Money Isnt Everything In Life Essay

"Money doesn't buy you happiness but it does bring you a more pleasant form of misery." So quipped Spike Milligan, implicitly agreeing with what has become received wisdom in the science of happiness: being richer does not make you happier, once you have enough income to meet certain basic needs.

It is called the Easterlin paradox, after the scientist who first identified the phenomenon from studies of the Japanese economic boom after the second war. Between 1950 and 1970 wealth grew dramatically, but life satisfaction fell. He explained the inverse relationship by proposing that once basic needs are met it is not absolute income that feeds felicity but relative income: how much you make compared with others.

Economists working on happiness have become very confident of the efficacy of this paradox. Some have even suggested that a government truly concerned with the happiness of its citizens would increase taxes. That would level out relative incomes and so boost satisfaction. Richard Layard, sometimes referred to as the UK's "happiness tsar", has suggested that tax levels at around 60% (pdf) would not be inappropriate. Such a policy would probably reduce GDP, but then GDP is a faulty measure of wellbeing.

Now, though, new research is threatening to overturn the old orthodoxy. Two economists, Betsey Stevenson and Justin Wolfers, have presented evidence (pdf) that more money can bring more happiness, if with no absolute guarantees. In short, they have concluded that there is no Easterlin paradox. Talking at the Brookings panel on economic activity, they argued that richer equals happier; richer countries are happier than poorer ones; and as countries become richer they tend to become happier. There is "no evidence of a satiation point beyond which wealthier countries have no further increases in subjective wellbeing." Or to put it another way, GDP actually is a pretty good measure of happiness.

Easterlin, and others since, have got it wrong, they believe, because it is so difficult to compare happiness across different cultures and times - though less so now, as methodologies and questionnaires have become standardised.

Easterlin himself has hit back, arguing that if it was hard to assess subjective happiness in the 1950s, it is still pretty hard to do so now. Also, even with the new evidence, GDP is not consistently linked to wellbeing, notably in China and the US - two rather large anomalies. Stevenson and Wolfers have produced a "very rough draft", Easterlin concludes. Ouch.

As yet, there are no clear indicators as to who will be left smiling at the end of this tussle. In the meantime, it is wise to remain wary of economists brandishing statistics. As Alex Singleton suggested on these pages, the science might be at its most flaky, and simplistic, in the very areas where its impact on government policy, and people's lives, would be greatest.

But there is another question lost in this battle of "hard" facts. Why are we so confused about whether money brings happiness to start with?

It seems undeniable that most people are drawn to better themselves economically, given the chance. But what is often overlooked is that this is only part of a much broader human desire for more. We can and do seek more in material terms. But if we find more only in material terms then most of us are left with a sense of lack. To put it generally, human wellbeing requires something other than just more material prosperity.

That something else is the more that humans seek to gain in art, science and language - more feeling, more insight, more knowledge. It is why relationships are key to wellbeing too: in friendship and love, we reach out and find more to life in others. It is why religion, in its various guises, is more or less universal: the transcendent might be thought of as the ultimate "more".

So, looked at in a different way, it could be that the battle over the Easterlin paradox stems not just from an argument about statistics but over a confusion about what happiness is. The desire for economic betterment - personal and collective - resonates with the desire for more and so it is not surprising when it makes us happier, not least if you start from a low material base. But the material can only deliver in one way, materially. It leaves what might be called the spiritual element untouched.

Thus, the deeper problem is an exclusively economic approach to human happiness itself. By focusing on the material, it risks incorporating inherent limitations into its conception of human wellbeing. That is then reflected in the confusion about what money can and can't buy. No doubt the economists will return to the statistics and produce more evidence to support their divergent cases. But what the Easterlin row also suggests is that the science of happiness needs to ask about the nature of "the more" that human wellbeing seeks.

Does being rich make you happy?

Fed Chairman Ben Bernanke says here that it does to some extent, but that there’s more to life than chasing after money. Of course, Mr. Bernanke is not the only one to have this view on money and happiness. Numerous studies on happiness support his conclusions.

Here are a few thoughts on the points Bernanke makes in his speech:

Basic Human Needs Must Be Met

When people say that money does not buy happiness, they generally mean “extra money.” I think we can all agree, and research supports this view, that people whose basic needs for shelter, clothing and food are not met, will find it very difficult to feel happy.

Of course, there are exceptions, including people whose religious beliefs dictate that they should be happy with as few material possessions as possible, but for most of us, we can only be happy once our basic needs are met.

The Joneses Cannot Be Escaped

Happiness research shows that when people determine their level of happiness, how much they have compared with others is more important than how much they have in absolute terms. Again, this is assuming basic needs have been met.

Although rich people in a given country generally feel happier than poor people in the same country, rich people in a rich country do not feel happier than rich people in a poor country, even though in absolute terms, they have more. So, we tend to feel happy once our basic needs are met and we have more than the people surrounding us.

This means that while keeping up with the Joneses could be destructive if we let it go too far, it is also part of human nature to want to feel at least on the same level, financially, as those surrounding us.

However, we should not allow ourselves to get caught up in competing with our neighbors on external signals of “I have more than you do” which really mean nothing, because a big house and a big car and an expensive vacation could simply mean that one is in serious debt, and not that one is “well off”.

But You Should Escape The Rat Race

To me, the most important takeaway from Bernanke’s speech is the importance of staying out of the rat race. So yes, you need to work hard, get the education you need to land a good job, and work long and hard enough to get to a place where you can easily meet your basic needs.

What are basic needs? For most middle or upper middle class Americans, basic needs are not very basic anymore. We expect to be able to provide a family of 4-5 with adequate shelter, new clothing, plenty of food, health care and education, while also saving for our retirement.

This isn’t straightforward, certainly not in the US where people basically need to fend for themselves and there’s much less government support than in other countries (but also more freedom for businesses and entrepreneurs, less government regulations and lower taxes).

“Meeting basic needs” requires effort and dedication, but once those basic needs are met, take a good look at your life and at your career choices. Work-life balance is important. It doesn’t make sense to kill yourself, emotionally and physically, working 40 hours per week for 40 years in a job you hate and living for the weekend.

Can you find a job that you actually like? Can you start your own business? Can you work less hours, accepting a pay cut but improving your quality of life?

For most of us, once our basic needs have been met, happiness is achieved when we engage in activities that are interesting to us, spend time with friends and family and stay active. Making money for the sake of making money does not make people happy – on the contrary.

Ideally, these are questions that should be answered when you’re still young and just starting out. Don’t wait until your midlife crisis to realize that half your life has passed you by and you’re still unhappy.

Over to you now. It’s a big question, I know… but do you feel happy? Do you think your happiness is tied, at least to some extent, to your financial situation?

Tagged as: Money Beliefs

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