Tuesday, April 30, 2013

Brookings Scholar: You Can't be Too Rich

Brookings Nonresident Senior Fellow Justin Wolfers, just released a paper with his co-author wife, Betsey Stevenson, which basically says that you can't be too rich.

Here is how The Wall Street Journal reports it:
The Duchess of Windsor, who quipped, “You can never be too rich or too thin,” appears to have had it at least half right.  New research by University of Michigan economists Betsey Stevenson and Justin Wolfers found that for rich and poor alike, as income climbs, so does one’s sense of well-being.
Their findings, to be published in the May 2013 American Economic Review, Papers and Proceedings, counter the idea that once certain basic needs are met, a rising income doesn’t translate into commensurate surges in happiness. That 1970s-era notion, named for economist Richard Easterlin and known as the Easterlin Paradox, holds that higher average income doesn’t translate into greater average happiness. Stevenson and Wolfers noted that other researchers — but not Mr. Easterlin — tweaked the paradox to say that it holds after a certain threshold income level — to take care of one’s basic needs — is met.
That belief worked its way into popular thought, said Mr. Wolfers, a Brookings Nonresident Senior Fellow, but it hadn’t really been formally tested and proved. He and Ms. Stevenson examined data for more than 150 countries from sources including the World Bank and the Gallup World Poll and concluded that there no such threshold income level, or “satiation point,” exists.
They found that “while each additional dollar of income yields a greater increment to measured happiness for the poor than for the rich, there is no satiation point.” That means that additional income makes both poor and rich people happier — it just will take more money to increase the well-being of the rich.

You can read the full report, titled "Subjective Well-Being and Income: Is There Any Evidence of Satiation?" here.

Here is what Slate says about the new study.  Here is what the Washington Post says.  Here Bloomberg Businessweek says.  Here is what US News & World Report says.

Wolfers is Co-Editor of the Brookings Papers on Economic Activity (BPEA) along with David Romer.  BPEA is a journal of economics published twice a year by Brookings Institution Press.  BPEA's spring 2013 conference was held March 21-22.

The Brookings Institution was recently ranked as the best think tank in the world by the annual University of Pennsylvania think tank rankings.