Can Money Buy Happiness?

by Will on September 7, 2010

Time reports that the answer is Yes: but only up to $75 thousand a year (h/t Yves Smith). A banker pulling in $1.5 million is apparently no more likely to be happy than a lawyer or high school principal making $120 thousand.

I’ve been meaning to post about how income above a certain amount, say half a million, is very likely to get thrown away on dumb, overpriced crap. I could find some conspicuous examples from the news, but the concept is simple: give me $900 and that, to me, is a big chunk of cash. I’ll spend it on things I need and have been saving for, things that have real value. Give $900 to a bank executive, and that’s chump change to him. It will not affect his purchasing. When his bank gives him his huge bonus at the end of the year, he’s likely to spend it on luxury goods. In other words, money, like most goods, has diminishing marginal utility. One additional dollar is worth a lot more to someone with few dollars than it is to someone with many dollars. This implies to me that the super-high top marginal tax rates of the Eisenhower years — I believe all income above $1 million was taxed at 90 percent — may actually be a good thing, both because they tend to distribute money from people who will get little utility out of it to people who will get a lot of utility out of it, and because they discourage people from getting caught up in a speculative bubble.

Leave a Comment

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: