The Economics of Happiness
Alan Krueger, successful economist and architect of the Obama Administration’s 2009 plan to end Recession, studied economics through the lens of happiness. Although on the surface, the study of happiness and the study of economics seem worlds apart, Krueger believed that the point of economics was to figure out how to make people’s lives better, happier and more meaningful in a world of scant resources.
Krueger’s research points to two themes that make the pursuit of happiness a clearer path, and I think we can all learn from him.
First: Invest in experiences, rather than material things.
It’s no secret that many people these days are opting into experiences — concerts, travel, exploration, cooking classes, you name it —over investing in objects. My Instagram feed is filled with people ages 20 to 40 seeking weekends away from the city, exotic adventures in countries far away, or even fun local experiences with a group of friends. In 2019, a weekend away has become the new diamond bracelet.
But, who can blame us? Many millennials have seen their parents lose everything in the 2009 recession; they see their 70-year-old grandparents working retail when they should be retiring. Therefore, there’s a strong trend toward seizing the moment. Collecting memories feels safer, more secure than buying a house or a new car.
And, economically speaking, Krueger’s research shows that people tend to place a lower value on the gifts they receive than the gift is actually worth because they don’t usually have use for the object given. Sure, your mom likes the sweater that you gave her, but will it bring her a sense of happiness over time? Not likely. Conversely, gifts that are also experiences — for example tickets to a NFL football game, as Krueger noted — have a much higher value in the receiver’s mind because of the experience associated with the gift.
Even research by Nobel laureate psychologist Daniel Kahneman shows that money increases happiness until about $75,000 annually, and then after that, emotional happiness doesn’t increase with income. There’s a limit to how much happiness we can derive from money and objects. However, investing in experiences and memories leads to longer lasting feelings of contentment and overall happiness.
Krueger’s second lesson: cultivate, protect and cherish close relationships and connections.
This second one is no surprise. People are built to connect with others; it’s why we’re here. As vulnerability and connection researcher Brené Brown so eloquently says, “We are hardwired to connect with others, it's what gives purpose and meaning to our lives, and without it there is suffering.”
A 1938 longitudinal study out of Harvard empirically proves that relationships, over things like fame and money, help people maintain happiness throughout their entire lives. “Those [relational] ties protect people from life’s discontents, help to delay mental and physical decline, and are better predictors of long and happy lives than social class, IQ, or even genes.”
According to Krueger’s survey data, spending time with friends is one of the best ways to increase happiness. And, more importantly, this suggests that the times when we feel tired and don’t feel like being social are the times we should push through and be with others. Putting ourselves out there yields more happiness than a tired night home alone. Next time you’re about to send that 4pm bail-out text to your friend, stop and rethink.
Ultimately, in order to be happier, we should all focus on looking outward to the people we cherish in our lives, and strive to be closer, more connected to the communities that surround us. As the late Christopher McCandless —known to most of us as the protagonist in Jon Krakauer’s Into the Wild — wrote: Happiness is only real when shared.
Ironically, Krueger, a man who bettered this country by advocating for policies based on happiness, died last month by suicide. Let’s all honor his memory by living our lives guided by his brilliance.