Can Money Buy Happiness? No, and Yes…

Would you rather make $80,000 or $100,000 per year?

Ok, how about a tougher question: assuming no difference in the price of milk, gas, and iPods, would you rather:

  • Make $80,000 while everybody makes less than you?
  • OR

  • Make $100,000 with the caveat that your friends all make much more than you do?
Sometimes Less Is More

Cornell Economist Dr. Robert H. Frank shows that most people would opt for less money as long as they could have a larger house and more toys than their neighbors.

Wise men have often said that wealth can’t buy happiness. Often left unmentioned is the fact that RELATIVE wealth DOES seem to deliver happiness. Relative wealth: it’s not your rich cousins; it’s a percentage of the pie.

There’s Only So Much Pie

The average yearly full-time income in the US is about $40,000. The average CEO of an S&P 500 company made $13.51 million in 2005. The ratio of average CEO pay to average non-manager pay was 301:1 in 2003, and it rose to 431:1 in 2004.

As CEOs cut themselves larger and larger pieces of the pie, others are left to divvy up the shrinking remainder. And the gulf of inequality only gets wider.

The Gini Coefficient

The Gini coefficient is a method used to calculate wealth inequality. In a society with a Gini coefficient of 0, everybody has equal wealth. In a society with a Gini coefficient of 1, a single person has everything, and the rest have nothing.

The perfect Gini coefficient is a subjective value. However, most agree a Gini coefficient that’s too low causes a sluggish economy stemming from incentive problems (why knock yourself out when you’re going to earn as much as the next person regardless?). On the other hand, a Gini coefficient that’s too high yields a slow economy topped with serious social conflict. Studies show the optimal Gini coefficient lies between .20 and .40. Coefficients in that range deliver enough aspiration without too much frustration and while limiting violence.

The rich would obviously prefer a high Gini coefficient, and the poor a low one. To take the personal bias out of the equation, economists use the Veil of Ignorance, named by John Rawls, one of the most influential philosophers of the late 20th century.

Billionaire investor Warren Buffet ponders the perfect Gini coefficient using Rawls’ Veil of Ignorance:

“Let’s say that it was 24 hours before you were born, and a genie appeared and said, ‘What I’m going to do is let you set the rules of the society into which you will be born. You can set the economic rules and the social rules, and whatever rules you set will apply during your lifetime and your children’s lifetimes.’ And you’ll say, ‘Well, that’s nice, but what’s the catch?’ And the genie says, ‘Here’s the catch. You don’t know if you’re going to be born rich or poor, white or black, male or female, able-bodied or infirm, intelligent or retarded.’ Now, what rules do you want to have?”

The Gini coefficient and the wealth gap in the USA has been rising over the past 40 years. It’s currently pretty far above the happy and safe .04 value:

    1970: 0.394
    1980: 0.403
    1990: 0.428
    2000: 0.462
    2005: 0.469

The world’s lowest Gini indexes are in Scandinavia and Central Europe, at around .28 percent. The USA and China are outside the healthy range, in the upper .40s. Latin American and African nations tend to have indexes in the .50-.60 range, well into the “slow economy topped with serious social conflict” zone, where the USA appears to be headed.

Where to Find Happiness

The data speaks for itself—you’ll be more happy with your financial lot in life if you’re around people who are poorer than yourself. For example, don’t move into a ritzy neighborhood where you’ll have to drive your beat up Accord past your neighbor’s new Jaguar each morning. But, don’t move into a crack house, either. There are better options for being around and getting to know people less fortunate than yourself (which, as the data shows, will make you happier…)

Nearly every town has hospitality shelters, soup kitchens, and food pantries that need volunteers. Boys and Girls clubs need tutors and homework helpers. You can volunteer at hospitals, charity events, elderly care homes. After making friends at these places, not only will you feel good about your soul, but you’ll feel healthy and wealthy and blessed by comparison.

Being Rich is a Point of View

Not long after I moved into my first house, the doorbell rang. I answered to find a guy, named Tyler, asking for some cash to buy his wife medicine. He said she had Lupus. She was with him, and so were his two small children.

Leery of being scammed, I resisted, only to have him beg and offer to mow my yard. I explained that I mowed my own yard to save money—I couldn’t afford to pay somebody else to do it. I had a new house, a credit card balance to pay off, and a budget with every penny allocated. Not to mention I’d saved about twenty dollars by eating lunch at my desk all week, and I didn’t feel like losing the hard-earned savings.

Tyler said his kids were hungry. He asked if I had any food…anything.

It was August, about ninety degrees in the shade, and he and his family had walked miles. I invited them inside, and before long there was no doubt I was not being scammed. They devoured a leftover half of pizza from the refrigerator, and downed big glasses of ice water.

While they were eating in my living room, Tyler saw the shelf containing my CD collection. He said he’d never seen so many CDs. He was genuinely excited—not trying to make me feel guilty. But I felt guilty, nontheless. I gave him the twenty out of my wallet when he and his family left.

Tyler thought I was super duper rich, and when I saw myself through his eyes, I agreed. No matter how poor you are, there’s somebody somewhere poorer. There’s somebody working in a sweatshop for pennies, and moms who can’t feed their kids. For a nice change, see your life through their eyes and feel like a billionaire.

[tags]wealth, inequality, hunger, poverty, economy [/tags]

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