It has been 50 years since a new twig sprouted from economics. What started as a small offshoot in 1974 has now grown into a fully developed branch known as happiness economics.
American economist Richard Easterlin (1926 -) laid the groundwork with his 1974 paper, Does Economic Growth Improve the Human Lot? Some Empirical Evidence. Easterlin discovered that there was no relationship between income and happiness when comparing different countries.
Ten out of 14 countries being studied showed almost the exact same average level of happiness, albeit huge diversions in Gross National Income per capita. Such a controversial finding, coined as the Easterlin Paradox, was heavily disputed. Numerous studies have since been published, some supporting this conclusion, while others opposing Easterlin’s claims.
Throughout these 50 years, economists have attempted to understand what makes us human beings happy by taking a holistic approach and merging economic theory with psychology and philosophy. We shouldn’t be too surprised by this, given that economics itself was forged out of these very disciplines; with a pinch of mathematics added later to establish it as a social science.
Numerous international studies have been tracking well-being across time, such as the Gallup World Poll and the OECD’s Better Life Index.
Happiness economics has made significant strides locally, thanks to economists like Marie Briguglio, whose work on the Well-being Index has begun aligning academic research with policy.
I first stumbled upon this field of study as an undergraduate student, back in 2009, when I embarked on what would become the first dissertation of its kind in Malta. Fast-forward 15 years and what was once considered ‘too original’ has become somewhat conventional nowadays. We’ve got accustomed to hearing statistics about how countries rank in happiness, with Malta ranking 40th in the world in terms of Life Satisfaction, according to the World Happiness Report 2024.
Perhaps, the nudge in this direction stemmed from the need to address the shortcomings of sheer economic growth, the surge in mental health concerns, or, maybe, simply because it sounds refreshing – or, most likely, a combination of all these.
Nonetheless, more important than our ranking is the question of how to enhance our own personal happiness and that of others. I would like to share with you three fundamental lessons elicited from this field of study.
Lesson number one: Money will affect your happiness only to a certain point.
A higher salary might make you happier but only until it is considered sufficient. What one perceives to be a need or simply a want is quite subjective, and there is no magic number as to what a sufficient salary is. This also depends on people’s relative income – both in relation to one’s own past earnings and to those of peers. However, once a certain level of affluence is reached, the effect of money and income weakens and emotional upshots are short-lived.
Merely striving for more wealth will trap you in what psychologists call a Hedonic Treadmill, where any improvements – or shortfalls – in happiness are destined to converge back to a steady state in the long run. This notion is not new; even ancient figures like Epicurus pointed towards it. And, yet, we often find ourselves chasing rainbows forever, sacrificing everything for transient feelings.
The family unit is being gradually dismantled and friendships are being sabotaged by social media- Mark Caruana
Lesson number two: The biggest determinant of happiness is one’s own personality, followed by relationship with family and friends.
Economists typically use statistical tools and models to create equations aimed at explaining the link between happiness and various factors. What they find out, time and again, is that the strongest predictor of happiness is one’s personality traits – specifically, emotional stability and extraversion.
Following personality traits, the next most important factor is relationships with one’s family and friends – a somewhat professional way of referring to good old-fashioned love.
And how are we faring? Sadly, not so well. The family unit is being gradually dismantled and friendships are being sabotaged by social media, which promises us faster and wider connections but fails to cultivate meaningful relationships.
Youths are locking themselves inside their homes, misled into believing they are socialising with others, all the while being surrounded by four brick walls. It is no wonder that youths are racing against the elderly, competing for the top spot as the loneliest age group.
Lesson number three: Seeking happiness is in itself a doomed enterprise.
I hope this doesn’t cloud your happiness but, ironically, the harder we chase it, the more elusive it becomes. Not to be misread here, since we cannot deny that one of life’s central goals is to attain happiness. However, basing all our decisions solely on this is self-defeating.
Even our preoccupation with constantly measuring our happiness is counterproductive. Most of the time, we humans are bad at decision-making, especially when trying to figure out what truly fulfils us. We often trade long-term happiness for fleeting pleasure, giving in to hedonic shortcuts that offer brief dopamine kicks, only to undergo withdrawal symptoms soon after.
The question inevitably arises: isn’t the pursuit of this long-term happiness still doomed to fail? It would be more sensible to aim for something akin to eudaimonia – living a meaningful life through good deeds. These actions should be sought for their own sake, rather than for the feelings they create.
If they do yield positive emotions, then they are yours to enjoy as a by-product. In fact, even voluntary work, donating, community involvement, religion and spirituality are significant determinants of happiness.
Most of this is not new and has long been preached from pulpits and podiums. However, we must appreciate that science takes longer to verify certain claims, and economics must similarly take the sluggish path.
Perhaps the validity of happiness economics lies in its ability to point towards ancient wisdom we have forgotten in our myopic pursuit of progress. Since the advent of modern economics, we have disproportionately focused on increasing GDP, boosting consumption and maximising profits.
While these are undoubtedly critical goals, Easterlin reminds us that focusing solely on them risks losing sight of the forest for the trees.
Economics can perhaps be likened to a child eager to run before learning how to crawl. Fifty years of happiness economics have made it clear that, from time to time, this unruly child needs to be taken back to the parents for a spanking.
Mark Caruana is a full-time economics lecturer at the University of Malta Junior College. He holds a master’s degree in economics with a specialisation in happiness economics.