What Price, Happine$$?
It took an economist to answer that question. Ironically, it took the world another 30 years to listen.
By Elizabeth Segal
|Whoever said money can’t buy happiness obviously
never bought the latest-model Lamborghini or Maybach. Just think how
happy you’d be cruising down the boulevard in that $300,000 baby – the
looks you’d get from your neighbor, your friends, the babes (or dudes).
You’d be so happy. You’d have it all.
But that happiness would be short-lived, says one USC professor. Pretty soon, you’d need to build yourself a bigger, more teched-out garage to keep the car from getting dirty or scratched or stolen. You’d feel obliged to buy your wife a new diamond to go with that car (or your husband, a Rolex watch). Your neighbor might be prompted to snap up his own Maybach, perhaps a newer model. Suddenly, all the admiration formerly heaped on you would be focused elsewhere. You’d get used to your fancy car, and after a while, you’d be less happy, or rather, as happy as you were before you’d ever heard of a Maybach (though you’d still have to make those monthly payments).
Therein lies the Easterlin Paradox, named for economist Richard Easterlin, founding father of a burgeoning field called “happiness economics.”
Here’s the paradox in a nutshell: Once a society’s basic needs – food, shelter, employment – are satisfied, the accumulation of greater and greater wealth does not generate greater collective or personal happiness over the long run, aside from the temporary uptick over new possessions, like a nice car.
Another researcher found that two factors with a measurable and permanent effect on individual happiness are plastic surgery (a positive effect) and noise (a negative effect).
Given that Richard Easterlin is the founder of happiness economics, one would hope he’s happy. When asked the boilerplate question “Are you somewhat happy, pretty happy or very happy?” he answers with a cheery “Very happy.”
He proceeds to parse his happiness along the lines of his economic theory, which states that it’s not greenbacks but the basics that ensure happiness: solid, consistent one-on-one relationships (Easterlin is happily married to noted USC gerontologist Eileen Crimmins); a good job; good health; and the leisure time to enjoy them (he has just picked up golf).
“For me, it’s about my family,” says the father of six and grandfather of five. “And my health has held up. I really enjoy my work, so as far as the money’s concerned, it’s incidental.”
Easterlin is unusual in this regard: Studies show most people believe they’d be “perfectly happy” with just 20 percent more income. Even so, according to Boston College sociologist Juliet Schor’s 1998 bestseller The Overspent American, one-quarter of Americans making $100,000 believe they don’t have enough cash. (In 2005, the U.S. median household income was $46,326.)
Yet Easterlin calls money incidental. It isn’t that his salary as an academic is overgenerous. Rather, it’s the certain knowledge that, if you’ll pardon the cliché, the best things in life are free.
That’s the sort of sentiment one expects to see in a Hallmark card, not flowing from the pen of a distinguished economist.
And make no mistake: Easterlin is distinguished. The author of 15 books and more than 150 articles, he is a member of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences, as well as past president of the Economic History Association and the Population Association of America and a distinguished fellow of the American Economic Association.
He’s had not just a paradox but also a hypothesis named after him (for fertility-related work – more on that later.)
On the home front, he’s a University Professor – only 19 other USC faculty share this honor, bestowed on those whose research came to fruition by having worked across several academic disciplines.
“He’s a brilliant economist who’s made an extra impact on our field,” enthuses one-time protégé Morton Owen Schapiro, formerly economics chair and dean of the USC College of Letters, Arts and Sciences, now president of Williams College in Massachusetts. A top authority on the economics of higher education, Schapiro earned his Ph.D. from the University of Pennsylvania in 1979, with Easterlin as his dissertation adviser.
Mentor and disciple became colleagues in the 1990s at USC. “We traded students,” Schapiro recalls fondly. “I would teach micro [economics], Dick would teach macro, then the students would switch.”
He tells an amusing anecdote that speaks volumes about Easterlin’s modesty. “Since so many of our students took both our classes, we thought we’d buy the same textbook: a large handbook for both micro and macro,” Schapiro recalls.
“A new textbook came out. It had pictures of the 10 most important economists in the front: Adam Smith, John Maynard Keynes. And there was Dick’s picture!”
Schapiro showed the book to Easterlin and suggested ordering it for their classes. “The students will get a real kick out of the picture,” he told him. As Schapiro recalls it, Easterlin had replied gruffly: “Nah! I don’t like that book! I like this other one!”
They stayed with the old textbook.
“Dick is the perfect example of someone with a complete lack of ego,” Schapiro says. “If they had ever put my picture in there with those guys, I wouldn’t just be using it, I’d be selling it on the street!”
Beloved by faculty and students alike, Easterlin continues to teach a popular undergraduate course on happiness economics and a graduate course on economic history and development.
“He’s a superstar, but so great with the students,” says his current department chair, John Ham. “Dick is actually our undergraduate director, a job he takes really seriously. He oversees 1,500 students a term. It shows a lot about someone’s character, given all that prestige. He’s not just one of these guys on his own island.”
Harvard economist Claudia Golden calls Easterlin “the Fred Astaire of economics history, and more. I don’t know how well he dances,” she cracks, “but it’s his demeanor: He’s suave, he’s urbane, he’s witty. Everything about him is debonair.”
Tall, lanky and often seen wearing a smile, the professor certainly has a certain physical grace. He’s intellectually nimble, too.
Easterlin has always been curious about a large array of academic subjects – a trait that initially seemed like it would not work to his advantage.
Born in Queens, N.Y., to middle-class parents, he was reared during the Depression. “I don’t think we ever had a car,” he reminisces without a trace of regret. Seemingly immune to materialistic impulses, he won’t even cop to coveting some toy that was out of reach financially but might have made him a happier child.
In a time when income and job security were paramount, and when career aspirations did not allow for much waffling, Easterlin tried his hand at many things before turning to economics.
In his autobiographical The Story of a Reluctant Economist: Perspectives on Economics, Economic History and Demography (2004), Easterlin writes of first wanting to be a writer, then a naval officer. He ended up getting an engineering degree from Stevens Institute of Technology in Hoboken, N.J., only to find he disliked engineering.
Hoping to combine engineering with business, he entered an MBA program at the University of Pennsylvania. He found he disliked business, too. Luckily, the curriculum at Penn obliged him to take economics, which he discovered he loved.
“My analytical abilities were being applied to the solution of urgent social problems,” he says, explaining the strange passion.
Obtaining a Ph.D. in economics from Penn in 1953, Easterlin joined his mentor, Nobel Prize-winning economist Simon Kuznets, in a landmark, cross-disciplinary project at the university’s Population Studies Center. The study looked at population redistribution and economic growth between 1870 and 1960, and was co-authored by famed Wharton School sociologist Dorothy Swain Thomas.
“It was Thomas who got me involved in demography,” says Easterlin. “She was a remarkable woman. She used to say to me: ‘You have to go to the demography meetings! Get acquainted!’”
Such encouragement spurred Easterlin to incorporate demography into his thinking, which helped him arrive at the now-famous Easterlin Hypothesis, also known as the Relative Income Hypothesis.
“The Great American Baby Boom was the big issue then, but trying to explain it in economic terms was a challenge,” he says.
The Easterlin Hypothesis made economic sense of the mysterious peaks and troughs in post-war American fertility by looking beyond prices and income – the traditional economic indicators – at “shifting preferences.” If a husband and wife believed they couldn’t match their parents’ standard of living, the hypothesis predicted, they would postpone marriage and produce fewer offspring.
Economists balked at this heretical attempt to bring sociology into economics.
“At first, I was a typical economist,” Easterlin writes of his approach. “I thought economists had all the answers to understanding fertility behavior. But when I wrote that first article, I came to ask myself, with Thomas’ prodding: ‘How much have I benefited from data and the thinking of scholars in other disciplines?’ ”
This somewhat new-fangled notion of evaluating economic trends not simply with respect to market phenomena but relative to data and theories from other fields, with sensitivity to a population’s tastes and aspirations, would establish Easterlin as a creative, radical, forward-looking thinker.
It also introduced a whole new field – economic demography – of which Easterlin is an acknowledged founder, along with the University of Chicago’s Nobel laureate Gary Becker. Easterlin went on to write comprehensively and successfully about economic history (he’s considered a founder of the “new” economic history, too), the economic status of the young and the old, poverty rates among children, child-rearing attitudes and materialism among American youth.
“Dick Easterlin is a rare bird,” says Harvard’s Golden, who has known him for decades. “It’s hard to call him an economist, and for good reason. It’s not that he’s less than that. He’s more than that. He’s one of the very few premier social scientists.”
Easterlin would stay at Penn for 25 years – rising from the rank of assistant professor to department chair to associate dean for letters and sciences – before moving to USC in 1982.
Here, he and wife Eileen Crimmins have collaborated on several demographic papers and projects. When he was working on fertility studies, she was doing microanalysis of individual data. So they partnered on microanalysis of fertility. When Crimmins was studying contemporary mortality and Easterlin was taking a historic view, she contributed changes in historic mortality to his work. Crimmins’ current interests in aging and health relate well to Easterlin’s studies of well-being. “Most of our collaboration now takes the form of talking while we commute back and forth to campus,” she says.
Despite Easterlin’s many academic achievements, it’s the happiness economics for which he is best known. This research is of such universal interest that Easterlin’s name pops up regularly in publications like the New York Times and Newsweek as well as foreign publications like The Guardian.
He first started thinking about happiness in 1970. As a visiting scholar at Stanford’s Center for Advanced Behavioral Studies, Easterlin found himself surrounded by “sociologists, psychologists, social psychologists, so many smart people.”
Somebody happened to mention happiness data, obtained in Gallup polls and similar surveys that had existed since the mid- 1940s. To Easterlin’s amazement, nobody had thought to tap it as a way to study the relationship between income and well-being.
“It was a natural thing for the field of economics to be doing,” he says.
Easterlin dove in. Borrowing liberally from the other social sciences to arrive at his original thesis, he penned a landmark article. It demonstrated that since the 1950s, Americans’ wealth and leisure time had greatly improved. But people’s sense of happiness had stayed stagnant at about 43 percent (the figure stands to this day).
The Easterlin Paradox cast doubt on the premise that economic growth is necessarily desirable. It also called into question simplistic concepts of life satisfaction.
“I remember the night of that presentation really well,” says Golden, referring to the Stanford seminar where Easterlin first laid out his intriguing ideas. “A bunch of us went out for dinner afterward.” Everyone at the table was sketching curves on cocktail napkins to test the theory. “What he’d done had no formal model behind it,” she recalls. “It was very original.”
Soon thereafter, Easterlin wrote up his findings in a paper he titled, unpretentiously, “Does Economic Growth Improve the Human Lot?” and sent it off to the prestigious American Economic Review.
“I thought it was pretty good!” he says in genial self-mockery. “I thought it would be important in economic circles. But I was rapidly disabused.” The journal returned a curt rejection letter.
“I was taken aback,” he recalls. “The attention they paid to it suggested that they thought, ‘Oh yeah, this is great for cocktail-party conversation.’ And that’s why I didn’t continue with the subject at that time.”
His original paper was published in the 1974 collection, Nations and Households in Economic Growth: Essays in Honor of Moses Abramovitz. Disappointed, Easterlin shifted his focus elsewhere.
It’s not entirely clear why, but in the last decade, Easterlin’s ideas about happiness have enjoyed a renaissance. The subject of numerous papers, happiness economics draws academics of all stripes to conferences worldwide.
Why now? Easterlin attributes it to a spate of new articles on the subject, many written by Andrew Oswald of the University of Warwick and various collaborators.
Oswald thinks the world may not have been ready to contemplate these questions in the 1970s.
“The time wasn’t right,” the British economist says. “Economic growth was fast. We were still in the shadow of World War II. People felt materialism was the way.”
The environmental movement was a thing of the future, he adds. The term “green” had yet to be coined, and the ideas behind it were not yet popular.
“Easterlin’s work provided an intellectual buttress to the Green movement, as well as other such movements,” notes Oswald.
Also, in the interim, an abundance of new happiness data had become available for researchers to mine. The General Social Survey, a project of the Chicago-based National Opinion Research Center, began in 1972. Still ongoing, the survey measures the attitudes of Americans on topics ranging from government spending to the existence and nature of God. Also included are self-assessments of personal happiness. Japan gathered statistics on life satisfaction starting in 1958. In China, Gallup interviewed 15,000 people from 1994 to 2005.
Harvard’s Golden points to recent social upheaval as another factor in the surge of scholarly interest in happiness.
“We have had 10 to 15 years of a slew of countries in transition,” she says. “We tend to think that the transitions lead to greater human rights, political freedom and to rising gains, but they also lead to more inequality.” With the collapse of communism, the economies of the Eastern Bloc and the former Soviet Union became much more interesting vis-à-vis the study of well-being.
Remarkably, the Easterlin Paradox holds true across cultures. Despite immense improvements in personal wealth, Japan’s happiness levels did not budge during the post-war years. China, which has experienced an increase of 150 percent in real income per capita in the past 10 years, actually saw levels of personal satisfaction drop – the ubiquity of televisions, cell phones and refrigerators notwithstanding.
Other industrialized countries to report stagnant happiness levels include England, Germany and Italy. France (a country of happy oenophiles that is nonetheless prone to blowout union strikes with angry hand-wringing) is the only country to report greater happiness of late.
When a new generation of economists rediscovered Easterlin’s earlier scholarship in the 1990s, they instantly recognized its worth.
“His original article from 1974 has a good chance of being seen, with hindsight, as one of the most important economic papers written in the 20th century,” says Oswald.
Having stumbled upon the paper, he and several European colleagues picked up the happiness banner. They have contributed copious new studies to the field, authoring articles with attention-getting titles like: “Do Divorcing Couples Become Happier By Breaking Up?” and “Money, Sex, and Happiness: An Empirical Study.” The latter, by Oswald, proved that boosting the frequency of sex in a marriage from once a month to once a week is equivalent – in terms of gained happiness – to an extra $50,000 a year in income.
“Let’s just say he knows a bit more than I do about how to bring the subject to public attention,” opines Easterlin of the eye-catching titles. “Though make no mistake about it, Oswald is a first-rate economist.”
Happiness economics has gained traction the world over. “The field is really booming,” says Andrew Clark, a labor economist at France’s École Normale Supérieur. Clark actually counted how many papers were published on the topic between 1960 and 2000. He came up with 614 published in top economic journals alone, the majority of them written by Europeans. Across the social sciences, the number stands at well over 4,000 articles.
“Europe has absolutely taken the lead” in this scholarship, notes Clark. Yet curiously, all the happiness precursor articles – starting with Easterlin’s pioneering 1974 study – were written by American authors at research universities.
The United States was in a position to dominate the field of happiness economics – as it did the economics of immigration, education and discrimination, Clark says. “But it just never happened. You have to wonder why.”
Easterlin thinks the answer lies in culture.
“Americans tend to be much more individualistic,” he says. “Our economy tends to be wedded to the idea that the market is the source of all good things; that each individual knows what’s best for their own interest.
“Europeans are less paradigm-bound. They’re more open to the possibility that government can do some good.”
In Britain, happiness economics gets attention at the highest levels. The University of Warwick’s Andrew Oswald pays regular visits to 10 Downing Street. There’s tremendous interest, he says, among government officials on both sides of the political aisle. The leader of the conservative Tory Party recently addressed Parliament on the importance of raising the happiness of the populace.
“That’s a real accomplishment,” Oswald says, “considering this branch of economics is thought to be a bit left wing.”
Oswald’s consulting also has taken him to the Finnish capital for policymakers’ meetings. “Israel is thinking of implementing happiness economics,” he says, “while the Buddhist Bhutanese long ago introduced a governmental Gross National Happiness Index.”
Though happiness economics may not have taken off yet in American policy meetings and board rooms, conferences here and abroad are spreading the word, with scholars from a variety of disciplines getting involved.
In March 2006, USC hosted its first-ever Economics of Happiness Symposium, co-sponsored by the University of Warwick and USC’s Institute for Economic Policy Research. The program included a paper titled “Is Man Doomed To Progress?” in which Claudia V. Senik of the Sorbonne argued that the mere anticipation of a financial goal bestows its own sense of personal happiness. She also headed a panel titled “Hedonic Adaptation and Social Well-Being” (hedonic adaptation being jargon for the expansion of one’s financial horizons). Harvard’s Rafael Di Tella, meanwhile, considered the reliability of happiness data, such as the genuine “Duchenne smile” versus the voluntary “Pan American smile.”
“The conference was very successful,” says Anke Zimmerman PhD ’07, a former Easterlin protégé now based at Cambridge University. “It provided a forum for many young researchers, and many did come.”
Participants came from across the globe – the Brookings Institution and the World Bank, the Imperial College in London and Mexico’s Universidad de las Américas, the universities of Göteborg, Zurich, Sheffield and British Columbia.
Harvard hosted an even larger conference in the fall – this one aimed particularly at happiness psychologists. Next month, the 300-member International Society for Quality-of-Life Studies holds its eighth annual meeting in San Diego. Overseas, more scholarly gatherings on happiness economics are slated in the Netherlands, Thailand, Bhutan and Italy.
“Epidemiologists and medical statisticians are now being included in some of these conferences,” notes Oswald.
“Previously, economics had turned its back on too many other disciplines,” he opines, “but we’re now starting to study the same data. It’s very fruitful.”
He pauses, then adds reassuringly: “Not to worry. The United States will come around to Richard Easterlin’s ideas.”
Asked to account for American reluctance to embrace the truths he laid bare – and our stubborn determination to seek happiness in the futile pursuit of ever newer, ever sleeker cars, TVs and iPods – Easterlin again reaches across the academic aisle.
“It’s about our psychology,” he says. “Going back to the days when we lived at the brink of survival, when we had to fight for mere subsistence.
“But we don’t need that instinct anymore. It’s self-defeating. I’m not saying that I think happiness is the be-all and end-all of all economic measures,” he adds. It is, however, a subject social scientists have come to understand a lot better in the last 30 years.
“The evidence suggests that just making money isn’t what life is all about,” he says.
It has more to do with keeping low expectations regarding one’s lifestyle; investing in what’s really worthwhile: strong relationships, leisure time and a job one cares about; and avoiding the pitfall of hedonic adaptation.
To illustrate the point, Easterlin points to one of his own students.
No, not some superstar who went on to fame and fortune. Just a regular student.
“His interests were divided between financial economics and music,” Easterlin recollects. “He played in a chamber group, which he loved; but he had decided he had to become a financial analyst, as there was no future in chamber music.
“After taking my course, he decided to stay with his chamber group. And ironically, they’ve become quite successful.”
Rich he may not be. “But he felt that he’d made the right decision, success or no,” Easterlin says. “He was happy.”
“Of course,” the happiness economist adds, smiling with personal satisfaction, “it was very gratifying for me, as well.”
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Elizabeth Segal is a Los Angeles-based freelance writer. Her most recent article for USC Trojan Family Magazine was on the USC Annenberg School’s Norman Lear Center.