Happiness and Income Inequality: closely connected

 

     The image shown on this posting is from a study by Harvard Business Review researchers. It graphs the "overall well-being" of people in a country versus the income inequality of a country. Another way to compare is to use the "happiness index" of countries versus a listing of "income inequality" (this listing is actually for income equality -- to save me the need to reverse the list) for the countries. There is one outlier (Israel) but, otherwise, the top 15 countries on the happiness index (except for Iceland which was not listed in the happiness index that I found) were the same as the most income equal countries. I am not a statistician but I'm pretty sure that is very significant; minimum of 13 at the best of both lists.

     So, why should this be? The HBR researchers had their own ideas as shown in their paper. I prefer to take the approach of going into greater detail of what the lists mean. The income inequality list uses an index called the Gini index. The higher the number, the greater the inequality. However, a simpler way (which is part of the Gini index) is to check the concentration of wealth in a country.

     To make it easier, let us say that the country of TGT (target) has 100 people. That will mean that each 1% represents one person. If 1% (one person) of the population controls 20% of the wealth, that is very out-of-balance. This would mean that the remaining 99 people have 80% of the wealth -- or an average of .81% for each of the remaining 99 people. The person at the top would control 24.7 (20 / 0.81) times as much as each of the bottom 99 people.

     But, it is actually worse because the distribution of wealth is in an exponential distribution. If the top one person controls 20% of the wealth then it is likely that the next four people control another 20% of the wealth. Thus, the top five people control 40% of the wealth and each of the remaining 95 people controls 0.63% of the wealth -- or the top person controls 31.7 times as much as each of the bottom 95 people. Ah, But it doesn't stop there with an exponential spread. It would be likely that the next 10 people would control another 20% of the wealth. We now have 15 people controlling 60% and the remaining 85 people controlling 40% of the wealth. This equates to each of those 85 people controlling 0.24% or the top person now controls 83 times as much wealth as each of the bottom 85 people.

     So, who cares? How does this affect the happiness index? If that 0.24% is enough to meet all of the needs of those 85 people then it probably doesn't (but remember that the exponential spread has not stopped -- the bottom 20 people probably have VERY little money). But how realistic is that? It may be true that money doesn't buy happiness but having enough food, clothing, shelter, and hope is a very important ingredient towards being able to be happy.

     And that is the basic idea. The more that the wealth is squeezed into the "hands" of fewer people, the more people who are left with too little. The happiness index is based on the happiness of all 100 of the people of TGT. The greater the squeeze (concentration of wealth at the top) the greater number of people who don't see a way to easily live, let alone be happy with their lot.

     Ok, so who cares if people are happy? Ah, that is a philosophical and morality question and that does not have a single answer for everyone. Personally, I would greatly prefer (and am willing to have much less excess beyond what I need) to have more people happier. But, that is not a universal outlook.

     Beyond the philosophical and morality aspects, there are practical aspects. Lots of unhappy, desperate, people may eventually reach the point where they don't feel they have anything to lose trying to redistribute (possibly violently) the wealth so they can live. Also, that concentration of control does not inherently mean that that top 1% are all going to wisely make use of their economic control. Right before the Great Depression, income inequality was at its highest level within the past 100 years. Coincidence? Maybe -- I can't juggle the multiverses to find out but it is certainly suggestive and, looking at the Gini chart (yellow dots) shows that income inequality has already bounced back up to the level of about 1940 -- considered to still be part of the period of the Great Depression.

     Maybe not everyone cares about happiness for all but most would prefer to avoid another economic collapse. And when control of so much is in the hands of so few, it only takes a couple of mistakes for an avalanche of despair to happen.