Scott Sumner  

Does happiness cause income?

David Friedman on the 97% Cons... Wolfers Responds on Happiness...

Bryan Caplan has a post that discusses the research of Daniel Sacks, Betsey Stevenson, and Justin Wolfers, on the correlation between income and happiness. I'm no expert on this subject, but it seems to me that researchers seem to assume that any correlation reflects causality going from income to happiness. But isn't the reverse causation just as plausible?

Have you ever woken up in the morning depressed, feeling to yourself "what's the point of even getting out of bed?" I'd guess that Bill Gates has very rarely had that feeling. If he had, I doubt he would have made as much money as he did. So why not assume that happy people are more productive?

I recall reading about a study that showed lottery winners saw a temporary boost to happiness, but then reverted to their original set point. That's what I would expect if the correlation between happiness and income went from a happy personality to a higher income.

Now let's suppose that culture has an impact on happiness. It seems to me that people who care a lot about the welfare of others tend to be happier. But if they care about the welfare of others, then they are more likely to implement efficient economic policies, and engage in less corruption, or stealing benefits that they don't deserve. All these things will make a country richer. Consider the following facts:

1. Denmark has arguably the highest level of civic virtue in the world. (Based on a composite of survey questions and ranking of corruption by outsiders.)

2. Denmark has the most free market economy in the world, if you exclude the two "size of government" categories from the 10 categories used by the Heritage Foundation in their economic freedom rankings. In other words Denmark is a country with lots of social insurance, but in other respects an exceedingly free market policy regime. Not much (selfish) rent seeking. Perhaps happy people aren't as selfish.

3. Denmark leads the world in many happiness rankings.

I think there is some evidence going in the other direction, so I would not exclude the opposite causation. Countries often get happier when they grow fast. But I'd like to offer a tentative hypothesis about one quirk in the data discovered by Sacks, Stevenson and Wolfers. They found that happiness has risen in many countries as income rose, but not in the US. Let's assume that people respond to these questions partly in a sort of general "life satisfaction" sense, not just the bliss one feels at each second, on average. In that case Americans may have had a fairly high level of life satisfaction due to our world-leading GDP per capita throughout most of the modern era. Other developed countries were depressed after WWII, and tended to grow faster than the US in a sort of catch-up phase. People in places like Germany may have sensed that they were well behind where they should have been in the 1950s, and felt less life satisfaction due to that fact. Once they caught up to the living standards in the richer countries, they became more satisfied with things. It's just a thought, but it might explain why the US is an outlier on the growth question.

The Chinese currently express an extremely high level of satisfaction with how China is doing, but unless I'm mistaken don't exhibit an extremely high level of "bliss" in their day to day life. Thus one issue here is whether in life satisfaction questions researchers are able to distinguish between bliss and a more detached evaluation of how things are going in an economic sense. It's the "bliss factor" that I think is less affected by income gains. I doubt I have any more bliss than when my income was much lower. That's partly aging, but not entirely. One year I had a huge (and unexpected) raise, and don't recall being more blissful the next year.

Again, I'm not an expert on this topic, and perhaps researchers have already addressed the causality issue. If so I'd appreciate hearing about any studies that do so.

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COMMENTS (18 to date)

I have to think Betsey Stephenson can't be very happy about having to call Doug Elmendorf out.

Lorenzo from Oz writes:

Hans Rosling's TED presentation on health stats would provide your suggestion with some support.

If you haven't seen the talk, you should watch it anyway, for the sheer fun of it.

Also you have to deal preconceived ideas ...

Charles kenny writes:

I suggested something similar in Kyklos a few years ago....

TK writes:

There's a happiness researcher named Shawn Achor who strongly espouses this view. I believe this Ted talk of his focuses on this:

jc writes:

Yeah, both of those guys give great TED talks (and Achor's great at discussing happiness).

There is some examination going on at the micro level, e.g.:

And it is intuitive. Think about how (un)productive you are when you're in a pessimistic mood, with low energy levels, etc., versus when you have higher energy levels and a stronger belief that your work will pay off. Those things probably correlate w/ happiness, no?

Jim Glass writes:

All this new "happiness economics" puts in me in a very sour mood, for it is pure bunk and a waste of resources that could be put into topics that are much more fun and productive to argue about. IMHO.

First, the goal of economic improvement is *welfare*, not happiness.

Suppose someone offered you this deal: You can double your life expectancy (and in improved health too), your children will all live (instead of maybe most of them) with longer life expectancies too, your lives will have less labor and more leisure, with less pain (having anesthetics when needed), with many more intellectual pursuits and forms of entertainment available to you, and you all will have many more opportunities and choices to do well, to obtain increased satisfaction and meaningfulness [.pdf] out of life. But, NO, you won't be any happier on a day-to-day basis.

How many people would turn that deal down?

Happiness isn't about income. What point would natural selection have in producing creatures that couldn't increase their "happiness" for deca-milleniums until 21st century (or 22nd, or 23rd) income levels were reached? How could it even do that?

Why would someone waking up in the Middle Ages or back in the proverbial cave not be able to be happy, just because he or she had virtually *no* income by our standards?

Happiness is not economic but biologic (1) largely pre-set genetically so that both lottery winners and amputees strongly tend to wind up back around where they started on the happiness scale a year after the dramatic event happened to them, and (2) behavioral and relativistic -- it can be changed somewhat behaviorally, and constructive behavior correlates strongly with social health and productiveness, which correlates with income -- there is some correlation between happiness and relative social position, up to middle class, $50k income level or so in our society -- but not much beyond that level, and clearly a good deal of the causation goes the other way, from mentally healthy & constructive & productive --->>> income earning. All of which does make sense natural selection-wise.

Happiness and the desire for it is *not* a great fundamental driver of human action. As but one example, there's a whole lot of solid data showing that having children reduces parents' happiness, yet humans keep having children by the billions, because they have other much more powerful motivators. (Many of these studies also find that while parents report being "less happy" than the childless, they also describe their lives being "more satisfying" and "more meaningful" than do the childless -- which raises some interesting questions, including about whether these "happiness economics" studies should be considering some other things).

The great ancient philosophers, who were as smart as we are but faced tough subsistence agriculture society lives, were right on this one -- happiness is not the goal of human action, but a consequence, perhaps, if a life is lived well and the gods are kind to you.

Frankly, the fact that so many of us today are so fixated on the idea that our happiness should be the goal of economic policy (and of so much else) only shows how rich, spoiled and self-obsessed we've become.

There's still an awful lot of welfare to improve in this world, billions of peoples' worth. After we do that maybe we'll have something to deserve being happy about. And that's what the economics profession should be focused on.

In my own sour opinion, FWIW.

rs writes:

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Shane L writes:

I am a natural optimist and tend to bounce back from difficulties. While this has created resilience and enthusiasm, I've actually wondered if it has also made me poorer.

A more depressed and insecure person might be driven to work harder and always push, push, push for more wealth and status. I, feeling pretty good about things to begin with, feel less desperate need to prove myself.

So while I generally agree with your point, I wouldn't be surprised if some wealthy people are wealthy precisely because they are desperately fleeing their sense of unease about being poorer and lower status. Perhaps it is a bad feeling that provokes urgent labour and careful planning to rise in wealth. I don't have any data on this, though, it's just a personal observation.

Scott Sumner writes:

All very good comments, I have nothing to add. Thanks for the links.

RPLong writes:

The problem with causal theories of happiness (whatever the causal direction) is that they are all surely hold true for some individuals and false for others.

I know what makes me happy. That's all I can theorize about, really.

Andrew M writes:

Wanted to throw out a few "facts," if you will, about happiness as I see them.

Whoever said money can't buy happiness has never taken a first ride on a jet-ski ... (tosh, modified)
Unless your first ride is consumed by simply becoming proficient, then fine, go with your 2nd. But then flash forward to your 20th ride on a jet-ski, or that 3rd day of skiing instead of the first couple hours of the first day.
The point is obviously that happiness extracted from experiences most certainly suffers from diminishing returns in almost all scenarios.

I wish we had (or used) more precise words for different varieties of happiness, in a similar vein of the satisfaction or fulfillment versus bliss kind of idea. Simply saying happiness is extremely ambiguous in some cases.

If happiness (more the bliss kind) were a ratio, I would probably think of it as [perception of change] / [expectation]

Both the numerator and denominator can be scaled by personal preferences such as propensity of exuberence/excitement, optimism/pessimism, status of others around you can have dramatic effects, etc

Lottery winners can become used to that level of spending freedom and thus stop experiencing those positive changes that generate happiness for them.

Getting to know the thing we're all talking about I think is a very important step in the discussion before we start drawing all these conclusions. I suppose "what is happiness" is certainly an age old question that we seem to never really have settled on an answer to.

sam writes:

It's actually a common cause.

Your happiness does not cause your income, nor does your income cause you happiness.

Both mostly depend upon your quality of neighbors. Put your happy Danes in Detroit and you can watch their income and happiness plummet.

Hazel Meade writes:

Happiness probably increases income, but not necessarily because it makes YOU more productive (although that's possible). It's probably because happier people are more likeable, and therefore, in any occupation where "people skills" are important, you will get paid more. For example happier salespeople will no doubt increase sales. Happier waitresses probably get bigger tips. Happier job candidates will be more likely to get hired, and at a higher salary. Etc.

Think of how likely you would be to hire someone who showed up at an interview morose and jaded, vs. someone who showed up cheerful and excited.

Hazel Meade writes:

Note: it's already been shown that better-looking people get paid more. Happiness generally makes people more attractive, so it's not much of a leap to say : happiness-->attractiveness-->money.

Jim Glass writes:

Kahneman says if you want to be happy spend time with family and friends who want to spend their time with you, that's it in a nutshell, the dominating factor. That is socio-biologic, behavioral.

Can we think of ways that having income would go along with having family and friends who like you and want to spend their time with you? Sure. But how much income does that really require? Not a huge amount, which is why the observed significant correlation evaporates around $40k-$50k in the US. And the causation clearly runs both ways.

Yes, income provides resources to contribute to having family and keeping it whole, and to attracting friends and being free to spend good times with them. Certainly.

OTOH, causation clearly also runs the other way -- having family and friends provides a social network that is key to getting good job opportunities and producing income.

Also, having good relationships with family and good friends is an indicator of mental health and positive behavior which is a very important independent factor in producing income. Many people lack both income and family & friends because of their own self-defeating, destructive behavioral problems.

So the causation concept "more income -->> more happiness" should be taken with great goblets of salt right there.

"Whoever said money can't buy happiness has never taken a first ride on a jet-ski..."

OK, taking a momentary endorphin rush (there are pills for that) as "happiness". But that isn't what Kahneman is talking about. Which gets to a another big issue in all this, definitions. (As you noted.)

In a general survey, people will tend to report whatever gives them a positive feeling of some sort (a momentary rush, "my kid just graduated school so I don't have to pay those bills any more") as "happiness". But get more specific and things change. As I noted earlier, negative correlations are reported between people saying they are "happy" and saying they have satisfied/meaningful lives -- the difference between enjoying the moment and pondering challenges and the difficulties of achieving them.

Which gets to values. Which of those kinds of lives do we want to encourage in society? If economists insist on studying how to bring about psychological states, which should they be dwelling on?

"Lottery winners can become used to that level of spending freedom and thus stop experiencing those positive changes that generate happiness for them".

For starters, yes. Also, winning the lottery doesn't change their behavior (friends, family, etc). Also, when their behavior was a problem to begin with, they are prone to lose the money. Horror stories abound. More generally, one study of winners of up to $150k found they go bankrupt at twice the average rate.

Kids who become millionaire pro athletes in their 20s are "lottery winners" in a pretty real sense. SI famously reported that 60% of NBA players are broke within 5 years after leaving the game, and 78% of NFL players go broke within 2 years!

How "happy" are they about that? To see behavior trumping income as to happiness, there you are.

Mr. Econotarian writes:

Perhaps immigrant ancestors of current US citizens were less happy than their peers, thus they were more likely to leave their countries of origin?

Scott Sumner writes:

I agree with most of the comments.

RPLong, You said;

"I know what makes me happy. That's all I can theorize about, really."

I don't even know that!

Jim Glass, Wolfers, et al, found that rich people are happier than middle class people.

Econotarian, The US is a happier than the average developed country. Less than 2% of the world's population lives in countries happier than the US.

Jim Glass writes:

Jim Glass, Wolfers, et al, found that rich people are happier than middle class people.

I said they are, but not by much over $50k. As the other posts here note, by their numbers, to match the impact of from $3k to $50k you have to go from $50k to $875k -- but that's a projection to a small sample upward and there are other good studies saying you don't even get that on the high end.

But that misses the *main* point, which is that happiness is a *biological* condition, not an economic one, and the evolutionary biologists-psychologists who weigh in on this subject (such as) will tell you ...

"Evolution did not design us to be happy. It designed us to survive and reproduce."

Our mental states exist to serve that purpose - and even the "bad" ones such as sadness and depression are adaptive and positive in their roles in the normal case. For instance, depressed people are more focused, realistic, and much less prone to all the congitive biases of over-optimism that "happy" people are prone to. Which, is **good** if you are in challenging circumstances. IOW, from natural selection's point of view, it is *good* not to be "happy" when you are in poor or in hard circumstanes, because it makes you better able to work to improve those circumstances.

In which light the whole discussion of "happiness economics" is misbegotten. Not to mention rooted in misbeggotten political motivations.

Easterlin started the whole thing by saying happiness didn't differ between rich and poor nations, and from that arguing for, to quote Wolfers: "very very clear policy recommendations that a focus on economic growth is simply not in the best interest of society." Now Wolfers is trying to refute that by showing that happiness does vary between nations, so growth is good.

But the entire dispute is bogus because the driver of economic growth is not the desire for happiness by the desire for increased *welfare*: longer life expectancies, better lives, healthier children, etc. So the Easterlin-Wolfers dispute is rooted in nothing. Moot.

Moreover, happiness/sadness/depression are genetically programmed into us individually, and to come out by our circumstances, to direct our behavior. And under these rules of evolution it is good for the poor to be less happy, because it modifies behavior to increase their ability to survive and improve their conditions. (However well or not this rule of evolution fits our modern world, it is a function of biology not economics.)

So the whole argument over happiness economics is just wrong on multiple levels.

BTW, all of this endorses your point -- "causation" here runs a whole lot differently than most of the arguers assume.

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