Money vs Happiness?

In today’s Herald Tribune, I read the following article:

Maybe money can buy happiness after all
By David Leonhardt The New York Times

In the aftermath of World War II, the Japanese economy went through one of the greatest booms the world has ever known. From 1950 to 1970, the Japanese per-person economic output grew more than sevenfold. Japan, in just a few decades, remade itself from a war-torn country into one of the richest nations on earth.

Yet, strangely, Japanese citizens didn’t seem to become any more satisfied with their lives. According to one poll, the percentage of people who gave the most positive possible answer about their life satisfaction actually fell from the late 1950s to the early ’70s. They were richer but apparently no happier.

This contrast became the most famous example of a theory known as the Easterlin paradox. In 1974, an economist at the University of Pennsylvania named Richard Easterlin published a study in which he argued that economic growth didn’t necessarily lead to more satisfaction.

People in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains simply seemed to reset the bar. To put it in current terms, owning an iPod doesn’t make you happier, because you then want an iPod Touch.

Relative income – how much you make compared with others around you – mattered far more than absolute income, Easterlin wrote.

The paradox quickly became a social science classic, cited in academic journals and the popular media. It tapped into a near-spiritual human instinct to believe that money can’t buy happiness. As a 2006 headline in The Financial Times said, “The Hippies Were Right All Along About Happiness.”

But now the Easterlin paradox is under attack.

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Two economists, Betsey Stevenson and Justin Wolfers, argue that money tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message,” Stevenson said, “is that income does matter.”

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Economic growth, by itself, certainly isn’t enough to guarantee people’s well-being – which is Easterlin’s great contribution to economics. In the United States, for instance, some big health care problems, like poor basic treatment of heart disease, don’t stem from a lack of sufficient resources. Recent research has also found that some of the things that make people happiest – short commutes, time spent with friends – have little to do with higher incomes.

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