The Easterlin Paradox

Many can agree that people's incomes relates to their happiness. When we have more money, we feel financially stable and may even have the luxury to buy other goods that will make us happier, such as accessories, video games, or a buffet dinner. This can cause people to believe that all richer, developed countries will have a significantly higher happiness level than poorer countries. However, this is not true due to the Easterlin Paradox. Economist Richard Easterlin discovered in 1974 that economic development does not correlate with an increase in national happiness.

Recent studies have shown that income inequality could be a factor in why this phenomenon occurs. Inequality within a nation have been proved to indicate unfairness and loss of trust between the people. Additionally, it leads to more economic opportunities for the upper class and a harder living environment for the lower class, such as higher levels of crime. For these studies, the researchers investigated two groups of countries: one group consisting of developed nations and the other consisting of Latin American countries. 

Using GDP data and the Gini coefficient (standard measure of inequality), the analysts found that for the first group, when the inequality was high, economic growth or increase in GDP had no effect on the happiness of people. Happiness was essentially "inversely related to income inequality". However, for the Latin American nations, economic growth actually related to a slight decrease in national happiness. The income inequality is still high in these regions, so it was definitely a main factor in determining a lower level of life satisfaction, but economic development did not positively affect happiness. 


This Easterlin Paradox indicates that we should focus on distributing the wealth in all nations, rather than focusing on economic advances. We as individuals might feel happy with an increase in income, but to heighten the level of happiness within a nation, we must work together to fix the income distribution. 


Sources

Comments

  1. AnonymousApril 25, 2019 at 11:28 AM

    This is something we talk a lot about in positive psychology! In addition to the Easterlin Paradox there are many other authors and "fathers of positive psychology" than agree with the fact that your annual income does not in fact correlate with your happiness levels! In fact, once your income has reached 75,000 there is no difference in it's ability to make you happy than if you were to be making $100,000 a year. It's about what you choose to do with your life outside of your job as well as what you choose to contribute to the world.

    ReplyDelete
  2. AnonymousApril 25, 2019 at 4:03 PM

    Interesting post, Kevin! I think we always assume that having more money and wealth will make us happy, but the Easterlin Paradox really disputes that assumption. I think there's an extent to which money can make us happy, where as long as we have enough to spend on the bare necessities (clothes, housing, food) and a bit on things that make us satisfied (luxury foods and goods, entertainment), we feel a degree of happiness. However, having too much wealth is also a contributor to declined rates of happiness as embodied by certain lottery winners who blow through their millions and end up worse off than they started. While most lottery winners see increased satisfaction with their overall life trajectory, they don't see improvements in how they feel on a day-to-day basis.

    Source: https://www.marketwatch.com/story/does-winning-the-lottery-make-you-happier-2018-06-04

    ReplyDelete
  3. AnonymousApril 26, 2019 at 12:39 AM

    I find the paradox of wealth and happiness to be really interesting, and I've read somewhere that past a certain wealth threshold, income and happiness are not correlated at all. The Easterlin Paradox seems to confirm this, although I do think there's a resolution. Early stages of industialisation do tend to breed inequality and poor standards of living (see England c. 1800s and modern China) despite having quick growth. Perhaps unhappiness and inequality are both tied to national stages of growth?

    ReplyDelete

Post a Comment

Popular posts from this blog

The Cost of Inelastic Goods

Image
Many goods that are inelastic in terms of demand are ones that are essential or, in other words, necessary to one's self. There are several examples: basic foods, gasoline, or even medicine. I was interested in how producers can manipulate the prices of these goods and how the total revenue can change over time because those goods are inelastic. The first example I thought of was insulin. Considered inelastic because, without it, those who are diabetic might physically suffer, I looked at the price trends in the past couple of years. Just as I predicted, the price has been rising dramatically in the past decade or so as producers are taking advantage of the consumers' essential need for this good. There are about 7.4 million Americans that use insulin and many struggle to pay the costs of this increasingly expensive drug. So, while rising prices benefit insulin manufacturers, those same prices come at a serious cost for patients as the demand for insulin is inelastic. Other...
Read more

The Economics and Psychology of Gambling

Image
As gambling around the world continues to increase, governments are starting to see these often self-destructive habits as a way to get money from their residents. Gambling has been seen as immoral and manipulative on the part of casinos, as well as pitiful on the parts of the people that gamble all their money away. It is seen as immoral and a “lazy way” to make money that isn’t even assured to get you anything. So what keeps bringing people back to the card table or slot machine? There are many theories about why someone would continuously gamble any money that they make to the point of landing themselves in debt. In many cases, the gamiling becomes an addiction, though many professionals have reservations on calling it that, that gets increasingly hard to kick. It is irrational for someone to continuously lose money and keep going back only to lose more. Or is it? The utility that some get out of gambling may feel like spending the money is worth it. As far as recreational ...
Read more

The Hidden Monopolies of the World

 Monopolies are all around us in the world, and not all of them are  obvious on the surface level like Google and Facebook. For example, you might be searching for hotel rooms and browse multiple "competing" sites like Travelocity, Trivago, or Hotel.com. What you most likely do not know however, is that all three websites are actually all owned by the same company; Expedia group. This illusion of free choice is used to hide the fact that Expedia essentially hold a monopoly over the industry and all hotel bookings actually go through them. These fake competitors which are all owned by Expedia Group controls 75% of the US online travel agency industry, Similarly, apple fans and Microsoft fans stubbornly stick to their respective brands of computers; not knowing that the laptops all come from the same Chinese manufacturer. Throughout all types of industries such as the ones listed earlier and others such as smartphones, supermarkets, beer, and even sunglasses, hidden parent co...
Read more