done iconoclastic research across psychology, sociology and economics. His seminal article “Unhappiness and Unemployment” in the Economic Journal in 1994 (with Oswald) marked the beginning of the new trend to study happiness and human well-being. He has recently been writing on the topics of obesity, addiction, health, religion, voting, and other central issues of modern life.
|
