Friday, July 18, 2014

Does Money Buy Happiness?

Hannah Gregg, of ABC7 News, decided to revisit the 2009 study by Daniel Kahneman and Angus Denton, which established that income of $75,000 was the threshold of emotional well-being. Granting the fact that the study was controversial, she decided to see what would happen if she tried to adjust this so-called "Happiness Benchmark" to account for economic factors, such as inflation. Her conclusion was that the benchmark had, indeed, risen and was now at $83,000. She also prepared a state-by-state breakdown, applying her calculations to individual states to determine what it would take to be happy there. As might be guessed, California clocked in above the average at $95,325.

Idle curiosity drove me to look back on my tax forms for last year. Since my wife and I are both in retirement, I figured that, at the very least, it might tell me something about how effective our "wealth management" practices were. I discovered that our household was above the national figure and below that for California.

Needless to say, I do not take any of this particularly seriously. Obviously, when revenue shifts to a stock portfolio, you start thinking more about income than growth. In 2006, I decided to set up a spreadsheet through which I could track the difference between income and expenses on a month-by-month basis. It turns out that, while, at this fine monthly level, that difference fluctuates between positive and negative, over the long term we have been pretty successful at keeping it positive. We refer to the cumulative difference as a "cushion."

One result is that we tend to think of large expenses in terms of their impact on that cushion, bearing in mind that it has become sort of a rainy-day resource. This means that we tend to spend less than we did when household income was significantly higher than the benchmark. However, I do not think that either my wife or I would say that we are less happy because we are spending less. To the contrary, I think that one of the results of moving over to retirement income is that we are more likely to be happy with what we have, rather than what we want.

I wanted to report on this exercise because I believe that emotional well-being is an important factor. However, I have to worry about the reasoning behind the effort of Kahneman and Denton to reduce it to a single number. Indeed, I have argued in the past that such "bottom-line thinking" is responsible for a lot of really bad social decisions, the most serious being those concerned with health care. Even worse is when that bottom line is a dollar figure, rather than some other quantitative measurement.

Then I realized that I was flying in the face of nature. A consumerist society is all about having what you want and having a bottom-line dollar figure that will allow you to get it. It is a bit like a casino in which the tables are rigged against you. You can never have enough money to be happy; but, as John Oliver noted on his HBO program last Sunday, you are manipulated (by what is sometimes called "consciousness industry") into such an unrealistic state of optimism that you prefer the remote chance of breaking the casino's bank to the dangers of the more likely outcome that the casino will break you. The possibility that happiness can be found by walking away from the casino, rather than walking into it, never really arises, simply because those who have the wealth can spent it on propaganda to convince us that no alternative is even remotely thinkable.

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