Technology, the One Percent and Happiness

One of the central themes of this blog is the pressure that low, zero or negative growth places on economic and social institutions. Technology, however, appears to be ramping up the pressure on these institutions through directing the fruits of whatever growth there is toward an ever-smaller pool of winners. As a result, trickle down appears to be dead, which ultimately means that the current market structure could be gradually undermining the post-war political consensus.

This sounds all very Marxist, but a recent paper by Emmanuel Saez of the University of California shows the amazing extent to which top earners in the U.S. are taking an accelerating share of total income. True, the Great Recession saw a short hiccup in this trend, but the bounce-back since then has been extraordinary: all the gain has been captured by the top one percent (click for larger image).

Real Income Growth jpeg

Saez also puts current income concentration in the context of the historical trends since 1917. As things stand, the rich (top 10%) are pulling away from their 1920s equivalents let alone the average household of the post-war period.

Top Decile Share jpeg

And even within the rich, there is a further level of concentration:

Top Decile Income Share jpeg

Further, even within the 1%, there are relative winners: the top 0.01% (households with earnings of just under $8 million a year) is taking close to 5% of total income.

The Top 0.01% jpeg

Given that there are around 120 million households in the U.S., we are talking about only 12,000 families in this category. Forget Russia, the U.S. has also become a society of plutocrats and oligarchs.

What is even more surprising to me is that despite the economic disruption of the Great Recession, increased unemployment and greater concentration of income (and wealth), indices of ‘happiness’ show no downward trend. The chart below taken from a paper by Graham, Chattopadhyay and Picon shows Gallup’s ‘Best Possible Life (blp) index (using data from a daily survey of 1,000 U.S. adults) plotted against the Dow Jones Industrial Average. At the height of the crisis, when Lehman Brothers went bankrupt, recorded happiness did slump but has since bounced back to levels even higher than those pre-recession; this is despite the fact that a slew of economic indicators show that many households are still struggling.

Best Possible Life jpeg

The ‘best possible life’ question is based on the Cantril Ladder that I blogged on previously here and is phrased in this way (source here):

Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top.

The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you.

On which step of the ladder would you say you personally feel you stand at this time? (ladder-present)

On which step do you think you will stand about five years from now? (ladder-future)

There is lots of evidence that ‘happiness’ reverts to previous levels when subject to either positive (for example a lottery win) or negative shocks, but I still find the resilience of the U.S. population very strange given the rise in unemployment, food stamp recipients and homeless families. For example, the chart below shows the number of recipients of the U.S. Supplemental Nutrition Assistance Programme (SNAP, data from here), better known as food stamps. As of January 2013, 47.8 million Americans (23.1 million households) were receiving benefitting from SNAP, up from 27.8 million individuals in December 2007, when the crisis was just commencing.

SNAP Recipients jpeg

Carol Graham, an economist who specializes in the field of happiness, postulates in her book “The Pursuit of Happiness: An Economy of Well-Being” that the less-than-expected correlation between poverty and happiness may be due to a phenomenon she calls ‘happy peasants, frustrated achievers’. In short, those who have less opportunity or ability to effect their surroundings reset their happiness within the constraints that control them. Further, she differentiates between current opportunity and future opportunity. Food stamp recipients may believe that their situation is temporary and that they will have an opportunity to achieve the American Dream at some point in the future. The fact that social mobility has been falling in recent decades is irrelevant according to her line of thinking: happiness is perception.

I am not entirely convinced. Indeed, I wonder if Gallup does actually capture those Americans really struggling at the bottom. Can they contact those whose place of residence is in a state of flux or are completely homeless? Do the very poor respond to surveys? I don’t know the answer to these questions, but would love to see some empirical work on the happiness of those receiving food stamps.

Which takes me back to the beginning of the post where I wondered whether falling growth and burgeoning inequality could set the scene for social instability. Perhaps Graham is showing us a version of Aldous Huxley’s “Brave New World” where the masses are kept quiescent and content through the use of the drug soma. But in our case, soma is replaced with Jim Kunstler‘s Nascar, junk food, internet porn, tatoos, piercings, and day-time TV (oh, and of course, belief in the American Dream). Or perhaps not.

3 responses to “Technology, the One Percent and Happiness

  1. hi justin — i’ve recently come to the conclusion that happiness is in fact 100% perception — and i’m convinced of it now. a “happy peasants, frustrated achievers” view hits the nail on the head if you ask me. without even touching on the 0.01%, the top quartile/decilers in the world are often the unhappiest and i know because i, like you, was a top deciler and then a 1 percenter. as i look back at my time in the 1% group, it goes without saying that i gained much from those years, but when i think and gauge whether i was “happy” or not, i put myself in the “unhappy” group as i raked in all that dough. more income naturally led to higher expenses which then naturally led to higher expectations which then meant longer working hours, higher stress, less time with the kids, and a constant fear of “losing the good life” and disappointing my family. i think about the simple life i had growing up in canada, i think about my early career, and then i am constantly reminded of the life i have now (zero regular cash flows) and i conclude, in hindsight, that these periods of my life are the happiest. and so without turning this into an axiom, i would simply say that money does not correlate with happiness to the degree that many would ascribe. i think about the 2 norwegians who came to hokkaido this past winter to rip up the world reknowned powder of nisseko (snowboards). they slept in a tent on the mountainside everynight and swam in a nearby lake (-1 degC) once every 3 days. they were all smiles. were they part of some new international homeless trend? no. could they afford a hotel? yes. but they chose not to because they found immense pleasure spending their time & money in a completely minimalist way. they had a tent, they found a lake, and they were surfing the snow– and they didn’t need anything else. would that make ME happy? no, i’d hate that, but this was “happiness” for them. back to me, financially speaking, i have every intent to get back to the 1% for personal reasons, but this time i plan to take on that challenge in a completely unorthodox way that actually disassociates me from 99% of the 1% group. the plan is to be a 0.01 percenter defined by a 1 percenter that is 99% unlike his peers because quite simply, i don’t plan to be a frustrated achiever the next time around. poverty is too often associated with unhappiness and conversely, riches with happiness. sometimes it’s true, but i would say only at the extremes. i would argue that if there was a study of the top decilers vs the bottom decilers (excluding top 1%/ bottom 1%), that the “poor” group would show to be statistically happier than the rich group. robin hood is seen as a hero but i never liked that book as a kid… and now i know why— he should have simply minded his own business.

    • The whole ‘happiness’ literature is fascinating, and it is amazing to me that the topic has only started to be studied more formally in recent years. I recommend Daniel Nettle’s “The Science Behind Your Smile”, which got me started on the whole topic. Since reading this book, I’ve been a voracious reader of everything I could find on the subject, from both a psychology and economics perspective. Eventually, I want to have a whole section of my blog dedicated to happiness.

      I think wealth can provide what the happiness literature calls “agency”, or the ability to shape one’s own environment. But without what some scholars call eudaimonia, (which is really difficult to define but covers such aspects as human flourishing, leading a good life and the pursuit of a life with a sense of purpose), wealth (the potential for agency) just leads to the pursuit of bling or narcissism.

      Some people seem to get by in life fine without any calling to find eudaimonia, but I sense you (like me) are not one of them.

      • I would also make the observation that full-time ski bums or surfer dudes may be leading happy lives, but these are lives devoid of eudaimonia. These are narcissistic lives. Lots of academics say “so what”: you can’t make a value judgment between different types of happiness. I still haven’t made my mind up about that one.

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