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. 

The substantive question of what beyond income makes people happy is the more complicated part of the story. My previous research with Stefano Pettinato is illustrative. While the richer countries are, on average, happier than the poorer ones, there is no clear income and happiness relationship within each set of countries, making it impossible to draw a clear conclusion about the Easterlin paradox. Wealthier countries are, on average, happier than destitute ones, but after that, the story is more complicated. Country level averages are influenced, among other things, by cultural differences in the way that people answer surveys, and these cannot controlled for in the cross country comparisons in the way they are when we assess happiness across large samples of individuals within and across countries. 

My more recent research on happiness around the world, published by Oxford University Press as Happiness around the World: The Paradox of Happy Peasants and Miserable Millionaires, throws another monkey wrench into the equation. While the research confirms the stable patterns in the determinants of happiness world-wide, it also shows that there is a remarkable human capacity to adapt to both prosperity and adversity. Thus people in Afghanistan are as happy as Latin Americans -- above the world average -- and Kenyans are as satisfied with their health care as Americans. Crime makes people unhappy, but it matters less to happiness when there is more of it; the same goes for both corruption and obesity. Freedom and democracy make people happy, but they matter less when these goods are less common. The bottom line is that people can adapt to tremendous adversity and retain their natural cheerfulness, while they can also have virtually everything -- including good health -- and be miserable. 

One thing that people have a hard time adapting to is uncertainty. For example, my newest research -- with Soumya Chattopadhyay and Mario Picon and based on a new Gallup survey of approximately 1000 Americans per day from January 2008 to the present -- shows that average happiness in the U.S. declined significantly -- an unprecedented 11% -- as the Dow fell with the onset of the crisis. When the market re-established some semblance of stability in late March 2009, average happiness recovered much faster than the Dow. By June 2009 it was higher than its pre-crisis level, and remained higher through the end of the year, even though living standards and reported satisfaction with those standards remained markedly lower than they were prior to the crisis. People seemed to be able to return to previous happiness levels, while making do with less income or wealth.

Indeed, people seem to be better at adapting to unpleasant certainty than they are to uncertainty. It is surely a good thing that most Americans have been able to adapt to the economic costs of the crisis and return to their natural happiness levels. And even better that the average person in Afghanistan can maintain cheerfulness and hope despite the situation they live in. While this capacity to adapt may be a good thing from the perspective of individual psychological welfare, it may also result in collective tolerance for conditions that would be unacceptable by most people’s standards. This may help explain why different societies tolerate such different norms of health, crime, and governance, both within and across countries. And without understanding these norm differences, it is very difficult to craft policies to improve health, living conditions, and governance structures. 

This capacity to adapt -- and the mediating role of norms and expectations -- poses all sorts of measurement and comparison challenges, particularly in the study of the relationship between happiness and income. Can we really compare the happiness levels of a poor peasant in India, who reports to be very happy due to low expectations and/or due to a naturally cheery character, with those of a successful and very wealthy CEO, who reports to be miserable,  due to his/her relative rankings compared to other CEO’s, or to a naturally curmudgeonly character? This is something that I have called the happy peasant and frustrated achiever problem. On one level it suggests that it (happiness) is all relative. At another it suggests that some unhappiness may be necessary to achieve economic and other sorts of progress. The examples of migrants who leave their home countries -- and families -- to provide better futures for their children, or revolutionaries who sacrifice their lives for the broader public good, come to mind, among others. This also begs more difficult questions, such as whether we should tell the poor peasant in India how miserable he/she is according to objective income measures in order to encourage that peasant to seek a “better” life; or whether we worry more about addressing the millionaire’s misery or increasing the peasant’s happiness. 

This happy peasant and frustrated achiever (or miserable millionaire) paradox also raises the question of the appropriate definition of happiness. What makes happiness surveys such a useful research tool is their open ended nature. The definition of happiness is left up to the respondent, and we do not impose a U.S. conception of happiness on Chinese respondents, or a Chinese definition on Chilean ones. The open ended nature of the question results in the consistent patterns in the basic explanatory variables world-wide. This allows us to explore variance in the effects of all sorts of other things on happiness, ranging from crime rates to commuting time to the nature of governing regimes. 

Yet as we think about happiness as a measure of welfare with relevance to policy -- something that is increasingly in the public debate, then the definition does matter. Are we thinking of happiness as contentment in the Benthamite sense, or as a fulfilling life in the Aristotelian sense? Respondents’ conceptions of happiness vary according to their norms, expectations, and ability to adapt, among other things. Our priors as economists and policymakers likely suggest that some conceptions of happiness -- such as the opportunity to lead a fulfilling life -- are worth pursuing as policy objectives, while others -- such as contentment alone -- are not. Yet that choice entails normative judgments and a debate which we have not had. 

This conundrum will give economists fodder for debate -- about happiness and income, and beyond -- for several years to come. And, despite the difficulty it poses for both method and economic philosophy, it will also force us to think deeply about what measures of human well being are the most accurate benchmarks of economic progress and human development. 

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