Laughing All the Way to the Bank

By now, everyone knows the paradox of money and happiness, subject of a thousand articles written by penniless journalists. Rich people aren't much happier than the rest of us. But in fact there is a relationship between the two -- it is just the reverse of what most people think. Money may not be able to buy happiness, but happiness can apparently buy money -- happy people become richer than unhappy people over time. Which leads to an obvious policy conclusion: If you want a strong economy, make people smile.

In economics, there is a heated argument going on between supporters and opponents of the "Easterlin Paradox," named after Richard Easterlin, a professor at the University of Southern California. Easterlin studied the results of polls that asked questions along the lines of, "When you take your life as a whole, do you consider yourself very happy, somewhat happy, or not happy at all?" When he looked across the world, rich countries were also happier. But when Easterlin looked at changes in average income and happiness poll answers over time, he couldn't find any relationship between the two. 

That result has been challenged recently, but even researchers who are more bullish about the impact of income on happiness find that survey evidence suggests it matters considerably less than friends, family, health, faith, or having a job. But perhaps the relationship looks weak because people are looking in the wrong place. Happy people have lots of features that make them a good bet as employees. So might being happy make you rich?

It is indeed productive to be content with life. According to a detailed analysis of research to date published in Psychological Bulletin, happy people have more friends -- not least because we all like happy people more than sad people. One sign: Unmarried men and women in Australia toward the top of the happiness curve are 50 percent more likely to get (and stay) married in a given period than the average person. Those who report themselves content are less prone to mental illness and suicide and are comparably rare substance abusers. The happy are more likely to be healthy, less likely to die in a car crash or get injured from any cause, and tend to live longer -- 70-year-olds who report themselves happy go on to live 20 months longer than average, all else being equal.

The same review of studies also points to a number of features that suggest happy people will be more financially successful. Students who say they are happy are more likely to graduate. Happy job-seekers are more likely to find employment; they also get better jobs. They go on to be more satisfied with their work -- indeed, as much as 25 percent of the variation in people's job satisfaction may be a result of their predisposition to be happy. Managers rate happy staff more productive, creative, and reliable. Happy staff are less likely to be absent from work or quit the job, and more likely to be part of strong social networks in the office. Happy cricket players even score more runs. The University of Warwick's Andrew Oswald suggests that workers in a happier state of mind have 12 percent higher productivity.

Given all that, it would be a surprise if happier people weren't better off. If labor markets are functioning as they should, more productive workers ought to be paid more. And using data from Russia, Carol Graham of the Brookings Institution and her colleagues found that people who were happier in 1995 did indeed go on to have higher incomes in 2000. (They argue that income also brought greater reported happiness, but Graham's work around the world suggests that people who have got richer can often be surprisingly unhappy about it -- a group she labels "frustrated achievers.") 

The fact that happy people are more trusting and have stronger social networks also suggests potential economic spillovers from happiness. As well as being more productive themselves, the happy might drive broader-based productivity at the macroeconomic level, allowing easier trade and exchange and fostering more efficient institutions. Thus, End of History author Francis Fukuyama has suggested that trust might be the key to national wealth, and numerous other studies link social capital and trust to economic growth. It shouldn't be a great surprise, then, that countries with higher average happiness -- places like Denmark and Costa Rica -- go on to see somewhat faster than average growth.

There is a certain irony, then, in recent programs like the Stiglitz Commission, sponsored by French President Nicolas Sarkozy to look beyond income toward measures of the broader quality of life, or the British government's decision to track happiness as an additional policy goal alongside economic growth. It may be that by focusing on efforts to increase smiles per person, Britain and France will unlock the key to stronger GDP performance.

Of course, people's self-reported happiness levels are remarkably stable over time -- even many who lose a limb soon report being pretty much as happy as they were before the accident. And there are considerable problems with states mandating that people find religion or more friends so that they score higher on happiness polls. But if governments can find realistic and ethical ways to make people happier, perhaps they'll also make them more productive. That will increase growth rates, and government revenues will climb as well. Perhaps overcoming deficits could be a laugh -- literally.