Rational Philosophy

Does wealth tend to make us happy, and if so, why?

Last year I explored some philosophical theories of happiness and concluded that happiness may be what we feel when we sate our desires. More recently it occurred to me that we find some things intrinsically satisfying (sex, exercise, conviviality) and that we can also find accidental or consequential satisfaction (in games, reading, work). For thirty years or so the prevailing wisdom of economic theorists has been that money doesn’t make people happy — the Easterlin paradox says that once people meet their basic needs, increasing wealth doesn’t bring greater happiness. But new research questions Easterlin’s work and presents evidence that people with more money do tend to report higher levels of happiness.

Before getting to the central question at hand (what makes people happy) it’s worth pausing to note firstly that Easterlin’s conclusion is internally inconsistent, and secondly that we should regard statistics with great skepticism (about the most charitable thing one can say of statistics is that large numbers make interesting patterns).

Here’s the internal inconsistency: Let’s say that Easterlin correctly detected a relationship between satisfaction and wealth up to the point at which people’s basic needs are met. This result would tell us that wealth does affect happiness if only as a means to satisfy our basic needs. But basic needs have a way of changing. Health care, for instance, becomes more expensive as more expensive remedies, therapies and cures become available. Just today, for instance, we read about a fabulous new hearing aid that costs a few thousand dollars per year and isn’t covered by health care. It’s making people happier. Applying Easterlin’s theory then, as people’s expectations and perceptions of basic needs shifted they would need more money to pay for them, but Easterlin’s results indicate that this doesn’t happen.

Back to the question at hand: What makes people happy and how does wealth factor into that, if at all?

It still seems sensible to say that anything that intrinsically satisfies a need of the human organism will tend to make us happy (sex, food, exercise). Wealth can purchase or indirectly leverage access to some of these intrinsic satisfactions.

It also still seems sensible to say that we can derive incidental satisfaction from other activities (games, sport, creative outlets, work). Wealth can provide more time for or greater access to these things too.

But, and this is a big but, does this tell us anything about the priority we should give to the pursuit of wealth?

If we focus on making money at the expense of some of our intrinsic or incidental opportunities for satisfaction, we may well end up less happy. And if we have an unhealthy relationship with money, or if having money leads to negative consequences (if we don’t feel productive because we don’t work, for instance) then wealth may make us less happy.

This is the true paradox: Money can make us happier, but it comes at a price. Whether greater wealth will make us happier on balance varies enormously depending on the individual and his or her circumstances.