Lately there seems to be more and more talk of overall happiness, rather than income, money or GDP. The former monarch of Bhutan famously started his Gross National Happiness Index, claiming it was more important than GDP. And then economists such as Richard Layard claimed that Unhappiness was more important than unemployment. Now studies are showing that, after a certain income level is achieved (around $75,000 in the US), earning more money does not entail happiness.
Of course, movies, books and storytellers have been telling us for years about miserable rich people and poor happy ones. These stories are both fiction and non-fiction, but they are all anecdotal so, being economically inclined, we choose to ignore them for data.
So what does this data tell us? The Economist features a very interesting graph:
As you can see, on the left, the level of happiness does indeed flatten once a certain GDP level per capita has been attained. But this merely says that a dollar brings less utility when you’re rich than when you’re poor. This, of course, follows any standard economics model (the more you have of any good, the less marginal utility you gain from an extra unit of that good). The graph on the right, however, shows GDP levels on a logarithmic scale. There we can see plainly that a 10% increase in GDP per capita represents a steady increase in happiness, no matter the income level*.
So, what is the conclusion? Although many like to dismiss happiness as a fad, it would be hypocritical (and quite curmudgeonly) to do so. After all, we study economics so we can optimally allocate scarce resources, we do this so people can be better off, and if people are better off, they’ll presumably be more happy. Even the founding fathers of the US felt the need to specify the “pursuit of happiness” in the Declaration of Independence. However, happiness is something which is very hard to measure. Asking people their overall level of happiness should be straightforward, but even people seem to be confused about what they like. When a Cornell University study asked what they would choose, as opposed to what makes them happy, people gave very different answers. 17% of respondents who said they prefer sleeping more to earning more would still choose higher paying jobs that cut into sleep time. 26% of those saying they would pay more in rent for a shorter commute still would choose the lower rent apartments. If people themselves don’t know what makes them happy, who does?
Judging by the data, however, it does seem that an increase in GDP correlates quite closely with happiness. Even though the millionaire in Hollywood is evil, he enjoys the fact that he has choices in life, while the pauper in a poor country has to spend most of his day earning a living. The important point might be to remember that money isn’t an end in itself, but a means to that end. What’s the end? Most likely Happiness.
* An increase in a country’s GDP bringing more happiness to the country’s inhabitants is not the same as an increase in income bringing more happiness to the individual earning that income. Therefore a millionaire in a country with low GDP does not have the same choices as a millionaire in a country with high GDP. Likewise, it is preferable to be penniless in a higher GDP country than a lower one.
