The Data Is In, More Money = More Happiness: Justin Wolfers

You might not think you’d need a Ph.D. to figure out that people with more money are happier than people with less. Yet that relationship is surprisingly controversial and—not so surprisingly—highly relevant for development policy. This week’s Wonkcast features a young academic whose new work on subjective wellbeing, income and economic development is upending the conventional academic wisdom on happiness. Justin Wolfers, a visiting fellow at Brookings and associate professor at the Wharton School, spoke last week at a Massachusetts Avenue Development Seminar (or MADS), a series of events that CGD hosts in cooperation with The Paul H. Nitze School of Advanced International Studies. (You can sign up for invitations to future MADS here under ‘other subscriptions’).

Turns out the conventional academic wisdom on money and happiness is somewhat counterintuitive. According to the widely cited work of Richard Easterlin, wealth beyond a certain amount does not make us happier: once we’ve achieved a reasonable degree of financial security (internationally, an annual income of roughly $15,000 per year) our basic needs are met and our sense of wellbeing does not improve as income rises. Or so studies by Easterlin and his followers have suggested.

Wolfers tells me Easterlin got it wrong: the world really is as simple as the rest of us thought all along. “When we look at surveys of happiness,” he says, “rich people are happier than poor people, people in rich countries are happier than people in poor countries, and when countries get richer their people tend to get happier.”

We discuss how this relationship illustrates the importance of economic growth and development, and why it implies that there is a moral imperative for the developed world to provide aid and to take other steps to help poor countries become wealthier.

“Failing to grow these economies strikes me as being unconscionable,” Wolfers tells me. “Economic development is absolutely critical and the fact that the extra hundred dollars in the developing world gives [the recipient] so much more happiness than it [costs the giver]… also gives you a case for arguing for redistribution.” (Of course, all of this assumes that the aid is properly delivered, as Wolfers himself notes. But that’s a separate discussion for another day!)

Listen to the Wonkcast to hear our full conversation. Justin’s latest working paper examining the happiness data is available here.

Have something to add? Ideas for future interviews? Post a comment below, or send me an email. If you use iTunes, you can subscribe to get new episodes delivered straight to your computer every week.

My thanks to Wren Elhai for his production assistance on the Wonkcast recording and to Will McKitterick for drafting this blog post.