Can Money Buy Happiness?

Today, the religion of worship of money dominates the globe. With rare exceptions, we are all taught to believe that the key to happiness is money — those who have more will have everything that they desire, and those who do not, will be frustrated failures on all fronts. In earlier times, schools used to have the slogan “Enter to Learn, Leave to SERVE”. Today the “SERVE” has been crossed out, and replaced by “EARN”.  Therefore, it comes a surprise to most people that this is new belief (which is demonstrably false) has emerged, become popular, and widely believed, only recently. This article, published in the Express Tribune, July 19th, 2011, explains why.

Across time and space and widely different cultures and religions, there is an amazing amount of consensus that the answer to this age-old question is an emphatic ‘No’. As the influence of religion declined, and secular thinking became dominant in Europe, the idea gained strength that instead of waiting for Heaven in the afterlife, we should try to construct it here on this Earth. To achieve this goal, early in the 20th century, some influential thinkers argued that even though greed for gold was bad — a ‘disgusting morbidity’ — it could be harnessed for a good end. Unchaining the powerful drives for accumulation of wealth would create wealth for the society as a whole, ultimately freeing man from all worldly worries. Keynes expressed this vision poetically: “We must pretend that fair is foul and foul is fair. Avarice and usury must be our gods for a while, for only they can lead us out of the tunnel of economic necessity.”

This vision of a ‘heaven on earth’ created by a fabulous increase in wealth, inspired two generations of followers. The hope was that once free of the necessity to toil for a living, men would become kind, generous and gentle. They would turn to higher pursuits of philosophy, arts, aesthetics, and sciences, and develop an advanced and sophisticated culture. But, things did not go according to plan. Samuelson, who was one of the most influential disciples of Keynes acknowledged that ‘great affluence has not brought about the slackening of economic ambition’. There was a great contrast between what was promised and what actually occurred: Great wealth was accumulated, but it did not lead to increased happiness. Many different fields of research emerged to analyse the reasons for this failure of money to buy happiness.  One of the most important of these is called ‘happiness studies’.

A study by Richard Easterlin, a professor from the University of Southern California, led to the surprising conclusion that very large changes in material comforts had virtually no effect on life satisfaction, or ‘happiness’, across time and across cultures. Easterlin showed that, during the 20th century, people in the US enjoyed comforts available only to princes of a century ago. Similarly, the standards of living were dramatically different in the US and India around the middle of the 20thcentury. Nonetheless, piecing together evidence from a wide variety of different sources, he found virtually no difference in life satisfaction among these vastly different societies. This became known as the Easterlin Paradox: in the long-run, there is no relationship between the wealth of nations and happiness. This discovery has radical implications. If true, then all the collective efforts poured into achieving high growth rates have been wasted. About a quarter-century of intensive debate and research has led to some firm conclusions, which we summarise below:

Firstly, money is extremely important for the poor. Satisfying basic needs definitely increases happiness. On this basis alone, it would appear that increased wealth would lead to reduction in poverty, and hence, to increase in happiness. In an earlier column entitled “The vacuum cleaner effect”, I explained why this was not the case. Fruits of economic growth do not go equally to all; rather, the lions share is captured by the already wealthy leading to increasing inequality. Thus, even if some money reaches the poor via the “trickle-down”, the standards to which they aspire move even further away, leading to increasing frustration and unhappiness.

Secondly, beyond the level of basic needs, increases in wealth lead only to temporary increases in happiness. Long-run durable changes in happiness are strongly tied to friends, family, community, and old-fashioned social norms represented by trust, commitments, loyalties, and courtesy. Legitimisation of the pursuit of wealth has led to an erosion of these social norms. It is an urgent priority for us in Pakistan, to take these findings seriously into consideration, in setting priorities for national growth and development.

The original article ends here. I would like to add a postscript here. Islam offers a balanced alternative view: Kuloo, Washraboo, wala Tusrefoo — Eat, drink (and wear beautiful clothes) but do not waste. At the level of needs and comforts, money is necessary and useful, and we are encouraged to seek it. But beyond this level, the pursuit of luxuries is an illusion — it creates and appearance of happiness, but actually causes harm by taking attention away from the really important things in life. Many millionaires have expressed regrets that pursuit of money took their attention away from the really important things, like family, friends, and social relations.

This entry was posted in Uncategorized by Asad Zaman. Bookmark the permalink.

About Asad Zaman

BS Math MIT (1974), Ph.D. Econ Stanford (1978)] has taught at leading universities like Columbia, U. Penn., Johns Hopkins and Cal. Tech. Currently he is Vice Chancellor of Pakistan Institute of Development Economics. His textbook Statistical Foundations of Econometric Techniques (Academic Press, NY, 1996) is widely used in advanced graduate courses. His research on Islamic economics is widely cited, and has been highly influential in shaping the field. His publications in top ranked journals like Annals of Statistics, Journal of Econometrics, Econometric Theory, Journal of Labor Economics, etc. have more than a thousand citations as per Google Scholar.

11 thoughts on “Can Money Buy Happiness?

  1. Nice article Sir. Like many other articles, you identified the problem very well, but solution to the problem or a proposal for new paradigm is missing. What we should do, if growth is not a solution to problems like abject poverty, health, education and many other problems. What are your proposed actions and wayforward for the government in this regard. Thanks!

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