Thursday, December 08, 2005

Money buys happiness

Causation is tricky but we love it. It is no surprise that the ancient money-makes-you- (or does not make you) happy discussion is now taken up by economists and other social scientists. In fact, my colleague Dick Easterlin has done some of the most careful work in this area.

This morning's WSJ includes "Money Buys Happiness" by Arthur C. Brooks. He reports evidence that the richer are happier to the extent that they donate more (money and /or time) to good causes.

To be sure, paying more in taxes does not make them happier. Apparently they exclude this from the good causes category -- and it leaves them less to donate.

"Money Buys Happiness"
WSJ, December 8, 2005; Page A16

"During the holidays, we will give thanks for the important things in our lives. For most people, money is not one of these things -- at least this is what we would like others to think. We are after all constantly reminding each other that 'money doesn't buy happiness.'

"Economists aren't so sure. They note that people with a lot of money tend to express a higher subjective happiness than people with very little. According data from surveys by the National Opinion Research Center, for example, people in the top fifth of income earners are about 50% more likely to say they are 'very happy' than people in the bottom fifth, and only about half as likely to say they are 'not too happy.'

"There is, however, generally very little change in the average level of happiness in populations getting richer over the years. For instance, the percentage of the U.S. population saying it was 'very happy' in 1972 was exactly the same as it was in 2002: 30.3%. Social critics of 'consumerism' explain this by claiming that what makes rich people happy is not money per se, but rather the fact that they have more of it than others -- so if everybody gets richer, happiness remains unchanged. The critics go on to say that income differences lead to unwholesome feelings of superiority, so taxes can improve our moral fiber simply by bringing us closer to the same income level.

"Perhaps you're unconvinced. In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are 'not too happy.' At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

"But beyond earning, taxing and spending, there is an even clearer link between money and happiness: charity. The evidence is unambiguous that donating money (and time) is one of the best ways to buy happiness. People who donate to charity are 40% more likely to say they are 'very happy' than non-donors. Psychologists have even tested whether charity makes people happy using randomized, controlled experiments -- the same procedure used for testing pharmaceuticals, except that, instead of administering a drug to one group and a placebo to the other, researchers randomly assign one group to act charitably toward another. The results are clear: Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity -- empirical evidence that it is indeed more blessed to give than to receive.

"The bottom line is that the old axiom about money and happiness, properly understood, is quite wrong. So if you are so fortunate, enjoy the blessings of your abundance this holiday season -- and be sure to buy yourself a little extra joy via your favorite charity."