Is wealth good?
Studies suggest that people with higher incomes tend to be happier. But of course that tells us nothing about causation. It seems plausible that people who “have their act together” are both happier and richer, for reasons relating to their personal characteristics. Thus economists are interested in studies of happiness that look at the effect of an exogenous increase in wealth.
Tyler Cowen recently linked to a study of Swedish lottery winners, and summarized the results as follows:
In other words, it is good to have more money.
That’s a plausible interpretation of the study, but not the only one. After all, it’s not easy to measure “good”. Here’s how the authors summarize their findings:
We find that the long-run effects of wealth vary depending on the exact dimension of well-being. There is clear evidence that wealth improves people’s evaluations of their lives as a whole. According to our estimate, an after-tax prize of $100,000 improves life satisfaction by 0.037 standard-deviation (SD) units. We find no evidence that the effect varies by years-since-win, suggesting a limited role for hedonic adaptation over the time horizon we analyze. Our results suggest improved financial circumstances is the key mechanism behind the increase in life satisfaction. In contrast, the estimated effects on our measures with a stronger affective component – happiness and an index of mental health – are smaller and not statistically distinguishable from zero.
To explain my reservations, I’m going to have to do a long digression into pop philosophy. Let’s start with Tyler’s use of the term ‘good’. I believe ‘good’ to be the most important word in the English language, and indeed in the end is the only thing that matters at all (along with negative good, i.e. bad.) I define good as positive mental states and bad as negative mental states. I use the phrase ‘positive mental states’ to incorporate the reservations people have with crude utilitarianism. Thus a term like ‘happiness’ often connotes hedonism, whereas I have something in mind that also allows for deeper forms of good, such as the satisfaction one gets from doing charity, or writing a great novel, or seeing your child do well. It also allows for more disreputable forms of “positive mental states”, such as the Nietzschean (or Trumpian) thrill that some people get in exercising power over others. So in my view, mental states are all that matters.
On the question of whether having money makes people better off, I’m of two minds. Here I am considering middle class people in Sweden or America, I think it quite likely that having more money does make the poor better off. But would I be happier if I won the lottery?
1. My gut instinct tells me that more money is good. I’d be pleased if I came across a $100 bill lying on the ground, imagining the fun things I could do with the money.
2. My philosophical mind is more skeptical. I don’t see any signs that I have more positive mental states when my income is higher than when it is lower. I’ve seen other people get a dramatic improvement in their financial well being, and (best as I can tell) they don’t seem to have a more positive mental state than when they had less money. They seem the same old person, mostly reflecting whether then have an upbeat or downbeat personality.
So I’m currently agnostic on this question; I’d put about a 40% weight on my (pro-money) instincts and about a 60% weight on my skeptical philosophical mind. Later I’ll discuss the implications of this weighting.
While the Swedish study is certainly consistent with Tyler’s conclusion, I also think it’s consistent with mine. Thus suppose that for some reason, say evolutionary forces, we are tricked into thinking money makes us better off. That’s not so far-fetched, as wealth probably does boost the probability of reproductive success, at least back during historical periods when our genes were developing. Our genes don’t want us to be happy, they want us to have lots of successful children. Thus it’s not implausible that we would want things that are not good for us, like money, fat and sugar.
Let’s assume that most people think money is a sign of success, but beyond a certain point they don’t actually have more positive mental states when they have more money. Then when asked about their overall well-being, they might report higher numbers if richer. They would think to themselves, “Let’s see, I’m a millionaire with a nice house and summer cottage, so I guess I’m doing pretty well.” But when faced with the happiness question, they think about their recent mental states, and don’t report any improvement over before they won the lottery.
Now we face another conundrum—which measure should count? Actually two issues; is happiness different from well-being, and is well-being accurately reported in surveys? I don’t doubt that heroin addicts would report that heroin makes them happy, but most people think that’s a different issue from whether heroin makes them better off. Partly because ‘happy’ and ‘better off’ may be different concepts, but also because they may even be wrong about happiness, in the long run heroin probably does not make them happy. Their self-reports are not reliable.
Another way to make my point is that I started by saying that positive mental states might be a more comprehensive concept than mere happiness. But I’m also suggesting that when people answer the happiness survey, they may actually be describing their overall mental state. In contrast, the answers to questions on overall life satisfaction may not describe mental states. It’s at least plausible that the Swedish survey is finding nothing more than that money doesn’t make people better off, but that they believe it makes them better off.
Now let’s go back to the probabilities I assigned to each of the two interpretations; 40% for money is good, 60% for the view that it is not. What are the implications of those probabilities? It turns out that this means we should assume that money is good, that it does make even middle class people better off. The expected boost to well-being from having more money is 0.40 times the boost you’d get if Tyler’s straightforward interpretation of the Swedish study is true. So even though I think it a bit more likely that money does not make us better off, we should act in such a way as if I am wrong, as if it does make us slightly better off.
But there’s another implication of these probabilities. I am pretty sure that most people assign a higher weight to the likelihood of money being good than I do. Too high a weight. If so, they put too much weight on getting more money, and not enough on other goals in life. The biggest mistake I ever made was agreeing to write an economics textbook, where I sacrificed a big chunk of my life on a frustrating project for money that will yield me very little benefit. So I encourage already affluent people to dial back the expected benefit they’d get from having more money.
If anyone is still reading, let’s dive a bit deeper into epistemology. The concept of ‘good’ is often considered one of the three transcendentals, along with “true” and “beautiful”. How should we regard beliefs in those three areas? In each case, someone might say “most people believe X, but Y is actually the case.” If so, what do they mean? They might mean one of two things; either that they disagree and think Y is true, or that they predict in the future that most people will come to believe Y. (Or both).
Unfortunately, ‘actually’ is a misleading term, as all beliefs are provisional. Thus when you say:
1. Most scientists believe the universe is largely composed of dark energy, but actually it is not.
2. Most people believe more money is good, even for the affluent, but actually it is not.
3. Most people believe Thomas Kinkade’s painting are beautiful, but actually they are not.
You are better thought of as predicting that scientists will later come to believe that some other model better explains the cosmological data, that more money will eventually be seen as useless for the affluent, and that Kinkade’s paintings will eventually be regarded as schlocky.
Some statements about truth, goodness, and beauty are held with more confidence than other beliefs (2+2 = 4, murder is evil, the Taj Mahal is beautiful.) In those cases, we are highly confident that current conventional wisdom will not later be overturned. But it’s always a matter of degree; we can never be certain about any belief. We can never go beyond what we regard to be the case.
PS. In my view, the three transcendentals are actually just one—goodness. Truth and beauty are instrumental in achieving goodness. Only mental states matter. Make them good.
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10. June 2018 at 13:34
Very interesting , it wouldn’t do no harm , to introduce here , more scientific and universal terminology , which is more suitable ,that is :
Satisfaction , and balance :
Those terms , are more universal , objective , and more scientific . For , it is evident , that typically , everyone would look for satisfaction in life . No one would like to work all day , in a lousy job , that doesn’t yield any satisfaction ( the same for any activity generally speaking ) .
As well as : balance !! Being balanced . Not neurotic . Stable . Not depressed ( in the more dramatic sense of it ) . Not loosing rationality , not loosing judgment . Avoiding fear , avoiding anxiety etc….
Those are more common , objective parameters . I shall leave it to you in accordance , to asses , whether money can change it or not .
Thanks
10. June 2018 at 14:34
Great post, Scott. I have one clarification and one question, in that order.
You define ‘good’ broadly to mean ‘positive mental states’, regardless of how derived. But then later, you seem to describe ‘positive mental state’ to mean happiness rather than overall well-being or life satisfaction, such that although a lottery win might not make people feel happier (raise their ‘recent mental state’), it may make them feel good about how they’re doing. Isn’t that a positive mental state comparable to seeing one’s children do well, which you do define as a positive mental state? My confusion comes to a head in this paragraph:
My understanding is that put crudely, you’re saying a lottery win might not make people feel happy in a day-today sense, but it may make bring them more life satisfaction because of the way they compare themselves to others. Is that right?
You suggest many people might overweight the importance of money and cite the example of you writing a textbook (when might that come out, by the way?) because it is frustrating and a lot of work, although you will get some money out of it. (As an aside, I find it hard to believe you won’t get some satisfaction from putting many of your fundamental thoughts on economics down in one place…) But what about an example where you sacrificed income to give up frustration and achieve satisfaction? I think I recall you saying you took a pay cut to work at Mercatus – something like, you would get paid in 3 years what you would have got in 2 at Bentley. Maybe my recollection is wrong, but if it isn’t, do you think that was the right decision, or would you appreciate having more money (or an extra year of leisure) now?
10. June 2018 at 14:39
Just a link for negligible illustration :
More than 13% of Americans , use Antidepressants ( like prozac ) to deal with depression and anxiety and so forth …. Here :
http://time.com/4900248/antidepressants-depression-more-common/
Thanks
10. June 2018 at 15:09
Rajat, You said:
“My understanding is that put crudely, you’re saying a lottery win might not make people feel happy in a day-today sense, but it may make bring them more life satisfaction because of the way they compare themselves to others. Is that right?”
Actually I’m talking about something else. I’m saying it may bring them more REPORTED life satisfaction. But that doesn’t mean there is more actual life satisfaction, whatever that means.
All that matters is positive or negative mental states. Whether positive mental states equate to happiness is a difficult question made even more difficult by the fact that we have no good definition of happiness. Ditto for “life satisfaction”. So I don’t have strong views on that issue.
Life satisfaction doesn’t matter, happiness doesn’t matter, all that matters is positive and negative mental states—i.e. good and bad. And the link between that and money is unclear.
You said:
“As an aside, I find it hard to believe you won’t get some satisfaction from putting many of your fundamental thoughts on economics down in one place…”
That’s not how the textbook market works; the book must appeal to the average instructor, it cannot reflect my personal views. The book will be available for consideration this fall, for classroom use in the fall of 2019.
My “some satisfaction” comes from my other book—based on my blog, which will reflect my personal views.
My decision to go to Mercatus was partly motivated by altruism. If I only cared about myself, I’d prefer to be retired right now.
10. June 2018 at 15:42
Thanks for responding Scott. Hmm, higher reported satisfaction without higher actual satisfaction? I find it hard to believe there would be no link between the two. Surely it must bring people some actual satisfaction when they reflect on how smart of fortunate they are to have the life they have? Even advocates of higher income taxes who claim money only brings happiness due to people focusing on their relative situation (which they regard as destructive or at least zero-sum) concede that people with wealth do get some positive feeling from having more than others.
“That’s not how the textbook market works…” Haha, no one’s told that to John Quiggin, who is writing “Economics in Two Lessons”: https://johnquiggin.com/category/books-and-culture/economics-in-two-lessons/ Maybe it’s meant to be less a marketable textbook than something like your blog-based book.
As for being motivated by altrusim, isn’t that “a deeper form of good” akin to “the satisfaction one gets from doing charity”, which you note can contribute to a positive mental state?
10. June 2018 at 16:06
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10. June 2018 at 19:12
I don’t see any signs that I have more positive mental states when my income is higher than when it is lower.
Well, I’m pretty sure that more money makes me happier, so maybe you should just give me all your money. You are a utilitarian, aren’t you?
11. June 2018 at 04:45
“current conventional wisdom will not later be overturned. But it’s always a matter of degree; we can never be certain about any belief. We can never go beyond what we regard to be the case.”
Do you believe there is a 60% probability that more money will eventually come to be seen as useless for the affluent?
11. June 2018 at 06:28
Interesting stuff.
Sounds like might want to check out Aquinas’ Summa Theologea, first part of the second part, Quesion 2 (Things in which man’s happiness consists). He has some interesting thoughts on this question which your post certainly brought to my mind.
In addressing the question he proposes several candidates for happiness (wealth, honor, glory, power, pleasure).
Article one is on wealth. Like you he distinguishes wealth that satisfies humans needs and wealth in the form of money. He concludes that wealth can bring a person happiness to a limited extent but that happiness cannot consist of wealth because it’s a means to and end not and end in itself.
Here is his answer to article 1 (prior to his response to objections):
“I answer that, It is impossible for man’s happiness to consist in wealth. For wealth is twofold, as the Philosopher {Note that he refers to Aristotle as the Philosopher} says (Polit. i, 3), viz. natural and artificial. Natural wealth is that which serves man as a remedy for his natural wants: such as food, drink, clothing, cars, dwellings, and such like, while artificial wealth is that which is not a direct help to nature, as money, but is invented by the art of man, for the convenience of exchange, and as a measure of things salable.
Now it is evident that man’s happiness cannot consist in natural wealth. For wealth of this kind is sought for the sake of something else, viz. as a support of human nature: consequently it cannot be man’s last end, rather is it ordained to man as to its end. Wherefore in the order of nature, all such things are below man, and made for him, according to Psalm 8:8: “Thou hast subjected all things under his feet.”
And as to artificial wealth, it is not sought save for the sake of natural wealth; since man would not seek it except because, by its means, he procures for himself the necessaries of life. Consequently much less can it be considered in the light of the last end. Therefore it is impossible for happiness, which is the last end of man, to consist in wealth.”
11. June 2018 at 07:05
Rajat, How do you define “actual life satisfaction?” It’s a term that doesn’t really mean anything to me. Some days I feel my life is good, other days I feel it is bad. Which one is my “actual life satisfaction?”
My textbook project is totally different from my blog book. And Quiggen’s book is in an entirely different market. My textbook project is in a market where all books are pretty much the same. It’s my blog book that will contain my individual views.
Jeff, Shouldn’t I give it all to people poorer than you?
Garrett, Yes, but that’s 1000s of years in the future, so I’ll never know
11. June 2018 at 19:41
Scott, what say you about Aquinas. I am genuinely curious. You are a thought leader so take him on.
12. June 2018 at 05:35
Kinkade’s paintings were always considered schlocky by art critics. That’s just not his target market.
“True” is not like “good” or “beautiful”. Scientists could hold a false belief up until humanity goes extinct and it will still be false. The universe, or reality, is what it is regardless of what your colleagues will let you get away with.
13. June 2018 at 05:05
Scott, utility is subjective. I can assure you that I will derive greater happiness from your money than anyone else will. You’ll just have to take my word on this.
14. June 2018 at 10:15
Student, I’m not a “thought leader”, and have no opinion on Aquinas.
17. June 2018 at 14:51
My “wealth is good or bad function(x)” =(x:micro or macro?,social developmental stage,kind of wealth)