Robert Frank on Happiness and GDP

The fussy, hedged, inconclusive complexity of Robert Frank’s latest NYT column about income and happiness shows just how hard it is for an intellectually honest guy to make a strong case against the income-happiness link, given the complexion of the evidence. In order to get as far as he does, which is not very far, Frank seems to me to nonetheless rely on a tendentious and, one would think, outdated interpretation of the happiness data:

This assumption [“that absolute income levels are the primary determinant of individual well-being”] is contradicted by consistent survey findings that when everyone’s income grows at about the same rate, average levels of happiness remain the same. Yet at any given moment, the pattern is that wealthy people are happier, on average, than poor people. Together, these findings suggest that relative income is a much better predictor of well-being than absolute income.

The first finding, the flat trend, is contested. Veenhoven and Hagerty argue it is not flat at all. In any case, there is plenty of reason to think that (1) the subjective criterion people use to report how happy they are changes somewhat as their expectations change, and so objective gains in real welfare are likely to be underestimated by survey methods. That is to say, the phrase “pretty happy” may not tracking the exact same feeling over five decades; “pretty happy” may refer to something a bit happier than it did 50 years ago, just like “pretty tall” refers to something a bit taller than it did 50 years ago. And there is plenty of reason to think that (2) comparing the bounded life satisfaction survey scale against the unbounded income scale likely leads objective gains in real welfare to be underestimated by survey methods. So, scale renorming plus a kind of methodological error leaves us with the conclusion that the extent of the absolute gains are likely concealed by the measurement method.

The second finding, that wealthier people tend to say they are happier than poorer people, on its face suggests that it feels better to be rich than to be poor. Part of this is surely absolute. Having a bit more money increases your sense of control and decreases your sense of anxiety. Have you ever had bill collectors calling you constantly? I have. It helps a lot to have enough money to pay your bills. And it’s not just about avoiding poverty. If you’ve ever had the good fortune to move up one quintile from the middle, the reduction in economic anxiety is palpable. That’s the effect of an absolute gain. Which is not to say that relative concerns are unimportant. It’s nice to be doing better than the people you compare yourself to. But there is no evidence that people are uniformly comparative. That is, some people have a weaker or stronger “social comparison orientation” than others. And there is no evidence that, when people do compare, the relevant comparison class is the set of U.S. residents. The claim that the very strong within-society relationship between income and happiness is due primarily to a preference for higher relative income (within the U.S. distribution) is mainly bluff. Maybe it is, maybe it isn’t.

So how is it that these two finding taken together suggest relative income is a better predictor of well-being than absolute income? They don’t.

Maybe Frank would like to explain the Deaton result. All the evidence for strong comparative effects are very local. It matters how I’m doing relative to friends, neighbors, and co-workers. As far as I know there is no evidence that the comparison class is global. I suppose you could try to take the fact that average national income is a strong predictor of average national happiness as evidence that the relevant comparison class is global, but that would just beg the question in the worst way while showing a weird determination to avoid the obvious importance of absolute income. Why not say something along the lines of happiness guru Ruut Veenhoven:

Another reason to doubt the Easterlin Paradox is the theory behind it, which assumes that happiness is “calculated” cognitively by comparing one’s condition with local standards of the good life. According to this theory, one can be happy in Hell if one does not know any better — or if one’s companions are in an even hotter spot. The available data fit better with the theory that happiness is “inferred” from the quality of affective experience, which reflects the gratification of basic needs. This “needs theory” of happiness fits a wider functional perspective on affective guidance in higher animals, and predicts that we will live happily in conditions that suit human nature well.

Now, I don’t think this has to be an either/or thing (and I criticized Veenhoven for assuming happiness is necessarily evidence of “natural” environmental fit). But Frank here is overselling the evidence for the unimportance of absolute wealth, even though he knows too much not to hedge lot.

I was going to say something about GDP, but this blog post is long enough.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center