F EATURED
Can Money Buy Happiness?
W
Geoffrey Sato-Holt levels of happiness will not vary much U.S (7th in GDP per capita) are below
hy do governments tweak
interest rates, taxes and a
multitude of other factors
and policies? The supposed goal is to
maximise macroeconomic indicators
such as economic growth, however
it all boils down to one seemingly
simple, yet frustrating factor. It may
be referred to as ‘standard of living’
or ‘social welfare’, but what we really
mean is the happiness of all citizens.
As an economy grows and the average
income of citizens increases, so should
their happiness. This is why we seek
growth, material goods and money will
‘buy’ happiness
This is an assumption made by many,
but one that does not seem to work
perfectly in practice. Data from a
study on the Penn World Tables
has suggested that the mean life
satisfaction in a country is very low
when the GDP per capita (adjusted
for purchasing power parity*) is
below $10000. However, after this
point there is very weak correlation
between life satisfaction and GDP per
capita. This supports the Easterlin
Paradox, a concept that states that in
International comparisons, average
with national income; provided income Costa Rica, Panama and Mexico (71st,
is sufficient to meet basic needs (e.g.
60th and 59th respectively in GDP per
an income between $10000-$15000). capita)?
On the other hand, a logarithmic
correlation between GDP per capita
and reported happiness has been
found, which is included in the same
study. This displays no limit on
increased happiness due to increased
income. This supports the notion that
increased average income does lead to
increased average happiness.
Happiness is such an abstract concept
and to a degree, immeasurable. We
shouldn’t take these rankings as factual,
but it is enough to justify the opinion
that increases in income do lead to
higher levels of happiness. However,
the Easterlin Paradox isn’t completely
wrong; after a set level the effect of
these increases diminishes.
What can be gathered from these
conflicting results? The 2013 World
Happiness Report rankings give some
further indication of the relationship.
Countries with extremely low GDP per
capita rank very low, such as Togo and
Benin, due to the inability of many
citizens to afford basic needs. The top
There are many other factors that affect
happiness, and in situations where
the average income is relatively high
(comfortably enough to meet basic
needs) these factors can be even more
important than a wage increase. This
includes family relationships, personal
freedom and other social factors, which
cannot be dictated by a government.
10 countries all rank in the top 20 for
GDP per capita in 2012 (measured
by the World Bank). This supports a
strong relationship between average
income and happiness levels. But how
can one explain why Denmark, who
rank at 15th in GDP per capita, top
the happiness rankings, and why the
There are two other psychological
factors that help to explain the
Easterlin Paradox: relative prosperity
and the ‘hedonic treadmill’. There
is an inverse relationship between
personal happiness and your
neighbour’s relative wealth. If you are
surrounded by wealthier people you’ll
be discontent. Even if you earn more
than you previously had, relative wealth
to others can limit happiness. The
‘hedonic treadmill