Vassar Today

Does Money Buy Happiness?

By Larry Hertz

Philosophers have been asking that question for ages, and economists are finally getting around to addressing it.

The answer, according to Professor of Economics David Kennett, is a qualified “no.”  Wealthier countries are, on the whole, happier than poorer ones. But most Americans are no happier than they were 60 years ago when their material standard of living was much lower, and some countries with roughly equal standards of living are much happier than others.

Kennett, who recently lectured on the subject to visiting alumnae/i, says economists, psychologists, and sociologists are beginning to work together to explore how well various countries’ economies work—and they’re developing new and better definitions for “successful” economic systems that go beyond merely measuring material wealth.

“For too long, economists have been focusing on gross domestic product (the sum value of a country’s goods and services produced in a given period),” Kennett says. “We’ve been looking at the numbers because we’ve had the tools to do so since the 1930s.”

But most economists have come to realize that this measuring stick doesn’t tell the whole story.

“What we should be asking is, ‘Are we organizing our economy in such a way that we’re maximizing the possibility of happiness for the people in that economy?’ And when we do that, we see that material wealth may not be the same as overall happiness,” he says.

That premise was explored in depth by 18th century philosopher Jeremy Bentham, whose theory of utilitarianism contended that a society should strive to provide the greatest happiness to the greatest number of people.

“This issue of utility was central to Bentham, and it has now passed into economic theory,” Kennett says.

Kennett cited a survey done in the 1950s asking Americans to assess how satisfied they were with their lives. A similar study was done recently, and while average income—even adjusted for inflation—has grown substantially since then, the results of the two surveys were remarkably similar.

“We’re faced with this paradox: When asked, people will tell you that material wealth makes them happy. But even allowing for inflation, our wealth has gone way up since our grandparents’ time, and we’re no happier,” Kennett says.

So if money alone doesn’t make us happy, what does? Part of the answer, Kennett says, can be found by examining the economic systems of countries whose citizens say they are more satisfied with their lives. Those countries, most notably those in Scandinavia (“Denmark is regarded as the happiness capital of the world,” Kennett says), are preserving the environment, distributing wealth more evenly, and making health care and education more widely accessible.

Kennett cited a study commissioned in 2007 by then-French President Nicolas Sarkozy that asked noted economists, including Nobel laureates Joseph Stiglitz, formerly chief economist of the World Bank, and economics professor Amartya Sen, to find new ways of measuring economies. The commission concluded that insufficient credit was given to economies that preserve their resources—both natural and man-made—and actively promote the health and welfare of their citizens.

“Some economies, such as those in the Gulf States, may have high incomes per head, but they’re not sustainable—they’re depleting their resources in order to create that flow of income,” Kennett says.

The most desirable economies also manage their assets, Kennett notes. Scandinavia and other European countries are doing a better job than the United States in preserving their man-made resources, he says. “We’re not repairing our roads and bridges; we’re using up capital provided by previous generations,” Kennett says. “In a sense we’re selling the family silver to maintain our standard of living.”

Scandinavian countries have also done a particularly good job of eliminating the two issues that Americans say they are most worried about: paying for health care and educating their children, Kennett says. “Health care (in Scandinavia) is universal and basically free. Education is free through high school, and colleges are highly subsidized,” he says. “These countries have taken two of Americans’ major stressors out of the equation.”

Two of Kennett’s Vassar colleagues, Assistant Professor of Economics Benjamin Ho and Associate Professor of Psychology Michele Tugade ’95, say the research they and others in their fields have done recently supports the conclusion that the connection between money and happiness can be tenuous.

“Money can make people happy, but there is a point of diminishing returns,” says Ho, who teaches a class in behavioral economics that explores such issues.

 “Our brain is like a thermostat; it returns us to our natural baseline,” he says. “You might win the lottery, but the money might reduce your motivation and you’re less fulfilled. Similarly, when you’re in bad shape, the brain resets and motivates you for the challenge.”

Tugade says, “There’s an emerging field of study that seems to show that the relentless pursuit of happiness (as defined by acquiring material things) can paradoxically make you unhappy.” In other words, when we buy material things, we get a temporary boost in happiness. We quickly adapt to that feeling. And because we want to feel that same level of happiness again, we increase our expectations and we aim to buy more and more things. Rather than increasing happiness, this striving or pursuit of happiness tends to make us feel worse, Tugade says.

Sustained happiness comes instead from a sense of community, either through interaction with family or through volunteer work, Tugade says. She cited a recent Gallup poll that found people in Costa Rica to be the sixth happiest in the world even though they are among the poorest in the Western hemisphere. The poll measured day-to-day happiness and overall life satisfaction. The reason: “They have social and psychological prosperity, having one of the strongest social networks, the strongest family ties, of any culture, and they place great value on social relationships,” she says.

Kennett agreed with the authors of the Sarkozy Commission’s report that economies should be judged with yardsticks other than monetary ones. But he says he isn’t “as optimistic as I’d like to be” that this emerging knowledge will help solve the world’s problems.

“I worry that this contempt for government we seem to have in this country means we aren’t going to address the things that need to be addressed,” he says. “Some of our larger problems call for cooperation on a global scale, and I don’t see that happening. Denmark and other small countries may have excellent social and environmental policies but those alone can’t solve global problems.”

Kennett is heartened, however; he says that redefining what comprises a successful economic system is a good starting point.

“At least now,” he says, “we’re finally asking the right questions.”