Can money make you happier?

How happy people said they were over the last 30 years, by country

In his new book, The price of civilisation: reawakening American virtue and prosperity, progressive Columbia University economist Jeffrey D Sachs argues that the relationship between income and happiness is not as strong as people often imagine. Above a (lowish) minimum level, income doesn’t make a big difference.

But money could make us happier if only we’d spend it in different ways. Drawing on the research of Harvard psychologist Daniel Gilbert and his colleagues, he cites eight principles for deriving more happiness from your income:

First, buy experiences instead of things, since experiences (vacations, trips to the museum, concerts, dining out) offer long memories to savor.

Second, and crucially, use our incomes to help others instead of ourselves, because as hypersocial animals, “almost anything we do to improve our connections with others tends to improve our happiness as well.”

Third, buy many small pleasures instead of a few big ones, in essence slowing down to smell the roses.

Fourth, buy less overpriced insurance (such as product warranties), because we adjust much better to adverse shocks than we suppose.

Fifth, pay now and consume later, rather than buying now on the credit card and paying later. The anticipation of a future purchase will give us anticipatory joy, which the authors call a source of “free” happiness. Impatient purchases, on the other hand, give us fleeting benefits and long-term debt.

Sixth, be attentive to the details of a purchase, since they may disproportionately affect the happiness of the experience.

Seventh, beware of too much comparison shopping, since it can focus our attention on unimportant distinctions.

Eighth, listen to others about what can bring happiness. They can add new and useful perspectives

The source of these principles is a paper published earlier this year in the Journal of Consumer Psychology, If money doesn’t make you happy then you probably aren’t spending it right, by Elizabeth Dunn, Daniel Gilbert and Timothy Wilson. If you follow that link you can read the complete paper (it’s not technical and it’s not very long). Here’s the conclusion:

When asked to take stock of their lives, people with more money report being a good deal more satisfied. But when asked how happy they are at the moment, people with more money are barely different than those with less…..This suggests that our money provides us with satisfaction when we think about it, but not when we use it. That shouldn’t happen. Money can buy many, if not most….of the things that make people happy, and if it doesn’t, then the fault is ours. We believe that psychologists can teach people to spend their money in ways that will indeed increase their happiness, and we hope we’ve done a bit of that here.

Note: the quote from Jeffrey D Sach’s book is from page 127 of my electronic edition. I’m not sure if paper copies will be the same, but if not it’s at the start of Chapter 9, The Mindful Society. Random House will publish the book in paperback in Australia on 1 December – note that I’ve linked the book to Amazon above because Random House Australia has the cover right but the blurb is about a different book altogether!

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You talkin’ to me?

Travis Bickle puts the big question

The drive for status is a powerful force that shouldn’t be ignored by urban policy-makers, not least those with an interest in cities. It explains much about the way people behave in urban areas, like why they might live in a McMansion or drive a Prius (I’ve written about status a number of times before – e.g. here, here, here and here).

Status can also throw light on other issues, like why some people brawl with complete strangers and why some couples split up. George Mason University academic, Robin Hanson, offers an interesting illustration of the connection between status and conflict in this piece, Status drives poverty?

The sometimes controversial economist starts by citing a passage from a new book, Promises I can keep: why poor women put motherhood before marriage, explaining why low income urban single mothers break up with their partners.

The authors, Kathryn Edin and Maria Kefalas, point to conflicts between partners over money. Fights and antagonism don’t erupt because the man doesn’t earn as much as someone with higher skills or because he can’t find a job. Rather:

Money usually becomes an issue because he seems unwilling to keep at a job for any length of time, usually because of issues related to respect. Some of the jobs he can get don’t pay enough to give him the self-respect he feels he needs, and others require him to get along with unpleasant customers and coworkers, and to maintain a submissive attitude toward the boss.

They say money is an important factor in why co-habiting couples break up, but it’s not the only one – so is status.

This brief comment by Professor Hanson makes a wider but insightful point:

I suspect much of what makes some cultures more successful than others is how they help folks to avoid seeing unpleasant interactions as direct challenges to their status.

Something that might be merely annoying or vexing in one culture can be profoundly challenging in another, demanding confrontation and even retribution. One of the commenters expands further on this idea with an example. He asks you to imagine you and your staff are in a meeting with another manager and his team. During the meeting the other manager says things that challenge your status.

In the United States after the meeting your group members might say. “Boy, that guy was a jerk.” The issue becomes the other manager’s problem. Read the rest of this entry »


What can be learned from the English riots?

"Remember, if you're arguing on the internet, you've already lost"

A lot of the commentary published in the wake of the English riots earlier this month marvelled at the wide range of views on the underlying causes. But few had much of substance to say themselves that might enhance broader understanding of the fundamental causes of the riots.

I’ve come across three sources that I think actually do have something interesting to say about the riots, or at least offer a different perspective. One is from the new issue of the UK Architect’s Journal; one is a new op ed by urban economist Edward Glaeser; and the third is a study by the Black Training & Enterprise Group in the UK on educational attainment in the British Chinese community.

What the Architect’s Journal says……

The UK Architect’s Journal asked a number of prominent Britons with an interest in design and cities for their views about the recent English riots. Those who responded include Joseph Rykwert, Richard Sennett, Jeremy Till, Alain de Botton and Robert Taverner.

Sennett says the riots were all too predictable – “a generation of poor, young people with no future becomes a tinder box for violence”. Taverner says the riots are a sobering reminder that people make cities – “cities rely on a precarious social balance that can be wrecked by the irresponsible”.

Some implicated the built environment more directly. Rykwert says cities incite riots – “herding people in high-rise reservoirs of social aggression doesn’t help”. Yasman Shariff says there are fundamental problems with urban regeneration schemes – “riots in new generation areas point to the schism where ordinary people cannot afford the new people’s palaces…..it can be little surprise that these regeneration areas are being torched”.

Marianne Mueller, whose practice is involved in assessing regeneration scheme designs, says “spaces for young people and public facilities in general (nurseries, libraries, green open spaces…..) are definitely not a focus in the schemes we have been reviewing over the last few years”.

The response that most struck a chord with me is from Jeremy Till who, perhaps surprisingly for an architect, emphasises the importance of underlying social processes relative to the built environment:

At least the architects are not blamed this time, as we were with Broadwater. Nor could we be, because (quoting Simmel) the city is not a spatial entity with sociological consequences, but a sociological entity that is formed spatially. Here the riots spatialise years of ramping up of social inequality. So when my Twitter feed calls for the reintroduction of Jane Jacobs, I blanch (because space is not the solution, just the symptom) and when the Tories say it is ‘pure’ criminality, I rage (because of the implicit disavowal of their political responsibility).

Very astute, Professor Till.

What Edward Glaeser says………

Harvard urban economist Edward Glaeser has published a short op ed on Bloomberg View in response to the English riots, titled How riots start and how they can be stopped. He reminds us that not all riots are overtly related to a political grievance (e.g. the ice hockey riot in Vancouver earlier this year). He argues there’s a tipping point where the cost of rioting – in terms of the risk of being arrested – gets lower as the number of people participating gets larger:

If I decided to start rioting tomorrow in Harvard Square to express my outrage at the closing of the beloved Curious George children’s bookstore, it’s a pretty good bet that I would be immediately arrested. But if thousands of others were involved, I’d probably get off scot free. The police would be overwhelmed, and my probability of incarceration would fall to zero. Thus, riots occur when the sheer mass of rioters overwhelms law enforcement.

Professor Glaeser also provides some insights on how riots might best be managed. He cites research which compares the Paris riots of 2005 with the Republican Convention in New York in 2004, where the threat of violence was averted. Police arrested only a handful of rioters in Paris, but sought serious criminal penalties. In contrast, the New York police arrested over 1,000 people but eventually let them go:

The New York strategy protected the city; the French strategy wasn’t as effective. The lesson: Light penalties widely applied and serious penalties applied to a few can both deter unlawful behaviour. This is a central conclusion of Gary Becker’s path-breaking economic analysis of crime and punishment. But in the case of riots, it is awfully hard to actually prove wrongdoing and extremely important to clear the streets. Arresting widely and temporarily can be far more effective.

What the Black Training & Enterprise Group says………

The Black Training & Enterprise Group’s study, titled What more can we takeaway from the Chinese community? (that just has to be an unintentional pun!), suggests that common explanations for poor educational performance, like ethnicity and poverty, don’t provide a complete answer. The study, which relied on official statistics from the UK Department of Education, found that 87.5 percent of British Chinese students pass the GCSE whilst their white counterparts manage only 69.6 percent. Further,

Black students from African and Caribbean descent attain a combined 67 percent respectively. Children of Indian heritage are the closest ethnic group in gaining similar levels of attainment but still only manage 82.2 percent exposing a gap of nearly 5.5 percentage points. Read the rest of this entry »


What causes urban riots?

Location of verified riots, up to 6.00am 9 August 2011

British leftie, Brendan O’Neill, takes an unsympathetic view of the UK rioters in this article, London’s burning: a mob made by the welfare state. He dismisses popular explanations like racism, characterising the rioters as “welfare-state mobs” who are destroying their own communities.

Painting these riots as some kind of action replay of historic political streetfights against capitalist bosses or racist cops might allow armchair radicals to get their intellectual rocks off, as they lift their noses from dusty tomes about the Levellers or the Suffragettes and fantasise that a political upheaval of equal worth is now occurring outside their windows. But such shameless projection misses what is new and peculiar and deeply worrying about these riots. The political context is not the cuts agenda or racist policing – it is the welfare state, which, it is now clear, has nurtured a new generation that has absolutely no sense of community spirit or social solidarity.

Harvard economist Edward Glaeser (author of my last book giveaway, Triumph of the City) has a long interest in the causes and consequences of urban violence. In this paper, The Los Angeles riot and the politics of unrest, Professor Glaeser and colleague Denise DiPasquale examined the tragic history of post-war riots in the US (H/T Christian Dimmer, @remmid).

The LA riot of 1992 – sparked by the police beating of Rodney King – lasted three days and resulted in 52 deaths, 2,499 injuries, 6,559 arrests, 377 buildings completely destroyed and 222 seriously damaged. Seventeen people died and 400 were arrested in the two-day Miami riot in 1980. In 1965, a six-day riot in Watts resulted in 34 deaths, 1,032 injuries and 800 buildings damaged or destroyed.

DiPasquale and Glaeser examined the causes of rioting using international data, evidence from the race riots of the 1960s in the US, and Census data on Los Angeles, 1990. Their empirical results suggest high levels of ethnic diversity and unemployment among young black men, combined with the “sheer size” of LA, all help to explain the 1992 riot.

However they found little support for the notion that poverty is a major determinant of which cities riot. Nor did they find a connection between high levels of migration – a proxy for social capital – and rioting. They conclude that rioting is driven to some extent by the probability and size of punishment. An increase in the probability of arrest, they say, lessens the probability of a riot and its size. Individual costs and benefits matter.

We find some support for the notions that the opportunity cost of time and the potential cost of punishment influence the incidence and intensity of riots. Beyond these individual costs and benefits, community structure matters. In our results, ethnic diversity seems a significant determinant of rioting, while we find little evidence that poverty in the community matters.

Brendan O’Neill says the intrusion of the welfare state in the UK over the past 30 years “has pushed aside older ideals of self-reliance and community spirit”. The most striking thing about the rioters, he says, is how little they seem to care for their own communities – the violence is not political, but merely criminal: Read the rest of this entry »


Is social capital really declining?

Abandoned Frank Lloyd Wright house is rescued

Dr Andrew Leigh reckons the massive drop in support for the ALP in NSW isn’t due to any inherent defect in party organisation but rather to the broader trend of declining social capital. I think he’s pulling a long bow. But the bigger question to my mind is whether social capital really is on the wane or whether it’s just taken a different form.

Writing in the Australian Financial Review this week, he argues that

people are failing to attend Labor Party meetings for the same reasons that activity is declining in most other political parties, in Rotary and the RSL, in unions and churches. Compared with two decades ago, we are less likely to know our neighbours and have fewer trusted friends.

The decline in social capital, he says, “is driven by several factors, including long working hours, car commuting and television”.

Dr Leigh is a former professor of economics at ANU and the author of Disconnected (best described as a sort of Australian version of Putnam’s Bowling Alone). He’s also the new ALP Member for the Federal seat of Fraser in the ACT, so it’s just possible that his take on the underlying ills of the ALP in NSW is a little less than objective.

I’m not convinced that all or even most of the precipitous fall in ALP membership can be sheeted home to people having less ‘spare’ time to devote to community activities or less need to ‘go out’. For example, I’ve pointed out before that car commuting doesn’t appear to be an issue – the median commute by car in a city like Melbourne is 30 minutes and half as long as the average commute by public transport. And I think there are often simpler explanations for declining civic participation e.g. changing demographics surely explain most of the decline in RSL involvement and better education the decline in church participation. A key reason we don’t know our neighbours as well as we used to is that cars have given us the geographical scope to be more discriminating about who our friends are.

But more importantly, I’m not sure that the jury’s back yet on whether social capital actually is declining. It’s true that I don’t know many people today who are active in the RSL, unions or churches, but I do know lots of people who participate in a host of other sorts of social activities that Dr Leigh doesn’t measure.

For example, virtually every woman I know above a certain age is in a book club and I know plenty of men-in-lycra who meet regularly to cycle and talk over coffee. People did these sorts of things twenty or more years ago, but they seem to be much more popular now. Many fewer women volunteer in the school tuck shop these days but that’s because many more are at work than twenty or thirty years ago. Work is in most cases a distinctly social activity where the need for trust, the scope for reciprocity and mutual reliance, and the opportunity to form deep relationships, is arguably much greater than in the tuck shop. Indeed, it’s hard to think of any activity as demanding of trust as market interactions, as Dr Leigh acknowledges in Disconnected. Read the rest of this entry »


The distribution of wealth: perception vs reality

Chart from Mother Jones. And here’s a link to the paper this chart came from, Building a Better America – One Wealth Quintile at a Time (it’s quite short).


Is Melbourne the 2nd most liveable city in the world?

The Economist Intelligence Unit’s (EIU) 2011 Global Liveability Report says Melbourne is the 2nd most liveable city in the world, just behind Vancouver and up one place from 3rd last year. Sydney ranks 7th.

But any elation is likely to be short-lived. The Mercer Annual Quality of Living survey for 2011, due in late May, will very probably put Melbourne much further down the list. In Mercer’s 2009 and 2010 surveys, Melbourne slipped from 17th place to 18th place. Sydney ranked 10th in both years.

As I’ve pointed out before, these sorts of surveys shouldn’t be taken seriously as a guide to how liveable our cities really are. They have a number of shortcomings. Read the rest of this entry »