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Money and Happiness (III)

Why Money Doesn’t Buy Happiness
Economists and psychologists—and the rest of us—have long wondered if more money would make us happier. Here's the answer.

Sharon BegleyNewsweek Web Exclusive
Oct 15, 2007 Updated: 8:41 p.m. ET Oct 14, 2007

Source: http://www.newsweek.com/id/43884

All in all, it was probably a mistake to look for the answer to the eternal question—"Does money buy happiness?"—from people who practice what's called the dismal science. For when economists tackled the question, they started from the observation that when people put something up for sale they try to get as much for it as they can, and when people buy something they try to pay as little for it as they can. Both sides in the transaction, the economists noticed, are therefore behaving as if they would be more satisfied (happier, dare we say) if they wound up receiving more money (the seller) or holding on to more money (the buyer). Hence, more money must be better than less, and the only way more of something can be better than less of it is if it brings you greater contentment. The economists' conclusion: the more money you have, the happier you must be.
Depressed debutantes, suicidal CEOs, miserable magnates and other unhappy rich folks aren't the only ones giving the lie to this. "Psychologists have spent decades studying the relation between wealth and happiness," writes Harvard University psychologist Daniel Gilbert in his best-selling "Stumbling on Happiness," "and they have generally concluded that wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter."
That flies in the face of intuition, not to mention economic theory. According to standard economics, the most important commodity you can buy with additional wealth is choice. If you have $20 in your pocket, you can decide between steak and peanut butter for dinner, but if you have only $1 you'd better hope you already have a jar of jelly at home. Additional wealth also lets you satisfy additional needs and wants, and the more of those you satisfy the happier you are supposed to be.
The trouble is, choice is not all it's cracked up to be. Studies show that people like selecting from among maybe half a dozen kinds of pasta at the grocery store but find 27 choices overwhelming, leaving them chronically on edge that they could have chosen a better one than they did. And wants, which are nice to be able to afford, have a bad habit of becoming needs (iPod, anyone?), of which an advertising- and media-saturated culture create endless numbers. Satisfying needs brings less emotional well-being than satisfying wants.
The nonlinear nature of how much happiness money can buy—lots more happiness when it moves you out of penury and into middle-class comfort, hardly any more when it lifts you from millionaire to decamillionaire—comes through clearly in global surveys that ask people how content they feel with their lives. In a typical survey people are asked to rank their sense of well-being or happiness on a scale of 1 to 7, where 1 means "not at all satisfied with my life" and 7 means "completely satisfied." Of the American multimillionaires who responded, the average happiness score was 5.8. Homeless people in Calcutta came in at 2.9. But before you assume that money does buy happiness after all, consider who else rated themselves around 5.8: the Inuit of northern Greenland, who do not exactly lead a life of luxury, and the cattle-herding Masai of Kenya, whose dung huts have no electricity or running water. And proving Gilbert's point about money buying happiness only when it lifts you out of abject poverty, slum dwellers in Calcutta—one economic rung above the homeless—rate themselves at 4.6.
Studies tracking changes in a population's reported level of happiness over time have also dealt a death blow to the money-buys-happiness claim. Since World War II the gross domestic product per capita has tripled in the United States. But people's sense of well-being, as measured by surveys asking some variation of "Overall, how satisfied are you with your life?," has barely budged. Japan has had an even more meteoric rise in GDP per capita since its postwar misery, but measures of national happiness have been flat, as they have also been in Western Europe during its long postwar boom, according to social psychologist Ruut Veenhoven of Erasmus University in Rotterdam. A 2004 analysis of more than 150 studies on wealth and happiness concluded that "economic indicators have glaring shortcomings" as approximations of well-being across nations, wrote Ed Diener of the University of Illinois, Urbana-Champaign, and Martin E. P. Seligman of the University of Pennsylvania. "Although economic output has risen steeply over the past decades, there has been no rise in life satisfaction … and there has been a substantial increase in depression and distrust."
That's partly because in an expanding economy, in which former luxuries such as washing machines become necessities, the newly affluent don't feel the same joy in having a machine do the laundry that their grandparents, suddenly freed from washboards, did. They just take the Maytag for granted. "Americans who earn $50,000 per year are much happier than those who earn $10,000 per year," writes Gilbert, "but Americans who earn $5 million per year are not much happier than those who earn $100,000 per year." Another reason is that an expanding paycheck, especially in an expanding economy, produces expanding aspirations and a sense that there is always one more cool thing out there that you absolutely have to have. "Economic success falls short as a measure of well-being, in part because materialism can negatively influence well-being," Diener and Seligman conclude.
If money doesn't buy happiness, what does? Grandma was right when she told you to value health and friends, not money and stuff. Or as Diener and Seligman put it, once your basic needs are met "differences in well-being are less frequently due to income, and are more frequently due to factors such as social relationships and enjoyment at work." Other researchers add fulfillment, a sense that life has meaning, belonging to civic and other groups, and living in a democracy that respects individual rights and the rule of law. If a nation wants to increase its population's sense of well-being, says Veenhoven, it should make "less investment in economic growth and more in policies that promote good governance, liberties, democracy, trust and public safety."
(Curiously, although money doesn't buy happiness, happiness can buy money. Young people who describe themselves as happy typically earn higher incomes, years later, than those who said they were unhappy. It seems that a sense of well-being can make you more productive and more likely to show initiative and other traits that lead to a higher income. Contented people are also more likely to marry and stay married, as well as to be healthy, both of which increase happiness.)
If more money doesn't buy more happiness, then the behavior of most Americans looks downright insane, as we work harder and longer, decade after decade, to fatten our W-2s. But what is insane for an individual is crucial for a national economy—that is, ever more growth and consumption. Gilbert again: "Economies can blossom and grow only if people are deluded into believing that the production of wealth will make them happy … Economies thrive when individuals strive, but because individuals will strive only for their own happiness, it is essential that they mistakenly believe that producing and consuming are routes to personal well-being." In other words, if you want to do your part for your country's economy, forget all of the above about money not buying happiness.

In German Suburb, Life Goes On Without Cars

In German Suburb, Life Goes On Without Cars
By ELISABETH ROSENTHAL
Published: May 11, 2009
Source: http://www.nytimes.com/2009/05/12/science/earth/12suburb.html?em=&pagewanted=all

VAUBAN, Germany — Residents of this upscale community are suburban pioneers, going where few soccer moms or commuting executives have ever gone before: they have given up their cars.
The nation has lots of “walkable” places. But giving up the automobile is another thing altogether.
Street parking, driveways and home garages are generally forbidden in this experimental new district on the outskirts of Freiburg, near the French and Swiss borders. Vauban’s streets are completely “car-free” — except the main thoroughfare, where the tram to downtown Freiburg runs, and a few streets on one edge of the community. Car ownership is allowed, but there are only two places to park — large garages at the edge of the development, where a car-owner buys a space, for $40,000, along with a home.
As a result, 70 percent of Vauban’s families do not own cars, and 57 percent sold a car to move here. “When I had a car I was always tense. I’m much happier this way,” said Heidrun Walter, a media trainer and mother of two, as she walked verdant streets where the swish of bicycles and the chatter of wandering children drown out the occasional distant motor.
Vauban, completed in 2006, is an example of a growing trend in Europe, the United States and elsewhere to separate suburban life from auto use, as a component of a movement called “smart planning.”
Automobiles are the linchpin of suburbs, where middle-class families from Chicago to Shanghai tend to make their homes. And that, experts say, is a huge impediment to current efforts to drastically reduce greenhouse gas emissions from tailpipes, and thus to reduce global warming. Passenger cars are responsible for 12 percent of greenhouse gas emissions in Europe — a proportion that is growing, according to the European Environment Agency — and up to 50 percent in some car-intensive areas in the United States.
While there have been efforts in the past two decades to make cities denser, and better for walking, planners are now taking the concept to the suburbs and focusing specifically on environmental benefits like reducing emissions. Vauban, home to 5,500 residents within a rectangular square mile, may be the most advanced experiment in low-car suburban life. But its basic precepts are being adopted around the world in attempts to make suburbs more compact and more accessible to public transportation, with less space for parking. In this new approach, stores are placed a walk away, on a main street, rather than in malls along some distant highway.
“All of our development since World War II has been centered on the car, and that will have to change,” said David Goldberg, an official of Transportation for America, a fast-growing coalition of hundreds of groups in the United States — including environmental groups, mayors’ offices and the American Association of Retired People — who are promoting new communities that are less dependent on cars. Mr. Goldberg added: “How much you drive is as important as whether you have a hybrid.”
Levittown and Scarsdale, New York suburbs with spread-out homes and private garages, were the dream towns of the 1950s and still exert a strong appeal. But some new suburbs may well look more Vauban-like, not only in developed countries but also in the developing world, where emissions from an increasing number of private cars owned by the burgeoning middle class are choking cities.
In the United States, the Environmental Protection Agency is promoting “car reduced” communities, and legislators are starting to act, if cautiously. Many experts expect public transport serving suburbs to play a much larger role in a new six-year federal transportation bill to be approved this year, Mr. Goldberg said. In previous bills, 80 percent of appropriations have by law gone to highways and only 20 percent to other transport.
In California, the Hayward Area Planning Association is developing a Vauban-like community called Quarry Village on the outskirts of Oakland, accessible without a car to the Bay Area Rapid Transit system and to the California State University’s campus in Hayward.
Sherman Lewis, a professor emeritus at Cal State and a leader of the association, says he “can’t wait to move in” and hopes that Quarry Village will allow his family to reduce its car ownership from two to one, and potentially to zero. But the current system is still stacked against the project, he said, noting that mortgage lenders worry about resale value of half-million-dollar homes that have no place for cars, and most zoning laws in the United States still require two parking spaces per residential unit. Quarry Village has obtained an exception from Hayward.
Besides, convincing people to give up their cars is often an uphill run. “People in the U.S. are incredibly suspicious of any idea where people are not going to own cars, or are going to own fewer,” said David Ceaser, co-founder of CarFree City USA, who said no car-free suburban project the size of Vauban had been successful in the United States.
In Europe, some governments are thinking on a national scale. In 2000, Britain began a comprehensive effort to reform planning, to discourage car use by requiring that new development be accessible by public transit.
“Development comprising jobs, shopping, leisure and services should not be designed and located on the assumption that the car will represent the only realistic means of access for the vast majority of people,” said PPG 13, the British government’s revolutionary 2001 planning document. Dozens of shopping malls, fast-food restaurants and housing compounds have been refused planning permits based on the new British regulations.
In Germany, a country that is home to Mercedes-Benz and the autobahn, life in a car-reduced place like Vauban has its own unusual gestalt. The town is long and relatively narrow, so that the tram into Freiburg is an easy walk from every home. Stores, restaurants, banks and schools are more interspersed among homes than they are in a typical suburb. Most residents, like Ms. Walter, have carts that they haul behind bicycles for shopping trips or children’s play dates.
For trips to stores like IKEA or the ski slopes, families buy cars together or use communal cars rented out by Vauban’s car-sharing club. Ms. Walter had previously lived — with a private car — in Freiburg as well as the United States.
“If you have one, you tend to use it,” she said. “Some people move in here and move out rather quickly — they miss the car next door.”
Vauban, the site of a former Nazi army base, was occupied by the French Army from the end of World War II until the reunification of Germany two decades ago. Because it was planned as a base, the grid was never meant to accommodate private car use: the “roads” were narrow passageways between barracks.
The original buildings have long since been torn down. The stylish row houses that replaced them are buildings of four or five stories, designed to reduce heat loss and maximize energy efficiency, and trimmed with exotic woods and elaborate balconies; free-standing homes are forbidden.
By nature, people who buy homes in Vauban are inclined to be green guinea pigs — indeed, more than half vote for the German Green Party. Still, many say it is the quality of life that keeps them here.
Henk Schulz, a scientist who on one afternoon last month was watching his three young children wander around Vauban, remembers his excitement at buying his first car. Now, he said, he is glad to be raising his children away from cars; he does not worry much about their safety in the street.
In the past few years, Vauban has become a well-known niche community, even if it has spawned few imitators in Germany. But whether the concept will work in California is an open question.
More than 100 would-be owners have signed up to buy in the Bay Area’s “car-reduced” Quarry Village, and Mr. Lewis is still looking for about $2 million in seed financing to get the project off the ground.
But if it doesn’t work, his backup proposal is to build a development on the same plot that permits unfettered car use. It would be called Village d’Italia.

Money and Happiness (II)

Maybe Money Does Buy Happiness After All
By DAVID LEONHARDT
Published: April 16, 2008
Source: http://www.nytimes.com/2008/04/16/business/16leonhardt.html?_r=1

In the aftermath of World War II, the Japanese economy went through one of the greatest booms the world has ever known. From 1950 to 1970, the economy’s output per person grew more than sevenfold. Japan, in just a few decades, remade itself from a war-torn country into one of the richest nations on earth.

Yet, strangely, Japanese citizens didn’t seem to become any more satisfied with their lives. According to one poll, the percentage of people who gave the most positive possible answer about their life satisfaction actually fell from the late 1950s to the early ’70s. They were richer but apparently no happier.

This contrast became the most famous example of a theory known as the Easterlin paradox. In 1974, Richard Easterlin, then an economist at the University of Pennsylvania, published a study in which he argued that economic growth didn’t necessarily lead to more satisfaction.

People in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains simply seemed to reset the bar. To put it in today’s terms, owning an iPod doesn’t make you happier, because you then want an iPod Touch. Relative income — how much you make compared with others around you — mattered far more than absolute income, Mr. Easterlin wrote.

The paradox quickly became a social science classic, cited in academic journals and the popular media. It tapped into a near-spiritual human instinct to believe that money can’t buy happiness. As a 2006 headline in The Financial Times said, “The Hippies Were Right All Along About Happiness.”

But now the Easterlin paradox is under attack.

Last week, at the Brookings Institution in Washington, two young economists — from the University of Pennsylvania, as it happens — presented a rebuttal of the paradox. Their paper has quickly captured the attention of top economists around the world. It has also led to a spirited response from Mr. Easterlin.

In the paper, Betsey Stevenson and Justin Wolfers argue that money indeed tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message,” Ms. Stevenson said, “is that income does matter.”

To see what they mean, take a look at the map that accompanies this column. It’s based on Gallup polls done around the world, and it clearly shows that life satisfaction is highest in the richest countries. The residents of these countries seem to understand that they have it pretty good, whether or not they own an iPod Touch.

If anything, Ms. Stevenson and Mr. Wolfers say, absolute income seems to matter more than relative income. In the United States, about 90 percent of people in households making at least $250,000 a year called themselves “very happy” in a recent Gallup Poll. In households with income below $30,000, only 42 percent of people gave that answer. But the international polling data suggests that the under-$30,000 crowd might not be happier if they lived in a poorer country.

Even the Japanese anomaly isn’t quite what it first seems to be. Ms. Stevenson and Mr. Wolfers dug into those old government surveys and discovered that the question had changed over the years.

In the late 1950s and early ’60s, the most positive answer the pollsters offered was, “Although I am not innumerably satisfied, I am generally satisfied with life now.” (Can you imagine an American poll offering that option?) But in 1964, the most positive answer became simply, “Completely satisfied.”

It is no wonder, then, that the percentage of people giving this answer fell. When you look only at the years in which the question remained the same, the share of people calling themselves “satisfied” or “completely satisfied” did rise.

To put the new research into context, I called Daniel Kahneman, a Princeton psychologist who shared the 2002 Nobel Prize in economics. He has spent his career skewering economists for their belief that money is everything and has himself written about the “aspiration treadmill” at the heart of the Easterlin paradox.

Yet Mr. Kahneman said he found the Stevenson-Wolfers paper to be “quite compelling.” He added, “There is just a vast amount of accumulating evidence that the Easterlin paradox may not exist.”

I then called Mr. Easterlin, who’s now at the University of Southern California and who had received a copy of the paper from Ms. Stevenson and Mr. Wolfers. He agreed that people in richer countries are more satisfied. But he’s skeptical that their wealth is causing their satisfaction. The results could instead reflect cultural differences in how people respond to poll questions, he said.

He would be more persuaded, he continued, if satisfaction had clearly risen in individual countries as they grew richer. In some, it has. But in others — notably the United States and China — it has not.

“Everybody wants to show the Easterlin paradox doesn’t hold up,” he told me. “And I’m perfectly willing to believe it doesn’t hold up. But I’d like to see an informed analysis that shows that.” He said he liked Ms. Stevenson and Mr. Wolfers personally, but he thought they had put out “a very rough draft without sufficient evidence.”

They, in turn, acknowledge that the data on individual countries over time is messy. But they note that satisfaction has risen in 8 of the 10 European countries for which there is polling back to 1970. It has also risen in Japan. And a big reason it may not have risen in the United States is that the hourly pay of most workers has not grown much recently.
“The time-series evidence is fragile,” Mr. Wolfers said. “But it’s more consistent with our story than his.”

So where does all this leave us?

Economic growth, by itself, certainly isn’t enough to guarantee people’s well-being — which is Mr. Easterlin’s great contribution to economics. In this country, for instance, some big health care problems, like poor basic treatment of heart disease, don’t stem from a lack of sufficient resources. Recent research has also found that some of the things that make people happiest — short commutes, time spent with friends — have little to do with higher incomes.

But it would be a mistake to take this argument too far. The fact remains that economic growth doesn’t just make countries richer in superficially materialistic ways.

Economic growth can also pay for investments in scientific research that lead to longer, healthier lives. It can allow trips to see relatives not seen in years or places never visited. When you’re richer, you can decide to work less — and spend more time with your friends.

Affluence is a pretty good deal. Judging from that map, the people of the world seem to agree. At a time when the American economy seems to have fallen into recession and most families’ incomes have been stagnant for almost a decade, it’s good to be reminded of why we should care.

E-mail: leonhardt@nytimes.com

This article has been revised to reflect the following correction:

Correction: April 21, 2008 A chart on Wednesday with the Economic Scene column, about the relationship between income and personal satisfaction, misidentified the country shown with a gross domestic product of just under $8,000 per capita and a satisfaction score of just over 5. It was Iran, not Ireland. (As the chart correctly noted, Ireland has a gross domestic product of more than $32,000 per capita and a satisfaction score above 7.)

Money and Happiness (I)

Easterlin: Money won't buy happiness
Recent study by a Mortar Board member finds money only provides a fleeting satisfaction.
Nancy Chen
Source: http://www.dailytrojan.com/news/easterlin-money-won-t-buy-happiness-1.208455

In the heart of midterm season, many students lock themselves in their rooms, guzzle 16-ounce cans of energy drink and study until the wee hours of the morning. Forsaking their friends and health for a few weeks is worth it, they deem: They are in college to work hard and get ready to make money.

For our materialistic generation, happiness - more often than not - equals cash and the things it buys. But USC economics professor Richard Easterlin believes the old adage "Money doesn't buy you happiness" still rings true today.

Easterlin surveyed about 1,500 people spanning 30 years for his study, "Explaining Happiness," which followed the subjects and their levels of happiness as their incomes increased, stayed the same or decreased. The study found that, throughout the 30 years, there was no relationship between money and happiness.

Easterlin said he doesn't buy what most economists believe, that "if income increases substantially, then overall well-being will move in the same direction."

Most people aspire to live the "good life" - a home, car, television set, swimming pool, vacation home and the ability to travel abroad - Easterlin said in his study. But when they have it, they want more; their aspirations grow along with their list of possessions. In fact, Easterlin said that, judging from the average number of things people want later in life, "new material aspirations" are at the same level as the previous wants they have already attained.

Easterlin pointed to this insatiability as evidence that material happiness is not real and buying that new plasma screen television won't make people content for long. He argued, instead, for more intangible factors as the key to happiness.

"Is that sense of satisfaction lasting? We get a new car, and we get used to it. We get new clothes, and we get used to it again. Trying to simply pursue material goods is largely self-defeating because we adjust very quickly to the pleasure we get from that. That's not true with family life," Easterlin said.

Family life, Easterlin said, is a key component to lasting happiness.

"People don't spend enough time with their family and caring about their health, and they put a disproportionate amount of time into trying to make more money," he said.

Freshman public policy, management and planning major Audrey Sunu, however, doesn't completely agree. The idea of money, she said, is relative.

"It doesn't matter if you have a lot or a little; what you need to fix is not the materialism, but your mindset towards it. It's in our innate nature to value objects and possessions, so materialism is inevitable. But what we can control is our attitude towards it. Your attitude towards it can either be healthy and unhealthy," she said.

A healthy relationship toward money, Easterlin said, is one that takes a backseat to relationships with people.

The happiness of married people is significantly greater than that of singles, according to the data Easterlin used for his study.

USC sociology professor and American family therapist Julie Albright said this form of happiness can be traced in evolution.

"If you think of it from a survival standpoint, if we didn't have a need to be with other people, we wouldn't have survived. It's a very basic need to be with others and form relationships and carry on our species at a very basic level," she said.

Even with people working nonstop in their offices or rooms, they still seek out human contact - just in different forms. Albright points to Internet chat rooms and the proliferation of Facebook as examples of people, even extremely busy ones, still desiring human contact.

"People want that connection somehow, some way," Albright said.
Albright said as a former mental hospital worker, she has seen firsthand what the lack of relationships will do to a person's well-being.

"People are more likely to be depressed if they don't have those friendships in their lives. They bring joy, stability and comfort in the bad times," she said.

People are "trained to think that money buys happiness," Albright said. And while a certain amount of income is necessary to survive "well," she said after attaining a comfortable life, money "doesn't add any more to the picture."