The idea of directly transferring cash to poor people—in lieu of traditional, tailored government programs—is generating some buzz among policy wonks. Some recent studies have found that simple cash can be very effective in improving outcomes of children whose families receive such aid. But it’s always difficult to disentangle questions of causality in such studies. What if the restraints holding down a child’s parents in turn hinder his or her own opportunities in ways that no resource transfers can fix?

In short, the question is this: How can we really decipher the impact of different kinds of assistance? And how can we know whether tailored programs or open-ended cash grants are more effective?

That’s what Brian Jacob, Max Kapustin, and Jens Ludwig asked in a new study examining the 1997 Chicago housing voucher lottery. From a large pool of applicants, a number of families were selected to receive a sizeable housing rent voucher. The lottery’s randomized selection provides an excellent opportunity to determine the effects on child outcomes from such a positive one-time resource shock. The authors examined the impact on receiving the voucher on the schooling, labor market, criminal, and health outcomes of children from those families.

To everyone’s surprise, it turned out that the housing voucher had virtually no significant impact on any of the generational outcomes the study tested. It seems that the vouchers enabled families to shift other resources towards purchases that, while helpful in terms of the family’s bottom line, don’t appear to boost their children’s’ human capital. Those unobserved factors, such as family stability or social capital, that are hindering parents in these households end up hindering the kids, too – despite the sizeable infusion of resources. The authors conclude that if their analysis is correct, it seems unlikely that positive resource transfers could beat educational interventions in per dollar impact, if the goal is helping children to rise above their parents’ poverty.

Given the conventional wisdom, it seems counterintuitive that easing the burden of housing costs for poor families doesn’t help their children to succeed. But that’s what makes public policy so hard – reality can be counterintuitive. Good intentions don’t guarantee positive results, so we have to question every policy and examine every outcome. Sometimes the results, as in this study, may call policymakers back to the drawing board. And that’s a good thing.

If America is to remain the land of opportunity, income mobility will need a boost. Intergenerational poverty in the United States has been a policy priority for decades, and with good reason. But roughly 16 million American youths remain in poverty today, despite safety net expenditures that reached $411 billion in 2012 alone. If we want the poor to be able to climb the ladder to the middle class, we have to ask the tough questions about which anti-poverty policies actually work.

This post is the concluding entry in an ongoing series on the link between income and happiness. See Part 1 and Part 2.

In two previous posts, we looked at the competing theories regarding income and happiness. Basically, some economists see little correlation between wealth, as measured by income, and happiness. Others suggest that a relationship does exist, though the extent to which the relationship is a positive one after basic needs are attended to remains a source of debate.Let’s look at the work of those economists proposing a positive correlation – those who think that money really does buy happiness. The main disagreement seems to be the existence of a satiation point, or some level of income beyond which happiness is unaffected by further wealth increases.

Those who subscribe to what could be called the “modified Easterlin Paradox” claim that after the satiation point is reached, happiness displays no appreciable growth (or minimal growth at best) when income is increased.

As we discussed last time, Betsey Stevenson and Justin Wolfers aren’t buying this theory. According to their recent study, no satiation point has yet been identified, and well-being correlates with income in a positive, linear-log relationship. This means that while an additional dollar of income is more beneficial to happiness for a poor person than a rich one, no “nirvana” level of income exists beyond which happiness ceases to climb.

Daniel Kahneman and Angus Deaton attack the problem of determining whether this satiation point exists by breaking “happiness” into two parts – life satisfaction and emotional well-being. The difference between the two is pretty intuitive. Life satisfaction is derived from an evaluation of one’s overall position in life, whereas emotional well-being describes the hedonic quality of one’s emotional experiences (i.e. how frequent and intense one’s feelings of joy, sorrow, etc. are).

When they examined the data, Kahneman and Deaton found an intriguing pattern. Sure enough, income bought happiness in the form of life satisfaction…and with no satiation point in sight. Emotional well-being, however, is another story. After income reaches approximately $75,000 emotional well-being plateaus.

What could explain this difference? For one thing, people could be encouraged by social norms to evaluate life satisfaction in the context of relative wealth, interpreting their higher income as an indicator of higher positioning on the life satisfaction “ladder.” Emotional well-being, perhaps less tethered to social convention, stabilizes after the first $75,000.

So while the literature continues to embrace the notion that income increases well-being, some questions remain regarding how we define the components of that well-being and how the happiness impact of additional wealth affects rich and poor people differently.

But if we step back and examine the larger picture, a bigger question arises – how much do these patterns matter, practically speaking?

A log-linear relationship exemplifies the diminishing happiness returns from money. [Image: Creative Commons]

Stevenson and Wolfers claim that there’s no satiation point – but their log-linear analysis finds that, as one would predict, the additional marginal dollar matters less in terms of happiness, to a millionaire than someone at the poverty line. Kahneman and Deaton argue that for a major component of happiness – emotional well-being – a satiation point is indeed present. So either income increases happiness just a little for those with high incomes or it fails entirely to augment happiness in the emotional sense. That’s pretty darn close to a distinction without a difference – especially for those far below the $75,000 range.

In sum, we have a rather academic argument that’s interesting to discuss but not all that relevant in terms of the average person’s life.What will remain important is the plight of those in poverty and our social imperative to make sure a ladder to the middle class exists. No matter which theory gains consensus in the academic literature, it appears that boosting income for those with the least has the largest impact on happiness and well-being.

The technicalities of this debate are far less important than creating opportunity for upward mobility among the poor.

This post is Part 2 in an ongoing series on the link between income and happiness. (Here’s Part 1.)

Last week, we examined a theory that economists call the Easterlin paradox. It describes a seemingly contradictory phenomenon that many scholars believe they have observed: At any given moment, happy people and happy countries are likely to be wealthy people and countries, but the actual process of becoming wealthier doesn’t appear to make specific people or countries any happier.

Our previous post surveyed different explanations for this strange result. But in recent years, more and more economists are calling into question whether or not it even exists.

Two of those researchers are the influential scholars Betsey Stevenson and Justin Wolfers. Stevenson is currently a member of President Obama’s Council of Economic Advisers, Wolfers is presently a senior fellow at Brookings, and the pair of co-authors also happen to be a married couple. And for years, they have argued vociferously against the Easterlin theory and in favor of a definite link between higher incomes and higher happiness.

Based on their own analysis of updated data, Stevenson and Wolfers say that more money does equate with more life satisfaction, both among people within countries and between countries on the world stage:

We show that this finding is robust across a variety of datasets, for various measures of subjective well-being, at various thresholds, and that it holds in roughly equal measure when making cross-national comparisons between rich and poor countries as when making comparisons between rich and poor people within a country.

Two more prominent academics, Daniel Kahneman and Angus Deaton, join Stevenson and Wolfers in rejecting the Eaterlin paradox. Kahneman is widely viewed as something of an interdisciplinary genius: while he is most famous as a psychologist and scholar of cognition, he has also won the Nobel Prize in Economics. Deaton is a Princeton economist with a sterling reputation of his own.

Their joint paper on the subject likewise concludes that life evaluation (people’s response when they are asked to reflect on their position on the ladder of life) climbs in tandem with rising incomes.

This perspective is gaining support in the literature. More and more experts are coming to agree that Stevenson, Wolfers, Kahneman, Deaton, et al get the better of Easterlin. Money, says the consensus view, really does buy happiness

But this leads to another interesting question: Up to what point? Or, to put the query in technical terms, is there a satiation point?

We all intuitively understand how an income jump that moves someone out of poverty into solvency and stability would seriously boost happiness. That’s what made the strongest version of Easterlin’s claim–that there is no part of the income distribution where money buys happiness–seem so unbelievable on its face. But we could easily imagine that once someone has attained serious riches, more money wouldn’t do anything to buy more happiness.

That’s what makes Stevenson’s and Wolfers’s research so surprising. They claim that there is no satiation point at all. More and more income keeps buying more and more happiness, they argue, all the way up to the stratosphere.

How can that be? We’ll zero in on this remarkable claim in a third post next week.

This is the first post in an ongoing series on the link between income and happiness.

In a previous Pursuit of Happiness post, we mentioned something called the “Easterlin paradox.” That refers to a counterintuitive finding that continues to surprise economists and provoke robust debate decades after it was first introduced. It plays an important role in how economists think about happiness.

For decades, Professor Richard Easterlin at USC and various collaborators have looked at the relationship between happiness and income. They have consistently found that if we take a snapshot of a population at one point in time, higher incomes do correlate with happiness. At a particular moment, if you earn a big salary, you have good odds of reporting higher happiness than someone who earns very little. Not exactly a shocking result.

But that’s only half of the paradox. Because when these researchers look at longitudinal data that tracks societies over time, they find that rising incomes do not produce a commensurate rise in happiness. The same paradoxical logic, scholars claimed, applies both to whole countries (in international comparisons) and to individual people within a single society.

Here’s the paradox in a nutshell. Wealthier-than-average individuals or nations are likelier to also be happier than average. But the process of getting wealthier doesn’t seem to make individuals or nations much happier at all. Weird.

Some scholars buy Easterlin’s mysterious finding and try to explain it. Some say a key factor is the passage of time. Hedonic adaptation takes some time to set in, after all. So spiking GDP might delight people in the short term, they propose, but the new wealth loses its novelty after a while.

Other researchers point to the idea that relative wealth comparisons matter more for our satisfaction than the absolute amount we earn. If an entire country is getting wealthier, even though living standards are rising for rich and poor alike, the folks at the bottom of the income distribution don’t feel richer because they haven’t moved relative to their neighbors.

These are potential explanations for the Easterlin paradox. But not all researchers are convinced that it’s a thing. Some contend that it only applies for part of the income distribution, and that money does buy happiness when you’re very poor. Other well-known economists go further, arguing that money actually buys happiness across all income levels.

In a follow-up post next week, we’ll hear what they have to say.

Update: Click here to read part 2.

People tend to think of personal well-being as a spectrum score. Happiness and positive emotions sit on one end, with unhappiness negative emotions on the other. To determine our level of happiness, then, we simply ask which pole we are closest to. “Good days” and “bad days” are judged by their tendency to push us in either direction.

But scholars don’t see things this way. The field of positive psychology sees positive and negative emotions not as one gradient, but as a system with two distinct dimensions. This insight, that positive and negative feelings operate in distinct and separate ways, sheds light on the complex mix of psychological states that impact individuals.

Martin Seligman is a leading psychologist and best-selling author. He’s a former president of the American Psychological Association and he coined the phrase positive psychology, a concept that refocuses science on “what’s right” in people’s lives and not merely “what’s wrong.” Through his own research and by sharing the accomplishments of others in the field, Seligman is a champion of helping people improve their lives through self-assessment of well-being.

On Seligman’s website at the University of Pennsylvania, anyone can take a wide range of well-being tests. One of the most influential assessments—and one that exemplifies the dual-dimension model of positive and negative emotions— is the PANAS, or Positive and Negative Affect Schedule. It uses a simple method where subjects report how intensely they are experiencing different feelings. The PANAS Scale was developed in 1988 by David Watson, Lee Anna Clark, and Auke Tellegen in a paper that explained the need for reliable and practical metrics for self-assessment.

According to Watson et al., high positive affect constitutes a state of “high energy, full concentration, and pleasurable engagement, whereas low PA is characterized by sadness and lethargy.” On the other hand, negative affect is a state of “subjective distress…that subsumes a variety of aversive mood states… with low NA being a state of calmness and serenity.” See how the two states are distinct? A single person could have high highs and low lows, or could be consistently even-tempered. The key is that vibrant good moods are not the opposite of really bad moods. Different levels of good vibes and bad feelings can actually co-exist.

There’s a lot more to psychology than one useful scale, but even this simple questionnaire can help demonstrate that there’s a lot more to happiness than one simplistic spectrum.

 Click here to take Seligman’s PNAS quiz and assess your own happiness.

“Everything’s amazing, but nobody’s happy!”

This declaration from funnyman Louis C.K. is one of the most famous sentences in the past ten years of stand-up comedy. The line kicks off this rant, which the comedian delivered on Conan:

Louis’s point is that we are surrounded by technological wonders and material riches, yet we remain restless and unsatisfied. People quickly become accustomed to the latest marvels and waste no time in taking them for granted.

In one laugh line that rings particularly true, Louis mocks an airline passenger who is invited to use in-flight WiFi in the earliest days that service was offered. All the travelers were instructed to open their laptops and enjoy in-seat Internet for the first time. But then the new system glitches out and disconnecting the passengers. One man becomes indignant and starts complaining loudly — and this is the attitude Louis cannot abide. “How quickly the world owes him something he knew existed only ten seconds ago!”

The funniest comedy turns a spotlight on universal human tendencies, and this bit is no exception. We can all relate to moments when we or a friend exhibited the impatience or ingratitude that Louis points out. We have all rolled our eyes at a sluggish smartphone that would have literally seemed like magic just two decades ago. We recognize this unflattering tendency, yet it persists in all of us. Why?

Science backs up the comedy

Social science can shed some light. Since the early 1970s, psychologists and economists have been studying a puzzle: Why don’t developments that seem to radically improve our quality of life actually provide a lasting boost to our self-reported happiness?

They answer that puzzle with a concept called the “hedonic treadmill.”The phrase sounds daunting and scholarly, but the concept is commonsensical. It all starts with the observation that humans have a remarkable ability to adapt our expectations to our environment.

We usually think of this as a wonderful trait. Young people with low salaries don’t spend every minute of their lives miserable because they can’t buy a BMW; rather, their rubric for the world shifts to match their surroundings, and a used Toyota brings real joy when it’s first driven off the lot. Men and women who experience personal tragedies rarely become permanently depressed; instead, the sadness that accompanies an injury or a death in the family usually dulls as we slowly adapt to our “new normal.” So far, so good. Three cheers for our adaptability — right?

Well, maybe not. Our tendency to quickly create these “new normals” also limits the effectiveness of the good things we experience. Studies show that income change, whether they are one-time shocks like a Christmas bonus or permanent, like a raise, tend to spike our self-reported happiness in the short-term. But the gains fade away after just a few weeks or months. Once we become accustomed to a marginally more expensive lifestyle, that lifestyle becomes ordinary and ceases to appear special.

Hence the phrase “hedonic treadmill.” Soon after a new development in our lives gives our happiness a burst of speed, the treadmill of our expectations speeds up to match. Now, we need to keep running that quickly just to maintain our baseline happiness.

The treadmill applies to whole nations, too

This adaptability, both a blessing and a curse, does not only apply to individuals. It also seems to hold true for entire whole societies. Economists have spent decades debating the “Easterlin paradox”: why don’t countries get consistently happier as they get wealthier and technology improves? The treadmill idea of hedonic adaptation is consistently put forward as one answer. The first people to experience refrigeration, or telephones, or air travel might have spent a few years marveling at the novel conveniences. But after a few years — let alone a few generations — expectations adapt upward.

It seems almost impossible for either individuals or societies to persist in a state of amazement and gratitude for how good we have it. True, we have resources at our fingertips of which previous generations could never have dreamed — but we are used to them. The hedonic treadmill will always keep pace, and make our breathtaking march towards modernity seem like business as usual.

Maybe Louis C.K. should add “social scientist” to his resume.

AEI intern John Henry Thompson contributed research and reporting.

The New York Times recently published an essay entitled “Why You Hate Work.” Its authors work for a firm that advises employers on making workers happier, and they see the average workplace as a dreary place in desperate need of their services:

Even if you’re lucky enough to have a job, you’re probably not very excited to get to the office in the morning, you don’t feel much appreciated while you’re there, you find it difficult to get your most important work accomplished, amid all the distractions, and you don’t believe that what you’re doing makes much of a difference anyway. By the time you get home, you’re pretty much running on empty, and yet still answering emails until you fall asleep.

Yikes. Described that way, modern work sounds like the myth of Sisyphus, a Greek ruler who displeased the gods. His punishment was to push a massive boulder up a mountain, watch it roll back down, and do it all over again every day for eternity. Is the 9-to-5 life just a new version of this torment?

Some surveys back up the narrative

The short answer is that it depends on how you ask. Several surveys would seem to substantiate the authors’ claims. For example, their column cites a poll that their company conducted with the Harvard Business Review. It asked thousands of white-collar workers whether their work lives contain things like:

• “Regular time for creative or strategic thinking”
• “Opportunities to do what is most enjoyed”
• “Connection to your company’s mission”
• “Overall positive energy”

For most of the good things the survey asked about, pluralities of employees said their jobs lack these things. This survey looks a lot like Gallup’s annual “State of the American Workplace” survey, which also asks about a number of specific criteria:

• “At work, I have the opportunity to do what I do best every day.”
• “I have a best friend at work.”
• “The mission or purpose of my company makes me feel my job is important.”

These polls paint a disheartening picture. In 2013, only 30% of American workers checked off enough of Gallup’s boxes for the survey to categorize them as “engaged and inspired.” This was enough to persuade the media that we are a nation in crisis. “Americans Hate Their Jobs, Even With Office Perks,” declared one headline. “Most workers hate their jobs or have ‘checked out,'” insisted another.

Things look bad. But how useful are these kinds of surveys? That’s an open question.

The problem with top-down surveys

Polls like the Gallup survey rely on top-down methodology: Experts invent a list of statements that they imagine flourishing employees would agree with. Then they ask workers if those statements describe their experience. This neglects the fact that different people expect different things from their work.

Imagine a man who adores playing chess. He eats and breathes chess, but isn’t quite talented enough to earn a living as a professional. As a result, he grabs the highest-paying job he can find, harboring no illusion that the work will be deeply satisfying. He simply wants to pay the bills and get home to the game he loves. This guy’s work experience would flunk the Gallup test, yet his job fills precisely the role in his life that he wants.

To be sure, this is not most of us. The bulk of ordinary men and women have professional aspirations and out-of-work priorities alike. But the fact remains that no two people have identical lives or identical expectations for their careers.

So rather than telling people whether they are happy or unhappy at work based on a long list of ambitious criteria, perhaps we should just ask them the question directly. “All things considered, how satisfied are you with your job?”

Instead of asserting what a great job looks like, this wording invites the respondent to apply his or her own standard. This is precisely the question that the University of Chicago’s General Social Survey (GSS) has asked Americans for decades. Their data tell a very different story.

Ask a different question, get a different answer

As the chart below indicates, the 2012 GSS found that 36% of the country is “very satisfied” with their jobs. Add in the 16% who are even happier (“completely satisfied”) and the 33% who are “fairly” satisfied, and we have a staggering 85% majority of Americans who generally like what they do.

2012 General Social Survey (SATJOB7)

I know what you’re thinking: “Successful people must be skewing the data.” Conventional wisdom suggests that high-earning professionals who love their work are pulling the average up, and that Americans who work in less glamorous roles must be mostly unhappy. Right?

Wrong. Look what happens when we analyze the data by income:

2012 General Social Survey (SATJOB7 x RINCOM06)

As income increases, there does seem to be a slight upward trend in the proportion who are “satisfied” – that’s the blue bars and everything below. But even at low income levels, job satisfaction is vastly higher than many might expect. Among Americans whose annual pay ranks in the low $30,000s, for example, fully 88% are generally satisfied with their jobs.

In short, this massive and well-respected survey finds that the vast majority of Americans at every income level are reasonably happy with their jobs.

Elites may feel overworked and under-appreciated. Highly-educated folks may feel sure that people in “dead-end jobs” must be miserable. But once we look past the apocalyptic headlines and dig into the data, there is good evidence that Americans derive real satisfaction from earning our success on the job.