Why we’re not happy

Why Prosperity Has Increased but Happiness Has Not

In a poor country with low inequality, rising national income should make people happier, and of course reducing poverty is a good in and of itself. But in a wealthy, unequal country like today’s America, gains in national income can decouple from well-being.

Part of the problem is, the individual cannot perceive this. The typical person cannot perceive unemployment falling a few tenths of a percent or personal income rising a quarter of a percent. If income is rising as fast an inflation, then it may be impossible to notice. You can buy a bigger iPhone and more Netflix selection, but healthcare, rent, and tuition keeps going up.

And a related article: Everything Is Booming Except for Wages

I think the most parsimonious explanation is too much supply of labor and not enough demand, so this means employers still have the upper hand. Low unemployment hides the low labor force participation rate. A lot of middle-aged and older men want to work but cannot. Many low and medium skill jobs still have too many applicants relative to open slots.

The labor market is still really tight, especially for college dropouts and high-school grads, much more so than it was decades ago. It’s not uncommon for there to be hundreds of applicants for just a single opening, for all skill levels (so STEM people are not immune to this). When one lands a job interview, the rapport and intimacy between the interviewer and the applicant creates the false impression that only a few people applied, when in fact hundreds of people applied for that same position but you cannot see them, and that is why it is so common to be denied even though the interview ‘seemed to go well.’ When the media touts a story about ‘more openings than applicants,’ that is cherry-picked data. They chose a single town or business location where that is true.

Second, all happiness is relative. Although moral philosophers may wish Homo sapiens were wired more rationally, we humans are walking, talking status meters, constantly judging our worth and social standing by comparing ourselves with others today and with our own prior selves.

Relative wealth plays a major role it seems. It’s not the mega-billionaire that makes you envious, it’s your neighbor buying a new new or coworker getting a raise.

Overall, there are two economies: one that is doing well as measured by key economic data, rising stock prices, and is represented by the top 10% (by socioeconomic status). And then a second economy that is is experienced by the remaining 90% or so, that is somewhat stuck in a rut and not fully participating. This group is weighed-down by student loan debt, not having enough money for an emergency, medical expenses, sluggish inflation-adjusted wages, and insufficient retirement savings (if any at all). The American dream is predicated on the optimism that this 90% can join the 10% (which is statistically impossible anyway…there will always be a Pareto-like distribution).

Because the top 10%–in accordance to the Pareto distribution–have disproportionately more wealth, the median (instead of the mean) may provide a more accurate picture of how people are feeling, and why a lot of people feel ‘down and out’ even though the economy overall is doing well.