The Paradox of Happy Peasants and Miserable Millionaires

The study of happiness was of great interest to early economists and philosophers, such as Adam Smith and Jeremy Bentham. Yet it fell out of fashion as quantitative methods in economics called for more parsimonious definitions of welfare. Over a century later, in the mid-1970’s, Richard Easterlin re-visited the relationship between happiness and income.  His findings uncovered a seeming paradox:  average happiness levels did not increase over time as countries grew wealthier, nor was there a clear relationship between average per capita GDP and average happiness levels across countries, once they achieved a certain minimum level of per capita income.

In recent years there has been a renewed debate about whether or not the Easterlin paradox holds, not least because an increasing number of economists have begun to use happiness surveys to explore all kinds of questions. Recent studies, based on new data from the Gallup World Poll, find a consistent log-linear, cross-country relationship between income and happiness, directly challenging Easterlin’s findings. This has resulted in a heated and at times even acrimonious debate among economists. 

Rather ironically, both sides of the debate may be correct. One reason for this is substantive: on the one hand it makes sense that people in richer countries are happier are than those in destitute ones, and, on the other, many things other than income contribute to people’s happiness, regardless of their level of income. Many of these things -- like freedom, stable employment, and good health -- are easier to come by in wealthier countries. Still, there is plenty of variance in the availability of these things even across countries with comparable income levels. 

The other reason is methodological. There are differences in the questions that are used to measure happiness. Easterlin’s work is based on the World Values survey, the U.S. General Social Survey, and the Eurobarometro survey, among others, all of which use open ended happiness or life satisfaction questions (generally speaking, how happy are you with your life? or generally speaking how satisfied are you with your life?, with possible answers ranging from not at all to very on a 4- or 5-point scale). The Gallup World Poll uses Cantril’s best possible life question, which is “please imagine a ladder with steps from zero to ten, if the higher the step, the best possible life, on which step of the ladder to you personally feel you stand?”

Both sets of questions are reasonable gauges of happiness, and both correlate in a similar manner with the usual variables. Research based on all of these questions finds that, on average, stable marriage, good health, and enough income are good for happiness (with how much income is enough varying across countries), and that unemployment, divorce, and economic instability are bad for happiness. Age and happiness have a remarkably consistent U-shaped relationship, with the turning point in the mid to late forties, at which point happiness increases with age, as long as health and partnerships stay sound. Indeed, I have studied this relationship in countries as diverse as Uzbekistan and Great Britain, and Chile and Afghanistan, and it holds in all of them, with modest differences in the turning point. Among other things, this relationship reflects an alignment of expectations and reality as people “grow up”.

At the same time, there is some variance in the findings based on different questions. The best possible life question is more framed than the open-ended happiness questions, providing respondents with a relative component when they are asked to assess their lives. Mario Picon, Soumya Chattopadhyay, and I tested the questions against each other in the Gallup World Poll for Latin America, a region for which we had both sets of questions in the same survey. We found that the answers to the best possible life question correlate more closely with income -- both across and within countries -- than open-ended happiness questions. The difference is greater across countries than within them.