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Jewish World Review May 1, 2001 / 8 Iyar, 5761

Amity Shlaes

Amity Shlaes
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Consumer Reports

Money can't buy happiness? Think again. -- THE markets' downturn has given rise to advice articles seeking to console stockholders for this sudden and upsetting erosion of their capital. Assuming a soothing tone reminiscent of the cleric, these advisors are now telling investors there is a bright side to loss. Individuals with less money are free to swim with dolphins in Sanibel - or study Sanskrit - something they had no time for in those high-stress, big money years. They can spend time with their families - a change, we are told, that is worth all the lucre in the world. Best of all, the new financial losers no longer have to feel all that guilt over doing better than some of their fellow citizens. In short, people are generally happier when they don't have quite so much money.

Balderdash, says a new study by Jonathan Gardner and Andrew Oswald of the UK's Warwick University. Money does buy happiness. And, alas, the more money, the more happiness. Or, to put the matter in the terms of the old hedonic calculus of the utilitarian philosophers, cash buys "utils", units of pleasure.

To arrive at this conclusion, so distressing for the newly impoverished, the study sifted through a decade of data from the British Household Panel Survey, a representative sample of some 9,000 adults living in the UK in the 1990s. The survey includes a number of straightforward questions that seek to measure individual contentment - whether respondents feel "able to enjoy normal day-to-day activities"; whether they have been losing self confidence; whether they are losing sleep. The authors then looked at outcomes for individuals who had benefited from a windfall experience in the past year - "windfall" being defined as either a lottery win or the receipt of an inheritance. Data on investment were not parsed in this "windfall" category. But didn't 1999's tech gains feel windfall-like?

The authors' findings? "Windfalls are associated with a statistically well-determined improvement in well-being." Both mental stress and unhappiness decline in the year after a windfall. This is true even when the windfall yields only a fistful of cash from the local soccer pool - although as the authors confirm, "largish wins are nicer than tiny ones".

But how much money does it take to get that big boost? A windfall of approximately 50,000 pounds (or $75,000) is associated with a rise in well-being of up to 0.3 standard deviations. (This figure sounds small but amounts to quite a lot - a similar difference on a standardised test, for example, can mean the difference between admission to medical school and dental school). To go all the way from misery to euphoria, one would have to come upon something like a million pounds ($1.5 million) - a formula that just about accords with anecdotal reports of formerly depressive dot-com founders.

There are several caveats here. One is that the UK windfall data has only been available for a couple of years. So there is no way of measuring whether money-based happiness abides over many years. But then, what happiness does?

What's more, other work by Mr Warwick shows, money is not the only source of contentment. In a National Bureau of Economic Research paper coauthored with David G Blanchflower of Dartmouth, Mr Oswald calculated that a happy marriage is worth the equivalent of $100,000.

And, in an e-mail to me, Mr Oswald did throw a bone to the consolationists. Money, he says, tends to be about envy. So if "everyone's wealth goes down at the same time, it doesn't hurt as much for to get poorer. Human beings seem to feel they have to look over their shoulders before they decide how happy they feel."

This suggests that Britain may have an easier time than the US getting through a downturn. In the UK, after all, older citizens have long experience deriving comfort from a sense of community during periods of national hardship (think of the 1950s, as depicted in the film "Plenty"). Americans though have to go all the way back to the Great Depression to find a time when they suffered together. For most of America's under-60 investors, that is probably too big a historical leap. They would probably rather just shut their eyes and gamble that Mr Market will come back.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


04/26/01: Calling America's rogues and entrepreneurs
04/19/01: High earners right to feel lonely at the top
04/11/01: The right must learn the comfort of strangers
04/04/01: When domestic law arrives by the back door
03/30/01: A Lexus tax cut suits the jalopy driver
03/27/01: The unchallenged dominance of King Dollar
03/20/01: Natural selection of an intellectual aristocracy
03/16/01: The hidden danger of a regulatory recession
03/14/01: Is the American condition that boring? Why so many Oscar nominated movies aren't set in America
03/07/01: Trampling on the theory of path dependence
03/05/01: Fighting the good fight
03/01/01: It is time for Fannie and Freddie to grow up
02/27/01: IT's important
02/22/01: The guilty conscience of America's millionaires
02/14/01: The benefits of helping the 'rich'
02/09/01: The Danger and Promise of the Bush Schools Plan
02/05/01: Crack and Compassion
01/31/01: Debt is good
01/29/01: Clueless
01/24/01: A gloomy end for a half-hearted undertaking
01/17/01: The challenge of an ally with its own mind
01/15/01: An unexpected American family portrait
01/10/01: A fitting legacy for America's beloved dictator
01/08/01: The trick of tax 'convenience'
01/03/01: Time to stop blaming Greenspan over taxes
12/11/00: So smart they're dumb
12/06/00: How economic bad news came good for Bush
12/04/00: The Boies factor
11/30/00: "The inevitable demands for recounts erupted like acne…"
11/28/00: Fair play and the rules of the electoral game
11/23/00: The shining prospect beyond a cloudy election
11/21/00: Try the Cleveland model
11/16/00: A surprising winner emerges in the US election
11/09/00: Those powerful expats
11/07/00: What's right for America versus what works
11/02/00: Time to turn off big government's autopilot
10/30/00: Canada beating America in financial sensibility
10/26/00: When progressiveness leads to backwardness
10/24/00: The most accurate poll
10/19/00: The Middle East tells us the hawks were right
10/17/00: The split personalities of America's super rich
10/10/00: 'Equity Rights' or Wake up and Smell the Starbucks
10/04/00: Trapped in the basement of global capitalism
09/21/00: The final act of a grand presidential tragedy
09/21/00: Europeans strike back at the fuel tax monster. Should Americans follow?
09/18/00: First steps to success
09/13/00: America rejects the human rights transplant
09/07/00: Minimum wage, maximum cost
09/05/00: Prudent Al Gore plans some serious spending
08/31/00: A revolution fails to bring power to the people
08/28/00: A reali$tic poll
08/21/00: "I Goofed"
08/16/00: Part of the union, but not part of the party
08/09/00: Silicon Alley Secrets
08/02/00: Radical Republicans warm up for Philadelphia
07/31/00: I'll Cry if I Want To
07/27/00: Cold warrior of the new world
07/25/00: The Estate Tax will drop dead
07/18/00: Shooting down the anti-missile defence myths
07/14/00: A convenient punchbag for America's leaders
07/07/00: How to destroy the pharmaceutical industry
07/05/00: Patriots and bleeding hearts
06/30/00: Candidates beware: New Washington consensus on robust growth stands the old wisdom on its head
06/28/00: White America's flight to educational quality
06/26/00: How Hillary inspired the feminist infobabes

© 2001, Financial Times