Why Aren’t Americans Happier?—Posner

On December 14, Becker and I blogged about the shortcomings of  GDP (Gross Domestic Product) as a welfare measure. A related question is the relation between GDP or other measures of economic prosperity and happiness, or what utilitarians and welfare economists refer to as “utility.” The great utilitarian philosopher Jeremy Bentham defined utility as the excess of pleasure over pain, or equivalently (for he did not confine pleasure and pain to purely physical sensations) happiness.

 

Most people, including most economists, do not regard per capita income or other measures of economic welfare (such as GDP, which is the market value of all goods and services sold in the United States, whether for consumption or investment, in the course of one year) as an end in itself, but as a contributor to human happiness broadly conceived. They expect the contribution to be positive, however. Most people devote much of their time to trying to increase their income, which suggests that income and welfare are positively correlated. I will question this expectation and this suggestion.

 

The United States has the highest per capita income of any large country, and so one might expect it to have the highest per capita happiness. But surveys indicate that this is not true; in one well-known study (http://en.wikipedia.org/wiki/Satisfaction_with_Life_Index#International_Rankings_2006) (visited Jan. 9, 2010), for example, the United States ranked 23rd out of 178 countries. Denmark was first, Burundi last; nevertheless there was a general though rough correlation between happiness and per capita income: the happiest countries are rich, the unhappiest poor. And generally as countries become richer, their inhabitants become happier. These correlations are confirmed in an important and careful study by the economists Betsey Stevenson and Justin Wolfers, available at http://bpp.wharton.upenn.edu/betseys/papers/happiness.pdf (visited Jan. 10, 2010).

 

Cross-national comparisons are of limited significance because other things affect happiness besides income, such as health, population density, religious beliefs, quality of public services, internal and external security, family structure, climate, and income equality (given declining marginal utility of income, the more equal incomes are—holding other things constant, an essential qualification, obviously—the higher average utility can be expected to be). Thus the fact that the United States ranks only 23rd in happiness is not terribly meaningful.

 

However, an important finding in another article by Stevenson and Wolfers, “The Decline of Female Happiness,” available at http://bpp.wharton.upenn.edu/betseys/papers/Paradox%20of%20declining%20female%20happiness.pdf (visited Jan. 9, 2010), is that in the United States men’s happiness is essentially unchanged since 1970, and women’s happiness has declined significantly, so that average U.S. happiness has declined. In 1970, the average woman was happier than the average man; today the reverse is true. In most other developed countries, average male and female happiness has grown, but male happiness has grown relative to female happiness.

 

The authors adjust for compositional effects in the United States—such as changes in the racial and ethnic composition of the society, labor force participation, education, marriage and divorce, and age—and, surprisingly, find few differences. (One difference is that blacks, especially but not only black women, are happier today than in 1970.) They speculate (plausibly, in my opinion) that because women are on average more risk-averse than men, they find the range of career and relationship choices open to women nowadays a source of unhappiness. The United States has become more competitive in the last 40 years, and relatively to most other developed countries as well, and this may explain the different overall happiness trends, though it does not explain why male happiness in the United States has not declined.

 

Probably the most notable finding in the Stevenson-Wolfers study, though not emphasized by them, is that increases in per capita income, at least in the United States, do not seem to increase happiness. U.S. per capita income, adjusted for inflation, has more than doubled since 1970, yet happiness has declined.

 

The reason that happiness has not increased even though per capita income has increased may be that in comparing happiness at year t and at year t + 40, one is asking the inhabitants of two very different societies (whether it is the same person asked at both times or different people). The people at year t didn’t know what conditions would be 40 years hence, and so couldn’t feel unhappy because they couldn’t experience those conditions. If happiness is relative to existing opportunities, a change in those opportunities needn’t affect it.

 

Happiness moreover is a psychological, which is to say a biological, state, and biological states are not as variable as income is. There are people in the world today who earn $1 a day, and people who earn $1 million a day, but it would be inconceivable than the latter was one million times happier than the former, just as no person in any society can run a million times faster than the slowest runner. The human biology may simply be such that the elasticity of happiness to income is very low.

 

But one should distinguish between happiness and preferences, and hence between maximizing happiness and maximizing preference satisfaction. People have a strong preference for more income over less and thus for a rising standard of living. Adam Smith argued in The Wealth of Nations that people fooled themselves in thinking they would be happier with more money. Maybe so; but as long as people do have this strong preference, economics can explain a great deal of human behavior.

Comments

[Chris Walker]

Could an explanation be found in the fact that, while per capita income has increased on a high level in the past 30 years, the average income for the average person has not increased significally? Especially in relation to the cost of living?

What I mean is that for the past few decades, the trend has been that fewer and fewer people are making more and more money. Since the per capita increase in income has hardly been shared among everyone, it might explain why a happiness increase is not felt among everyone.

[Landforms]

Isn't it true that when the rich get richer, the poor get richer too? In times of economic downturn and the rich getting poorer, and the poor getting poorer, happiness is not there.

[Eli Koz]

While the marginal utility of income is decreasing, maybe the marginal (and perhaps dismal) labor required to increase income is far higher in advanced countries. Even if practically pointless, people - especially in richer nations - still strive to obtain a higher paycheck, often going to great lengths to do so.

As was pointed out, places like the U.S., Japan, and the U.K. rank high in GDP, but are mediocre in "happiness." Perhaps their advanced workforces have hit a critical point with happiness as they encounter the increasingly steep promotion/income curves of their cutting-edge economies.

My conjectures and generalizations could, however, be entirely wrong. The issue seems less related to economics and more to sociology, though there undeniably is at least a hint of positive monetary correlation with happiness. Did somebody say "scatter-plot?"

[John Hosack]

Hello,

The data on happiness is of doubtful reliability or interpretation.
For example Inglehart, Foa and Welzel, in the article "Social
Change, Freedom and Rising Happiness", Journal of Personality and
Social Psychology, graph data derived from Veenhoven's World Database
of Happiness (http://worlddatabaseofhappiness.eur.nl). This shows the
US to have a gradually rising level of happiness since about 1980.
The US level is higher than other countries graphed, including the
estimated level in Denmark.
However, the Veenhoven data currently has Costa Rica on top and
Denmark second.

[jaltcoh.blogspot.com]

Why is Judge Posner focusing on the increase in *per capita* income? As Robert Frank notes in his recent book The Economic Naturalist's Field Guide, *median* income has barely changed in the 30 years. Why this disparity? Because the rise in per capita income is due to the skyrocketing income of the upper class. Most of the country hasn't significantly shared in this growth. Judge Posner's analysis glosses over this distributional reality.

[Chicago School and a Denier of MMGW]

http://www.foxnews.com/scitech/2010/01/11/years-global-cooling-coming-say-leading-scientists/

30 years of a mini ice age coming, yet Al Gore and the fascist cult of fraudulent scientists want policy makers to tax carbon so we can send money to Hugo Chavez.

The thought of my home heating costs going up doesn't make me very happy.

[Nick Webroyalty]

very good posting. i liked it. keep going. :)

http://www.webroyalty.com

[Brian Davis, Austin, TX]

Legal (alcohol, tobacco, mind-altering Rx potions) and illegal drugs, very largely, in my humble opinion. These poisons are a scourge. They wreck health, lives and families, kill initiative, and turn users into thieves and cons. But it's still America and most folks don't share my views. Listen to any monologue by Coach Lou Holtz, a favorite of mine from the years when his ragged Arkansas football team used to whip up on powerful Texas and Oklahoma. He says you must have four things for a satisfying life: 1) somebody to love, 2) something (constructive) to do, 3) something to believe in, and 4) I can't recall immediately. But it didn't have anything to do with power or money. Great question, Judge.

[Jeff N]

Interesting,

but I would like to point out the people in the United States that derive happiness from their work. My father in particular comes to mind--with 30 years of military service, he retired with a pretty sizable pension. However, he returned to the civil service and works doing almost the exact same thing as active duty military. I am sure that there are those who hate their work but I cannot imagine that my father is alone in finding pleasure in his work. I may only be in my second semester of micro theory, but this defies any labor supply curve (upward then backward).

[Denise Shull]

"Maybe so; but as long as people do have this strong preference, economics can explain a great deal of human behavior."

This is a spurious correlation in that it is saying that stated conscious preference equals reality in terms of motivation.

Neuroscience can now show a very strong role for emotions in actual decisions and those emotions may motivate in a way so as not to increase income.

[Jim]

Obviously you don't believe that "the best things in life are free". Yes, it is true that modern man needs sustenance, shelter, occupation, companionship and physical security. Much more than that is probably starting down the right side of the bell curve. Might I also point out that the essence of human life can be centered in the physical, intellectual, spiritual or transcendental realm. The higher one gets, the less money one needs to be happy once the basics have been achieved. Americans are unhappy because they have been hoodwinked by the media and political indoctrination of what "success" or "happiness" mean which in large measure is unattainable, in particular for women.

[RobbL]

As stated previously on this blog;

"Notice finally how the migration of women from household to market jobs exaggerates economic growth, because market earnings are counted as part of GDP but household "earnings"--the value of household production--are not."

Maybe this explains it. Maybe in real terms (that is including the value of household production) GDP has not increased.

[oliver]

"but as long as people do have this strong preference, economics can explain a great deal of human behavior."

Let's just not mistake explaining for justifying--or quit searching for a macroeconomic metric that measures what we ought to want for ourselves as a nation.

Meanwhile, what has this GDP done for us lately?

[Michael F. Martin]

Happiness moreover is a psychological, which is to say a biological, state, and biological states are not as variable as income is. ...
But one should distinguish between happiness and preferences, and hence between maximizing happiness and maximizing preference satisfaction. ... as long as people do have this strong preference, economics can explain a great deal of human behavior.

From whence do preferences arise if not biology?

[Peter "Grow Taller" Davis]

I do think that we are getting less and less happy. I am no psychologist but in my opinion, it is caused by too much freedom. I not even close to saying that we have too much of it, simply people have so many possibilities in today's world they get lost. In the past, you had one or two options to pursue now, you can do whatever you want. Continental and language barriers are no longer of any value, so the entire world is under anyone's fingertips... And for some it is motivating and for others discouraging. Just my two cents.

[Jake]

I recall Lou Reed, the old 1970s rock-and-roller, saying that "money can't buy you love, but money sure can buy you a Cadillac to go looking for it." Truer words were never spoken.

[andy adkins]

I am 36 years old and the following is the typical storyline encumbering the bastard life of the son of Bill Clinton

Results 1 - 10 of about 77,400 for ROBERT WOOD JOHNSON HARRISON ARKANSAS. (0.32 seconds)
Search Results
1. Harrison Daily Times - Harrison, Arkansas - Neighbor Newspapers > News
Jan 1, 2010 ... North Arkansas Partnership for Health Education (NAPHE) at Harrison has been awarded a $360000 grant from the Robert Wood Johnson Foundation ...

harrisondailytimes.com/news/ - Cached

So that the murderers can continue to enjoy luxury built on lies until the world ends (their actually planned retirement...)

Robert Wood Johnson Foundation Announces Games for Health ...
Hillary Clinton to Moderate Regional Forums on Health Care Reform Sponsored by Robert Wood Johnson Foundation Newspaper article from: U.S. Newswire ...

It is a Bribe that is no different than the national wetlands research center, johnson controls laboratory, call centers, and the more recent $billion given with the last budget that was given to University of Louisiana- Lafayette (the bourbon political elite (google the term)-( the Waterboy's Bourbon Bowl was about the bribes paid by the voodoo woman named fills us), the alma mater from which I was the least outstanding graduate in history. My life was harried, homeless, friendless, & perennially jobless unless digging ditches until they finally let me go to graduate in 2001 after his terms had ended.
the comedy central tag on my blog makes everything obvious (and it is not me saying it), the circumstance were treated as a resource to exploit big money on the west coast.
It is why my life was wrecked in Fayetteville, Arkansas (where I intended to obtain a MA in Economics from UA (Clinton home is an important historical landmark to them). They actually wrecked my vehicle and seriously injured me on 9/22/2006 see the song "Fly Away" and "all the way" there is another one that mentions the wreck on the album Despite Our Differences by the Indigo Girls (I still have pictures and the Police Reports (actually made the police make changes to the report (but the damage was done with my insurance). "three county highway" (I-540) and I was cited for careless driving...actually made a case out of it

if it were your life and your capacity to contribute, would you be happy? the unimaginable is at stake

[andy adkins]

i wouldn't call the anything that happened regularly on the side during the courting of the marion county democratic party chair in the two year run up to the 1974 3rd congressional election a mistake...and no matter how much language is effected nothing makes a fetus a cyst *as the chicago native.....

[erik]

"Maybe so; but as long as people do have this strong preference, economics can explain a great deal of human behavior."

Sure, but as you say...

"Most people, including most economists, do not regard per capita income or other measures of economic welfare ... as an end in itself, but as a contributor to human happiness broadly conceived."

Furthermore – what different revealed preferences would you expect to observe if people wasn’t trying to increase their absolute, but relative, income?

[Neil E. Hatfield]

Well..., it seems that the studies cited seem to bear out the theoretical underpinnings of Mazlow's great psychological work of 1943, "A Theory of Motivation". It appears that it really is all about happiness and the "Hierarchy of Needs" Such that, at the bottom of the pyramid lies the physiological needs, followed by safety needs, then love & belonging, then the esteem needs, and finally the self actualization needs. It appears that there is more than the greenback at work.

Perhaps, a new economic discipline is in the making, "Psy. Econ."

[Gray, Germany]

It's a serious mistake to look at the AVERAGE income. You should have looked at the MEDIAN income instead. There, the progress hasn't been so positive. And this at least explains the stagnating happyness of men, and partly explains why the women are less happy today.

[gVOR08]

In answer to Landform's question,"Isn't it true that when the rich get richer, the poor get richer too?", no. The last few decades would seem to prove they don't. However, the converse, that if the poor get richer, the rich get richer (but perhaps not relatively so), may well be true.

[Luis Hernandez]

well the more the better, but as long people get enough satisfying basic needs the extra money they get does not buy happiness and this might be affected by different aspects such as friends, virtual friends, how demanding are the jobs now, traffic jams (sure much lower 40 years ago than now). Also I think that the scale of satisfaction is subjective so an 8 of happiness of me is maybe 6 for another person like me, but that is more exigent, and between generations they also differ, and current generations might be more ambitious and competitive than others?

[abercrombie and fitch]

that's why we always say you can not buy happiness with money.

[Obadiah Shoher]

Sir,

Could unhappiness be perhaps related to the amount of advertising? Empirically, I would imagine that the amount of advertising experienced by American consumers is far larger than in other countries, and women are more receptive to advertising than men. The more advertising they see, the larger is a gap between what they have and what they wish to have.

Talmudic tractate Pirkei Avot asks, 'Who is a happy man?' And it answers, "The one who is satisfied with his lot.'

It might be that the people who subsist on $1 per day do not expect a better life, and are satisfied. And in America, consumer advertising (both direct and in TV shows) makes people unhappy over not owning a house in Beverly Hills.