Loyal Upset Patterns reader Peter recently sent me an article about the relation between money and happiness. The article cites research showing that up to a certain point ($75,000), more money does tend to correlate to a higher self-reported satisfaction of living. I took a few lectures of “economics of happiness” in college and there were a few things I gathered from them. First of all, anything related to people’s well-being can be difficult to quantify when it comes to something as subjective as self-reported “happiness.” One’s happiness could be overstated because they have convinced themselves their wealth is making them happy. Similarly, one’s happiness could be understated because of an irrational level of discontent with their surroundings. The happiness surveys that I am familiar with ask a handful of questions and ask the participant to answer them on a scale from 1-7. Doesn’t that sound like a situation ripe for error? I think there are so many problems with trying to quantify happiness that all I’m going to say is that anything related to it should be taken with a large grain of sodium chloride.

The Coding Horror post that Peter sent me goes on to give some prescriptions for how to make people happier. While I agree with the basic gist of all of them, my number one task is not to argue with them. Instead, I’d like to focus on the bigger point: money can buy happiness! The fact that there is a pretty strong correlation between money and happiness (even if up to only a certain point) should be a pretty good case for the efficiencies of capitalism rewarding hard work, smart investments, and creative talent. After all, isn’t it a strong merit of a system if it makes people happier by doing well?

Critics of America’s ‘capitalist’ or ‘materialistic’ lifestyle like to point out how the developed world is not that much happier than the developing world. But that’s an oversimplification. Ok, money doesn’t solve all your problems; in fact, it causes a lot of them. But lack of money is an even bigger problem. Financial instability, lack of access to education and healthcare, and literal poverty cause a tremendous amount of dissatisfaction in America and the world. Absolute wealth doesn’t have a huge linear correlation with happiness. Maybe we can manipulate the data to see that money earned buys happiness. Or maybe it really is all about relative wealth, as many studies have hinted at.

I’m not totally sure how to dissect the data regarding income and happiness. The research is blossoming and I look forward to seeing what it uncovers. But I believe for the time-being it is safe to say that the capitalist mantra of hard work rewarding a good lifestyle holds true. Yes, there are the idiots that are insanely money-driven and miserable, and there are people who are perfectly content with very little income. But the point still holds that there is a strong positive trend between happiness and income.

That being said, I believe that we need to start measuring quality of life by a more sophisticated measure than Gross Domestic Product. Bhutan has even started reporting a gross national happiness. Perhaps Human Development Index (HDI) factors like literacy rate, gender equality, life expectancy, or other quality-of-life proxies are a better way to gage standards of living. The weaknesses of GDP measurement have always been around but I believe they are getting even more relevant. Writing this blog is giving me utility and, hopefully, reading this blog is giving you utility. But there is no market transaction and thus GDP has not gone up. A lot of user-generated utility on the internet takes place with no market transactions and is totally ignored in GDP.