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Who says money cannot buy happiness?

It turns out that money can buy you happiness – as long as you live in an OECD country.

I came across a great project: the “World Happiness Reportt” which is a survey of the state of global happiness. The project ranks 156 countries by a Happiness Indicator. The Happiness Indicator is based on the Gallup World Poll which surveys a representative proportion of the population in most countries to produce results across six factors (levels of GDP, life expectancy, generosity, social support, freedom and corruption). These six factors are combined into an overall Happiness Index.

Before you criticise the approach, the authors freely admit that the measures are not entirely independent nor is the causal link always straightforward. For example wealthier people live longer – not because of the intrinsic health benefits of rolling in cash but because high per capita GDP often occurs in countries that also have good public health systems. Hence high levels of GDP, long life expectancy and low levels of corruption are not independent measures. Despite the limitations, it is a neat way to combine a whole lot of messy inter-related factors to give a global snapshot and country by country comparison.

The Happiness Index ranges from 2.9-7.7 (an average country has a Happiness Index of around 5 (Figure 1)). The top 20 (Figure 2) and bottom 20 (Figure 3) pretty much reflect what you might expect from the nightly news.

Figure 1: Distribution of Happiness Scores

 

Figure 2: Happiest 20 Countries (2015 Happiness Indicator)

 

Figure 3: Unhappiest 20 Countries (2015 Happiness Indicator)

 

Money cannot buy you happiness – or can it?

Money can’t buy happiness, but neither can poverty. – Leo Rosten

Our mothers tell us to follow our heart when it comes to choosing a profession “Money cannot buy happiness”. Well I’m not so sure. There is great quote (attributed to Spike Milligan – but probably variations to many others) “Money cannot buy happiness, but it can buy the kind of misery I enjoy”. Figure 4 is simply the most recent Happiness Index scores against GDP per person (2015 USD) for OECD countries. That point way out on the right is Luxembourg. Despite their high wealth per capita from the banking activity it seems that it doesn’t translate into peak happiness for the average Luxembourger. The point on the left is Chile, showing a high Happiness Index despite relatively low GDP. But the tight grouping for the rest of the OECD countries indicate a strong positive correlation between GDP and Happiness Index. Maybe Spike Milligan was correct.

Figure 4: Happiness Index as a function of GDP per capita (USD). The slope of the line indicates – more wealth = more happiness. It seems money can buy happiness after all.

A criticism of Figure 4 is that representing wealth in the same currency everywhere (USD) doesn’t take account of the different buying power of a dollar in different economies (i.e. you can buy more happiness for one USD in Chile than Sweden). The way to deal with this is “Purchasing Power Parity”. We use the GDP per capita based on purchasing power parity by the world bank and include all countries from the happiness index study (Figure 5). This brings Chile back into the fold (Luxembourg still stands out on the right), but the general trend still applies – money does buy you happiness.

Figure 5: Happiness Index based on GDP taking into account Purchasing Power Parity

What about the rest of the world? The OECD is 34 wealthy countries, surely they do not have a monopoly on happiness. We can add the other countries for which there is a Happiness Index (Figure 6). We see a lot more on the low end of the economic scale. The general trend still applies, but there is a broader spread with several relatively low income countries having high Happiness Index scores. So perhaps this more income = more happiness relationship is simply a western phenomenon.

Figure 6: Happiness Index including non-OECD countries

Can you tax your way to happiness?

That man is richest whose pleasures are cheapest. – Henry David Thoreau

You might have noted that the Nordic countries who are renowned for high levels of social security (Sweden, Norway, Denmark, Finland) are at the top of the happiest list (Figure 1) (presumably because there is no ‘pleasant climate’ metric in the happiness indicator). It would seem pretty intuitive to me that to score well on the Happiness Index, countries should have well developed social security systems to protect and support the vulnerable.
The Nordic countries have relatively high levels of taxation as shown in an earlier post, and they use this tax base to create great social security and education systems. So maybe we can create happier nations through increased taxation. Alas – Figure 7 shows no correlation between taxation (data:OECD) and the Happiness Index. Despite the political rhetoric, being taxed doesn’t make you happier.

Figure 7: Tax (as percent of GDP) isn’t correlated with the Happiness Index.

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