The Inequality/Happiness Connection
Recently, an article was published in the NY Times entitled “Why Prosperity Has Increased but Happiness Has Not.” The author’s name is Jonathan Rauch. He notes that in 1990, Margaret Thatcher was challenged by a member of the Labour party on the issue of inequality. “All levels of income are better off than they were in 1979,” she responded. “The honorable member is saying that he would rather that the poor be poorer, provided the rich were less rich….” Thatcher’s argument is a potent one, and to some extent I agree with it. Inequality per se should not be an issue. Which would we prefer? A totally equal society in which everyone is destitute, or a highly unequal society in which one person is very rich and everyone else is middle class?
The problem is that, as with so many things in life, it isn’t that simple. Material wealth isn’t the ultimate goal – HAPPINESS is the ultimate goal. Ultimately, it doesn’t matter what SHOULD increase human happiness. What matters is what DOES. And happiness isn’t just about absolute wealth. Rauch notes that poor whites in America tend to be less happy than poor blacks, even though, on average, they are better off in absolute terms, materially. And in parts of America with high inequality, there tends to be lower social connectedness, even among the wealthy. Human beings are social beings. Social support, connectedness, the feeling that you can depend on other people to back you up when life throws its inevitable crises your way, these things are very important to happiness.
In previous posts (here and here for example) I have discussed the Sustainable Solutions Network’s Happiness Index. Evaluating happiness is no simple task, and many factors go into their measure of happiness. It turns out that emotional “good feelings” (what SSN calls positive affect) don’t vary that much from country to country. What DOES vary is what they call life evaluation. Positive life evaluation does correlate with material wealth. People in wealthy countries tend to be happier in this sense. But social support is also very important.
In evaluating social support, the SSN asks one simple question. “If you were in trouble, do you have relatives or friends you can count on to help you whenever you need them, or not?” What is interesting is that in most of the Scandinavian countries, which have strong social safety nets, universal health care, and lots of government spending, people report that “relatives or friends” give them support. Denmark’s social support rating is 0.95. In Finland, 0.95. In Iceland, 0.97. In Norway, 0.95. In America? 0.92, putting it at 20th place.
Without good social support, material wealth just doesn’t cut it. For example, material wealth in Saudi Arabia is high, on a par with European countries like Finland and Sweden. But social support isn’t even close. This is why Saudi Arabia ranks 33rd on the Happiness Index. Sweden? 9th. And Finland is currently number 1.
America is far from number 1 on some other happiness factors as well. On healthy life expectancy it ranks 31st. On freedom to make life choices it ranks 37th. And on perceptions of corruption it ranks 32nd. All of these factors are important. One of the most striking findings in the Happiness Report is that while per capita GDP has increased dramatically in America over the last 40 years, average happiness has not only NOT increased, it has declined somewhat. This phenomenon even has a name – the Easterlin Paradox, named for Richard Easterlin, an economist who described it back in 1974.
Easterlin found that happiness in America increased in the years following World War II. But from the mid 1950’s to 1970 it didn’t improve at all – in fact it declined somewhat, despite a generally booming economy and a tremendous rise in per capita wealth during this time. People were wealthier and healthier on average – but no happier. This pattern has continued right up to the present.
Easterlin, of course, had an explanation for this, and he was far from alone. Many researchers have suggested that people’s happiness is as much a function of their RELATIVE wealth as their absolute wealth. Karl Marx had said it a century before: “A house may be large or small; as long as the surrounding houses are equally small it satisfies all social demands for a dwelling. But if a palace rises beside the little house, the little house shrinks into a hut.” Human beings are social beings. A person’s evaluation of their own happiness is highly conditioned by their perception of the well-being of others.
Rauch pinpoints this as the cause of America’s “happiness malaise,” and argues that Reagan-Thatcherism has now crumbled for this reason. Inequality has skyrocketed. It isn’t that working class Americans are doing worse financially – they are doing about the same, in absolute terms, as they were 40 years ago. But meanwhile they have seen the wealthy and the well-educated move ahead by leaps and bounds. As an old Saturday Night Live skit succinctly put it, “Other people have stuff. When do I get my stuff?”
As I have noted previously, poor countries tend to have greater inequality than wealthier countries. Their happiness scores also tend to be much lower. For a wealthy country, America (the red dot in the graph above) has exceptionally high inequality. Countries that rank highly on the Happiness Index tend to have low inequality. The top 5 countries on the Happiness Index – Finland, Norway, Denmark, Iceland, and Switzerland – all have Gini coefficients of less than 30. America, with a Gini coefficient of 45, ranks 17th.
Critically, the average American does not think of themselves as financially secure. They are well aware that the safety net is weak. They have often accumulated a mountain of debt just to keep their head above water. A sudden illness can devastate their finances. The pressure, the stress is always there.
Social support is critical. America likes to glorify the cowboy and the “rugged individualism” of the frontier. But it cannot escape the reality that people’s happiness has a social dimension. People need to have confidence that they can depend on others when times are hard. An atomized community of lone wolves is no community at all.
America’s confidence in institutions of almost every kind has dropped over the years. It isn’t just a matter of the failure of trickle-down economics. The whole notion that society will be better if we just all pursue our own selfish interests, that government is our adversary, is showing itself to be utterly flawed. Human beings just aren’t happy living that way. We need to feel connected to others, to have confidence in democratic institutions. We need to feel as though we are part of something larger, something good. We just aren’t happy otherwise.
Countries like Denmark and Finland actually have less per capita wealth than America. America – $59,501. Denmark – $56,444. Finland – $46,017. But they rank highly on happiness because of social support. Perceptions of government corruption are low. People know there’s a strong safety net to catch them if they stumble. People know they can depend on their countrymen. That’s how people want to live – not being suspicious of each other, scared of each other, and thinking of their own government as favoring the few at the expense of the many.
Of course, the question could be asked, how happy can people really get? The truth is, on balance, people in wealthy countries, including America, tend to be pretty happy. Even if everyone were rich, it is reasonable to ask how much this would improve happiness. Looking at the graph above, at first glance you might think that life satisfaction increases steadily with income. But take a closer look. The horizontal axis is not linear – it’s LOGARITHMIC. If happiness increases steadily with income, the plot should be curving upward as income increases. Spain’s average income is about $30,000, and its life satisfaction rating is about 6.4. America’s average income is about $50,000, 67% higher. But its life satisfaction rating is about 6.9, only 8% higher. A linear-linear plot of these same data would look more like this:
Beyond a certain point, increasing wealth simply does not increase happiness at the same rate. Making everyone rich in countries that are already wealthy would undoubtedly increase happiness to some degree – but probably not in the dramatic way that many people imagine.
In his 1974 paper, Easterlin compared the happiness of people with different incomes. Here are his percentages of people reporting that they were “very happy” by income level, in 2018 dollars:
less than $19,500: 29%
$19,500 – $32,500: 33%
$32,500 – $45,500: 38%
$42,500 – $65,000: 47%
$65,000 – $97,500: 49%
more than $97,500: 56%
Notice that as income rose to the equivalent of $42,500-$65,000, the percentage of people reporting that they were “very happy” rose sharply, from less than a third to almost a half. But among those making the equivalent of $65,000-$97,500, 49% reported being “very happy,” not much more than the 47% of those making $42,500-$65,000. And among the wealthy, those making more than the equivalent of $97,500, 56% reported being “very happy.” In other words, only about 9% more wealthy Americans reported being very happy than those making the equivalent of $45,000-$65,000 per year.
The current world’s champion for happiness is Finland, with a Happiness Index of 7.632. America, in 17th place, has a score of 6.886. In other words, the world champion score is only 11% higher than America’s. Finland’s residents report strong social support, good freedom to make life choices, and low perceptions of government corruption. Could people be much happier still?
Everyone, even wealthy people, even free people, can experience tragedy. Accidents happen. Diseases happen. Criminal acts happen. Even wealthy people can get coronary heart disease and cancer. In this century, it is very likely that these diseases will be conquered, just as polio and small pox were in the previous century. In the future human beings will not have “jobs” as presently defined. Everyone will be guaranteed a decent income and decent medical care. People will be free to pursue their interests. In the future crime will be largely eliminated, as sophisticated monitoring systems make criminal behavior almost impossible to get away with, and the seeds of criminality will be detected and nipped in the bud.
All of these things will no doubt increase human happiness. But the tremendous leap forward, the leap from medievalism to modernism that humanity has already gone through, was probably unique in human history. In the pre-industrial, pre-modern world, large numbers of children died before the age of 5, people were at the mercy of storms and earthquakes, and most people were peasants who had no hope of anything resembling self-determination. The prospect of basic survival that so many of us take for granted was anything but assured.
The next leap is the one from barbarism to mature civilization. It will be important, even revolutionary. It will mean that many tragedies and disasters we take for granted today will be eliminated, and a huge storehouse of human potential will be released. It will mean that we take care of each other and lift each other up rather than strive against each other. It will mean the lifting of the burden of anxiety for most of us – anxiety about finances, personal safety, access to health care. But the fact is, most of us in the first world already have a strong expectation that today will not be our last.
A functional family does not consist of ecstatic people who have achieved some sort of state of nirvana. Similarly, we should not expect that mature civilization will mean human beings who are completely content or in a constant state of joy. More likely, humanity will merely look back and wonder why we insisted on striving against each other, when we had a perfectly good planet that could provide for everyone. Why we were so obsessed with tribalism and infighting, rather than focusing on our common humanity. Why we insisted on making each other so fretful, rather than simply taking care of each other.