Happiness
“You’ve got the toys you asked for, so WHY aren’t you happy?”
Or, as an essay-setter might (…did) put it:
Why does economic growth fail to improve the human lot?
Here’s my little potted answer, written for a sociology tutorial then edited a bit:
The economies of Western democracies have grown substantially since the end of the Second World War, yet the average happiness of their citizens has hardly improved, and signs of misery (from depression to psychosomatic illnesses) have increased. On the other hand, the average national happiness of countries are positively correlated with their GDP/capita, while within countries, individual income correlates positively with well-being1. Is this a paradox? Does, or does not, income correlate with well-being in industrialised societies?
According to current evidence, this puzzle is best resolved by reference to countries’ and individuals’ rankings‘ in the income distribution (“relative incomes”). Although absolute incomes matter for well-being, by far its greatest determiner in industrialised societies is relative income- that is, how the subject’s income compares with the incomes of those with whom the subject most strongly compares their lot (their “reference group”). The relative incomes of most have remained stagnant or deteriorated due to increased inequality since WW2. For this reason, economic growth in industrialised societies has not improved the human lot as might have been anticipated, as it has not improved the relative incomes of most people. It is too simplistic, however, to say the human lot has not been improved at all.
…
Measuring The Human Lot
There is no agreement as to what constitutes “the human lot”, and what changes should be considered improvements to it. Just ask a philosopher. Then an economist. Then a sociologist, a feminist, a psychologist, a second philosopher… Should we measure hedonistic experienced utility- the emotions people feel throughout their day? Or people’s expressed satisfaction with their lives? Their prosperity? Personal freedom? A rich intellectual and aesthetic life? Virtue?
Two principal measures in the sociological literature are “Life Evaluation” (LE, henceforth) and “Experienced Utility” (ExU, henceforth). LE and ExU measures track different aspects of the human lot: ExU data gets as close as is currently possible to recording people’s lived experiences of happiness (and other positive or negative emotions), whereas LE data shows how people actually rate their lives, for reasons of the happiness that permeates them or any other features they consider valuable.
ExU measures are increasingly popular in attempts to measure the human lot. Because brain scans cannot be carried out on people while they go about their daily business, respondents in ExU studies are instead either prompted, or asked in retrospect, to report the emotions they feel (joy, worry, anger, enjoyment, sadness, etc., rated for intensity from 1-5) at different points in the day. Researchers take averages of the emotions recorded, or record the amount of time spent feeling negative emotions or emotions at either extreme, or make similar analyses, to produce overall descriptions of respondents’ ExU.
To gauge the part of the human lot expressed by life evaluations, by contrast, respondents to a survey are asked (usually) one of the two following questions:
- “Please imagine a ladder with steps numbered from zero at the bottom to ten at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?” (Cantril’s Self-Anchoring Scale, used by Gallup)
- “Taken all together, how would you say things are these days? Would you say that you are very happy, pretty happy, or not too happy?” (General Social Survey, GSS)
The first, Cantril, question is good as an LE measure, as it allows people to rate their lives according to whatever qualities matter to them, distinguishing it from ExU studies. The second, GSS-type, questions are less helpful as measures of LE, because they presuppose that people assess their lives according to the happiness they contain. This is problematic because:
a) In such surveys, people seem to treat “happiness” as ExU. Answers about happiness correlate with likely indicators of ExU such as activity in areas of the brain where positive and negative affect are experienced, friends’ reports on the subject’s happiness, psychosomatic illnesses, likelihood to initiate social contact, depression levels, and so on.2, 3
b) Most people’s assessments of LE are affected by factors other than ExU: ExU and LE measures diverge at certain points. Deaton and Kahneman, for example, show that for incomes above $75,000, trends in LE (according to the less presumptive Cantril Scale) and experienced utility are totally different.4
Thus, the GSS is more reliable as a measure of ExU, and should not in fact be used as an LE indicator. I shall therefore use only data from Cantril studies to assess the human lot-as-life-evaluation.
…
The Evidence
Many studies into the relation of absolute income levels to ‘the human lot’ allow us to posit a positive correlation between one’s absolute income and one’s human lot-as both ExU and LE:
The higher a person’s absolute income, the higher their life evaluation tends to be. This correlation is no weaker at higher income levels iff proportional, rather than absolute, income differentials are compared: i.e., a 10% income increase for someone living below the poverty line lifts their LE, on average, as much as a 10% income rise boosts the LE of a millionaire (ceteris paribus), and a similarly proportional relation is found for the relationship of GDP/ capita and average LE across countries. Thus, when LE is plotted against the log of income, a continuous, fairly straight, line with a positive gradient best fits the data. 5,6,7,8
Absolute incomes also correlate positively with experienced utility. Again, the returns to proportional income increases do not diminish- until earnings reach circa $75,000. Above this level, however, little effect of absolute income on ExU is found.9 Thus, the absolute growth of a person’s income up to $75,000 (on average) has a positive effect on the human lot-as-experienced utility, but from this point, further income rises should be expected to improve the human lot only as LE, not as ExU.
Considering all this, it might seem surprising that the post WW2 economic growth of many Western democracies, which took most domestic incomes closer to $75,000, has not brought higher average ExU or LE levels to these countries. The explanation for this phenomenon lies in factors beyond absolute income – in relative incomes, and our competitive consumption and income comparisons.
The absolute income effect on LE and ExU has, in industrialised countries, largely been counterbalanced by the negative relative income effect. Through this effect, the poorer one is relative to one’s “reference group” (the people with whom one primarily compares one’s lot – be they colleagues, neighbours, co-nationals, etc.), the lower one’s life evaluation and experienced utility. Economic growth has, it is posed, failed to substantially improve the human lot in industrialised societies because, despite raising absolute incomes, it has also raised the incomes of others in people’s reference groups, to an extent sufficient to counterbalance the positive effects of higher absolute incomes on LE and ExU.10,11,12
Schor (1999) and Bowles and Parks (2006) enhance support for the relative income hypothesis by showing a mechanism by which this “relative income effect” may be worsening in developed societies. Bowles and Parks show that people more strongly compare their consumption with that of people higher up the “income ladder” than themselves; with each person “looking upwards” to those richer than themselves, and wanting to emulate the consumption of those they see, the consumption of the richest in society has strong “domino effects” that ripple down through the income hierarchy (a phenomenon called the “Veblen effect”).13 When the incomes of the richest rise disproportionately, as has been seen in most industrialised countries since WW2,14 conceptions of necessary and aspirational consumption are thus raised faster than average incomes. Schor adds that the expansion of marketing and mass media has exposed, and made increasingly aspirational, the consumption levels of the super-rich (celebrities, footballers, traders, etc.). Her data shows that with the exponential expansion of mass marketing and mass media, our aspirations for conspicuous consumption have risen faster than our incomes15 (though the attribution problem facing her data is insufficiently resolved). Both phenomena seem to be making it harder for our spending to satisfy us. Our tendency to measure our material ‘lots’ against the ‘lots’ of others, especially those higher up the income ladder, is exerting negative pressure on our subjective ‘human lots’ of a magnitude similar to the positive pressure exerted by our higher absolute incomes.
Frank (2004) helps to complete the picture, not by further elucidating the relative income effect, but by revealing another, related, reason why higher absolute incomes have not improved the human lot as far as economists would have expected. Frank highlights that higher absolute incomes do increase our capacity to control, and hence improve, our lives: there are things we could spend our new money on that would make us happier. But we spend too much on things that don’t make us happy, and too little on things that would. Our tendencies to compare and compete (outlined above), lead us to spend most of our newly disposable income trying to “catch up” with or “out do” the conspicuous consumption of those richer than us, when in fact we adapt very quickly to most objects of conspicuous consumption, so that our purchases fail to make us happier in the long run (Frank does not say explicitly, but implies he’s referring to happiness as measured by GSS-type surveys, and ExU data- so “happiness” here should be read as ExU). For example, many wish to purchase bigger houses or more fashionable clothes or cars, but in the long run, such purchases are not associated with greater happiness.16 Even lottery winners generally report no higher levels of happiness (again, measuring happiness through ExU and GSS-style data) a year or so after their wins.17
Economic growth could improve the human lot, Frank argues, could we overcome this practice of competitive consumption. There are purchasable goods (and “bads” we can avoid through purchases) to which we don’t adapt. For example, time spent socialising is one such good, while commutes to work, unemployment and household poverty are some such bads.18 The implication is, if happiness is our goal, most of us are very inefficient at using our resources so as to maximise it. The good news is, this means that despite relative income effects, were personal spending (or government actions) directed to maximising and minimising our consumption of goods and bads (respectively) to which we do not adapt, the human lot relative to GDP/capita should be improved.
Whether economic growth can improve the human lot thus depend partly on how “hard-wired” these tendencies of comparison and competitive consumption are, and whether, if they are erodible, conditions contrive to so erode them. It may seem we have evolved an ineradicable social competitiveness and jealousy, but most “genetically-evolved” tendencies rely on conducive environmental conditions as well as genes if they are to be realised in phenotypes. Our social competitiveness may, alternatively, be less irrational or short-sighted than some imagine, arising from the rational choices of people who value the maintenance of social status and associates. If competitive consumption is malleable but functional in this way, it seems to arise from a collective action problem, and thus to be eradicable through coordination. Schor, for example, suggests that parents in neighbourhoods collectively agree to limit their spending on fashion goods (etc.) for their children, and that people in a particular sectors collectively commit to limit industry working hours.19 If social competitiveness is malleable but not socially-functional, individuals may be able to simply overcome their aspirations for conspicuous consumption through greater awareness and reflection; such awareness is already seen in those who reject high wage jobs for less well-paid alternatives that are more “rewarding”, and Inglehart (1990) offers convincing evidence that younger generations are successively less materialistic and increasingly value job satisfaction over high wages.20 There are, then, ways in which economic growth could more significantly improve the human lot in future. The grounds for expectations (rather than hopes) of such achievements are, however, not forthcoming.
It is clear that economic growth has failed to improve the human lot to the extent that economists – with their models of self-concerned, rational, informed homo economici – would have expected. We know this is in part due to relative income effects. We do not know exactly which factors determine how far one’s relative income affects one’s experienced utility or life evaluation; how far, and how, the impact of relative income on the human lot can be eroded; or how far people, governments and other organisations can have the power and incentives to distribute resources in ways that really will realise the gains to the domestic human lot made possible by the national GDP. In finally concluding whether, and how far, economic growth does improve the human lot, then, we should want to assess such likelihoods as well as observing historical patterns. A far greater body of research is, therefore, needed.
Footnotes
1. Easterlin, R. A. (1974).
2. Layard, R., Mayraz, G., and Nickell, S. (2006).
3. Frank, R. H. (2004).
4. Deaton, A. and Kahneman, D (2010).
5. Deaton, A. (2008).
6. Kahneman, D. and Krueger, A. B. (2006).
7. Luttmer, E. F. P. (2005).
8. Easterlin, R. A. (2001).
9. Deaton, A. and Kahneman, D. (2010).
10. Easterlin, R. A. (1974).
11. Easterlin, R. A (2001).
12. Luttmer, E. F. P. (2005).
13. Bowles, S. and Park, Y. (2005).
14. Wilkinson, R. and Pickett, K. (2009).
15. Schor, J. B. (1999).
16. Frank, R. H. (2004).
17. Brickman, B., Coates, D. and Janoff-Bulman, R. (1978).
18. Frank, R. H. (2004).
19. Schor, J. B. (1999).
20. Inglehart, R. (1990).
Bibliography
• Bowles, S. and Park, Y. (2005). Emulation, inequality, and work hours: was Thorsten Veblen right? Economic Journal, 115, F397– F412.
• Brickman, B., Coates, D. and Janoff-Bulman, R. (1978). Lottery Winners and Accident Victims: Is Happiness Relative? Journal of Personality and Social Psychology, 36 (8), 917-927.
• Deaton, A. (2008). Income, Health and Well-Being Around the World: Evidence From the Gallup World Poll. Journal of Economic Perspectives, 22 (2), 53-72
• Deaton, A. and Kahneman, D (2010). How Income Improves Evaluation of Life But Not Emotional Well-being. Proceedings of the National Academy of Sciences, Early Edition, September 6 (2010).
• Easterlin, R. A. (1974). “Does economic growth improve the human lot? Some empirical evidence.” In P. A. David and M. W. Reder, editors, Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz, pages 89–125. Academic Press, New York.
• Easterlin, R. A. (2001). “Income and happiness: towards a unified theory.” Economic Journal, 111, 465–484.
• Frank, R. H. (2004). How Not to Buy Happiness. Daedalus, 133(2), 69–79.
• Frey, B. S. and Stutzer, A. (2002). Happiness and Economics: How the Economy and Institutions Affect Human Well-Being. Princeton University Press, Princeton.
• Inglehart, R. (1990). Cultural Shift in Advanced Industrial Society. Princeton University Press.
• Kahneman, D. and Krueger, A. B. (2006). Developments in the measurement of subjective well-being. Journal of Economic Perspectives, 20(1), 3–24.
• Layard, R. (2005). Happiness: Lessons from a New Science. Allen Lane, London.
• Layard, R., Mayraz, G., and Nickell, S. (2006). The Marginal Utility of Income. SOEP Paper No. 50, April 18th 2008.
• Luttmer, E. F. P. (2005). “Neighbors as negatives: relative earnings and well-being.” Quarterly Journal of Economics, 120(3), 963– 1002.
• Schor, J. B. (1999). The Overspent American: Why We Want What We Don’t Need. Harper, New York.
• Shields, M. A. and Price, S. W. (2005). Exploring the economic and social determinants of psychological well-being and perceived social support in England. Journal of the Royal Statistical Society, Series A, 163(3), 1–25.
• Wilkinson, R. and Pickett, K. (2009). The Spirit Level. Allen Lane.
