Ties between money, happiness limited

Nobel Prize winner Angus Deaton’s new research shows that more money doesn’t always mean more happiness.
Nobel Prize winner Angus Deaton’s new research shows that more money doesn’t always mean more happiness. AP

Presidential candidates are focusing, as usual, on the middle class. But what’s that? And why, exactly, does it deserve such attention?

Angus Deaton, who was announced Monday as the latest winner of the Nobel Memorial Prize for economics, has some intriguing answers. The most important: If you care about how people experience their lives, you should be concerned about people who earn less than $75,000 per year. Above that amount, Deaton’s evidence suggests that more money may not matter.

To understand why, we must distinguish between two measures of human well-being. Researchers have traditionally asked people to evaluate their overall life-satisfaction. Recently, researchers have tried to capture people’s experiences in a more refined way, for example by asking them about their levels of stress and happiness. A key question: Does money buy happiness?

Deaton and coauthor Daniel Kahneman found that in the United States, the answer depends on which question you use. As people’s annual earnings go up, their self-reported life-satisfaction increases as well.

But that is not true for actual experiences. More income is associated with less sadness and more happiness up to $75,000, but above that, happiness is the same regardless of income. In terms of stress, it’s worse to earn $20,000 than $60,000 – but above $60,000, stress levels are not reduced by more money.

Deaton and Kahneman speculate that above a certain amount, income increases do not affect people’s ability to engage in activities that matter most. They also suggest that beyond that threshold, more money might have negative effects.

Below the $75,000 threshold, life’s misfortunes have a much bigger negative impact. For the poor, getting divorced, having asthma and being alone have worse effects.

Deaton and Kahneman offer other findings, most of which have policy implications. Women are happier than men but show higher stress levels. Having children is stressful, and so is being a caregiver; both are reasons to find ways to relieve the pressures on those who take care of others.

Happiness increases if you are over 60, married, or religious – or if you have health insurance. People enjoy their lives a lot more over the weekends. It is really bad to have a chronic illness.

Some of these findings must be taken with caution. Deaton and Kahneman show that if you earn $150,000 per year rather than $75,000, you will likely show higher levels of overall life-satisfaction. Even if you do not report lower levels of stress or higher levels of happiness, doubling your income can help you to get more out of your life. From the research findings, it would be reckless to conclude that people are not helped by obtaining very high income levels – or to disregard the fact those who earn most often contribute a great deal to others.

Nonetheless, Deaton has demonstrated that we ought to focus most on helping people who earn less than $75,000 – and also on caregivers, parents of young children, smokers, and people with chronic illnesses. The government might want to direct fewer resources toward programs that disproportionately benefit those above that threshold – simply because that money is likely to generate a lower return.

Presidential candidates take note: That may not count as a party platform, but it is rooted in actual evidence and uses that evidence to address how government can make people’s lives better.

Cass Sunstein is a Bloomberg View columnist.