In the aftermath of World War II, the Japanese economy went through one of the greatest booms the world has ever known. From 1950 to 1970, the economy’s output per person grew more than sevenfold. Japan, in just a few decades, remade itself from a war-torn country into one of the richest nations on earth.

Yet, strangely, Japanese citizens didn’t seem to become any more satisfied with their lives. According to one poll, the percentage of people who gave the most positive possible answer about their life satisfaction actually fell from the late 1950s to the early ’70s. They were richer but apparently no happier.

This contrast became the most famous example of a theory known as the Easterlin paradox. In 1974, Richard Easterlin, then an economist at the University of Pennsylvania, published a study in which he argued that economic growth didn’t necessarily lead to more satisfaction.

People in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains simply seemed to reset the bar. To put it in today’s terms, owning an iPod doesn’t make you happier, because you then want an iPod Touch. Relative income — how much you make compared with others around you — mattered far more than absolute income, Mr. Easterlin wrote.

The paradox quickly became a social science classic, cited in academic journals and the popular media. It tapped into a near-spiritual human instinct to believe that money can’t buy happiness. As a 2006 headline in The Financial Times said, “The Hippies Were Right All Along About Happiness.”

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But now the Easterlin paradox is under attack.

Last week, at the Brookings Institution in Washington, two young economists — from the University of Pennsylvania, as it happens — presented a rebuttal of the paradox. Their paper has quickly captured the attention of top economists around the world. It has also led to a spirited response from Mr. Easterlin.




Even the Japanese anomaly isn’t quite what it first seems to be. Ms. Stevenson and Mr. Wolfers dug into those old government surveys and discovered that the question had changed over the years.

In the late 1950s and early ’60s, the most positive answer the pollsters offered was, “Although I am not innumerably satisfied, I am generally satisfied with life now.” (Can you imagine an American poll offering that option?) But in 1964, the most positive answer became simply, “Completely satisfied.”

Credit Illustration by The New York Times

It is no wonder, then, that the percentage of people giving this answer fell. When you look only at the years in which the question remained the same, the share of people calling themselves “satisfied” or “completely satisfied” did rise.

To put the new research into context, I called Daniel Kahneman, a Princeton psychologist who shared the 2002 Nobel Prize in economics. He has spent his career skewering economists for their belief that money is everything and has himself written about the “aspiration treadmill” at the heart of the Easterlin paradox.

Yet Mr. Kahneman said he found the Stevenson-Wolfers paper to be “quite compelling.” He added, “There is just a vast amount of accumulating evidence that the Easterlin paradox may not exist.”

I then called Mr. Easterlin, who’s now at the University of Southern California and who had received a copy of the paper from Ms. Stevenson and Mr. Wolfers. He agreed that people in richer countries are more satisfied. But he’s skeptical that their wealth is causing their satisfaction. The results could instead reflect cultural differences in how people respond to poll questions, he said.

He would be more persuaded, he continued, if satisfaction had clearly risen in individual countries as they grew richer. In some, it has. But in others — notably the United States and China — it has not.

“Everybody wants to show the Easterlin paradox doesn’t hold up,” he told me. “And I’m perfectly willing to believe it doesn’t hold up. But I’d like to see an informed analysis that shows that.” He said he liked Ms. Stevenson and Mr. Wolfers personally, but he thought they had put out “a very rough draft without sufficient evidence.”

They, in turn, acknowledge that the data on individual countries over time is messy. But they note that satisfaction has risen in 8 of the 10 European countries for which there is polling back to 1970. It has also risen in Japan. And a big reason it may not have risen in the United States is that the hourly pay of most workers has not grown much recently.

“The time-series evidence is fragile,” Mr. Wolfers said. “But it’s more consistent with our story than his.”

So where does all this leave us?




Affluence is a pretty good deal. Judging from that map, the people of the world seem to agree. At a time when the American economy seems to have fallen into recession and most families’ incomes have been stagnant for almost a decade, it’s good to be reminded of why we should care.

Correction: April 21, 2008

A chart on Wednesday with the Economic Scene column, about the relationship between income and personal satisfaction, misidentified the country shown with a gross domestic product of just under $8,000 per capita and a satisfaction score of just over 5. It was Iran, not Ireland. (As the chart correctly noted, Ireland has a gross domestic product of more than $32,000 per capita and a satisfaction score above 7.)

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