More Money More Problems? Not So, Say Economists

Money Offers More Options for Having the Life You Truly Want


CHEVY CHASE, Md., June 16, 2008—

What is happiness? Scientists seem to agree that you can tell that people are happy when they smile and laugh. Surveys show Americans are happiest the day they get married, when their children are born and when their children graduate from college.

Happiness, experts say, means you are satisfied with your life. But how do you get that way? With the latest iPod? A fancy car? A mansion in the suburbs?

Easterlin Paradox Debunked

Betsey Stevenson is a happy person. She's an expert on happiness  and holds a Ph.D.

The Harvard-trained economist at the University of Pennsylvania happily presented her research at the 2008 World Congress on National Accounts and Economic Performance Measures for Nations.

Her message was radical, and even revolutionary, in the world of economics: "The rich are happier than the poor." Yes. That is a radical thought. In wealthier countries, the people are happier.

Seems obvious, doesn't it? But for nearly 40 years, most economists have been stuck on the opposite thought, thanks to Richard Easterlin.

Easterlin studied surveys of people from around the world, and in 1974 declared, despite what you might expect, the people who lived in countries with big economic booms, like Japan and the United States, were not more satisfied with their lives. Even when countries got richer, the people living there didn't get happier. Here in the United States., hippies living in communes were just as happy as rich folks in mansions. It's called the Easterlin Paradox, and it was summed up by a simple phrase: Money can't buy happiness.

But Betsey Stevenson isn't buying it. "What we see in the data is that people who make $150,000 a year or more are nearly twice as likely to say they are very happy as those who are in the bottom 10 percent," she said.

Wealthier Countries Happier

Stevenson and fellow researcher Justin Wolfers have looked at all the data again, added the results of new surveys, and discovered that wealthy people in poor countries aren't as happy as wealthy people in rich countries.

"In the United States, the General Social Survey has been asking people about how happy they are  it's been asking it pretty consistently. They aim for a representative snapshot of the population, about 1,500 people a year," Stevenson said.

But it's not "things" that make people happy. Having the biggest house on the block, or the latest gadget, didn't make the cut. Instead, the prerequisites are plenty of food, clean water, transportation and access to health care.

"I think the things that make me happy are the same things that make everybody else happy: Time with your family, time to enjoy your life, and frankly, it's pretty easy to see that income allows you to get more of those things," Stevenson said. "It allows you to solve some problems, easier than if you didn't have income. What income does is gives you more choices to live the kind of life you want. If you believe income gives you the opportunity to make the best choice, the more income you have, the more choices you can possibly make." Still, the truly rich never get included in those surveys. And it seems that what makes billionaires Bill Gates and Warren Buffett happy is giving away their money. Gates gave up about a third of his net profit in 2005 to charities, and the following year Buffett gave away 85 percent of his money, $60 billion, to Gates' charity foundation.

Knowing that money can buy happiness could have profound implications for everything from foreign aid to tax policy.

"Absolute income matters for people's happiness, not just relative income. So what does that mean for policy? That tells us that we shouldn't jump too fast at policies that discourage people from working for economic growth," Stevenson said.

Money may buy happiness, but even Stevenson agrees money can't buy love.