After All, Maybe Money Does Buy Happiness?

By Aaron Ordower

In last week’s NY Times David Leonhardt discusses a new study published by the Brookings Institute which refutes the Easterlin Paradox which stated that money doesn’t necessarily lead to more satisfaction. See Arnav’s earlier post for more on this perspective.

The study’s authors looked at a number of new studies in the past 34 years which allowed for a more comprehensive look at the question, and they decided that in fact, income does matter.

But what I thought was really interesting was when the NY Times wrote,

Economic growth, by itself, certainly isn’t enough to guarantee people’s well-being — which is Mr. Easterlin’s great contribution to economics. In this country, for instance, some big health care problems, like poor basic treatment of heart disease, don’t stem from a lack of sufficient resources. Recent research has also found that some of the things that make people happiest — short commutes, time spent with friends — have little to do with higher incomes. [link]

An interesting parallel comes from the world of psychology where Maslow’s hierarchy of needs shows that people have a pyramid of needs to be filled, starting with the physiological, safety, love, all the way up to self-actualization. The higher up on that pyramid, the happier people are.

Now take a look at the map plotting GDP and happiness. There is largely a positive relationship between the two, which is to say that GDP and happiness are obviously related in some way. However, the countries with the highest levels of happiness are those with the most socialized governments with plenty of services provided by the state.

Not surprising, the Scandinavians ranked highest on this chart, but look at Canada and even Venezuela, which rank higher than the United States in terms of happiness. Canada, demographically and economically very similar to the US ranks higher, which I argue is because Canadians do not have to worry about those lowest levels of Maslow’s hierarchy. In a number of areas, the Canadian government takes care of its citizens’ needs (healthcare, education) so the average Canadian is not concerned by these issues which are essential to achieving higher levels of personal satisfaction, according to Maslow. It also doesn’t hurt that Canadians, by and large, are really nice people. Looking at psychological or sociological factors such as these tell that while Americans have more worries, our neighbors to the north are comfortable because they have the security blanket of a welfare state.

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2 comments for “After All, Maybe Money Does Buy Happiness?

  1. Li Chang
    July 5, 2008 at 10:54 pm

    I found this article to be quite interesting, however, I was not too surprised with the results. Granted that most individuals have access to health care and education, there is not too much of a jump in happiness levels among those who make 50k versus those who make 500k. However, when it comes to countries, there obviously will be higher levels of happiness with those with higher GDP. Of course, this also depends on the type of government the country has. More socialistic governments obviously will increase general happiness levels among all types of people since the basic needs will be taken care of via government services. However, capitalistic governments will not show as great results across the board since there will be many haves and have-nots. Overall, as long as the main necessities of a human is satisfied, such as the bottom level of Maslow’s hierarchy, there is not much of a gain in happiness through tons of money. After all, humans are social/group animals, and we thrive through interaction through others.

  2. Jonathan Yee
    July 8, 2008 at 12:45 pm

    The meaning of happiness in this study has been framed around the ability to live rather than whatever philosophical meaning happiness has. It seems pretty intuitive and logical, that eating mud pie, fearing of corrupt governments and the many plethoras of situations that go along with the third world, it’s pretty obvious that people in those countries are not going to be particularly satisfied with their lives if their lives are in a constant state of uncertainty (some might say danger or vulnerability).

    What exactly do people in the developed countries have to be “sad” about? How comparable of a study is this, if it ignores that the playing field for “happiness” is not equal across the board. Saying that GDP is a sign of happiness doesn’t really address the surrounding issues of why the GDP is low, or why the GDP continues to be low.

    For most people this “hippy” mentality doesn’t exist, most people are not embracing this asceticism but are struggling to obtain some kind of means to provide basic sustenance for themselves, which many people around the world do not possess. For all these reasons I’m not so sure how insightful this article is.

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