NCPA - National Center for Policy Analysis

Can Money Buy Happiness After All?

February 8, 2013

Money may in fact buy happiness after all according to Ronald Bailey, a science correspondent for Reason Magazine.

Bailey reviews recent scientific research that contradicts an old widely-cited study.

  • In 1974, economist Richard Easterlin observed that well-being and life satisfaction had not risen in countries commensurately with increasing incomes.
  • Despite having more money, the study found that money did not make people happier.
  • Referred to as the Easterlin paradox, this phenomenon has become conventional wisdom during the four decades following the study's release.

Researchers following the Easterlin study found some variations. For instance, some researchers found that what matters is not how much money you have, but how much you have compared with how much your neighbor has. Other researchers found that rising incomes only result in temporary happiness, usually from material possessions, which then lose their luster and happiness levels again decrease.

Recent research contests the idea that money does not equate to happiness.

  • A study by economist Daniel Sacks of the University of Pennsylvania and his colleagues at the University of Michigan found that richer people are happier than poorer people and people in richer countries are happier than people in poorer countries.
  • They also found that economic growth leads to more happiness and conclude that material living standards are important to overall wellbeing.
  • A 20 percent increase in income has the same effect on happiness, meaning that it takes larger incremental increases at higher wages to improve the same amount of happiness as a lower-salaried person.

An examination of the overall trends suggests that as global gross domestic product has risen, so too has happiness. A 2008 National Bureau of Economic Research study also found that difference in happiness by demographic is also narrowing. Sixty-six percent of the difference between the happiness of blacks and whites and almost all of the difference between genders disappeared between 1972 and 1989, as measured by the General Social Survey.

Source: Ronald Bailey, "Can Money Buy Happiness After All?" Reason Magazine, February 2013.


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