The money-happiness debate continues

I’ve written a bit before about the academic debate over “Easterlin’s Paradox,” a theory put forward in the 1970s by economist Richard Easterlin, now at the University of Southern California, which argued that while people generally report greater happiness at higher income levels, countries do not become happier as they become richer. Easterlin attributes this to a “keeping-up-with-the Joneses” effect: people don’t become happy when everyone gets richer, they become happier when they are richer than everyone else. 

A number of economists have challenged the assertion, notably Betsey Stevenson and Justin Wolfers, who argue that there is a robust relationship between income levels and happiness when larger sample sizes are used. Easterlin has continued to defend the paradox with new data.

A new paper by Wolfers and Stevenson, published by Brookings, takes another shot at the Easterlin paradox arguing that not only is there a clear relationship between income and happiness, but that there doesn’t seem to ever be a point where the correlation stops. In other words — countries can never be rich enough:

[W]e find no evidence of a satiation point. The income-well-being link that one finds when examining only the poor, is similar to that found when examining only the rich. We show that this finding is robust across a variety of datasets, for various measures of subjective well-being, at various thresholds, and that it holds in roughly equal measure when making cross-national comparisons between rich and poor countries as when making comparisons between rich and poor people within a country.

The trends for the world’s 25 most populous countries are mapped below:

On a related topic, Andrew Gelman critiques a graph recently published by the New York Times showing a relationship between progressive tax rates and national happiness calling it “somewhat at war with its caption”.

I’m generally a little skeptical about cross-country comparisons based on how people answer life-satisfaction surveys — answers I suspect are determined more by culture and personality than material circumstances — but these are certainly fun debates to follow.