Why To Read Behind The Headlines: Happiness Edition

Joe Windish recently linked to a study in Science that suggested the South was the happiest (Louisiana at top) with New York not faring so well. There were some stalwart defenders of this view in the comments, something that doesn’t square at all with my personal experience; of course that is all just anecdotal. However, what caught my eye was something that wasn’t mentioned in the article Joe linked to but had been mentioned in other places:

The happy-states list, however, doesn’t match up with a similar ranking reported last month, which found that the most tolerant and wealthiest states were, on average, the happiest. Oswald says this past is based on raw averages of people’s happiness in a state, and so doesn’t provide meaningful results.

“That study cannot control for individual characteristics,” Oswald told LiveScience. “In other words, all anyone has been able to do is to report the averages state-by-state, and the problem with doing that is you’re not comparing apples with apples because the people who live in New York City are nothing like the individuals living in Montana.”

This set off a red flag in my mind, as that sort of language seemed like econospeak for “we adjusted the data in some way based on an assumption that may or may not be correct.” So I went to the actual paper and lo and behold there is this passage in the methodology:

[The model] controls for (that is, includes as independent z variables) the incomes and demographic characteristics of sampled individuals. This is a necessary design of the study’s test. The test is not primarily an attempt to assess the different kinds of people who are “happy” but rather the kinds of geographic areas.

In layman speak that means that they assumed that money had nothing to do with happiness, estimated increases or decreases in happiness that were associated with wealth differences and then adjusted all of the results to their model. The results aren’t saying that the states are happy or unhappy in reality, just if you don’t factor in wages and by extension job availability!

This is something he implicitly notes:

“We have been asked a lot whether we expected that states like New York and California would do so badly in the happiness ranking. Having visited and lived in various parts of the US, I am only a little surprised. Many people think these states would be marvellous places to live in. The problem is that if too many individuals think that way, they move into those states, and the resulting congestion and house prices make it a non-fulfilling prophecy. In a way, it is like the stock market. If everyone thinks it would be great to buy stock X, that stock is generally already overvalued. Bargains in life are usually found outside the spotlight. It seems that exactly the same is true of the best places to live.”

Well yes that’s true, but the main reason why people continue to live in those areas is because it is often difficult to get jobs that pay as much outside of them. If that were equal, I can easily see his results being relevant, but the bulk of unhappiness I have run across in most of the South has to do with wage or endemic joblessness issues. On the personal anecdote level, yeah I do think that the people fortunate enough to be financially secure in the South are happier than those in the other places I’ve seen, but then again the amount of poverty (especially when weighed against the lack of infrastructure) in the South is shocking and more people seem to hang on by a thread. The only place I can think of that seems worse is the Appalachian Mountain region.

That said, Oswald does have a basis for his assumption to some degree. There have been multiple studies that have shown that money only buys happiness up to a certain point and then non-financial issues matter more. Furthermore, people tend to base their financial happiness greatly on wealth relative to others around them rather than any absolute scale. These two points are the foundation of the Easterlin Paradox. The implication is that a focus on economic growth is the right pursuit for poor countries, but perhaps not for industrialized nations. You will note on the Wikipedia page that Professor Oswald is a leading proponent of this view and an earlier paper of his suggests that industrialized countries should worry more about unemployment than GDP.

There is some criticism and counter-responses about the quality of the datasets that led to the Easterlin Paradox and reading a little bit about the situation it is clear that Oswald’s paper was not meant as a categorical study of happiness in the US, but a full throated defense of the Easterlin Paradox. In short, it’s an academic disagreement that made it to the front page. Of course while I have read convincing evidence of the paradox in general, this particular exercise is lacking.

That’s because there are other studies that show the US has great correlation in happiness and income up to the $50k household income level a figure that just under half of all US households enjoy. Louisiana, Alabama, Mississippi and Arizona (all ranked highly in Oswald’s list) have some of the greatest rates of poverty and lowest incomes in the country. Just throwing that out doesn’t say anything about the Easterlin Paradox because they may not have reached a sufficient level of income to have their happiness “capped” by continued growth. Instead I would like to see a study that adjusts income for cost of living and then have adjusted income as a dependent variable in the model.

Of course with the country wide economic issues his results probably take on more meaning: the job security that was once enjoyed by people in the highly sought out areas is gone and that will make his assumption more realistic.

And I fully agree with this statement at the end of a Newsweek article:

If more money doesn’t buy more happiness, then the behavior of most Americans looks downright insane, as we work harder and longer, decade after decade, to fatten our W-2s. But what is insane for an individual is crucial for a national economy—that is, ever more growth and consumption. Gilbert again: “Economies can blossom and grow only if people are deluded into believing that the production of wealth will make them happy … Economies thrive when individuals strive, but because individuals will strive only for their own happiness, it is essential that they mistakenly believe that producing and consuming are routes to personal well-being.”

Regardless of this particular study’s merit, I find the idea that our country’s economic problems are a result of scarcity and that having more will make us happy to be highly specious. A fundamental factor of our current economic crisis is growth without merit or purpose: bubbles for the sake of bubbles and nothing more.

Author: MIKKEL FISHMAN, Economics Editor