Meet the economists who say that money really does buy happiness

This post is Part 2 in an ongoing series on the link between income and happiness. (Here’s Part 1.)

Last week, we examined a theory that economists call the Easterlin paradox. It describes a seemingly contradictory phenomenon that many scholars believe they have observed: At any given moment, happy people and happy countries are likely to be wealthy people and countries, but the actual process of becoming wealthier doesn’t appear to make specific people or countries any happier.

Our previous post surveyed different explanations for this strange result. But in recent years, more and more economists are calling into question whether or not it even exists.

Two of those researchers are the influential scholars Betsey Stevenson and Justin Wolfers. Stevenson is currently a member of President Obama’s Council of Economic Advisers, Wolfers is presently a senior fellow at Brookings, and the pair of co-authors also happen to be a married couple. And for years, they have argued vociferously against the Easterlin theory and in favor of a definite link between higher incomes and higher happiness.

Based on their own analysis of updated data, Stevenson and Wolfers say that more money does equate with more life satisfaction, both among people within countries and between countries on the world stage:

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.

Two more prominent academics, Daniel Kahneman and Angus Deaton, join Stevenson and Wolfers in rejecting the Eaterlin paradox. Kahneman is widely viewed as something of an interdisciplinary genius: while he is most famous as a psychologist and scholar of cognition, he has also won the Nobel Prize in Economics. Deaton is a Princeton economist with a sterling reputation of his own.

Their joint paper on the subject likewise concludes that life evaluation (people’s response when they are asked to reflect on their position on the ladder of life) climbs in tandem with rising incomes.

This perspective is gaining support in the literature. More and more experts are coming to agree that Stevenson, Wolfers, Kahneman, Deaton, et al get the better of Easterlin. Money, says the consensus view, really does buy happiness

But this leads to another interesting question: Up to what point? Or, to put the query in technical terms, is there a satiation point?

We all intuitively understand how an income jump that moves someone out of poverty into solvency and stability would seriously boost happiness. That’s what made the strongest version of Easterlin’s claim–that there is no part of the income distribution where money buys happiness–seem so unbelievable on its face. But we could easily imagine that once someone has attained serious riches, more money wouldn’t do anything to buy more happiness.

That’s what makes Stevenson’s and Wolfers’s research so surprising. They claim that there is no satiation point at all. More and more income keeps buying more and more happiness, they argue, all the way up to the stratosphere.

How can that be? We’ll zero in on this remarkable claim in a third post next week.