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Money buys happiness after all

Does happiness rise with income? Are people in poor countries less happy than people in rich countries?

Much of what we thought we knew on this topic comes from a famous 1974 study by economic historian Richard Easterlin. Easterlin found that within countries, rich people tended to be happier than the poor. But contrary to expectation, rich countries as a whole were not happier than poor countries. And even stranger, in the US, when per capita income rose sharply from 1946 to 1970, bliss did not rise alongside it.

To the best of our knowledge, there is not yet any research debunking The Beatles' well-established Can't Buy Me Love Hypothesis (1964)

Easterlin resolved this seeming contradiction—known as the Easterlin paradox—by hypothesizing that “[t]he increase in output itself makes for an escalation in human aspirations, and this negates the expected positive impact on welfare.” That is, having more stuff actually tends to make people want more stuff, and doesn’t make them any happier.

The Easterlin paradox has been crumbling, but is not altogether demolished, with new expanded datasets and recent research. A great summary of research collected in a newly published volume International Differences in Well-Being, edited by Ed Diner, Daniel Kahneman, and John Helliwell, plumbs voluminous new data (World Values Survey and Gallup World Polls from a larger set of countries) to update our knowledge.

One important refinement in these new studies is the distinction between feeling happy from day to day (more a mood, perhaps) and long term “life-satisfaction.” The Easterlin paradox does NOT reliably hold with “life-satisfaction.”

Bill lays out exactly which parts of the Easterlin hypothesis appear to be holding up over time, and which are collapsing under the weight of the new data, in a new review published today in the Lancet.

If the Easterlin paradox no longer holds true—particularly the lack of difference between rich and poor countries on average happiness—what are the implications for development policy?

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  1. David Zetland wrote:

    1) Poor people have a good reason to get rich.
    2) Rich people need to concentrate on their absolute quality of life, not a delusional quest for positional goods.

    In other words, the Greeks are still right.

    Posted April 29, 2011 at 8:06 am | Permalink
  2. Daniel Hicks wrote:

    I think much of life is about your perception and not necessarily your possession. Most people in the developed world would think that money is all you need to be happy, and in many cases that may be right if they live a fickle lifestyle. On the flip side, ignorance is bliss and if all you have are the people and family around you like many poorer countries then the simpler things in life become more appealing. what else would one want for after all???

    Posted April 29, 2011 at 12:17 pm | Permalink
  3. Raphael wrote:

    The REALLY interesting finding is that there IS a difference in “life satisfaction” between rich and poor countries. As you so colorfully quote, “the average Togolese man would be hospitalised for depression in Denmark.”

    For me, this research challenges the “noble savage” idea in development that poor people are actually quite “happy” and rich Westerners are just too biased to see it. It seems that the poor are indeed NOT very satisfied with their lot in life and find it kinda depressing. An unsurprising, yet surprising finding.

    But the happiness wars will go on, I’m sure.

    Posted April 29, 2011 at 2:09 pm | Permalink
  4. Chike wrote:

    “Happiness” is a very complex subject.

    I have lived in England and I now live in Lagos. My observation is that people in Lagos seem to be happier than people in London. Why is this so?

    Life in Lagos is a horrible daily struggle but I think there is something the average Lagosian has that the average Londoner may lack – a very strong sense of community.

    Whilst the average Londoner tends to have a small circle of friends, the average Lagosian actively participates in his/her Church/Mosque or community group. I think that shared sense of responsibility – “that we are in this together” contributes to satisfaction / happiness.

    Please watch the splendid BBC documentary “Welcome to Lagos”. I think it will help you understand better the points I am trying to pass across.

    Posted April 29, 2011 at 5:55 pm | Permalink
  5. joe wrote:

    Happiness is overrated. I can’t see how or why it should be an end in itself.

    Posted April 30, 2011 at 3:34 am | Permalink
  6. Gillian wrote:

    An amusing musical play on words is John Shade’s album, “All You Love Is Need”. Seems somehow relevant for this post. Enjoy!

    Posted April 30, 2011 at 9:36 am | Permalink
  7. terence wrote:

    It’s worth noting that, even though the Easterlin Paradox seems to be shaken by the new findings. The data — be it on happiness or life satisfaction — still point to the existence of diminishing marginal utility to income. So, on utilitarian grounds, there remains a strong case for redistribution (either internal or international) if it can be shown to work.

    Posted April 30, 2011 at 8:44 pm | Permalink
  8. Matt wrote:

    I have to agree with the posts above. Just because you possibly have all the money you will ever need doesn’t mean you will be happy. Money can’t buy happiness and I feel like the more money you have the more you are going to continue to buy in order to fill something that’s missing within. That is why poor countries, I feel like are happier than rich ones. Though they may tend to give the unhappy vibe due to possibly competing everyday for survival; but overall they have all their needs around them, primarily family.

    Posted May 2, 2011 at 5:34 pm | Permalink
  9. l wrote:

    I think that the sense of community that Chike mentioned has a very significant role to play in measuring ‘happiness’ in rich and poor countries. I think that satisfaction and contentment is easier to achieve when most people in a community seem to be on the same economic plain. This is contrary to the average person in a ‘rich’ country, who may feel upset that he does not have all that famous actors, corporate billionaires, or rappers have. This feeling leads to isolation in contrast to the happier poor countries and in turn leads away from ‘happiness’.

    Posted May 2, 2011 at 7:22 pm | Permalink
  10. Anthony wrote:

    To me all this reveals is that material possessions are not as important to lower income countries as we have always assumed. It may be a recent trend, but I do not think that it has always been as important to areas such as this as we have thought. This should be encouraging and I think developed countries can learn something from this. They have found happiness in areas that we have not. Obviously they are not able to have the things developed countries do that “make us happy” so they have found alternatives, mainly community relationships I would guess? I definitely do not think these latest findings will change any development policy, but I think it is something we should step back and evaluate for ourselves.

    Posted May 2, 2011 at 9:47 pm | Permalink
  11. slw wrote:

    If used correctly in developing countries, then money can buy relief to those in need. In the West, the love of money is causing huge debt problems because we become greedy and constantly want more and more. In the rest of the developing world, the elite in power are also being greedy with their money by not filtering it down to their poor people. Money is causing many problems but what is new?

    Posted May 2, 2011 at 11:19 pm | Permalink
  12. Taylor wrote:

    I agree with Easterlin’s paradox. It is those who have the most who always find themselves unsatisfied, looking for something more. We live in a society where people are always trying to out-do each other with the latest and greatest advancement. It’s impossible to stay on top of it all. All money seems to do is cause problems for those within our own country and around the world. I think that when we stop focusing so much on ourselves and take the needs of the rest of the world into greater consideration our society will begin to better function.

    Posted May 3, 2011 at 1:35 am | Permalink
  13. Gabrielle Green wrote:

    In my opinion, money can’t buy happiness, but it can make the less- fortunate, or poor, people’s lives a lot easier. They won’t struggle anymore but will be able to start living enjoyable lives. The rich on the other hand make their lives worse by being terribly greedy and not appreciationing what they have been blessed with. If there fortunate enough to live worry free, then why not pass that happiness along and help the poor feel that same feeling.

    Posted May 3, 2011 at 10:57 am | Permalink
  14. Matthew wrote:

    This is very interesting because peole have this conversation everyday. I totally agree with the assumption that having stuff makes people want to have more. You think about how you upgrade phones or but the latest addition to something that you already have. And in the countries like the US, when you see someone that has something that you would like it only natural to want it too and in turn makes you unhappy and makes you want more also. People should also understand their situation and learn how to make it better for themselves or accept it and move on.

    Posted May 3, 2011 at 4:02 pm | Permalink
  15. Katie Braden wrote:

    I think happiness depends purely on the mindset of the person, so long as certain human needs are met. Maslow’s Heirarchy of needs shows that once physiological (health, food, water) and safety (shelter, removal from danger) needs are met, then humans seek out love, friendship, and affection. Anything beyond this is self-fulfillment, and success, money, material things, or recognition do not necessarily make someone happier. To be honest, I could probably be completely happy living in a hippie commune, so long as I had shelter, food, friends, and ok, maybe a shower. So many celebrities and CEOs are so obviously unhappy, because they feel as though they have to “keep up with the Jones'” and maybe spend more on their house, buy a yacht, throw a fabulous party. Poor people in developing countries can be just as happy as middle class Americans, or happy rich people so long as their basic needs are met by food, water, shelter, medicine, and safety.

    Posted May 4, 2011 at 12:49 pm | Permalink

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    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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