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Money and Happiness

When asked about the current economic downturn (or the prospects of something much worse) one of the things I talk about in my replies includes some version of the relationship between income and satisfaction. I contend, for a variety of reasons, that if my family loses a certain amount of income due to the recession, that those income losses would overstate the severity of the “hit” to my family’s satisfaction.

I do not wish to address why I make that case here (think about the availability of substitutes, and overall wealth levels today as compared to people in the past, as well as the option value of our education). What I want to do is address the folks that are skeptical of me having such a position. I am happy to grant someone a disagreement. However, a good portion of the folks that reject my thinking out of hand also carry with them the belief that aggressive progressive taxation is important AND just. And one reason that they cite for this is that additional income does not make wealthy people much happier – or that an additional $1 of income makes a poorer person happier than that same dollar would make a rich person. So from a utilitarian perspective, redistribution of income can improve overall welfare.

But if someone were to argue strongly in favor of both positions, I would shake their hand, thank them for their time, and walk away … because you simply cannot logically hold both positions. Why? How can you argue that when income increases, money and satisfaction are not related, and in the next breath passionately argue that we need to do something about a recession because if incomes fall, then happiness and satisfaction WOULD be adversely affected. I suppose one way to weasel out of this inconsistency is to argue that economic growth only affects those folks with enough income so that their happiness is satiated, and that declines in economic activity only affects those that do not have enough income to make themselves really happy. But holding such a position opens up a fairly squishy and tangly can of worms. Perhaps we can talk about that in a future post.

But no one yet has made such a point to me (they have never thought hard enough about their beliefs to get that far along). So, for such people, economic issues are a matter of religious beliefs, and not any sense of reason. And I no longer engage people that cannot reason. I have a 3 year old and a 1 year old with similar “problems” and it is far more profitable for me to engage my daughter in a discussion of the tooth-fairy than it is an adult.

2 Responses to “Money and Happiness”

  1. Brad Taylor says:

    I guess some behavioural economists might suggest that since we weigh gains and losses asymmetrically a rise in income may have little or no affect while a loss does. I don’t agree with that, but it’s a logical possibility.

  2. Harry Wood says:

    The reason why some people do not care about how much Wintercow’s happiness is affected by their economic transgressions, and one reason the justify progressive taxation, is that they figure you won’t miss it, just like you will not notice your electric bill or your fuel oil bill (Rochester!) going up after we get rid of coal and other fossil fuels. This is the same thing the thief thinks when he robs your house and takes your great-aunt’s silver out of the attic, or, more boldly, one of your two shotguns. What need would anyone have for one gun, let alone two, or another dozen forks that have to be polished?

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