Money... it's a gas

Money might not be able to buy love, but it can buy a lot of other things which make us happy (including more time off, easier travel, and longer, healthier lives). That according to a new study (PDF) by Betsy Stevenson and Justin Wolfers (economists from UPenn). Will Wilkinson reacts:

The bottom line:

The accumulation of more recent data (and a re-analysis of earlier data) suggests that the case for a link between economic development and happiness is quite robust. Moreover, we establish that the relationship between happiness and income within a country is similar to the relationship between happiness and national income across countries. Finally, we show that the within country relationship between economic growth and happiness is similar across countries.

And this effect shows up despite all the reasons — scale renorming, unbounded income scale vs. bounded happiness scale — that you would expect to flatten the trend. Taking the methodological considerations about surveys into account, the most reasonable conclusion is that these findings set the lower bound on the contribution of income to happiness. ...

MONEY IS GOOD FOR PEOPLE. I will continue to wait with bated breathe for conventional wisdom to catch up.

Meanwhile, the NY Times notices that the Easterlin paradox -- in which richer nations aren't happier than poorer ones -- is contradicted by this study:

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.

Even Daniel Kahneman -- Nobel Prize winner in economics who helped started the behavioral economics movement, and long a proponent of the Easterlin paradox -- seems convinced:

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.”

Easterlin isn't giving up yet, but the evidence is mounting against him. It turns out that people don't act irrationally all the time, and that more money can bring more happiness.