DAVID LEONHARDT ESSAY

There is a near-spiritual human instinct to believe that money can’t buy happiness.
For more than three decades, the notion that economic growth didn’t necessarily lead to more satisfaction was a dominant thought. Researchers found that people in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains seemed to change expectations. To put it in today’s terms, owning a hightech gadget doesn’t make you happier, because then you want a better version of it. Relative income - how much you make compared with others around you - mattered more than absolute income, according to a study released in 1974.
This study quickly became a social science classic, cited in academic journals and the popular media.
In the aftermath of World War II, the Japanese economy went through one of the greatest booms the world has ever known. From 1950 to 1970, the economy’s output per person grew more than sevenfold. Japan, in just a few decades, remade itself from a war-torn country into one of the richest nations on earth.
Yet, strangely, Japanese citizens didn’t seem to become any more satisfied with their lives. According to one poll, the percentage of people who gave the most positive possible answer about their life satisfaction actually fell from the late 1950s to the early ‘70s. They were richer but apparently no happier.
This contrast became the most famous example of the theory that was published by Richard Easterlin, then an economist at the University of Pennsylvania. But now the theory, known as the Easterlin paradox, is under attack. Recently, at the Brookings Institution, an independent research and policy institute in Washington, two young economists presented a rebuttal of the paradox. Their paper has captured the attention of top economists around the world.
In the paper, Betsey Stevenson and Justin Wolfers - also from the University of Pennsylvania -argue that money indeed tends to bring happiness, even if it doesn’t guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. “The central message, Ms. Stevenson said, “is that income does matter.
If anything, Ms. Stevenson and Mr. Wolfers say, absolute income seems to matter more than relative income. In the United States, about 90 percent of people in households making at least $250,000 a year called themselves “very happy in a recent Gallup Poll. In households with income below $30,000, only 42 percent of people gave that answer. But the international polling data suggests that the under-$30,000 crowd might not be happier if they lived in a poorer country.
Even the Japanese anomaly isn’t quite what it first seems to be. Ms. Stevenson and Mr. Wolfers dug into those old government surveys and discovered that the question had changed over the years.
In the late 1950s and early ‘60s, the most positive answer the pollsters offered was, “Although I am not innumerably satisfied, I am generally satisfied with life now. But in 1964, the most positive answer became simply, “Completely satisfied. It is not surprising that the percentage of people giving this answer fell.
When you look only at the years in which the question remained the same, the share of people calling themselves “satisfied’’ or “completely satisfied did rise.
Mr. Easterlin, who’s now at the University of Southern California, agreed that people in richer countries are more satisfied. But he’s skeptical that their wealth is causing their satisfaction. The results could instead reflect cultural differences in how people respond to poll questions, he said.
He would be more persuaded, he continued, if satisfaction had clearly risen in individual countries as they grew richer. In some, it has. But in others - notably the United States and China - it has not.
Ms. Stevenson and Mr. Wolfers acknowledge that the data on individual countries over time is messy. But they note that satisfaction has risen in 8 of the 10 European countries for which there is polling back to 1970. It has also risen in Japan. And a big reason it may not have risen in the United States is that the hourly pay of most workers has not grown much recently.
“The time-series evidence is fragile, Mr. Wolfers said. “But it’s more consistent with our story than his.