We in North America love to say that money can’t buy happiness. Justin Wolfers has writen a six-part blog post describing how that is not necessarily true — in fact, money and happiness are in fact strongly correlated.
The facts about income and happiness turn out to be much simpler than first realized:
- Rich people are happier than poor people.
- Richer countries are happier than poorer countries.
- As countries get richer, they tend to get happier.
Moreover, each of these facts seems to suggest a roughly similar relationship between income and happiness.
There’s a lot of great facts, data, and analysis in his series — far to much to explain here. Instead, I’ll simply link to the articles and recommend that you read them if you’re interested. They’re quite an easy read and have some great graphs.
- Reassessing the Easterlin Paradox
- Are Rich Countries Happier than Poor Countries?
- Historical Evidence
- Are Rich People Happier than Poor People?
- Will Raising the Incomes of All Raise the Happiness of All?
- Delving Into Subjective Well-Being
Also, here’s the original research paper. (Note: PDF)
I would like to post two significant quotes though. Firstly:
When we plot average happiness versus income for clusters of people in a given country at a given time, we see that rich people are in fact much happier than poor people.
It’s actually an astonishingly large difference. There’s no one single change you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.
There’s another striking finding in this graph: the relationship between happiness and log income appears nearly linear.
Thus, a 10 percent rise in income in the United States appears to increase happiness by about as much as a 10 perecent rise in income in Burundi.
Even so, it is worth noting that a 10 percent rise in income in Burundi requires one-sixtieth as much income as a 10 percent rise in income in the U.S. Thus, even if the slope is three times as steep for rich countries as poor countries (as we estimate), this still means than an extra $100 has about a twenty-times-greater effect on happiness in Burundi than it would in the United States.
I think that this last one plays a significant role when discussing fighting terrorism (and foreign policy in general). If terrorism does have its roots in unhappiness (which is not proven but quite likely true) then the most effective means of combating it may be to take the money spent on rich-nation soldiers and arms producers and sink it directly into improving the lives of poor-nation civilians. That may have a better bang-for-your-buck ratio than trying to attack terrorists directly.
Lastly: these data show correlations, and correlations are not causations. It is not possible (yet) to say that money does cause happiness. It may very well be the opposite effect: happiness causes productivity and thus higher GDP. However, there is some evidence that it really is the former situation (see the articles for full details), and I think that we’ll see a stronger causal link in the future as more research is done.