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Economy & Business

Commenary: More than money: well being can't be measured by just income

This article first appeared in the St. Louis Beacon, July 26, 2012 - For many years, politicians and policy makers have used income exclusively to gauge well being. Recent advances in economics and other social sciences, however, have cast serious doubt on the accuracy of making a one-to-one connection between how much money you make and how happy you are.

This subject has received a lot of attention recently by both academics and journalists. The question of whether happiness should replace gross national product was a keynote panel at last year’s American Economics Association annual meeting.

Some governments have started to examine the wisdom of relying exclusively on income as a measure of personal welfare. The tiny Asian country of Bhutan is a trendsetter, having switching to Gross National Happiness from Gross National Product. Former French President, Nicolas Sarkozy, appointed a commission in 2008 to consider other approaches to measuring well being besides income. In case you are thinking that only exotic countries or French presidents have embraced this idea, British Prime Minister David Cameron, a Conservative, recently called for including well-being with the current measures of national social and economic health.

Not surprisingly, this idea has not gained any traction in the current presidential race. Both Romney and Obama are too focused on jobs and the lack of real economic growth to take an interest. The difficulty in extricating the U.S. from the economic downturn has reinforced in everyone’s minds the importance of traditional, economic-based notions of well being. Worrying about how happy you are seems to be a luxury reserved for people who are earning an income.

Nonetheless, the notion is worth considering even in these dire economic times.

According to an article in The New York Times, “Beyond household income of $75,000 a year, money ‘does nothing for happiness, enjoyment, sadness or stress’.” This raises a couple of important points. First, there is an income level for families and individuals that establishes a happiness threshold. Below it, you are less likely to be happy, all things being equal. There can be debate over what the exact dollar amount is, how large the household is, where you live and other household characteristics, but economic discussions regarding well being begin with the premise that there is a base level of income that is necessary for happiness.

The next important point made by the research is that individuals with higher incomes seem unable to appreciate the small things in life. However, it is precisely those little things that contribute to one’s overall sense of well being. Spending time with family and friends might not seem as exciting as spending hundreds of thousands of dollars on a luxury automobile but research has shown that it makes people happier.

Anecdotal evidence, now reinforced and confirmed by science, says money does not buy happiness. Nonetheless, the traditional income-based approach to measuring well being will not disappear any time soon. There are several reasons for this.

First, it is easier to measure income than happiness. By definition, happiness is subjective whereas money is tangible and quantifiable. Second, policymakers like things that are easily counted. When they are running for re-election they can point to statistics to confirm that things have improved. Alternatively, challengers can use negative statistics to make the case that the voters should replace the incumbent.

The media would have to switch their focus from reporting on economic data to include well-being data. The problem with that is the federal government does not publish a happiness index yet.

Finally, advertisers have taught us to associate our happiness with consumption of their goods and products. If we start to focus instead on the things that truly bring us happiness: relationships, leisure, freedom and health, advertising begins to lose its influence over us. Ultimately, this can hurt the economy as it is currently configured, because people will buy less of the things they do not really need.

How do we even define happiness in such a way that we can meaningfully study it? One researcher defines happiness “as the degree to which an individual judges the overall quality of his or her life as favorable.” (http://www.nber.org/reporter/2008number2/blanchflower.html).

Patterns may be discerned in those who self identify as satisfied with life. They include women, youth and older people, the self-employed, high-income earners, the religious and healthy people. Interestingly, people at the extremes of the political spectrum, the very conservative and the very liberal, tend to rate themselves higher on well being than those in the middle.

At the very least, there should be a debate in this country over devising more global measures of well being than income. The mass media, Congress and the presidential candidates should take it up. If nothing else, it will start to shift our national policy focus away from a too-narrow emphasis on income toward a broader definition of what makes individuals and families happy.

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