Justin Wolfers kindly responded to my recent post. His thoughts, reprinted with his permission.
Interesting, fun, provocative, and well written. Your
math looks to be right to me.
1. I'm not sure that controlling for confounds necessarily
would reduce the causal effect of income. (My prior is similar to yours,
but I haven't thought through the issue enough).
2. I actually think 0.35 is pretty big. Said another
way, it's big enough that it can explain why people in Burundi are at 3.5/10 on
a happiness scale, and Americans are at 8/10. My interpretation is that
big gaps in happiness are easily explained by big gaps in income. So why
do we interpret things differently?
a. I think raising happiness by a standard deviation is
huge. Basically I see incredibly miserable people and incredibly happy
people all around me. Moreover, if you think there's measurement error in
happiness, then the standard deviation in measured happiness is even bigger
(and you are talking about raising someone's measured happiness by one measured
b. The other way of saying this is that it doesn't matter
that the effect of income on happiness is "small": if there exist
massive disparatives in income, then a small coefficient can have a big effect.
And I think there exist massive disparaties in income (and these largely
explain the massive disparaties in happiness).
3. In my careful moments, I see my data as a shocking
refutation of whether money has no effect on happiness. In my
less-guarded moments, I see it as a refutation of whether money has little effect
4. Your final thought experiment ("an extra
$820,585" is clever). But it is just as interesting of a thought
experiment in the opposite direction: If I raised your income from $3,000
(roughly the average income in the US at the turn of the century) to $50k, I
would increase your happiness by one standard deviation. How many people
would move from being "depressed" to OK? (If, for argument's sake,
depressed = bottom 5% in 1900, then depressed = % of people with z-score less
than 1.6. Shift that distribution 1 standard deviation to the right, and
the proportion who are depressed = % of people with z-score+1 less than 1.6,
which is 0.5%. So we would nearly eliminate depression.)
But, as always, really interesting stuff, and great fodder
for the blog.
One more thought: The claim made by some that money matters
less than we think and hence we should focus less on it, always struck me as
important, and plausible, and one that my evidence is silent on.