February 24th, 2006


Richer isn't happier

Happy person makes happy album shocker! Last November I outlined my plans for my new record: "The emotional tone colours of the record will be about connectedness, friendliness, wholesomeness, positivity, happiness, collectivity, constructiveness." Many things changed during the making of Ocky Milk (including the title, which used to be The Friendly Album), but these basic emotional tone colours didn't. And although it's turned out rather dark and mysterious, it's a happy darkness, and a happy mystery.

But what is happiness? Here's a man who thinks he has some answers: "People in the West have got no happier in the last 50 years. They have become much richer, they work much less, they have longer holidays, they travel more, they live longer, and they are healthier. But they are no happier. This shocking fact should be the starting point for much of our social science." The speaker is economist Richard Layard (Lord Layard to his peers). Layard believes that "happiness depends on a lot more than your purchasing power. It depends on your tastes, which you acquire from your environment – and on the whole social context in which you live". Layard compiled data collected in the US by the General Social Survey and the Gallup Organisation which asked people to rate their own levels of happiness. The results are shown in the diagram. Broadly similar results were found in Europe and Japan; despite a 6-fold rise in income per head, the Japanese show no change in happiness levels since 1950.

Layard believes that people don't get happier in proportion to their wealth because happiness is relative. He quotes Karl Marx: “A house may be large or small; as long as the surrounding houses are equally small, it satisfies all social demands for a dwelling. But if a palace rises beside the little house, the little house shrinks into a hut”. Aha, it's our old friend the evil Gini at work! It's what sociologists call relative deprivation which explains the apparent paradox that "at any one time rich people are on average happier than poorer ones. And yet over time advanced societies have not grown happier as they have grown richer."

The Guardian reports an experiment conducted at Harvard and cited by Layard which demonstrates the relativity of happiness:

"Students were asked to choose between two imaginary worlds; in the first they would earn $50,000 a year while the average for everybody else would be $25,000, while in the second they would earn $100,000 against an average of $250,000. Conventional economics would suggest that any rational individual would choose the latter option since they would be twice as well off. Actually, a majority plumped for the former; they were happier to be poorer if that meant they were higher in the pecking order. Interestingly, the same did not apply when the researchers looked at holidays. In one world, students would have two weeks off while others had one week's vacation; in the second they would have four weeks off and everybody else would have eight. This time only 20% of the students plumped for the first option, suggesting that they valued extra leisure more highly than they valued extra income."

Layard also talks about the roles played by habituation (we get quickly used to new standards of living, and start to see them as basic) and rivalry (we judge what we have by what others have).

One place I disagree with Layard is in his assessment of unemployment. (He's an adviser to the Labour government and an advocate of welfare-to-work schemes.) I'm perfectly happy despite not having a conventional job. Yet it's true that I'm not really unemployed; neither my work nor my not-work is done primarily for financial reasons. I work for love, and out of interest. Another experiment reported by Layard explains this odd behaviour:

"Edward Deci gave puzzles to two groups of students. One group he paid for each correct solution, the other he did not. After time was up, both groups were allowed to go on working. The unpaid group did much more further work – due to their intrinsic interest in the exercise. But, for the group that had been paid, the external motivation had reduced the internal motivation that would have otherwise existed."

So what's the optimal amount of annual income to aim for, the figure under which you're less happy, but over which you experience diminishing returns of happiness in proportion to your wealth? Layard quotes John Helliwell, who "has estimated that increases in average income only raise average happiness in countries below around $15,000 per head". If you're earning more than that, and if happiness is your goal, you're wasting your time, buster! Why not slow down and enjoy life?

Here are three lectures Layard gave in 2003:

Lecture 1: What is happiness? Are we getting happier?
Lecture 2: Income and happiness: rethinking economic policy
Lecture 3: How can we make a happier society?