Money vs. Happiness: Nations Rethink Priorities

Quick: think about what would make you really, really happy. More money? Wrong. 2.5 smiling, well-adjusted kids? Wrong again. Now think about what would make you most unhappy: losing your sight or a bad back? No, the bad back. The fact is, we are terrible at predicting the source of joy. (Sex is the big exception, but you get the point.) And whatever choices we do make, we likely later decide it was all for the best.

These are insights from happiness economics, perhaps the hottest field in what used to be called the dismal science. Happiness is everywhere—on the best-seller lists, in the minds of policymakers, and front and center for economists—yet it remains elusive. The golden rule of economics has always been that well-being is a simple function of income. That's why nations and people alike strive for higher incomes—money gives us choice and a measure of freedom. But a growing body of studies show that wealth alone isn't necessarily what makes us happy. After a certain income cap, we simply don't get any happier. And it isn't what we have, but whether we have more than our neighbor, that really matters. So the news last week that in 2006 top hedge-fund managers took home $240 million, minimum, probably didn't make them any happier, it just made the rest of us less so.

Now policymakers are racing to figure out what makes people happy, and just how they should deliver it. Countries as diverse as Bhutan, Australia, China, Thailand and the U.K. are coming up with "happiness indexes," to be used alongside GDP as a guide to society's progress. In Britain, a labor economist specializing in happiness—David (Danny) Blanchflower—was recently appointed to the Bank of England advisory board, and the "politics of happiness" will likely figure prominently in next year's elections. Ministers are beginning to consider issues like poverty, health care and transport in relation to "gross national well-being."

Never mind that the world's top happiness researchers recently gathered at a conference in Rome to debate whether joy is even measurable. The momentum toward a "well-being state" seems unstoppable. This summer, VIPs including the prime minister of Turkey, the chief economist of the World Bank, and the head of, will meet to discuss ways move beyond GDP as the measure of human progress.

Why is this all happening now? Only in the last decade have economists, psychologists, biologists and philosophers begun cross-pollinating in such a way to arrive at "happiness studies." Harvard psychologist Daniel Gilbert humorously sums up much of the new wisdom in his book "Stumbling on Happiness." He says 24-hour television and the Internet have allowed us all to see more seemingly happy people than ever before. "We're surrounded by the lifestyles of the rich and famous," says Gilbert, "rubbing our noses in the fact that others have more."

Of course, the idea that money isn't the real key to happiness isn't new. The 18th-century British Enlightenment thinker Jeremy Bentham argued that public policy should try to maximize happiness, and many prominent economists agreed but could not quite embrace the idea. There was just no way to measure happiness objectively. That began to change in recent decades, as prosperity spread. Social scientists and economists began to spend less time thinking about death and disease, and more time thinking about happiness. Psychologists and labor economists in the United States and the U.K. began long-term studies asking people to chart their own happiness over time. Meanwhile, advances in technology allowed scientists to see whether, when a person claimed to be happy, the joy center of the brain lit up. That made happiness metrics a little more credible.

One of the early revelations of happiness research, from Richard Easterlin at the University of Southern California, was that while the rich are typically happier than the poor, the happiness boost from extra cash isn't that great once one rises above the poverty line. The reason, says Easterlin, is the "hedonic cycle": we get used to being richer darn quick, and take it for granted or compare it to what others have, not what we used to have. Turns out, keeping up with the Joneses is hard-wired into our brains, thanks to our pack-creature roots. As this research gained steam, other happiness studies followed, on marriage, work, kids, television and immigration, to name a few.

It was only a matter of time before researchers—and politicians—began to think about what might make entire societies happier. Surprisingly, one of the first recommendations was higher taxes. In Britain, Andrew Oswald of Warwick University has argued that taxing conspicuous consumption could increase public joy by reducing envy. In his book, published in 2005, "Happiness: Lessons From a New Science," Lord Richard Layard of the London School of Economics urges policymakers to think about reducing mobility (which he links to crime and family instability), telling companies to cut merit pay (to slow the rat race) and encouraging more public spending on mental health and nonvocational, and liberal "moral" education (to make grads less consumption-oriented and more empathetic).

While such conclusions are hotly debated, it's no surprise that lefties in places like the U.K., Australia and the United States are embracing the ideas. In parts of continental Europe, the philosophy behind them has been in vogue for years. But happiness economics is gaining unlikely proponents—British conservatives, Chinese bureaucrats, the King of Bhutan—because it offers ways to counter the disruptions of globalization. Rather than telling people to work harder, politicians can discuss work-life balance. "We should be thinking not just about what is good for putting money in people's pockets, but what is good for putting joy in people's hearts," said Britain's Conservative leader David Cameron in a recent speech proposing a "General Well-Being" index (which he describes further in the following essay).

Thailand already has such an index. After last year's military coup, Prime Minister Surayud Chulanont promised to make Thais not just richer, but happier. Statisticians began tallying educational, family, work and health data into a happiness measure that supposedly informs the country's Five Year Plan, which now includes increased spending on schools and support for isolated rural communities. In China, the government's new happiness index, due out at the end of this year, is part of Beijing's campaign to create "a more harmonious society." Bhutan's own gross national happiness measure has led to new decrees that 60 percent of the country remain covered in forest, and that foreign tourists must spend at least $200 per day in Bhutan. The idea there is to cap mass tourism, which supposedly lowers the level of public joy.

This illustrates how easy it is to manipulate happiness research to serve debatable political goals. Already, various studies have implied a need to close airports (noise pollution makes us sad) and spend more on the military (to overthrow grim dictatorships). At the recent happiness conference in Rome, some experts warned that happiness research could be used to advance authoritarian aims, and argued that happiness studies should be used to inform only individual choices, not public policy. That didn't please bureaucrats from places like the EU, Thailand and the U.K., who'd come for specific advice.

Clearly, the irony is lost on the current British government—New Labour has been on the happiness bandwagon since 2001. The government recently created a Whitehall Well-Being Working Group to come up with happiness metrics, and figure out how ministers can make people more cheerful. There is also a happiness-related push in the U.K. to ban advertising targeted to children in order to combat materialism (something Sweden has already done).

The British government has certainly done plenty of things that should have made people happy in recent years. The most important (almost never cited by happiness proponents) has been cutting unemployment—nearly all studies find that the loss of a job has one of the worst effects on overall happiness. In his new book, "Affluenza," Oliver James says the "Blatcher" governments depressed Britons by taking them down the road of selfish capitalism, rather than emulating a Danish or European model. Yet according to Ruut Veenhoven, a professor at Erasmus University in Rotterdam, British happiness hasn't changed much since the 1970s. Brits steadily score in the happiest quarter of nations.

Veenhoven's work says a lot about the difficulty in finding a national formula for happiness. At first glance, his list of happiest nations confirms the conventional wisdom—Scandinavian countries like Denmark, Finland and Iceland receive some of the highest scores. But Veenhoven says these countries aren't the happiest because they are the most equal, or socially minded. Iceland, for example, is happier than Sweden, but spends only half as much on welfare. What's more, socialist European countries like Belgium have been getting less happy over the last few years, while the social-climbing U.S getting more so.

Though many happiness researchers say "work less, play more" is the formula for happiness, Veenhoven's research suggests otherwise. Hard-working Americans ranks 17th on his list; the hard-vacationing French 39th. Human beings do want a European-style safety net, but also want freedom and opportunity. In a recent study called "Is Man Doomed to Progress?" Sorbonne economics professor Claudia Senik found that when people aspired to a better quality of life within the next 12 months, they usually feel happy, whether they reach it or not. "The implication of this study is that growth is not useless," says Senik, and GDP is not as misleading an indicator of well-being as you might think.

In fact, GDP is pretty straightforward compared to tabulations of joy. "One of the big troubles for policymakers is that there are a lot of variables in measuring happiness," says Paul Dolan, an Imperial College economist working with the Department of Trade and Industry on happiness metrics. "The science is unclear." As in any survey, the phrasing of questions and the nationality of respondents influence the results. Scientists tell us weather makes a big difference to happiness (Italians and Californians benefit from this), as do genes. Meanwhile, there are myriad different kinds of happiness—short-term pleasure, meaning derived from work, a deeper sense of purpose in life, perhaps coming from religion or spirituality. Which one is being tested? Which one should be? And can anyone really craft effective public policy around any of it?

Marriage, children and how happy they make us, provide a perfect case study for these questions. Gilberts writes that prospective parents know that raising children will be laborious, yet they believe it will make them very happy. In fact, studies show it does just the opposite, and that levels of parental happiness don't rise until kids leave for college (so much for the empty-nest theory). Still, if happiness is thought of in terms of a broader life narrative, rather than just specific moments of teething, diaper changing and petty-cash culling, it's pretty clear that kids do add value. Happiness politicians know that welfare states need more kids to plug the coming labor shortage —but should they actively encourage something that will make people unhappy, at least in the short run? Likewise marriage—married couples test happier, but it's unclear if that's because happy people marry. Whether or not politicians back policies that support marriage and having kids doesn't really matter, because people embrace these happiness myths quite willingly, as part of a larger societal growth conspiracy. "We are the product of our genes and our societies," says Gilbert. Traditions will trump the empirical evidence that money and kids won't make us happy.

And perhaps our intuitions about happiness should triumph over the fuzzy data, anyway. The economics of happiness has given us a couple of fairly hard and fast rules about well-being—being truly poor is bad, and time with friends and family are good (time with family involving something other than diaper changing, of course). Of course, there are as many ways to alleviate poverty, fuel growth and achieve a better work-life balance as there are governments to suggest them. The good news is that whatever choices we make individually and as societies in the pursuit of happiness, there's a good chance that they'll seem better in hindsight. Yet another truism of happiness is that "we all wear rose-colored glasses when it comes to our past decision-making," says Gilbert. Today's dreadful life choice will likely be tomorrow's happy accident.