Reversal of Fortune

3. "It seems that well-being is a real phenomenon": Economists discover hedonics

traditionally, happiness and satisfaction are the sort of notions that economists wave aside as poetic irrelevance, the kind of questions that occupy people with no head for numbers who had to major in liberal arts. An orthodox economist has a simple happiness formula: If you buy a Ford Expedition, then ipso facto a Ford Expedition is what makes you happy. That's all we need to know. The economist would call this idea "utility maximization," and in the words of the economic historian Gordon Bigelow, "the theory holds that every time a person buys something, sells something, quits a job, or invests, he is making a rational decision about what will...provide him 'maximum utility.' If you bought a Ginsu knife at 3 a.m. a neoclassical economist will tell you that, at that time, you calculated that this purchase would optimize your resources." The beauty of this principle lies in its simplicity. It is perhaps the central assumption of the world we live in: You can tell who I really am by what I buy.

Yet economists have long known that people's brains don't work quite the way the model suggests. When Bob Costanza, one of the fathers of ecological economics and now head of the Gund Institute at the University of Vermont, was first edging into economics in the early 1980s, he had a fellowship to study "social traps"—the nuclear arms race, say—in which "short-term behavior can get out of kilter with longer broad-term goals."

It didn't take long for Costanza to demonstrate, as others had before him, that, if you set up an auction in a certain way, people will end up bidding $1.50 to take home a dollar. Other economists have shown that people give too much weight to "sunk costs"—that they're too willing to throw good money after bad, or that they value items more highly if they already own them than if they are considering acquiring them. Building on such insights, a school of "behavioral economics" has emerged in recent years and begun plumbing how we really behave.

The wonder is that it took so long. We all know in our own lives how irrationally we are capable of acting, and how unconnected those actions are to any real sense of joy. (I mean, there you are at 3 a.m. thinking about the Ginsu knife.) But until fairly recently, we had no alternatives to relying on Ginsu knife and Ford Expedition purchases as the sole measures of our satisfaction. How else would we know what made people happy?

That's where things are now changing dramatically: Researchers from a wide variety of disciplines have started to figure out how to assess satisfaction, and economists have begun to explore the implications. In 2002 Princeton's Daniel Kahneman won the Nobel Prize in economics even though he is trained as a psychologist. In the book Well-Being, he and a pair of coauthors announce a new field called "hedonics," defined as "the study of what makes experiences and life pleasant or unpleasant.... It is also concerned with the whole range of circumstances, from the biological to the societal, that occasion suffering and enjoyment." If you are worried that there might be something altogether too airy about this, be reassured—Kahneman thinks like an economist. In the book's very first chapter, "Objective Happiness," he describes an experiment that compares "records of the pain reported by two patients undergoing colonoscopy," wherein every 60 seconds he insists they rate their pain on a scale of 1 to 10 and eventually forces them to make "a hypothetical choice between a repeat colonoscopy and a barium enema." Dismal science indeed.

As more scientists have turned their attention to the field, researchers have studied everything from "biases in recall of menstrual symptoms" to "fearlessness and courage in novice paratroopers." Subjects have had to choose between getting an "attractive candy bar" and learning the answers to geography questions; they've been made to wear devices that measured their blood pressure at regular intervals; their brains have been scanned. And by now that's been enough to convince most observers that saying "I'm happy" is more than just a subjective statement. In the words of the economist Richard Layard, "We now know that what people say about how they feel corresponds closely to the actual levels of activity in different parts of the brain, which can be measured in standard scientific ways." Indeed, people who call themselves happy, or who have relatively high levels of electrical activity in the left prefrontal region of the brain, are also "more likely to be rated as happy by friends," "more likely to respond to requests for help," "less likely to be involved in disputes at work," and even "less likely to die prematurely." In other words, conceded one economist, "it seems that what the psychologists call subjective well-being is a real phenomenon. The various empirical measures of it have high consistency, reliability, and validity."

The idea that there is a state called happiness, and that we can dependably figure out what it feels like and how to measure it, is extremely subversive. It allows economists to start thinking about life in richer (indeed) terms, to stop asking "What did you buy?" and to start asking "Is your life good?" And if you can ask someone "Is your life good?" and count on the answer to mean something, then you'll be able to move to the real heart of the matter, the question haunting our moment on the earth: Is more better?

4. If we're so rich, how come we're so damn miserable?

in some sense, you could say that the years since World War II in America have been a loosely controlled experiment designed to answer this very question. The environmentalist Alan Durning found that in 1991 the average American family owned twice as many cars as it did in 1950, drove 2.5 times as far, used 21 times as much plastic, and traveled 25 times farther by air. Gross national product per capita tripled during that period. Our houses are bigger than ever and stuffed to the rafters with belongings (which is why the storage-locker industry has doubled in size in the past decade). We have all sorts of other new delights and powers—we can send email from our cars, watch 200 channels, consume food from every corner of the world. Some people have taken much more than their share, but on average, all of us in the West are living lives materially more abundant than most people a generation ago.

What's odd is, none of it appears to have made us happier. Throughout the postwar years, even as the gnp curve has steadily climbed, the "life satisfaction" index has stayed exactly the same. Since 1972, the National Opinion Research Center has surveyed Americans on the question: "Taking all things together, how would you say things are these days—would you say that you are very happy, pretty happy, or not too happy?" (This must be a somewhat unsettling interview.) The "very happy" number peaked at 38 percent in the 1974 poll, amid oil shock and economic malaise; it now hovers right around 33 percent.

And it's not that we're simply recalibrating our sense of what happiness means—we are actively experiencing life as grimmer. In the winter of 2006 the National Opinion Research Center published data about "negative life events" comparing 1991 and 2004, two data points bracketing an economic boom. "The anticipation would have been that problems would have been down," the study's author said. Instead it showed a rise in problems—for instance, the percentage who reported breaking up with a steady partner almost doubled. As one reporter summarized the findings, "There's more misery in people's lives today."

This decline in the happiness index is not confined to the United States; as other nations have followed us into mass affluence, their experiences have begun to yield similar results. In the United Kingdom, real gross domestic product per capita grew two-thirds between 1973 and 2001, but people's satisfaction with their lives changed not one whit. Japan saw a fourfold increase in real income per capita between 1958 and 1986 without any reported increase in satisfaction. In one place after another, rates of alcoholism, suicide, and depression have gone up dramatically, even as we keep accumulating more stuff. Indeed, one report in 2000 found that the average American child reported higher levels of anxiety than the average child under psychiatric care in the 1950s—our new normal is the old disturbed.

If happiness was our goal, then the unbelievable amount of effort and resources expended in its pursuit since 1950 has been largely a waste. One study of life satisfaction and mental health by Emory University professor Corey Keyes found just 17 percent of Americans "flourishing," in mental health terms, and 26 percent either "languishing" or out-and-out depressed.

5. Danes (and Mexicans, the Amish, and the Masai) just want to have fun

how is it, then, that we became so totally, and apparently wrongly, fixated on the idea that our main goal, as individuals and as nations, should be the accumulation of more wealth? The answer is interesting for what it says about human nature. Up to a certain point, more really does equal better. Imagine briefly your life as a poor person in a poor society—say, a peasant farmer in China. (China has one-fourth of the world's farmers, but one-fourteenth of its arable land; the average farm in the southern part of the country is about half an acre, or barely more than the standard lot for a new American home.) You likely have the benefits of a close and connected family, and a village environment where your place is clear. But you lack any modicum of security for when you get sick or old or your back simply gives out. Your diet is unvaried and nutritionally lacking; you're almost always cold in winter.

In a world like that, a boost in income delivers tangible benefits. In general, researchers report that money consistently buys happiness right up to about $10,000 income per capita. That's a useful number to keep in the back of your head—it's like the freezing point of water, one of those random figures that just happens to define a crucial phenomenon on our planet. "As poor countries like India, Mexico, the Philippines, Brazil, and South Korea have experienced economic growth, there is some evidence that their average happiness has risen," the economist Layard reports. Past $10,000 (per capita, mind you—that is, the average for each man, woman, and child), there's a complete scattering: When the Irish were making two-thirds as much as Americans they were reporting higher levels of satisfaction, as were the Swedes, the Danes, the Dutch. Mexicans score higher than the Japanese; the French are about as satisfied with their lives as the Venezuelans. In fact, once basic needs are met, the "satisfaction" data scrambles in mindlnding ways. A sampling of Forbes magazine's "richest Americans" have identical happiness scores with Pennsylvania Amish, and are only a whisker above Swedes taken as a whole, not to mention the Masai. The "life satisfaction" of pavement dwellers—homeless people—in Calcutta is among the lowest recorded, but it almost doubles when they move into a slum, at which point they are basically as satisfied with their lives as a sample of college students drawn from 47 nations. And so on.

On the list of major mistakes we've made as a species, this one seems pretty high up. Our single-minded focus on increasing wealth has succeeded in driving the planet's ecological systems to the brink of failure, even as it's failed to make us happier. How did we screw up?

The answer is pretty obvious—we kept doing something past the point that it worked. Since happiness had increased with income in the past, we assumed it would inevitably do so in the future. We make these kinds of mistakes regularly: Two beers made me feel good, so ten will make me feel five times better. But this case was particularly extreme—in part because as a species, we've spent so much time simply trying to survive. As the researchers Ed Diener and Martin Seligman—both psychologists—observe, "At the time of Adam Smith, a concern with economic issues was understandably primary. Meeting simple human needs for food, shelter and clothing was not assured, and satisfying these needs moved in lockstep with better economics." Freeing people to build a more dynamic economy was radical and altruistic.

Consider Americans in 1820, two generations after Adam Smith. The average citizen earned, in current dollars, less than $1,500 a year, which is somewhere near the current average for all of Africa. As the economist Deirdre McCloskey explains in a 2004 article in the magazine Christian Century, "Your great-great-great-grandmother had one dress for church and one for the week, if she were not in rags. Her children did not attend school, and probably could not read. She and her husband worked eighty hours a week for a diet of bread and milk—they were four inches shorter than you." Even in 1900, the average American lived in a house the size of today's typical garage. Is it any wonder that we built up considerable velocity trying to escape the gravitational pull of that kind of poverty? An object in motion stays in motion, and our economy—with the built-up individual expectations that drive it—is a mighty object indeed.

You could call it, I think, the Laurdlgalls Wilder effect. I grew up reading her books—Little House on the Prairie, Little House in the Big Woods—and my daughter grew up listening to me read them to her, and no doubt she will read them to her children. They are the ur-American story. And what do they tell? Of a life rich in family, rich in connection to the natural world, rich in adventure—but materially deprived. That one dress, that same bland dinner. At Christmastime, a penny—a penny! And a stick of candy, and the awful deliberation about whether to stretch it out with tiny licks or devour it in an orgy of happy greed. A rag doll was the zenith of aspiration. My daughter likes dolls too, but her bedroom boasts a density of Beanie Babies that mimics the manic biodiversity of the deep rainforest. Another one? Really, so what? Its marginal utility, as an economist might say, is low. And so it is with all of us. We just haven't figured that out because the momentum of the past is still with us—we still imagine we're in that little house on the big prairie.