Monday, March 27, 2006

Your Money or Their Happiness?

One of the findings from the happiness research I’ve referred to before is that the overall reported happiness level in society tends to be fairly stable over time, even as our wealth increases (we are much richer now than we were 50 years ago, but not appreciably happier). However, there does seem to be a correlation between happiness and wealth within a society – the rich are generally happier than the poor at any given time. This is usually chalked up to a comparison effect – people are less happy when they see that they are not as well-off as their neighbors, even if you tell them that they are wealthier than a king was 500 years ago in absolute terms. So it’s the relative level of wealth rather than the absolute level that’s important, according to this research. To some people (I’m not one of them) this has all sorts of policy implications for both redistributing wealth and not focusing on economic growth. But it did get me thinking while I was in the poorer rural areas of Yunnan province in southern China.

By Chinese standards, I’m incredibly wealthy. I can afford to fly halfway around the world and travel for two weeks, and get great deals like beds in a guesthouse for $5 US per night. I can listen to my iPod on 12 hour bus rides and eat out every meal. And there is no doubt that the influx of money from western tourists can help the economies of developing nations. There are some positive economic spillovers to world travel to these countries, due to increase revenue and enhanced opportunities, and you certainly saw how the Chinese are taking advantage of it be figuring out ways to make money off western tourists. The English they know is all about how to sell you something – it’s what I started calling “peasant capitalism”. Now, the questions is are there negative externalities imposed on those people as well because of the fact that they can more easily compare their level of wealth to mine? If western tourists stay home, the clear advantages we have in terms of finances are likely much less apparent to the average citizen of a poor country, thereby avoiding a comparison with their global neighbors. Or do people not compare across societies as much as within one? (I doubt this, as I kept on feeling really rich while I was there). I don’t think there is anything that we should “do” about this problem (if it even is one), but it’s something to keep in mind when traveling in developing counties: our displays of wealth my be making those people less happy. But they still want our money, so it can’t be that bad.

UPDATE: If you want to read more on the happiness research I mention above, you can start here, here and here.


At 12:41 PM, Blogger Molly said...

So I was intrigued by (slash disagreed with) one of your opening statements, and I raise this point mostly because I think my answer to your musings lies in this point of disagreement (in other words, I’m not just trying to be a pest). So you said, "the rich are generally happier than the poor at any given time," and I wondered whether that were only true to a point, and whether this might explain why we don’t seem to be getting any happier.

Most segments of American population have done okay for most of our history. We haven’t had too many moments of desperate poverty, starvation, widespread unemployment. They have happened, and continue to happen in certain pockets, but, overall we do pretty well as a country, so we should be happy. And we’ve been getting richer and richer as a country over time. So why don’t we keep getting happier?

I’d argue that money and happiness only maintain their positive correlation where the increased income purchases basic necessities of life: clean water, food, medicine, clothing, housing. After we have those basics, and our incomes pass some basic subsistence line, then we spend the leftovers on less critical items. I think that it’s at that point that money stops resulting in such measured increases in happiness; it is only after I am sufficiently shod to survive the elements that I’ll stop to compare my shoes to yours, and worry about the fact that mine are much cooler. The $20 in my pocket to buy myself shoes makes me happy, because now my toes will be protected from the cold. The extra $40 to buy myself stylish shoes will have less measured effect, and less lasting effect, as I spent that extra for reasons of aesthetics and competition, not functionality, and those shoes will get old, and less cool, even if equally as functional, over time. As I’ve always said, money can’t buy you happiness (the extra $40), but it can save you from one hell of a lot of misery (the original $20).

And if this is the case, perhaps the potential unhappiness that American money might bring to developing countries is less critical than the basic necessities that may be paid for through those tourist industries. Even Jeffrey Sachs argues that some money funneling into the developing world through various industries is a good thing; not everyone needs an iPod, but they do all need food, and your meals out in Yunnan province might well have made the latter happen.

At 1:08 PM, Blogger Scott McC said...

My opening statements are merely repeating what research has shown. Personally, I totally think the trade-off is worth it for developing countries (the evidence for opening your borders is overwhelming in terms of economic growth and decreasing poverty).

You make a point that is also supported by the data: there are decreasing marginal returns on happiness with increases in income. Above a basic level (i.e. providing adequate food & shelter) it doesn't seem to matter much.


Post a Comment

<< Home