Happiness: Is there a price? (2/2)

In last week’s article I discussed the ways in which we have attempted to quantify happiness, through the prism of case studies such as Bhutan and its Gross National Happiness index. The study of wellbeing is thought to be relatively new, but the challenge of quantifying wellbeing has been something which economists, philosophers and psychologists have been attempting to solve for centuries.

The study of wellbeing within economics dates back all the way to the 18th Century, when Jeremy Bentham, a well-known philosopher of the period, outlined the philosophy of ‘utility’, that assessed the merit of an action according to how much happiness it produced. He suggested a calculation for any action by balancing out twelve pains and fourteen pleasures. These studies continued, and by 1930 Paul Samuelson had taken a different approach to the situation and developed a theory that tried to explain welfare economics in purely mathematical terms. His theory quickly caught the public’s attention; the World Bank and the International Monetary Fund began to use his method as a key indicator of economic growth.

By the 1950’s, psychologists and sociologists began to question the validity of this calculation, assessing whether or not it is possible to quantify a feeling of happiness. The economist Richard Easterlin [1] conducted a poll on general happiness within the United States and published his findings in one of his papers. Within this poll, he found that the rich are generally happier than the poor, but also that people in richer countries are not necessarily as happy as those in poorer countries. Other theories such as the “Easterlin Paradox” began to emerge, suggesting that, once a developed country has passed a threshold of average incomes, more economic growth does not increase average happiness. This suggests that, once basic needs are met, the average person earning more than before does not necessarily mean that they will experience an increase in wellbeing. The Easterlin Paradox began to be challenged by various economists who sought to understand thresholds better. Countries such as Japan and Italy were showing clearly rising levels of wellbeing alongside similarly rising levels of GDP. This raised the question of whether income had a bigger effect on happiness levels than we realized: could money really buy happiness? Even though there was a positive correlation at this point in history, there was still not enough information to establish a clear hypothesis.

181216 Maslow's Hierarchy of Needs
Maslow’s Hierarchy of Needs [2]
However, then Maslow’s Hierarchy of Needs was considered. Under this theory, a person needs to cover their basic needs first in order to move up the ‘pyramid’ of needs and ultimately achieve self-actualisation, one measure that can be equated to happiness. Each lower level must be covered before higher levels can be reached; hence, in order to achieve self-esteem, confidence, and even the respect of others, one must first have the basics in life: a place to live, food to eat, a body capable of carrying out basic everyday activities, and a job that is going to bring in income. This supported the Easterlin Paradox as it demonstrates how, after covering physiological and safety needs, the factors involved in achieving self-actualisation are no longer reliant on income or wealth.

Over the past 10 years there has been an explosion of serious research looking into economic wellbeing. The US Bureau of Economic Analysis (BEA) has even stated that it is critical to keep this kind of information up to date in order to maintain, improve, and update current GDP accounts.

Sarkozy, France’s former Prime Minister, wanted to introduce a plan to make joy and wellbeing a key indicator of growth, rather than traditional methods such as GDP. By following Bhutan’s footsteps and calculating national happiness levels, this plan could well have led to improved quality of life, and could even have changed governing methods in order to best suit the citizens needs. The new assessment would have been based on figures relating to work-life balance, recycling, household chores and even levels of traffic congestion. This way of measuring national happiness differs from the way of measuring happiness in Bhutan, reflecting that the needs of the people in these two countries are extremely different. One of the reasons Sarkozy suggested moving away from GDP was that reports began to suggest that economic statistics alone were no longer sufficient: “traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life,” stated Sarkozy. [3] However, elections rolled around: Sarkozy was not elected for a second term in office, and was therefore not able to carry out his plan.

The United States has also been making great advancements in this field: psychologists have begun to take a new approach to psychology. Instead of working to determine causes of unhappiness, depression, and mental abnormalities, there has been a huge boom in the field of looking at what makes people happy in their everyday lives. Daniel Kahneman conducted an experiment involving over 900 American women: they wrote down what they did every day, and rated their mood and feelings. He found that if people analyzed their day in sections, the results are very different than if analyzed as a whole. For example, Kahneman found that when people are in the car going to work they tend to rate their mood as quite low; given statistics regarding when individuals were at work, at home, cooking, looking after loved ones and doing other daily activities, Kahneman found that, overall, people spend more time doing things that make them unhappy – resulting, perhaps unsurprisingly, in people being more unhappy overall.

Seldom, an American psychologist, found that one of the activities that makes people the happiest is spending time with friends and family and practicing religion. Another of his findings was that younger people are not as happy as older people. In fact, older people are more consistently satisfied with their lives than the young and they’re less prone to dark moods. A recent survey by the Center for Disease Control and Prevention found that people ages 20 to 24 are sad for an average of 3.4 days a month, as opposed to just 2.3 days for people ages 65 to 74. This varies remarkably from studies conducted in Bhutan, where data suggested that people were happiest between the ages of 17-35 – providing yet more evidence that there is no worldwide formula for happiness that can be applied to every country.

Even though each country, if not each individual, measures happiness in a different way, the study of happiness is an excellent starting point from which to establish what governmental systems can be most effective in supporting a higher level of happiness in any population.

In Western studies, the main conclusion that has been extracted from recent research is that overall, people in rich countries with supportive institutions and advanced infrastructure tend to be happier compared to people in poor countries with weak institutions and inferior infrastructure. Yet some studies state that it is mostly the institutions that are providing for people that make their happiness levels increase rather than the country itself. For example, places with better healthcare and schools tend to produce higher happiness levels in large part because people feel more secure in the place they are living. However, as mentioned earlier, after a certain point, a person’s happiness levels do not continue to increase at the same rate as their income. The optimal point tends to be at around income levels of $75,000-$120,000 a year. Some studies have played with the idea that maybe this is due to the fact that as people get richer, they start demanding a higher quality of life (e.g. moving to a richer neighborhood), and consequently stop feeling as satisfied as they once did compared with others around them.

There are various economic factors that have been demonstrated to decrease happiness levels: unemployment, for example. Unemployment is directly correlated with unhappiness: this is particularly apparent among men in the UK, USA and Germany. However, studies show that being around other unemployed people can help to neutralize the negative effects of unemployment: being around others in a similar situation makes individuals feel less unhappy about being unemployment. This is why regions of high unemployment do not always feel the full effect of unemployment. An example of this could be Spain, where levels of unemployment amongst those under the age of 30 have reached over 50%, and yet Spaniards are only slightly less satisfied with their lives than the OECD average.

Another economic factor affecting personal contentedness is a person’s work-life balance. More hours worked equate to happier individuals, but only up until a point — after which more work makes people miserable. There is a very fine line between the number of hours an employee is willing to work while self-reporting a state of well-being, and being unhappy and overworked. Fascinatingly, a study found that working long hours regularly correlates negatively with well-being, whereas “working overtime has a positive effect on life satisfaction”. Ironic?

All of these studies have helped define the idea of wellbeing within economics. This is a growing industry in today’s world; we will more than likely see continued research and development, which could lead to changes in the way governments run, and in basic economic functions in order to fit the public’s needs in a more holistic and humane way.

Money may not buy happiness – yet it can buy the resources necessary to measure it.

Header Image: Photo by Ben White on Unsplash


[1] Easterlin, R. (2004). The Economics of Happiness. Daedalus,133(2), 26-33. Retrieved from http://www.jstor.org/stable/20027910.

[2] Simply Psychology. (2018). Maslow’s Hierarchy of Needs. [online] Available at: https://www.simplypsychology.org/maslow.html [Accessed 14 Dec. 2018].

[3] Telegraph.co.uk. (2018). Nicolas Sarkozy wants to measure economic success in ‘happiness’. [online] Available at: https://www.telegraph.co.uk/news/worldnews/europe/france/6189530/Nicolas-Sarkozy-wants-to-measure-economic-success-in-happiness.html [Accessed 14 Dec. 2018].

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