Market Overview

Happiness Economics: Working For Wealth and Prosperity

The January 2012 issue of Kiplinger's Personal Finance Magazine had an interesting article written by Robert Frick that discussed the relationship between money and happiness. Frick: "Can money make you happy?" Happiness economics is a field of study that combines economics, finance, psychology, and sociology to examine the relationship between one's finances and one's happiness and well-being.

Frick noted that researchers in the realm of happiness economics even have a standard micro-economic equation to sum up one's happiness:
Wit = α + βxit + εit
Per Carol Graham of the Brookings Institution, for the sake of this equation "W is the reported well-being of individual i at time t. The value X is a vector of known variables, including socio-demographic and socio-economic characteristics."

Taking a more cynical view, Frick wrote that in reading up on "happiness economics", he came to the conclusion that "[h]appiness economics makes some academics happy because they can publish conflicting papers that help them earn tenure." According to Frick, much of the research of happiness economics tends to underestimate the happiness of those who are struggling financially. Further, "much of the research considers just two variables, with income on one axis and happiness on the other." Thus, "other factors that make us happy, such as personal relationships and health, are left out."

Frick discussed that economist Angus Deaton and psychologist Daniel Kahneman have set the functional income-happiness bar at $75,000, i.e. "day-to-day happiness increases as income approaches $75,000 a year, but then levels off." According to Deaton, when one reaches the $75,000 per year level, "money is no longer as big [of] an issue."

Nevertheless, oftentimes happiness goes beyond the amount of money one has in his possession. Frick noted that American economist Todd Buchholz has argued that "striving and achievement, which often correlate with higher salaries, enhance happiness". Buchholz: "The truth is, most people have a deep need to work and to create."

Frick then referenced Thomas Gilovich, a psychology professor from Cornell University, in that although material possessions may give us fleeting pleasure, "the pleasure we take in them drops quickly". In equating materialism with happiness, "people who seek more stuff end up on 'a hedonistic treadmill'." Thus, according to Gilovich, "[i]t's much spend money on doing things rather than buying things." And so, in this light, if you really want to be happy, put down the PlayStation 3 & the iPhone and call up some friends & family and fire up the barbecue.

This sentiment reminds me of the difference between playing football on a PlayStation and playing football with friends in the park. A similar analogy could be used for all sorts of activities. Which is better for happiness and more fulfilling, fantasy or reality? Gilovich's analysis seems to suggest that in the long-run, playing football with friends at the park will be more fulfilling and will lead to greater happiness by virtue of socializing and nearly a collective sense of enjoyment. However, fantasy may make individuals happier in the short-term.

Frick concluded by noting that although experiences may be worth more for happiness than material goods, comparing experiences can be troublesome when it comes to value. As with cars and vacations, there may have to be trade-offs between things like monetary costs, enjoyment, time, and utility. When all is said and done, there is something to be said for reality being more fulfilling than fantasy.

On the topic of materialism as a source of happiness, an October 2011 article from New York magazine written by Noreen Malone suggests that younger generations may not be as interested in material pleasures. Malone cited Jean Twenge, author of Generation Me, in that "the most prominent shift she has seen so far among young people in this economy is an apparent decrease in materialism." Malone continued, "We are less interested in stuff, but still very interested in self." Though older generations who see young people walking down the street with iPhones and sitting at coffeehouses with laptops may disagree with Twenge and Malone, one cannot help but sense that there is a sentiment in our current cultural Zeitgeist against materialism.

Why would there be a cultural revolt against materialism? One possible reason is because of increased cost and expenses; young people may not have enough money to support a culture of rampant materialism. Another possible reason is because of size changes in hardware and software for entertainment decreases the appearance of cluttered materialism, i.e. an iPod filled with 500 songs is considerably smaller than a record player with a stack of vinyl records from the 70s or 80s; an iPhone is smaller than a Nintendo system. A third possible reason is that one may feel that our culture has become a bit cluttered through the decades. Young people could be reacting to a world filled with so much "stuff" in the spirit of removing clutter from not only American culture, but also American society. Materialism and clutter may be subjective phenomena, but such a removal of cultural clutter may be a cleansing of sorts for young individuals. And for evidence of there being a cluttered culture, one need not look any further than the nearest antique mall or flea market.

Even aside from material possessions and cultural clutter, there is something to be said for labor in happiness. The common conception of happiness in American society would be freedom from labor or retirement, but per Buchholz's comments above, happiness can come about from one's self-realization, one's becoming who one is to the point of one's greatest potential, from work. This discussion leads into questions of estrangement in labor (or "alienation") and youth unemployment. Where one's monetary income may affect one's state of happiness, generational differences in the ability to find a job, amount of income, and occupational opportunities would seem to suggest that older generations in this time period are probably happier than younger generations.

In a time period when many intelligent, college-educated young people have been corraled into meaningless underemployed jobs in the service industry ranging from waiting tables to fast-food McJobs to retail wage labor with few benefits, societal weariness, depression, and despair may translate into depressed macroeconomic activity. Such meaningless service industry jobs may create a sense of alienation in labor that the workers themselves will have to contend with. Owing to market dynamics, labor may evolve in the future to deter mass weariness and alienation in some service industries -- for the same reasons why we do not have four or five-year-old children working in factories or sweeping chimneys in this time period.

This is not to say that all service industry jobs are meaningless or that all individuals dislike service industry jobs (as those in retail or fast-food). On the contrary, the retail sector may be beneficial labor for many; for some, a retail or fast-food job makes for a great career and fulfilling lifestyle. The problem arises when young people, after being trained for jobs in sectors related to education, science, business, or even law, are relegated to the service industry owing to adverse market conditions.

The automatonic nature of menial corporatist service industry labor (in contrast to producing goods or providing quality services via trained skills), underemployment, and the prevalence of service industry jobs raises questions as to how much a worker's alienation may affect his or her state of happiness (or lack thereof). There is a big difference between being a skilled laborer able to, say, build a chair out of wood or sculpt a statue out of stone and one's (after receiving a college degree in psychology, education, or business administration) being relegated to make Chipotle burritos or work behind a cash register at Macy's or McDonald's all day.

The difference goes to not only the quality of labor, but also one's own self-image in terms of labor; the difference cuts to the heart of the meaning of labor, the value of education, and the prospect of producing a quality good or service as a human individual (as opposed to working as a mindless robot). Now, we know that a job is a job is a job, but if it is true that "most people have a deep need to work and to create", American society may need to take a drastic look at not only its educational system, but also its current labor norms. Per Malone's abovementioned article, the situation becomes even more complex as young people are effectively forced to delay life changes (such as marriage, having children, and moving out) owing to the economy. These delayed rites of passage could also play into one's sense of personal happiness on an economic level. If you take the delayed rites of passage in conjunction with underemployment and alienation of labor, the societal situation could become volatile.

Maybe if a critical amount of unhappy individuals in an economy become so unhappy, the economic system itself ends up being flipped over and abandoned by the economic actors themselves, cf. the etymology of sabotage -- or maybe not. As the issues of income inequality, high youth unemployment, and a higher education bubble manifest themselves in contemporary American society and politics, these questions and more may have to be addressed by economists engaged in the study of happiness economics.

Of course, the line of generational differences in income and employment can be as fuzzy as the line between happiness and unhappiness. And let's face it, money isn't everything. As income inequality remains an issue and questions arise as to the reality or infeasibility of retirement, the bond between a fulfilling happiness and reality has to be maintained. There is something to be said for pursuing happiness through self-realization. In these uncertain, tumultuous economic times, perhaps happiness through self-realization is worth more than happiness with a dollar price tag.

Perhaps, when all is said and done, the trick to finding economic happiness is not about finding the right answers, but rather asking the right questions. In this light, we have to wonder whether finding the "price tag" value of happiness is really the question we should be asking.

Posted-In: Psychology Topics Economics Media Personal Finance Reviews General Best of Benzinga


Related Articles

Get Benzinga's Newsletters