Who says money can’t buy happiness?

JOHAN NORBERG is a fellow at the Swedish think tank Timbro and the author of "In Defense of Global Capitalism" (Cato Institute, 2005).

THERE’S A THEORY going around -- popularized most recently in a book by British economist Richard Layard -- that money doesn’t buy happiness. Earning more money, Layard argues, won’t make us happy because most of us are interested in relative wealth rather than absolute wealth. If we earn more money, but our neighbors do too, then we’re not going to be any happier than we were before. We quickly grow accustomed to our new level of wealth and begin to aspire to still more. It’s a “hedonic treadmill.”

Layard looks at these issues not on the individual level but on a macro scale -- as an economist determining priorities for government policy. His studies indicate that there is a dramatic jump in the reported well-being of a nation when it moves from an average national income of about $5,000 to $15,000 a year. But at that point, satisfaction levels off. From this, Layard concludes that we shouldn’t emphasize economic growth as much as we do, but we should increase taxes, discourage hard work, slow down mobility and give ourselves more time to do the things that actually increase our happiness -- spending time with family and friends and reading Layard’s books.

But is that the right conclusion? I’m not so sure.

Imagine for a moment that you are happy because you have a lot of nice dinners and parties to look forward to in the upcoming months. Sure, after they’re over, Layard could come in, ask you a bunch of questions and determine that you are no more happy than you were before -- and conclude that you should stop devoting time and energy to parties because they apparently don’t increase your happiness.


That is a bizarre conclusion. After all, would you have been as happy if you hadn’t had all those nice parties to look forward to? Isn’t it possible that the same goes for wealth?

The fact that rising incomes do not increase happiness much does not mean that the prospect of a higher income serves no purpose. It might be that the potential for economic growth down the road is what makes it possible for us to continue to believe in a better future and to continue experiencing such high levels of happiness.

FROM SURVEYS we know that hope correlates strongly with happiness. If you want to meet a happy European, try someone who thinks that his personal situation will be better five years from now. And we see the same when we compare Americans to Europeans. According to a Harris poll, 65% in the United States -- but only 44% in the European Union -- think their situation will improve in the next five years. And we also find that 58% of the Americans are very satisfied with their lives, compared to only 31% of the Europeans.

We also know that lack of hope and opportunity correlates strongly with unhappiness. In poor and badly governed countries, entire societies suffer from hopelessness. People have few opportunities, no hope that tomorrow will be a better day. Belief in the future grows when poor countries begin to experience growth, when markets open up and incomes finally begin to increase.

That could help explain why happiness reached high levels in the West after World War II. With economies growing rapidly, people began to think that their children would enjoy a better life than they had. The critics who think that they can conclude from the stability of happiness that zero growth is preferable overlook that loss of income undermines happiness.

Raising taxes to discourage work (while reducing economic growth), as Layard has proposed, would be a way of cutting off that progress.

The truth is, happiness hasn’t stopped increasing. According to the World Database of Happiness, directed by Dutch researcher Ruut Veenhoven, satisfaction has increased since 1975 in most Western countries that have been surveyed. There are diminishing returns, but even at our standard of living, people do get happier when societies grow richer.

Another reason these societies are so happy is wealthier societies allow individuals more freedom to choose their own lifestyle. As time passes, we get increasingly better at choosing to live and work in ways we like. For some, that may mean decreasing the amount of work they do. If you don’t think you get happier by hard work and mobility, just skip it! A recent survey showed that 48% of Americans had, in the last five years, reduced their working hours, declined promotion, lowered their material expectations or moved to a quieter place. That’s fine.

But if happiness studies are used to put forth an anti-capitalist agenda, it will only reduce freedom of choice for all of us and, therefore, reduce our ability to make decisions that satisfy us.

Despite Layard’s criticism of individualism and materialism, even he admits that “we in the West are probably happier than any previous society.” Shouldn’t he examine why before he and his followers start undermining this society?