Happiness is a universal pursuit instilled in mankind’s most primitive instincts. People have a predicted need to become happy by doing the things that make them happy. Some people may find happiness in family time, while others find it in endangering their lives while driving 120 mph on the highway. However, the concept of happiness is not as simple as it looks, as several different things affect people’s happiness. Economics try to explain and quantify those things that might have a great effect on people’s happiness in the short term and how it turns out to be in the long run. And if you think about it, it’s amazing, happiness isn’t a good or service that could be quantified with dull-ass demand and supply curves. The economic approach to happiness is different from your usual university introductory economics course.
In the domain of economics, relativeness is key to understanding happiness. Happiness is different relative to changing income levels. Moreover, where u live might also have a large effect on how happy and satisfied you are with your life. Happiness is subjective as mentioned above; however, economists try to complicate the topic by formulating their mumbo jumbo on happiness and to an extent, unfortunately, they make sense.
How Much do you make?
Let’s take a very simple example to understand how income might affect your happiness levels, and no, it’s not as simple as making more money makes you happy! Brad and Chad are both coffee makers, and both have an equal level of skill in making the best overpriced, fancy cup of coffee you will ever drink. Brad works at a coffee shop and makes around 40,000 USD a year, while Chad has his own coffee shop which makes him a handsome 500,000 USD a year. Both coffee makers have entered a coffee making competition and have won in different categories. Brad’s coffee won in the taste category, while Chad won in coffee consistency (idk if that’s a thing). The two artisans have received a monetary prize of 10,000 USD. For Brad, this is a handsome amount of money, and might help him buy a more lavish automobile than the small hatchback he was saving for.
However, for Chad 10,000 USD are barely enough to spec out his Lambo with Alcantara roof linings. The effect of the 10,000 USD on both coffee makers is very different, bringing happiness to the first one, and for the second one, its just another 10,000 USD. Here we can see that the effect of additional income is relative to the already preexisting wealth. This is what economists call the diminishing return of happiness, which means that with constant accumulation of wealth, an additional unit of income doesn’t really increase the person’s happiness as much.
So, how much money would make Chad as happy as Brad? 10,000 USD is equal to an increase of 25% to Brad’s income, which is a staggering amount if you make 40,000 USD a year. if we apply the same percentage to Chad’s preexisting income levels, a minimum of 125,000 USD would be enough to make Chad happy and satisfied with the prize. After all, instead of Huracan, this amount of extra prize money will make him purchase an Aventador instead.
Wow, do you really live there?
Also, where u live could have a substantial effect on how happy you are with your position in life. Let’s take jack and jill, both make a nice 90,000 USD per year, however both live in very different places. jack, lives in the Hamptons, California while jill lives in some sketchy neighborhood in Detroit, Michigan. From the movies, you probably know that the Hamptons is one of the most expensive neighborhoods in the US, and that most celebrities and artists live there. One the other hand, most Detroit residents in movies live in trailer parks, like in the movie 8 mile. According to studies, jill will most likely feel happier than jack. Jill has a substantially higher level of income compared to his trailer park neighbors, while jack is considered to living at sustenance levels at the Hamptons, as his celebrity neighbors most probably make 4 folds what he makes a year in just six months. This is a dilemma of human behavior, as people always compare themselves to their peers. Jack can’t just park his Toyota rav4 next to his neighbor’s Lexus and feel like they are equal. Unfortunately, when people start to compare their state to others, they will most definitely realize the existing gap which would have a large effect on their happiness levels.
The Easterlin paradox
A study by Richard Easterlin in 1974 tried to understand if more money makes people happier. His findings led to the formulation of a very interesting paradox. Increases in income are relative, which means that your happiness depends on the income levels of others. If your income increases, you might be able to purchase a better phone, fancier clothes, or even a more expensive sports car, making you happier and more satisfied. However, this isn’t always the case. Due to social comparison, an increase in income level might not have a substantial impact on your level of happiness. If it’s a standard in a certain community that everyone drives a luxury car, your hard bought S-class won’t add anything to your happiness levels. This means that you could only feel happy if you become way richer than your neighbors, or your neighbors become way poorer than you are. Social comparison hinders the ability of people to become happier as they will always find themselves at an unfair advantage to their richer peers. So even if the government decides to give everyone more money, their happiness won’t elevate that much because everyone will be able to do the same things. Unless you can buy a spaceship and roam the stars, you are as good as your neighbor with the Birkenstocks.
Conclusion
Finally, relativity and self-satisfaction are the main keys to understanding how income affects happiness. The economy of a country identifies what is rich and what is considered to be below that. In some countries, having a large house by the sea is the staple, while in other countries, it’s a luxury that not everyone is able to afford. People putting themselves in this trap of comparison to others is also a phenomenon that hinders the pursuit of happiness. You won’t feel real satisfaction with your socio-economic position unless you stop comparing yourself to other people. Appreciating the small things, quality time doesn’t always mean going to a high-end restaurant for good food and a chat. The same could be done without all the extra luxuries and would lead to an immensely fulfilling experience. You either break-free of this trap, or find yourself in this hellish loop of dissatisfaction.