The nation is in recession, unemployment is rising and corporate profits have registered historic declines. But as the American Economic Association held its annual convention over the weekend, some economists debated a less-pressing issue: Does money buy happiness?

Once the purview of psychiatrists and self-help book writers, one of life's age-old questions is now under the scrutiny of economists. Applying hard numbers to the soft subject of spiritual well-being, they have produced a flurry of research that tries to quantify how financial assets -- or the lack thereof -- translate into real-world happiness. But in typical economic fashion, the answers to the happiness puzzle are complex and ambiguous.

The bottom line is this: Many economists believe that money does buy happiness -- but the contentment fades as expectations rise or as the gains of others induce envy.

"There is a very strong link between money and happiness," says Andrew Oswald, a British economist at the University of Warwick. "Human beings also care about their relative income. You can make people richer, but they just look over their shoulders all of the time."

Oswald is one of nine economists who discussed the subject at the meeting, which was held in Atlanta this year.

The research on happiness is based on surveys done mostly in the United States and Europe. These surveys generally assume that an individual can readily differentiate between feelings of well-being and malaise and ask questions like "Taken all together, how would you say things are these days -- would you say that you are happy, pretty happy or not too happy?" or "Are you very satisfied, fairly satisfied, not very satisfied or not at all satisfied with the life you lead?"

This branch of happiness research was pioneered by a California economist named Richard Easterlin more than 25 years ago. He noticed that even though American society was getting richer, surveys of individuals suggested that people were not becoming any more content with their lot in life.

Originally, his work was shrugged off by other economists, who viewed the research as too subjective and too far astray from the heavy thinking and obtuse statistical models that dominated their time.

"I submitted the paper to the main economic journal and it was summarily rejected," says Easterlin. Now, he adds, "I get a paper every month or two by someone who has done something on the subject."

Economists are interested in happiness because it seems to offer some insight into one of the fundamental precepts of economic theory: that people act to maximize their well being in fairly rational ways.

If true, it stands to reason that people might be getting happier over time.

In his research paper, Oswald looked at the happiness of individuals who had come by big windfalls from inheritances or lotteries. He found that when individuals received large amounts of cash unexpectedly, they reported higher mental well-being in the following year, although it was unclear whether that additional happiness faded over time.

Oswald found a similar link to happiness when he studied recessions, which he found to be associated with psychic losses even for individuals who don't lose their jobs.

Yet Oswald says the connection between income and happiness is not so simple. Humans, it turns out, are an envious lot. A more recent study, which Oswald has yet to publish, finds that even if a person's income is rising, he or she tends to become less happy if the incomes of others are rising even more.

"Inequality reduces happiness," Oswald says. So society as a whole might be getting wealthier, but it won't translate into happiness for many unless they are becoming wealthier faster than everybody else.

Other economists aren't so sure about that. A paper by Alberto Alesina and Rafael Di Tella of Harvard University and Robert MacCulloch of the London School of Economics found that the impact of inequality on happiness was much more pronounced in Europe than in the United States.

Because of high levels of social mobility in the United States, it found, individuals are less focused on the income of others. "There is evidence of `inequality generated' unhappiness in the United States only for a subgroup of rich leftists," the paper found.

Daniel Kahneman, a Princeton University professor whom some consider a candidate for a Nobel Prize for his work to bridge the fields of psychology and economics, has a slightly different take on the happiness question. He says individuals often find themselves on a so-called satisfaction treadmill. The more they earn, the more they can indulge themselves, and then the more they want.

"People find that their demands from life keep pace with their increases in income," Kahneman says.

In other words, as they become richer, people demand more out of life and start becoming unhappy when they don't get it.