Paddington the Economist (JM)

If you're richer, you're happier

People tell you that wealth does not lead to happiness. New research shows they're wrong

I thought, just from the title of this article, that it had so very much potential. But I was wrong, so very wrong. It was like looking at treasure chest only to realize that it is standing straight in front of Scrooge McDuck’s money bin. I will comment a lot less than usual because I think there’s going to be beauty in letting a lot of this speak for itself.

Daniel Finkelstein

To mark the first anniversary of Paddington Bear residing with the Browns, a small party is held at which Paddington performs conjuring tricks. Carefully reading from his conjuring book, the bear places Mr Curry's watch inside a handkerchief and smashes it with a hammer.

This is the most adorable opening to an opinion column ever. Who needs money to be happy, so long as we have Paddington Bear.

Unfortunately, Paddington has turned two pages at once. They were stuck together with marmalade. So he misses the words that follow the advice to bring down the hammer on the handkerchief - “having first removed the watch”.

Aww… I think I will rechristen you Finkelton Bear. I imagine you’ve had some marmalade problems of your own in your time.

I have been patient. For my entire adult life, I have been looking out to see Paddington's trick performed for real. But now I have. As my mother always told me: “Everything comes to he who waits.”

You were waiting to see a stuffed bear perform a magic trick? You actually saw a stuffed bear perform a magic trick?!

The production of literature about happiness has become an industry. Earlier this week a cross-party group of Christian MPs produced a report on the topic and were able to begin with a long list of books on the subject published in the last two years. Perhaps the most successful are Happiness: Lessons from a New Science by Richard Layard and Affluenza by Oliver James but there has been a host of others.

“Ahem… excuse me chaps, but perhaps you’ve heard of a little bear named Paddington? Also, do you have any marmalade?”

The starting point for this work is something called the Easterlin Paradox. In a 1974 paper, the economist Richard Easterlin presented empirical evidence on income and happiness that was pretty puzzling. Using surveys of how happy people say that they are, the paper seemed to show that within countries, the richer people are, the happier they are, but that between countries the same didn't hold.

This is not a paradox at all, instead it is something that makes total sense. After a certain point competition for goods and services is a matter of status as much as anything else. Moreover, you are competing in the same pricing market. Yes, perhaps it is better to be working class in America than upper middle class in, say, Ghana, however not that much better in terms of standard of living and way the heck worse in terms of social standing.

What this suggests is that being relatively rich compared to your fellow countrymen makes you happier, but that your absolute wealth doesn't matter. Once a minimum income level is reached, an amount necessary for a country's residents to subsist, all that extra economic growth doesn't appear to be improving life satisfaction.

I suspect this depends on how you define subsistence. If one were to do a really good, comparative study of this subject I imagine the line for subsistence would be socially relative. In America, subsisting probably requires far more than simply having food, clothing and shelter. But again, that would go back to the original argument the Easterlin paper would make.

The implications of Easterlin's discovery are pretty strong. It suggests that all this consumption is doing us no good. That is what the Christian MPs suggest, questioning whether we haven't sacrificed family life on the altar of capitalism. Indeed, some authors go farther and suggest that the very act of shopping is actually making us unhappy. The Easterlin Paradox certainly means that we shouldn't be organising our economies to maximise economic growth. Happiness, not income, should be our guide.

The problem is that I am not quite sure how one studies happiness in some sort of objective, quantifiable manner. This becomes particularly problematic when doing cross-cultural studies. Concepts of happiness probably range quite widely amongst different nations and backgrounds. I imagine it is nearly impossible to control these sorts of studies for income. I miss Paddington Bear, where did he go?

The leading happiness authors suggest that we should concentrate on reducing inequality. This might lead to lower national income, but who cares about that? It isn't making us happier. Increased equality would stop us all worrying about our relative positions and thus remove a source of unhappiness.

This is plausible, but I am not sure it’s unflawed. I think status differential is one of the very real sources of happiness, sadly, and removing wealth as a standard for status will just shift the battle in some other direction. This is not to say that redistributing wealth isn’t a good idea, it is as a way of helping to forge equal opportunity, however I am not sure it is the path to our universal happiness. Not to be too pessimistic, I suspect we live in a world where happiness is always going to be a function of a person’s place in society as well as their particular psyches. My point is that you can maximize happiness within an individual, but I think it’s a logical impossibility to universalize it.

And all this stuff has caught the mood. It's the intellectual vogue topic. David Cameron is talking about improving General Wellbeing not just Gross National Product. It's everywhere.

This is incredibly smart politics on Cameron’s part. This is leading to the rise of the new Right in Britain. It holds forth an ethos that the public can really buy in to, starkly different and more sympathetic than Thatcherism. It’s a model the American Right is going to be looking to after the bloodbath they’re going to face in the coming general election. (Seriously, it’s going be quite a disaster for them, their loss in the Mississippi-01 is, as Ambinder puts it, similar to a Democrat losing in Los Angeles County. Insane.)

There is just one teeny, tiny problem. It seems as if Easterlin wasn't correct.

It appears that before picking up their hammers to smash down on the handkerchief of economic growth, the happiness authors had an accident with the marmalade. They turned over two sticky pages at once and missed the reassessment of Easterlin's work that has been taking place.

Oh Finkelton Bear! How could you?! This was nothing more than a thinly veiled attempt to make a bad analogy. Somewhere Paddington is crying, and you owe him an apology. This doesn’t even make any sense. It would, if say people had not read part of Easterlin’s work, but not reading responses? That’s no marmalade-encrusted page. I miss the happier time when I thought this column was going to be about how all we need is Paddington.

Easterlin's original paper was based on fairly limited data. Betsey Stevenson and Justin Wolfers, of the Wharton School, University of Pennsylvania, have been looking at the vast amount of data that has become available since then. And guess what? The two economists show that there is “a clear and positive link between average levels of subjective wellbeing across countries with no evidence of a satiation point beyond which wealthier countries have no further increases in subjective wellbeing”.

Whoa there, first of all I would need to know way way more about this before I would just conclude that Easterlin is wrong. But this misses the real question any way: Is the difference between the subjective happiness of people who live in the same country lesser or greater than the difference between people who occupy relatively similar positions in different countries, with different overall GDPs. In other words, all this shows is that countries with more money may have happier people. Duh. Moreover, countries with greater wealth (except for the United States) tend to have much fairer income distribution, there is no way to control for this.

In other words they show that it's not just relative wealth that matters, it is absolute wealth too - on average, the richer you are, the happier you are. And this isn't true just for the first slug of income, just until we can subsist, it is true all the way up and as economies keep growing.

Maybe, but it’s a question of prioritization. You cannot concentrate on growth and equality at the same time. The real issue is which is more critical to happiness.

The Nobel prize-winning economist Daniel Kahneman is sufficiently important in this area of economics that Richard Layard dedicated his happiness book to him. Kahneman now believes the new evidence from the Wharton academics is “quite compelling” and adds that “there is just a vast amount of accumulating evidence that the Easterlin Paradox may not exist”.

This is just hearsay. See I’m like totally a lawyer.

Now this doesn't, of course, prove by itself that higher income causes greater happiness. Let's not make that mistake. In the academic literature on psychology you will find plenty of reason to believe, for instance, that the relationship might be the other way round - that greater happiness might cause higher income.

This would make total sense on a relative income level. Individuals who are happier may be more productive. This is weird and crazy on a state-actor level. It’s not like the country filled with the happiest people are the most prosperous. If that were the case Canada would have the second highest GDP, right behind The Netherlands.

At the very least, however, it shows that higher income is consistent with greater happiness and isn't actually making us unhappy. It also means, again at the very least, that if the happiness authors want to advance the faintly counterintuitive idea that more income doesn't increase life satisfaction, they have a lot of work to do finding an entirely new way of making their point.

None of this evidence disproves that point as far as I can see. It just presents an already obvious counter-consideration.

The Easterlin Paradox seemed to offer a way out for those unhappy with capitalism. After spending decades advancing methods of increasing growth that didn't work, much of the Left has moved on. Now they are arguing that growth doesn't matter or might actually be harmful. And the happiness literature helped make this point.

It sure is still a persuasive argument. Ask all of those people in rural Pennsylvania who are bitter and clinging to their guns. I imagine if you did a cross-strata study there would still be distinct levels of unhappiness amongst the lower-class. This new study would only argue against this if “growth” were some amorphous concept that would could just enhance. Instead, it means tending towards a more unfettered free market. As we have seen, long-term growth also tends to mean long-term class division. Extra dollops of happiness from those on top, taken straight from the plates of the least fortunate.

So what will happen now with these critics? Will they ignore the data? Will they walk away from the happiness idea and forget they ever mentioned it? Or will they turn their work on its head and use the new evidence to start arguing that capitalism might be the route to happiness after all?

What data, what new evidence?

I don't somehow think they'll choose this last option. Do you?

It would seem pretty foolish based on the no argument that has been provided thus far. But I know the answer my friend, more Paddington Bear, because I, for one, was way way happier when this was a discussion of that adorably mischievous bear than when you were asserting nonsense about Wharton studies.