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Sunday,Jan.09,2005

Money:TheRealTruthAbout
Money
ByGreggEasterbrook

IfyoumadeagraphofAmericanlifesincetheendofWorldWarII,everylineconcerningmoneyandthe
thingsthatmoneycanbuywouldsoarupward,astatisticalmonumenttomaterialism.Inflationadjusted
incomeperAmericanhasalmosttripled.Thesizeofthetypicalnewhousehasmorethandoubled.Atwo
cargaragewasonceagoalnowwe'renearlyathreecarnation.Designereverything,personalelectronics
andotheritemsthatdidn'tevenexistahalfcenturyagoarenowaffordable.Nomatterhowyouchartthe
trendsinearningandspending,everythingisup,up,up.ButifyoumadeachartofAmericanhappiness
sincetheendofWorldWarII,thelineswouldbeasflatasamarbletabletop.Inpollstakenbythe
NationalOpinionResearchCenterinthe1950s,aboutonethirdofAmericansdescribedthemselvesas
"veryhappy."Thecenterhasconductedessentiallythesamepollperiodicallysincethen,andthe
percentageremainsalmostexactlythesametoday.
(InaDecemberTIMEpollonhappinessthatphrasedthequestiondifferently,17%ofrespondentssaid
theywerebrimmingwithhappiness"justaboutaboutallthetime,"andabout60%saidtheywere
frequentlyhappy.)
Yetifyouchartedtheincidenceofdepressionsince1950,thelinessuggestagrowingepidemic.Depending
onwhatassumptionsareused,clinicaldepressionis3to10timesascommontodaythantwogenerations
ago.ArecentstudybyRonaldKesslerofHarvardMedicalSchoolestimatedthateachyear,1in15
Americansexperienceanepisodeofmajordepressionmeaningnotjustabaddaybutdepressionso
debilitatingthatit'shardtogetoutofbed.Moneyjanglesinourwalletsandpursesasneverbefore,butwe
arebasicallynohappierforit,andformany,moremoneyleadstodepression.Howcanthatbe?
Ofcourse,ourgrandmothers,manyofwhomlivedthroughtheDepressionandthewar,toldusthatmoney
can'tbuyhappiness.Wedon'tactasthoughwelistened.Millionsofusspendmoretimeandenergy
pursuingthethingsmoneycanbuythanengaginginactivitiesthatcreaterealfulfillmentinlife,like
cultivatingfriendships,helpingothersanddevelopingaspiritualsense.
Wesayweknowthatmoneycan'tbuyhappiness.IntheTIMEpoll,whenpeoplewereaskedabouttheir
majorsourceofhappiness,moneyranked14th.Still,webehaveasthoughhappinessisonewaveofacredit
cardaway.ToomanyAmericansviewexpensivepurchasesas"shortcutstowellbeing,"saysMartin
Seligman,apsychologistattheUniversityofPennsylvania.Butpeoplearepoorpredictorsofwherethose
shortcutswilltakethem.
Tobesure,thereisampleevidencethatbeingpoorcausesunhappiness.StudiesbyRuutVeenhoven,a
sociologistatErasmusUniversityinRotterdam,showthatthepoorthoseinEuropeearninglessthan
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about$10,000ayeararerenderedunhappybytherelentlessfrustrationandstressofpoverty.Butyou
knewthat.
Thesurpriseisthatafteraperson'sannualincomeexceeds$10,000orso,Veenhovenfound,moneyand
happinessdecoupleandceasetohavemuchtodowitheachother.Thestudy,whichhasbeenreplicatedin
theU.S.,showsthatGrandmahadapoint.Overthepasttwodecades,infact,anincreasingbodyofsocial
scienceandpsychologicalresearchhasshownthatthereisnosignificantrelationshipbetweenhowmuch
moneyapersonearnsandwhetherheorshefeelsgoodaboutlife.TIME'spollfoundthathappiness
tendedtoincreaseasincomeroseto$50,000ayear.(ThemedianannualU.S.householdincomeis
around$43,000.)Afterthat,moreincomedidnothaveadramaticeffect.EdwardDiener,apsychologist
attheUniversityofIllinois,interviewedmembersoftheForbes400,therichestAmericans.Hefoundthe
Forbes400wereonlyatinybithappierthanthepublicasawhole.Becausethosewithwealthoften
continuetofeeljealousyaboutthepossessionsorprestigeofotherwealthypeople,evenlargesumsof
moneymayfailtoconferwellbeing.
Thatseemstruebecauseofaphenomenonthatsociologistscallreferenceanxietyor,morepopularly,
keepingupwiththeJoneses.Accordingtothatthinking,mostpeoplejudgetheirpossessionsin
comparisonwithothers'.Peopletendnottoaskthemselves,Doesmyhousemeetmyneeds?Insteadthey
ask,Ismyhousenicerthanmyneighbor's?Ifyouownatwobedroomhouseandeveryonearoundyou
ownsatwobedroomhouse,yourreferenceanxietywillbelow,andyourtwobedroomhousemayseem
fine.Butifyourtwobedroomhouseissurroundedbythreeandfourbedroomhouses,withsomeone
aroundthecornerdoingateardowntobuildaMcMansion,yourreferenceanxietymayrise.Suddenly
thattwobedroomhouseonethatyourgrandparentsmighthaveconsideredquitenice,evenluxurious
doesn'tseemenough.Andsothemoneyyouspentonitstopsprovidingyouwithasenseofwellbeing.
Oursoaringreferenceanxietyisaproductofthewideninggapinincomedistribution.Inotherwords,the
richaregettingricherfaster,andtherestofusarenonetoohappyaboutit.DuringmuchofU.S.history,
themajoritylivedinsmalltownsorurbanareaswhereconditionsformostpeoplewereapproximatelythe
samehencelowreferenceanxiety.Also,mostpeopleknewrelativelylittleaboutthosewhowereliving
higheronthehog.
Butinthepastfewdecades,neweconomicforceshavechangedallthat.Rapidgrowthinincomeforthe
top5%ofhouseholdshasbroughtaboutasubstantialcohortofpeoplewholivenotablybetterthanthe
middleclassdoes,amplifyingourreferenceanxiety.Thatwealthierminorityisoccupyingeverlargerhomes
andspendingmoreoneachchangeofclothesthanothersspendonamonth'srent.Itallfeedsmiddle
classanxiety,evenwhenthemiddleisdoingO.K.Innationswithhighlevelsofincomeequalitylikethe
Scandinaviancountries,wellbeingtendstobehigherthaninnationswithunequalwealthdistribution
suchastheU.S.Meanwhile,televisionandtheWebmakeiteasiertoknowhowtheverywellofflive.
(Nevermindwhetherthey'rehappy.)WantapeekinsideDonaldTrump'sgoldplatedworld?Justclickon
theTV,andhe'llshowyou.WonderwhatBillGates'66,000sq.ft.megamansionislike?Justdownloadthe
floorplanfromtheInternet!
Paradoxically,itistheveryincreaseinmoneywhichcreatesthewealthsovisibleintoday'ssocietythat
triggersdissatisfaction.Asmaterialexpectationskeeprising,moremoneymayengenderonlymoredesires.
"Whatpeoplewantintermsofmaterialthingsandlifeexperienceshasincreasedalmostexactlyinlockstep
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withthepostwarearningscurve,"Dienernotes.Asmenandwomenmoveuptheeconomicladder,most
almostimmediatelystopfeelinggratefulfortheirelevatedcircumstancesandfocusonwhattheystilldon't
have.Supposeyoulivedinatwobedroomhouseforyearsanddreamedofthreebedrooms.Youfinallyget
thatthreebedroomhouse.Willitbringyouhappiness?Notnecessarily.Threebedroomswillbecomeyour
newnorm,andyou'llbegintolongforafourbedroomabode.
Thatmoneyneversatisfiesissuggestedbythistellingfact:pollsshowthatAmericansbelievethat,whatever
theirincomelevel,theyneedmoretolivewell.Eventhosemakinglargesumssaidstilllargersumswere
required.Weseemconditionedtothinkwedonothaveenough,evenifobjectivelyourlivesare
comfortable.
Thenagain,ifwethinkourlotisimproving,happinessfollows.CarolGraham,aneconomistatthe
BrookingsInstitutioninWashington,foundthatpeople'sexpectationsaboutthefuturemayhavemore
influenceontheirsenseofwellbeingthantheircurrentstatedoes.Peoplelivingmodestlybutanticipating
betterdaystocome,Grahamthinks,arelikelytobehappierthanpeoplelivingwellbutnotlookingforward
toimprovementsintheirlivingstandards.Considertwopeople:oneearns$50,000ayearandforeseesa
10%raise,andtheothermakes$150,000butdoesnotexpectanysalaryincrease.Thesecondpersonis
muchbetteroffinfinancialterms,butthefirstismorelikelytofeelgoodaboutlife.
Andguesswhat?TheU.S.hasn'thadadecentraiseintwodecades.Incomegrowthhasalmostcometoa
haltforthemiddleclass.Inrealterms,althoughmedianhouseholdincomeishigherthanever,median
householdincomehasincreasedonlyaround15%since1984.Thatmeansmostpeoplehaveneverhadit
betterbutdonotexpectanyimprovementinthenearfuture.Peopletendtofocusonthenegativepartand
ignorethepositive.
Livingstandards,educationlevelsandotherbasicmeasuresofU.S.socialwellbeinghaveimprovedso
muchsoquicklyinthepostwarerathatanotherbigleapseemsimprobable.Ifthetypicalnewhouseis
morethan2,300sq.ft.,ifmorethanhalfofhighschoolgraduatesadvancetocollege,iftherearemore
carsandtrucksintheU.S.thantherearelicenseddriversallcurrentstatisticsthenthecountrymayneed
stabilityandequalitymorethanitneedsmoremoney.Butbecauseweareallconditionedtothinkthere's
somethingwrongifwedon'tmakemoremoneyeachyear,highstandardsoflivingintheU.S.may,
paradoxically,havebecomeanimpedimenttohappiness.Fixatedonalwaysgettingmore,wefailto
appreciatehowmuchwehave.Ofcourse,inthegrandschemeit'sbetterthattherearelargenumbersof
Americanswhoaremateriallycomfortable,ifabitwhinyaboutit,thanwhoaredestitute.Andneverforget:
1in8Americansarepoor.PovertyremainsastarkrealityamidAmericanaffluence.
Psychologyandsociologyaside,thereisafinalreasonmoneycan'tbuyhappiness:thethingsthatreally
matterinlifearenotsoldinstores.Love,friendship,family,respect,aplaceinthecommunity,thebelief
thatyourlifehaspurposethosearetheessentialsofhumanfulfillment,andtheycannotbepurchased
withcash.Everyoneneedsacertainamountofmoney,butchasingmoneyratherthanmeaningisa
formulafordiscontent.ToomanyAmericanshavemadematerialismandthecycleofworkandspendtheir
principalgoals.Thentheywonderwhytheydon'tfeelhappy.
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