Personal Happiness and Wellbeing, Positive Politics and Government

Paradoxes in the Economics of Happiness: An Interview with Carol Graham

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Dr. Carol Graham is a revolutionary – a tireless leader in a wave of exciting changes in the field of economics. Her research as a Professor at the University of Maryland and the Brookings Institution has her crisscrossing the globe, writing and editing books and articles, giving presentations, testifying before Congress, granting interviews or writing articles for major media outlets and more. In addition to being one of the world’s leading intellectual heavy hitters, she’s also a mother of three. It seems an exhausting schedule, but she is passionate about her work and as a distance runner she knows how to get maximum performance in long and arduous tasks. So, in spite of her hectic schedule, she was kind enough to give me some phone time to talk a bit about that revolution and what she has discovered.

The Birth of an Economics of Happiness:

Economics has long been known as “the dismal science”, so my first question was about how an economist began studying happiness. Dr. Graham looked back almost two decades to the global debate that was raging regarding the benefits and drawbacks of a rapidly globalizing marketplace. Quite simply, she wanted to look more at the actual humans behind the discussions of trade flows, inflation and growth curves. She began to ask questions about the psychological side of economics – about happiness and wellbeing. Though most economists continued the discipline’s long tradition of focusing solely on dollars and cents, Dr. Graham and others began to ask questions about the psychological impacts of economic growth and decline. She became determined, she told me, to use the tools of economics “to understand things like purpose and meaning in life”.

Together with leading economics scholars like George Akerlof, Richard Easterlin and Daniel Kahneman, Dr. Graham set out to measure peoples’ daily experience. Since then, the new “economics of happiness” to which they gave birth has grown into a thriving field that contains the promise of really understanding how money and wealth shape people’s lives and not just their bank accounts. She has uncovered truths about money, social position and happiness that seem paradoxical to some – and even seemed paradoxical to her at first – but that could significantly reshape our approach to a great many personal and policy issues.

Paradoxes of Money and Happiness

People in market societies, and particularly Americans, are bombarded with the message (or at least the impression) that more money means more happiness. But a great deal of evidence, including that shown by Dr. Graham’s research, shows that the relationship between money and happiness is anything but straightforward. To put it simply, she says that the empirical evidence shows that when it comes to happiness, hopelessness, aspirations and desperation “Money matters, but it’s not the only thing at all”.

Miserable Millionaires and Happy Peasants:

One of the first great paradoxes Dr. Graham uncovered while studying rapid economic changes in Peru. Most people assume that if they got rich quickly they would be very happy, and if they were in poverty they would be quite miserable. In interviewing Peruvians, she observed what she came to call the paradox of “miserable millionaires and happy peasants”: some of the wealthiest people she interviewed were the most unsatisfied and unhappy, while others facing tremendous adversity were quite enjoying their lives were positive about its direction. At first, she thought this might be an error in the data, but further research found the same thing in Russia, then in China…the more research she did, the more she became convinced that this was not an error in data but a fact of life. The answer to this paradox seems to be in a phenomenon identified some time ago by psychological research – the adaptation principle.  As she put it in an article for VOXEU, her research shows that while it’s true that wealthier countries are on average happier than poorer ones it also

“…shows that there is a remarkable human capacity to adapt to both prosperity and adversity. Thus, people in Afghanistan are as happy as Latin Americans – above the world average – and Kenyans are as satisfied with their healthcare as Americans. Crime makes people unhappy, but it matters less to happiness when there is more of it; the same goes for both corruption and obesity. Freedom and democracy make people happy, but they matter less when these goods are less common. The bottom line is that people can adapt to tremendous adversity and retain their natural cheerfulness, while they can also have virtually everything – including good health – and be miserable.”

The fact that it is not uncommon for rich people to be deeply unhappy and for poor people to be quite satisfied is only paradoxical if one buys into the myth that money guarantees happiness for individuals. As Dr. Graham emphasizes, money can be good for happiness, but the relationship between the two is actually somewhat complex.

Unhappiness is not about Material Deprivation

Another of Dr. Graham’s findings that many find paradoxical is that poor people in the United States may have it materially better than the poor in Latin America but those in the US are less likely to expect upward mobility and have lower levels of contentment in life. In other words, the poor in Latin America are poorer than the poor people in the United States, but they are also more optimistic and happier. One thing to learn from this, she says, is that “Happiness is not about material deprivation – at least not in an absolute sense”.  In other words, it’s not the total amount of dollars in your account, but how you think and feel about that amount.

This is consistent with much of the findings in the field of positive psychology about money and happiness and about attitude and happiness. Difficult circumstances don’t doom people to misery if they are optimistic and resilient. In fact, her findings on hope and resilience in Peru continue to back up her findings on “happy peasants” – and she notes (with continued surprise and admiration) that “those with the highest aspirations AND the highest optimism were those that have had the most negative shocks in life, not those with the least.”  It’s not that economic inequality doesn’t matter to happiness– plenty of research shows that it does – it’s just that it doesn’t matter in the ways that conventional wisdom might suggest.

Some inequality is generally good and necessary in a market economy because it provides opportunity to apply talent, ideas, hard work and capital to move up the economic ladder. But as Dr. Graham notes “economic inequality’s impact on people is especially negative when it no longer signals opportunity, but rather signals persistent disadvantage.”  In other words, if there is no sense of hope that the economic ladder is climbable, then economic inequality can be devastating to happiness and wellbeing. This is why historically extreme levels of economic inequality like those currently seen in the United States can be so disempowering.

This fact – that inequality’s impact on happiness is in large part a matter of perception – also seems to be at the heart of another seemingly paradoxical insight uncovered by Dr. Graham.

The surprising happiness inequality in the US:

The fact that those classified as white in America have an advantage over minorities in terms of average income, net worth, employment, etc. is probably surprising to no one – these inequalities are well documented and the subject of much discussion and debate. And the fact that widespread racial and ethnic discrimination persists in hiring, housing, criminal justice and other areas of life is also well documented. But it may be surprising to find that despite this, Dr. Graham’s research shows that poor whites have higher levels of desperation and hopelessness and lower optimism than poor members of minority groups.

The answer to this seeming paradox again lies in the importance of perception over objective life circumstances. Dr. Graham pointed to both the research and to her first-hand experience talking with affected groups to suggest several potential explanations. First, she notes that “minorities have been making gradual, hard-won progress – perhaps not as much progress or as quickly as there should have been – but it’s there.” And they are more likely to look at previous generations that had things more difficult than they do. This gives some reason for optimism, even if the ideal has not been reached. She also notes research showing higher resilience among minorities than among whites. It may be that having to fight a system stacked against you for so long means that the psychological tools for dealing with difficult circumstances are more firmly in place. Finally, research shows that more urban and more diverse places tend to show higher levels of hope than more rural and less diverse places, like those where white poverty is more prevalent.

It is important to remember, she notes, that white working class identify used to be strongly linked to stable jobs and the nuclear family. Those stable jobs are now either gone or not as lucrative as they once were, and the disintegration of the nuclear family among poor whites is now similar to that seen before in poor minority communities. Even if, objectively, the problems in poor white and poor minority communities are more similar than in the past, the psychological effects are different. As she put it “This is relatively new to poor whites and many now feel like they are losing ground and falling behind.” This has led to higher feelings of desperation and hopelessness.

So what can we do about happiness inequality?

In parting, I asked Dr. Graham how she thought the new evidence about unhappiness she is discovering might be used and what policy ideas might help address the problems that have been uncovered and increase happiness and wellbeing in society.

The most important, she said, was to “Track wellbeing – the government of the UK is officially using such measures, and they are gradually creeping into various agencies in the United States.” By tracking happiness, we put ourselves in a better position to improve it or reverse declines where we see them. If we see rapid declines in happiness among certain groups or in certain areas of the countries we can diagnose and address them early on. If we see rapid rises, we can analyze their causes and build on what we find. As she put it, “If we know about it, we can do something about it”.

She noted that there are other policy areas that need important changes to improve public happiness and wellbeing. “The social safety net is awful and so is the stigma that goes along with it”. Since public assistance programs are often inadequate and disempowering, she emphasized reforming public assistance to actually empower people – a goal that both liberals and conservatives can get behind.

While we may have to wait for national or state governments to act on those types of issues, she argued that there is a great deal that we can do at the community level to improve happiness and wellbeing especially in the places that need it most– access to the arts, opportunities for volunteering, various community building activities, countless programs that might be implemented through the education system, vocational education, addressing the opioid crisis and more.

At the individual level, one of the most important things I believe we can take away from research like that done by Carol Graham is to remember that money’s relationship to happiness is more about our attitudes and perception than it is about how many dollars we have in our bank accounts. The secret to living a happy life is not having more money.  Rather, happiness is the result of being grateful for and content with what we already have even as we strive for a better life; of developing resilience and using life’s “negative shocks” (to use the economist’s terms) as opportunities for growth and development; and of making the most of what opportunities we do have.


Carol Graham is the Leo Pasvolsky Senior Fellow at the Brookings Institution and College Park Professor at the School of Public Policy at the University of Maryland.

Her most recent book: Happiness for All? Unequal Lives and Hopes in Pursuit of the American Dream was published by Princeton University Press in 2017. She has authored, coauthored and edited numerous other books that have been published in Chinese, Japanese, Korean, and Portuguese. Dr. Graham has also published numerous articles in and served as editor and associate editor for some of the top academic journals in the world.  She has also written in the Wall Street Journal, The Christian Science Monitor, the Financial Times and the Washington Post. Her research has received support from the John D. and Catherine T. MacArthur Foundation, the World Bank, and the Tinker, Hewlett, and Templeton Foundations among others.

Dr. Graham has served on a National Academy of Sciences panel, received a Distinguished Research Fellow award for significant contribution to the field from the International Society of Quality of Life Studies for 2014, and, most recently, a Pioneer Award from the Robert Wood Johnson Foundation. She also served as Vice President and Director of Governance Studies at Brookings, as a Special Advisor to the Deputy Managing Director of the International Monetary Fund, as Special Adviser to the Executive Vice President of the Inter-American Development Bank, and as a consultant at the Inter-American Development Bank, the World Bank, United Nations Development Program, and the Harvard Institute for International Development.

For Carol Graham’s full bio, click here.

January 2, 2018 | Ryan Rynbrandt

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