Tuesday, October 21, 2008

The Easterlin Paradox and the Economics of Happiness

I thought I'd said (written, moaned, bitched, kvetched, wailed, etc) everything I had to say about the current economic meltdown, but it turns out I was wrong. There's always someone or something out there waiting to push the "Spin Up Bilbo" button as soon as I get calmed down.

Today, the button-pusher is my old friend Katherine, who sent me a link to this article by Nicholas Kristoff: The Downturn's Upside. This was the first non gloom-and-doom article I've read on the economic crisis, and included data points such as "each one-percentage-point drop in unemployment in the United States is associated with an extra 3,900 deaths from heart attacks," and, "in downturns we drive less and so car accidents decline, while less business activity means fewer job accidents and less pollution. Moreover, in recessions people have more leisure time and seem to smoke less, exercise more and eat more healthily."

All this is not much comfort to those hardest hit by the crisis, but it's interesting nevertheless. It demonstrates something called The Easterlin Paradox: the fact that, contrary to expectation, happiness does not increase with wealth once one's basic needs are fulfilled. In other words, people don't get happier as they get richer. The Easterlin Paradox says that - theoretically, of course - Bilbo sliding home from economic third every payday just ahead of the catcher's economic tag should be happier than Donald Trump having to buy a new bank each month to store his excess cash.

Is it true? Is there a point of diminishing returns after which being richer doesn't equate to being happier? Mr Kristoff's article quotes Alan Krueger, a Princeton University economist who "is conducting extensive research on happiness," as saying that "What seems to matter much more (than more money) is having good friends and family, and time to spend on social activities."

That much certainly seems true to me. When I think honestly about it, good friends and social activities tend to enrich my life more than having a lot of extra cash. I've often commented that I don't want to be rich...I just don't want to be worried all the time about how I'll pay for the necessities - the mortgage, the doctor bills, the food, and so on. I wouldn't turn down the extra cash of course (who would?), but after a certain point it would probably cease to have much meaning. My mother used to tell us that we would enjoy things more if we had to wait and work for them...how much of this was based on the maternal limitation of childish expectations and how much was honest philosophy I'll never know, but it did turn out to be true: I tend to appreciate more the things I've had to work to attain.

The Bible (1 Timothy 6:10) tells us, "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows." I may have lost faith in the economy, but the love and support of the World's Best Wife and a stable of good friends (both virtual and physical) have helped me avoid being pierced by those many sorrows. Maybe there's something to the Easterlin Paradox after all.

But if you have a problem with excess cash, I'll help store it for you.

Have a good day. More thoughts tomorrow.



Amanda said...

Aha! So its called the Easterlin Paradox. I've always been trying to describe happiness that way but never new it had this term.

But, contrary to what Timothy says, I've always though of money AS the root happiness. Without it (even with the best friends and family), people can't have long term happiness. Life without money becomes too insecure and therefore has too many worries. So how can there be happiness?

The Mistress of the Dark said...

I'll help anyone with an excess cash problem too!

KKTSews said...
This comment has been removed by the author.
KKTSews said...

I'm glad you liked the article enough to think on it and post. After years of AF Management training, I was surprised Kristoff didn't mention Maslow's heirarchy of needs ( www.abraham-maslow.com/m_motivation/Hierarchy_of_Needs.asp ). If you agree with Maslow, money only helps with the physiological and safety needs. Extra money won't buy you social or esteem needs (usually).
So we all really are probably ok, basically, as long as we have money enough to put a decent roof over our heads, pay the heating bill, and feed ourselves. The rest of happiness comes when we stop paying for cable or expensive dinners out. Right?? Ok, a nice dinner out with the right person CAN be a wonderful thing. Forget Maslow!

John said...

Unfortunately, I find myself unable to comment on this post. If I get to the financial point that that more money begins to make me less happy, I'll let you know.

Mike said...

Money is just portable 'stuff'. So it gets down to how much stuff do you need to satisfy your needs. Some people never have enough stuff. Some people need very little.

I've gotten to the point where I'm overstuffed. I'd turn some of my stuff back into money but then I'd probably just buy more stuff.

Bilbo said...

Amanda - I see your point. How about taking Agnes and I out to dinner? It would make us all happy!

Andrea - line forms to the rear!

Katherine - I could have spent the rest of my life happy without ever hearing about Maslow again. Or the Johari Window. Or TQM. Or any of that other management hoodoo.

John - I have an idea that I'll be waiting a long time...

Mike - just stuff it.

fiona said...

In pursuit of happiness.
The movie, did you see it?
Makes the point very well.