Forget what gurus say: money does buy happiness

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By Adam Creighton

Money can’t buy happiness, so the cliche goes. You desperately may want a pay rise but, according to the doyens of “happiness economics”, once your income covers “basic needs” – an amount far above Australia’s $60,000 median wage — more cash provides little cheer.

“Despite economic growth, happiness in the West has not grown in the last 50 years,” British happiness guru Richard Layard said a decade ago. This argument is useful for proponents of highly progressive income tax: a flat rate of income tax, while simple and likely to promote more rapid economic growth, is not fair because high earners don’t “need” their incomes as much as others.

Economists used to be wary of comparing happiness among different people, but since the 1970s such comparisons have become routine. “Wellbeing frameworks”, which temper the goal of income growth with considerations of “community happiness”, are popping up in treasuries everywhere, including here.

But a young Australian professor of economics at the University of Michigan, Justin Wolfers, has undermined the conventional wisdom with a battery of provocative statistical work of sufficient quality to appear in the American Economic Review, the holy grail of economic journals, next month.

Wolfers says higher incomes make people in rich countries even happier than higher incomes do in poor countries. He has used various permutations of subjectively reported measures of happiness and GDP per capita for 155 countries between 2008 and 2012.

“While the idea that there is some critical level of income beyond which income no longer impacts wellbeing is intuitively appealing, it is at odds with the data,” he writes. “To the extent that the wellbeing-income relationship changes, it appears stronger for rich countries,” he and his co-author Betsey Stevenson write.

This finding suggests higher income makes people happy, not necessarily because it lifts them up in some particular social hierarchy but because of the greater command over real goods and services a higher income confers. Economic growth in the past century has lifted real incomes dramatically; perhaps Bill Gates is happier than JP Morgan, the Queen happier than Louis XIV.

Wolfers also examined the link between happiness and income within the 25 most populous countries. “The positive association between family income and reported wellbeing is remarkably consistent and shows no signs of petering out even at very high incomes (even up to $500,000),” he adds, noting zero evidence of any “satiation” point.

So can we scrap foreign aid and introduce a flat rate of income tax to better maximise the collective sum of happiness?

Wolfers’s finding only weakens this case. Governments can and do arbitrarily value the welfare of different groups differently. Eradicating unhappiness may be considered more socially desirable than promoting happiness, justifying a policy of government handouts courtesy of the “rich”.

Wolfers’s findings are fascinating, but it is better not to use them to argue for lower taxes and a smaller welfare state. That only buys into the idea that government exists to promote happiness rather than, more simply, to protect property, life and limb and provide basic public services.

On the basis of promoting happiness, however, governments have expanded into almost every facet of people’s lives, from promoting healthy lifestyles and mandating the number of teachers per child at childcare centres to concocting an array of “family payments”.

Taxes should be low, not because they retard happiness but because income rightfully earned is the earner’s property. Full stop.

While people should be free to pursue happiness, as the US Declaration of Independence famously stipulates, the government should not pursue it on their behalf. Happiness is nice, but it has no more claim to directing government policy than pride, confidence, or umpteen other worthy human emotions.

Aldous Huxley once painted a picture of a Brave New World where happiness motivated government policy almost exclusively, resulting in a contended populace permanent drug-fuelled stupor.

© 2013 The Australian  |  This article first appeared in The Australian on May 17, 2013.

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