The Economics of Happiness: Crash Course Econ #35

Hi, I'm Adriene Hill and I'm Crash Course Economics. So do you want to be happy? Here's your checklist: Get a job where you make about $82,000 a year. Don't get fired from that job. Make sure your trip lasts no more than 22 minutes. And please, please: you have to stop looking at your friends' Facebook profiles. In America, the pursuit of

happiness

is one of our unalienable rights; written in the Declaration of Independence along with the most important ones: life and liberty. The self-help industry is worth billions of dollars. I mean, some of us hire life coaches. And despite all that,

happiness

can seem quite elusive.

The

econ

omic thinking of recent centuries is based on a model that says that we all have unlimited and inexhaustible desires. More is better. And

econ

omists believed they could tell what makes us better off by looking at how we spend our money and our time. But in recent years, those assumptions are being called into question. Economists and psychologists have discovered a disconnect between how we buy, spend and do, and what really makes us FEEL better. They have realized that sometimes not getting paid for doing something can make us feel happier than getting paid. For example, I made a friend dinner for her birthday, and after we finished the last bite of the birthday cake, he offered to pay me for it.

Suddenly, my gesture of kindness, my warm fuzzy feelings, disappear. Economists have discovered a correlation between higher incomes and greater happiness across cultures. But in some places the effect is greater than in others. But they've also discovered that more money has diminishing returns when it comes to our daily happiness. Let's go to the thought bubble. Let's say Stan and I are successful bakers. Thanks to a combination of my impressive baking skills and a little luck, I have become a star baker. I make $500,000 a year in cupcake sales and baking pan sponsorships. Stan, on the other hand, is a masterful baker, but not a famous one.

He earns $50,000 a year selling cupcakes in his modest bakery. Stan and I entered a cupcake contest. I won $10,000 in the cake category. Stan wins $10,000 for icing and decorating him. But that money will have very different effects on our lives and our feelings of happiness. For Stan, $10,000 represents a significant portion of his income. That $10,000 can make you feel much more relaxed and better. For me, $10,000 extra is fine and all. But it's not going to change much about how I live my life or what I do with my time. $10,000. Cool. Whatever. Beyond a certain level of income, the value of each additional dollar has diminishing returns in terms of our daily well-being.

A 2010 study found that in the United States it was about $75,000 a year, or about $82,000 if adjusted for inflation. After that, the researchers found, a person's daily happiness levels simply didn't change as much. But the same researchers also observed another form of happiness; asking people how satisfied they were with their place in the world. And there money mattered. The study found that there was a difference between the rich and the incredibly rich when it came to overall satisfaction with their lives. Thanks thought bubble! We know that some people have a natural predisposition to be unhappy. And some people seem more inclined to constant joy.

Those people are annoying. Psychologists have long believed that people have a “set point” for happiness. And that most big changes, positive or negative, only had a temporary effect on happiness. But more recent studies show that economic choices and circumstances can have lasting effects on how happy we are. On the one hand, there is a fairly clear relationship between unemployment and happiness. Basically, being out of work can make people absolutely miserable. By some estimates, unemployed people have life satisfaction scores that are 5% to 15% lower than employed people. Studies have found that the negative effects of unemployment are greater in high-income countries.

There is also research showing that the happiness of middle-aged people is more negatively affected by unemployment than that of older people. You might be thinking, sure, people without jobs don't make money, so of

course

they would be less happy. But economists have found that the loss of well-being due to unemployment is greater than can be explained by the immediate loss of a wage. One explanation is that unemployment makes people worry not only about paying bills today, but also about the future. Economists have also found that moving from a part-time job to a full-time job makes people happier.

But the correlation between hours worked and happiness doesn't keep going up and up. At some point, when you are working ALL THE TIME, happiness levels start to decline. Imagine it as an inverted U. Sort of like an "I'm-working-all-the-time-and-I-never-get-to-see-my-friends" sad face. Long commutes make people less happy. Credit card debt makes people less happy. And it turns out that inflation, especially unpredictable inflation, can make people less happy. We like stability. And so that our savings maintain their value. It's not just the ups and downs of what you can afford that affect your happiness. It is also what the neighbors can afford.

There is something called the reference income hypothesis or the classified income hypothesis. It says that the satisfaction I get with my level of income and consumption depends on how I do compared to everyone around me. So if my rich, star version of the baker lives surrounded by millionaires, I might be less happy than if I lived in a middle-class neighborhood. Even if I have the same income. A 2009 study found this to be true, to some extent. Researchers found that Americans were happier when they lived in wealthy neighborhoods in poor counties. The authors wrote, “it appears that, in fact, people are happier when they live among the poor, as long as the poor do not live too close.” This idea that status matters, perhaps more than absolute income, leads to something known as the “Easterlin paradox.” It is named after an economist named Richard Easterlin, who, back in the 1970s, discovered that as the level of income in a country increases, the average level of happiness in those countries does not always increase.

This happens even though we also know that there is, at some level, a positive relationship between income and happiness. So what is going on? One explanation is that we derive happiness from status, rather than absolute income. So when an entire country becomes richer, even if our income increases, our status and relative income stay more or less the same. And we don't get happier. Another explanation goes back to the happiness “benchmark” we talked about earlier. Some economists speak of a “hedonistic treadmill” or “hedonistic adaptation.” Here is Rousseau, describing the phenomenon: “Since these comforts, becoming habitual, had almost completely ceased to be pleasurable and at the same time degenerated into real necessities, it became much more cruel to be deprived of them than to possess them was sweet, and “Men were unhappy to lose them without being happy to possess them.” I can remember the joy I felt when I got my first smartphone.

Now I've adjusted to the point that my phone is kind of annoying, but if someone took it away from me, I might cry. There is a third explanation for Easterlin's paradox and that is that it is actually not a paradox at all. Basically it doesn't hold up. There has been some research showing that the paradox is only true for relatively wealthy countries, where citizens' basic needs are already met. In countries with lower GDP, studies show, there ARE general increases in happiness when income increases. More recently, economists Betsey Stevenson and Justin Wolfers argued that average happiness levels rise in countries where incomes rise, regardless of how rich that country is.

The data, they say, point to a clear relationship between GDP per capita and average levels of well-being. All of this research on happiness is important when you think about how governments measure progress and decide what the right path is for a country. Economic growth has long been at the center of economic policy. It explains part of our global fixation on GDP figures. But, if you believe that increasing incomes and so on is not going to make people happier and better off, income growth may not be the best way to mark or judge the progress of a society.

Focusing on GDP and growth could obscure and even exacerbate issues such as income inequality and environmental damage related to increased consumption. In the 1970s, the king of the small country of Bhutan proclaimed that "'Gross national happiness is more important than gross national product.'" Instead of measuring economic progress using GNP or GDP, the government tracks GNH (gross national happiness), which considers the social, physical, spiritual and environmental health of its citizens. And it's not just about Bhutan. In 2011, the United Nations adopted a resolution calling on member states to place greater importance on happiness and well-being when determining how to achieve social and economic development.

But focusing on happiness in addition to economic growth is not a truly new idea. As early as 1968, US presidential candidate Robert Kennedy stood up in front of an audience at the University of Kansas and criticized the focus solely on economic production. "Our Gross National Product, now, exceeds 800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and the ambulances to clear our roads of carnage.” He continues: “It measures neither our ingenuity nor our courage, nor our wisdom nor our knowledge, nor our compassion nor our devotion to our country; in short, it measures everything, except that which;

It makes life worth it.” Well, I don't think we could write a better ending to the show or the series than that. Thanks for watching. It's been a great pleasure to watch Crash Course Economics. help from everyone. These good people, who work on the program because it makes them happy. You can help keep Crash Course free for everyone forever by supporting the program on Patreon, a voluntary subscription service where you can support the program with a monthly contribution. . to see.