These economists say getting richer doesn’t make a nation happier

This is the first post in an ongoing series on the link between income and happiness.

In a previous Pursuit of Happiness post, we mentioned something called the “Easterlin paradox.” That refers to a counterintuitive finding that continues to surprise economists and provoke robust debate decades after it was first introduced. It plays an important role in how economists think about happiness.

For decades, Professor Richard Easterlin at USC and various collaborators have looked at the relationship between happiness and income. They have consistently found that if we take a snapshot of a population at one point in time, higher incomes do correlate with happiness. At a particular moment, if you earn a big salary, you have good odds of reporting higher happiness than someone who earns very little. Not exactly a shocking result.

But that’s only half of the paradox. Because when these researchers look at longitudinal data that tracks societies over time, they find that rising incomes do not produce a commensurate rise in happiness. The same paradoxical logic, scholars claimed, applies both to whole countries (in international comparisons) and to individual people within a single society.

Here’s the paradox in a nutshell. Wealthier-than-average individuals or nations are likelier to also be happier than average. But the process of getting wealthier doesn’t seem to make individuals or nations much happier at all. Weird.

Some scholars buy Easterlin’s mysterious finding and try to explain it. Some say a key factor is the passage of time. Hedonic adaptation takes some time to set in, after all. So spiking GDP might delight people in the short term, they propose, but the new wealth loses its novelty after a while.

Other researchers point to the idea that relative wealth comparisons matter more for our satisfaction than the absolute amount we earn. If an entire country is getting wealthier, even though living standards are rising for rich and poor alike, the folks at the bottom of the income distribution don’t feel richer because they haven’t moved relative to their neighbors.

These are potential explanations for the Easterlin paradox. But not all researchers are convinced that it’s a thing. Some contend that it only applies for part of the income distribution, and that money does buy happiness when you’re very poor. Other well-known economists go further, arguing that money actually buys happiness across all income levels.

In a follow-up post next week, we’ll hear what they have to say.

Update: Click here to read part 2.