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  • Hi, I’m Adriene Hill, and this is Crash Course Economics.

  • So, you want to be happy? Here’s your checklist: Get a job where you make about $82,000 a year.

  • Do not get fired from that job. Make sure your commute is no more than 22 minutes.

  • And, please, please: youve got to stop looking at your friendsFacebook profiles.

  • [Theme Music]

  • In the U.S., the pursuit of happiness is one of our inalienable rights;

  • written into the Declaration of Independence right along with the biggieslife and liberty.

  • The self-help industry is worth billions of dollars.

  • I mean, some of us hire life coaches.

  • And for all that, happiness can seem pretty elusive.

  • Economic thought over the last couple of centuries is built on a model that says

  • we all have unlimited, inexhaustable desires. More equals better.

  • And economists believed they could tell what makes us better-off by

  • looking at how we spend our money and time.

  • But in recent years, those assumptions are being called into question.

  • Economists and psychologists have discovered a disconnect between how we buy and spend and do,

  • and what actually makes us FEEL better off.

  • Theyve realized that sometimes, getting paid nothing for doing something

  • can make us feel happier than getting paid.

  • Like say I cooked a friend a dinner for his birthday,

  • and after we finished up the last bite of birthday cake, he offered to pay me for it.

  • All of the sudden my gesture of kindness my warm fuzzy feelings, they disappear.

  • Economists have discovered a correlation between greater income and greater happiness across cultures.

  • But in some places the effect is greater than others.

  • But, theyve also found that more money has diminishing returns when it comes to our day to day happiness.

  • Let’s go to the Thought Bubble. Say Stan and I are both successful bakers.

  • Thanks to a combination of my impressive baking skills and some luck, I've become a star baker.

  • I make $500,000 a year in cupcake sales and baking pan endorsements.

  • Stan, on the other hand, is a masterful, but not-famous baker.

  • He makes $50,000 a year selling cupcakes out of his modest bakery.

  • Stan and I enter a cupcake contest. I win $10,000 in the cake category.

  • Stan wins $10,000 for his icing and decoration.

  • But that money is going to have very different effects on our lives and our feelings of happiness.

  • For Stan, $10,000 represents a significant portion of his income.

  • That $10,000 may make him feel a whole lot more relaxed and better off.

  • For me, an extra $10,000 is nice and all.

  • But it’s not going to change much about how I live my life or what I do with my time.

  • $10,000. Cool. Whatevs.

  • Beyond some level of income, the value of each additional dollar

  • has diminishing returns in terms of our day to day well-being.

  • A 2010 study found in the U.S. it was about $75,000 a yearor about $82,000 when you adjust for inflation.

  • After that, the researchers discovered, a person’s day to day happiness levels just didn’t change that much.

  • But, the same researchers also looked at another form of happiness;

  • asking people how satisfied people were with their place in the world.

  • And there, money mattered.

  • The study found that there was a difference between the wealthy and super-duper-insanely wealthy

  • when it came to overall satisfaction with their lives.

  • Thanks Thought Bubble! So, we know that some people have a natural predisposition to be unhappy.

  • And some people seem more inclined to constant joy. Those people are annoying.

  • For a long time, psychologists believed that people have a “set pointfor happiness.

  • And that most big changespositive or negativehad only a temporary effect on happiness.

  • But, more recent studies show that economic choices and circumstances can have lasting effects on just how happy we are.

  • For one, there is a pretty clear relationship between unemployment and happiness.

  • Basically, being out of work can make people out-and-out-miserable.

  • By some estimates, unemployed people have 5%-15% lower life satisfaction scores than people with jobs.

  • Studies have found that the negative effects of unemployment are greater in high-income countries.

  • There’s also research showing that the happiness of middle-age people is

  • more negatively affected by unemployment than older people.

  • You might be thinking, duh, people without a job aren’t making any money, so of course they’d be less happy.

  • But economists have found that the loss of well-being due to unemployment is

  • greater than can be explained by the immediate loss of a paycheck.

  • One explanation is that unemployment makes people worried not just about paying the bills today,

  • but also about the future.

  • Economists have also found that moving from a part time job to a full time job makes people happier.

  • But, the correlation between hours worked and happiness doesn’t continue up and up and up.

  • At some point,when youre working ALL THE TIME, happiness levels start declining.

  • Imagine it like an upside down U shape.

  • Kind of like an I’m-working-all-the-time-and-never-get-to-see-my-friends sad face.

  • Long work commutes make people less happy. Credit card debt makes people less happy.

  • And inflation, it turns out, especially unpredictable inflation, can make people less happy.

  • We like stability. And for our savings to hold their value.

  • It’s not just the ups and downs of what you can afford that affects your happiness.

  • It’s also what the neighbors can afford.

  • There’s something called the reference-income hypothesis or ranked-income hypothesis.

  • It says that the satisfaction I get from my income and consumption level

  • depends on how I’m doing compared to everyone else around me.

  • So, if the wealthy-star baker version of myself lives around millionaires,

  • I might be less happy than if I lived in a middle class neighborhood.

  • Even if I’m making the same income. A 2009 study found this is true, to an extent.

  • Researchers found out Americans were happier when they lived in rich neighborhoods in poor counties.

  • The authors wrote: “it appears that individuals in fact are happier when they live among the poor,

  • as long as the poor do not live too close.”

  • This idea that status matters, maybe more than absolute income,

  • brings us around to something known as theEasterlin Paradox.”

  • It’s named after an economist named Richard Easterlin, who, back in the '70s, found that that

  • as the income level in a country rises, the average level of happiness in those countries doesn’t always follow.

  • This happens even though we also know there is, at some level,

  • a positive relationship between income and happiness.

  • So, what’s going on? One explanation is that we derive happiness from status, rather than absolute income.

  • So when an entire country gets richer, even if our income goes up,

  • our status and relative income stays about the same.

  • And we don’t get any happier.

  • Another explanation gets back to theset pointof happiness we talked about before.

  • Some economists talk about thehedonic treadmillorhedonic adaptation”.

  • Here’s Rousseaudescribing the phenomenon:

  • Since these conveniences by becoming habitual had almost entirely ceased to be enjoyable,

  • and at the same time degenerated into true needs,

  • it became much more cruel to be deprived of them than to possess them was sweet,

  • and men were unhappy to lose them without being happy to possess them.”

  • I can remember the joy I felt when I got my first smart phone.

  • Now I’ve adapted to the point that my phone is kind of annoying, but if somebody took it away, I might cry.

  • There’s a third explanation out there regarding the Easterlin Paradox

  • and that’s that it’s not actually a paradox at all.

  • Basically that it doesn’t hold.

  • There has been some research that shows the paradox is only true for relatively wealthy countries,

  • where the basic needs of citizens are already being met.

  • In lower GDP countries, the studies find, there ARE overall increases in happiness when income rises.

  • More recently, economists Betsey Stevenson and Justin Wolfers argued that

  • average levels of happiness rise in countries where income rises, regardless of how wealthy that country is.

  • The data, they say, points to a clear relationship between GDP per capita and average levels of well-being.

  • All of this happiness research matters when you think about

  • how governments measure progress and decide what the right path is for a country.

  • For a long time economic growth has been at the center of economic policy.

  • It explains some of our global fixation on GDP numbers.

  • But, if you believe that an increase in income and stuff isn’t going to make people happier and better off,

  • income growth may not be the best way to mark or judge the progress of a society.

  • A focus on GDP and growth might hide and even exacerbate issues like income inequality

  • and environmental damage related to increased consumption.

  • In the 1970s, the king of the tiny country of Bhutan proclaimed that

  • "‘Gross National Happiness is more important than Gross National Product.’"

  • Instead of measuring economic progress using GNP or GDP,

  • the government tracks GNHGross National Happiness,

  • which considers the social, physical, spiritual and environmental health of its citizens.

  • And it's not just Bhutan.

  • In 2011, the United Nations adopted a resolution

  • that calls for member states to give greater weight to happiness and well-being

  • when figuring out how to pursue social and economic development.

  • But this focus on happiness in addition to economic growth isn’t a truly new idea.

  • All the way back In 1968, U.S. presidential candidate Robert Kennedy got up in front of an audience

  • at the University of Kansas and criticized the focus on economic output alone.

  • "Our Gross National Product, now, is over $800 billion dollars a year,

  • but that Gross National Productif we judge the United States of America by that

  • that Gross National Product counts air pollution and cigarette advertising,

  • and ambulances to clear our highways of carnage.”

  • He goes on: “It measures neither our wit nor our courage, neither our wisdom nor our learning,

  • neither our compassion nor our devotion to our country,

  • it measures everything in short, except that which makes life worthwhile.”

  • Well, I don’t think we can write a better ending to the show, or to the series, than that.

  • Thanks for watching. It’s been such a pleasure.

  • Thanks for watching Crash Course Economics, which is made with the help of all these nice people,

  • who work on the show because it makes them happy.

  • You can help keep Crash Course free for everyone forever by supporting the show at Patreon.

  • Patreon is a voluntary subscription service where you can support the show with a monthly contribution.

  • Thanks for watching.

Hi, I’m Adriene Hill, and this is Crash Course Economics.

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