April 17, NY Times

In the aftermath of World War II, the Japanese economy went through one of the greatest booms the world has ever known. From 1950 to 1970, the economy’s output per person grew more than sevenfold. Japan, in just a few decades, remade itself from a war-torn country into one of the richest nations on earth.

Yet, strangely, Japanese citizens didn’t seem to become any more satisfied with their lives. According to one poll, the percentage of people who gave the most positive possible answer about their life satisfaction actually fell from the late 1950s to the early ’70s. They were richer but apparently no happier.

This contrast became the most famous example of a theory known as the Easterlin paradox. In 1974, Richard Easterlin, then an economist at the University of Pennsylvania, published a study in which he argued that economic growth didn’t necessarily lead to more satisfaction.

People in poor countries, not surprisingly, did become happier once they could afford basic necessities. But beyond that, further gains simply seemed to reset the bar. To put it in today’s terms, owning an iPod doesn’t make you happier, because you then want an iPod Touch. Relative income — how much you make compared with others around you — mattered far more than absolute income, Mr. Easterlin wrote.

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