505. Easterlin Paradox... new explanation

There's a new article on Journal of Economic Literature (March 2008) by Andrew Clark of Paris School of Economics writes about an alternate explanation to Easterlin Paradox.

Easterlin Paradox was published in 1974 by Richard Easterlin that found that average happiness in the US has remained constant over time even though GNP per capita (i.e. income per person) has risen sharply over the same time period. This theory has been in contrast with typical findings that individual income and individual sense of well-being are correlated.

So, basically, you are earning more, but are not happier than before. Sounds familiar?

So, the new article argues that it is not your absolute level of income which determines happiness, but rather "relative income", i.e. how much money you are making compared to the Jones's that's to blame.

Intuitively, it makes sense. At some point in time, I was making almost nothing, and yet was happier, carefree and considered myself lucky. I remember going to a Bangladeshi party at an engineer's house in silicon valley in summer 1994, and listening to all the talk about how much they paid for their house, and how much time they took to pay off the mortgage, and thinking that it'll never be me, I'll always value myself by some other yardstick.

And now, fast forward 14 years, and I'm thinking that my life would be incomplete without the new DSLR with preview, a home gym, and obsessing about how many songs fit into my iPod nano, and convincing myself that I need an upgrade.

And I'm just about at the same level of happiness.