By RICHARD LAYARD
1There is a paradox at the heart of our civilisation. Individuals want more income. Yet as society has got richer, people have not become happier. Over the past 50 years we have got better homes, more clothes, longer holidays and, above all, better health. Yet surveys show clearly that happiness has not increased in the US, Japan, Continental Europe or Britain. 2By happiness I mean feeling good – enjoying life and feeling it is wonderful. And by unhappiness I mean feeling bad and wishing things were different. Most people find it easy to say how good they are feeling, and in social surveys such questions get 99 per cent response rates – much higher than the average.
3It is true that, within any particular society at any particular moment, rich people are on average happier than poorer ones. For example, 41 per cent of people in the top quarter of incomes are ‘very happy’, compared with only 26 per cent of those in the bottom quarter of incomes. The problem is that, over the years, the proportions in each group who are very happy have not changed at all although the real incomes in each group have risen hugely. This is true of all the main western countries. 4We also know that clinical depression, assessed professionally through population surveys, has risen in most countries. A survey from London University’s Institute of Education, out this month, shows that as many as 29 per cent of women aged 30 in 2000 reported suffering trouble with nerves or feeling low, depressed or sad; the comparable figure in a similar survey, among those aged 36 in 1982, was just 16 per cent. Researchers disagree over the size of the increase, but nobody believes depression has diminished, despite the much greater ease of our material life. 5Further evidence comes from comparisons between different countries. These show that, where average income per person is less than $15,000 a year in other words, where many people are near the breadline extra money really does make people happier. But comparing countries where average income is above that level, happiness seems to be independent of income. For example, the average American is much richer than the average Icelander or Dane, but also less happy. 6Why is this? Clearly people are comparing their income with some norm and this norm is rising all the time. Thus from 194686, the US Gallup poll asked people, ‘What is the smallest amount of money that a family of four needs to get along in this community?’ It turns out that, as actual average incomes rose, so did the income that people felt was needed – and in fact this ‘needed’ income grew in direct proportion to actual income. Likewise, when people were asked ‘Are you satisfied with your financial position?’, the proportion who said they were ‘pretty well satisfied’ fell, despite enormous economic growth.
7Two things drive up the norm with which people compare their incomes. One is the income that they themselves have experienced which habituates them to higher standards of living. And the other is the income that others get, and which they try to rival or outdo. 8Habituation is a basic psychological phenomenon. It works both up and down: you adjust to good things and to bad. The clearest evidence that you adjust to income comes from asking people with different levels of actual income what income they would consider satisfactory. Typically, the income that people say is satisfactory rises by almost 50p for every extra pound that they have actually acquired. A whole range of studies shows that people adjust their requirements to their recent experience and that they are constantly surprised by this. People overestimate the extent to which the new house or new car will, once they have got used to it, make them happier. 9People also adjust their requirements in response to what other people have: keeping up with (or trying to outdo) the Joneses. […] When people...