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An economic look at happiness

A paper by David Blanchflower and Andrew Oswald in The Journal of Public Economics (forthcoming in July, now online), examines the factors that contribute to individual happiness, as reported on surveys. Measured happiness has declined in the US over the past 25 years, and has been unchanged in Britain.

Blanchflower and Oswald's estimates show that married people are much happier than those who are not, including those "living as married." Not surprisingly, higher income makes one happier. The estimated equations thus allow one to pose the question: "how much additional income would be required to compensate for a shock which ended a marriage in some way?" The answer: $100,000 per year. Marriage appears to be a key factor. The authors state that the decline in the US marriage rate "from 67% of adults in the mid 1970s to 48% by the late 1990s - may be one reason for the secular decline in happiness."

In the US, women are happier than men, although their well-being has fallen relative to men over time. Blacks and non-whites are less happy than whites, but their happiness has been rising.

An interesting puzzle thus emerges. Economic growth has made us richer, increased our health and life expectancy, yet people are no happier. Why? There are many possibilities, among them the famous Duesenberry hypothesis that utility depends on relative income. This may account for the happiness data, but I doubt it is a good guide for development policy. A better guide is the observation of Nobel prize winner Amartya Sen, that poverty is the lack of a capability to function, and that its remedy is economic and political freedom.