Credit: lodrakon: Dreamstime“I’ve been rich and I’ve been poor. Believe
me, honey, rich is better,” the vaudevillian Sophie Tucker
quipped. Tucker’s witticism will not strike most of us as
controversial. Yet some really smart people are anxious to persuade
the rest of us that more money can’t buy us more happiness. Back in
1974, the economist Richard Easterlin famously
argued that increasing average income did not raise average
well-being. Later research agrees,
noting the apparent “‘paradox’ of substantial real income growth in
Western countries over the last fifty years, but without any
corresponding rise in reported happiness levels.” Basically, the
argument is that as people grow richer they adapt to their new
wealth and fall back to their earlier level of happiness; we’re
stuck on a hedonic treadmill in which amassing wealth turns out to
be an empty endeavor.

Two economists at the University of Michigan, Betsey Stevenson
and Justin Wolfers, reject the Easterlin Paradox. Their
new article, published in the May American Economic
Review—argues that more money does buy more
happiness. As evidence, the two compare happiness measures between
rich and poor countries and between rich and poor people within
countries.

Even before the Stevenson and Wolfers paper, most researchers
retreated from Easterlin’s sweeping assertion that increasing
average income will not increase average well-being. Instead they
argue that higher income is associated with higher subjective
well-being until “basic needs” have been met, at which point the
Easterlin Paradox kicks in. For example, a 2008 study
in the Journal of Economic Literature argues that “greater
economic prosperity at some point ceases to buy more happiness.” So
what is the point at which more money no longer buys more
happiness? In 2003, the economist Richard Layard compared happiness
and per capita incomes between countries and concluded that the
turning point came when a country has over $15,000 per head. He
bumped the happiness satiation threshold up in his 2005 book

Happiness: Lessons from a New Science, finding that
“for countries above $20,000 per head, additional income is not
associated with extra happiness.” 

Stevenson and Wolfers parsed per capita income and well-being as
measured by the Gallup World Survey for 155 countries. Gallup
measures happiness in two ways. In one poll it asks people to rank
their happiness on a 10-rung life satisfaction ladder, in which the
bottom rung is the worst possible life and top rung is the best. In
the second survey, people are asked on a 10-point scale how
satisfied they are with their lives as a whole these days.

The researchers also probe to see if there is a break point at
various income levels, and if the happiness gradient flattens, as
Easterlin Paradox advocates suggest, as income rises. Stevenson and
Wolfers found “no evidence of a satiation point”: As the rich get
richer, they get happier. Stevenson and Wolfers also found that
each percent increase in
income raises measured well-being by a similar amount. So
whatever an increase in happiness doubling income from $5,000 to
$10,000 yields, one can expect a roughly similar boost in
satisfaction when income doubles from $50,000 to $100,000.

Income and well-being: within-country comparisons

                 
(25 most populous countries; Gallup World Poll, Dec.
2007)

Stevenson and Wolfers also concluded that within countries, rich
people are happier than poor people. Back in 1974, Easterlin looked
at Gallup’s happiness data by income in the United States. In 1963,
59 percent of people earning more than $15,000 per year ($115,000
today) said that they were very happy. This rose to 67 percent in
1966, but by 1970 it had fallen to 56 percent. Indeed, the
percentage of Americans at all levels of income who claimed to be
very happy dropped from 47 percent in 1963 to 38 percent in 1970,
although per capita GDP had increased from $20,000 to $24,500.
(Elsewhere Stevenson and Wolfers have suggested that social
and demographic upheavals in the late 20th century America
slowed the increase in the already high average level of happiness
even as per capita income rose. Interestingly, they find that the
happiness gaps between whites and blacks and between men and women
has narrowed since the 1970s.) The general trend still seems to
upward: The 2007 Gallup poll—before the financial crisis—found that
53 percent of all Americans counted themselves very happy, four
points higher than the 1966 high cited by Easterlin in 1974.

Measuring subjective well-being can, well, be subjective. After
all, there is a difference between: “How satisfied are you with
your life?” and “How happy are you these days?” And this just what
the Gallup data cited by Stevenson and Wolfers shows. Of those
Americans making between $75,000 and $100,000, 69 percent are “very
satisfied” with their lives, compared to 60 percent who are “very
happy.” For the record, 100 percent of the 8 fortunate folks making
over $500,000 per year in survey reported being both very happy and
very satisfied. On the other hand, only 45 percent of folks making
between $20,000 and $30,000 are very satisfied, and 43 percent
reported being very happy, and of those making below $10,000 are 35
percent are very happy and 24 percent are very satisfied.

So what kind of “happiness” is more money buying; good moods or
life satisfaction, or both? An intriguing
2010 study by Princeton University researchers Angus Deaton and
Daniel Kahneman used data from the Gallup-Healthways Well-Being
Index, a daily survey of 1,000 U.S. residents, to get at this
question. They report that daily experienced happiness—lower
stress, not feeling blue, a positive affect, and so on—tops out at
an annual income of around $75,000. Deaton and Kahneman speculate,
“Perhaps $75,000 is a threshold beyond which further increases in
income no longer improve individuals’ ability to do what matters
most to their emotional well-being, such as spending time with
people they like, avoiding pain and disease, and enjoying
leisure.”

Deaton and Kahneman also cite a 2010 study in Psychological
Science suggesting that “money
impairs people’s ability to savor everyday positive emotions
and experiences.” In one part of the study, researchers recruited
subjects for a supposed chocolate taste-test experiment. While
filling out a questionnaire, half were exposed to a picture of
money and the control group half to a neutral photo. Those who
glimpsed the money wolfed down their chocolates in 32 seconds,
whereas control group members spent 45 seconds enjoying their
morsels. The researchers conclude, “Our findings provide evidence
for the provocative and intuitively appealing—yet previously
untested—notion that having access to the best things in life may
actually undermine one’s ability to reap enjoyment from life’s
small pleasures.” Perhaps so, but I still enjoy quaffing
18-year-old Laphroaig more than the cheap White Horse blend I used
gulp down in my penurious twenties.

Nevertheless, Deaton and Kahneman agree with Stevenson and
Wolfers that more money evidently enables people to buy the
experiences and conveniences that increase overall life
satisfaction. There is no income threshold when it comes to
procuring more of this kind of happiness. It is certainly wonderful
and valuable to enjoy the moment, but real and lasting pleasure
comes from a life well-lived. More money can’t guarantee a
satisfying life, but research shows that it sure does help.