M any times a phone call at an early hour is enough for happiness. This is what happened to Angus Deaton this week. The Princeton University economics professor, who turns 70 on Monday, was still in his pajamas when at 6.10 o’clock the telephone rang and his wife handed him the receiver.
"There was this Swedish voice on the phone affirming that it really wasn’t a joke – that made me wonder at first," Deaton said, describing his initial reaction a few hours after the crucial phone call.
The wake-up call from Stockholm was not a prank. The Princeton researcher, who had previously been largely unknown to the public, has since been celebrated as the 2015 Nobel Laureate in Economics.
Despite his less than appropriate attire during the telephone call, he was delighted to receive the award, said the Scottish-born poet, who rarely dispenses with a bow tie and red socks at appearances, with British understatement. The fact that the Nobel Prize is accompanied by the payment of eight million kroner, the equivalent of 857.The fact that Deaton’s salary is linked to an annual income of €5,000 is likely to increase his feeling of happiness even more. In one of his most famous works, he found out that money – contrary to popular belief – makes people quite happy.
More is more
Hardly any question is as controversial in recent economic research as the connection between wealth and satisfaction. Hardly anything moves people in their everyday lives as much as the link between money and happiness: How much do I have to earn to be happy in the long term?? Does a salary increase make me even happier? Are rich people really more satisfied? Or should one not place such a high value on mammon?
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In the past, scientists have put the influence of money into perspective when trying to put happiness into a formula. In 1974, the American Richard Easterlin caused a sensation with his finding that a higher income tends to make individuals happier, but does not necessarily increase a nation’s sense of happiness.
The so-called Easterlin Paradox turned classical economics with gross domestic product as the central metric on its head. In the pursuit of happiness, rising incomes, lush salaries and a nation’s prosperity were overestimated, it was said at the time. Instead, people’s happiness should be measured in a new way. But there is much to suggest that this was probably too hasty. The power of money is greater than commonly believed. More is more after all.
75.000 dollars to happiness
However, the link between money and happiness has its pitfalls. No one knows this better than Nobel Prize winner Deaton. Together with Daniel Kahneman, who was awarded the Nobel Prize in 2002, he has used data from 450 different studies to investigate the link between money and happiness.000 interviews investigated how strongly Americans’ feelings of happiness were influenced by their own salary account. Since then, this study – and with it its author Deaton – has been reduced to one number: 75.000 dollars. According to the surveys, the feeling of happiness increases up to this annual income. Beyond this limit, however, happiness apparently cannot be increased any further.
The supposedly clear upper limit made it into the popular U.S. prison series "Orange is the new black," where series heroine Piper philosophized about the number. And the bosses of the U.S. company Gravity Payments were also inspired by the equation: The salaries of all employees were set at 70.000 dollars raised and the boss’s salary cut to the same amount.
The idea behind it also sounds really convincing at first. If you have to struggle every day to make ends meet, you have little chance of being happy. From a limit of 75.000 dollars, the equivalent of a good 61.000 euros, on the other hand, you obviously don’t have to worry much about money in everyday life anymore.
Rich countries are happier than poor countries
The problem is that this interpretation simply ignores a large part of Deaton’s and Kahneman’s findings. Because as the two researchers have proven, a higher income does not bring a stress-free life in which there are only feelings of happiness every day. Life satisfaction, however, very well increases with growing account balance – and without limit upwards.
In other words, a salary of 500.000 euros or an account balance of five million euros does not prevent people from feeling depressed or weary at times. But in many ways they make life easier – and therefore happier.
Economists Betsey Stevenson and Justin Wolfers demonstrated the positive correlation between wealth and life satisfaction using Gallup surveys from 155 countries. "Rich people are happier than poor people, and rich countries are happier than poor countries. This correlation is extremely strong," she concludes.
In fact, the phenomenon can also be measured in Germany. This is shown by figures from the so-called Socio-Economic Panel (SOEP). This is based on data from 20.000 households surveyed every year on income, family status, employment and general life satisfaction.
According to the study, more money also makes Germans happier. This is not altered by the fact that the increase in happiness is lower at higher incomes than at lower incomes. Below a monthly net income of 1,200 euros, every increase of 100 euros is reflected three times as strongly in happiness as above 1,200 euros. However, the SOEP also shows that there is no upper limit to happiness.
Happiness does not increase linearly with income
However, it is not only important how happiness is measured, but also what kind of happiness is being talked about: the feeling of happiness experienced in everyday life – sad, stressed, happy – or the cognitive satisfaction about what has been achieved in one’s own life. In the first case, happiness researchers like Basel economics professor Bruno Frey speak of "diminishing marginal utility" – happiness does not grow linearly with income. In the measurements of the two Nobel Prize researchers, however, there was no saturation point, especially in cognitive life satisfaction.
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"Happiness research can at best enrich economic science, but cannot replace it. There is no such thing as happiness, which makes measurement far too prone to error," criticizes Ronnie Schob, a professor at the Free University of Berlin. In his 2012 book "Geld macht doch glucklich" (Money Makes You Happy), he trimmed back the importance of the young discipline: "Happiness research is not suitable for measuring social progress."
Politicians have nevertheless discovered the topic for themselves. For example, Chancellor Angela Merkel has long been trying to track down happiness with the help of consultants and a commission of inquiry set up over two years. "As the German government, we also need another approach to find out what people think of their quality of life," the chancellor demanded last year at the meeting of Nobel Prize winners for economics in Lindau.
This is also an attempt to present the government as a modern leader who is not guided solely by GDP figures but takes seriously the needs of the people for a greater sense of well-being in the cozy republic of Germany.
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Critics have long argued that focusing solely on GDP is unsustainable because it puts undue strain on natural resources in the long run and ignores economic activities outside the money cycle, such as social media or the new barter economy from car sharing to home swapping.
Alternative indicators that include life satisfaction are supposed to provide a remedy. For example, the OECD, a group of industrialized nations, has developed the "Better Life Index," a barometer that takes into account criteria such as employment, safety, education or environmental protection. However, the abundance of measured variables is not without a certain arbitrariness.