The purpose of this chapter is to explore the causes and consequences of what seems to be a reversal of the conventional wisdom: Individual differences in income level in any society explain few of the differences in life satisfaction, whereas crossnational differences, reflecting economic growth, account for substantial differences. In Chapter 7 I outlined some of the cognitive consequences of economic development; here, in the first section, we will discuss reasons for thinking economic development also increases the general sense of well-being. In the second section I introduce evidence on the minimal effects of individual higher income on subjective well-being. I try to account for this failed relation in the third section. Recent income changes are the exception to this lack-of-income–happiness relation, so in the fourth section I focus on these changes, especially as they may be caused by recessions. The next section is devoted to an account of why adaptation-level processes do not rob economic growth of its effect on well-being. In the last two sections we will explore further the meaning of money and we will speculate on the future of the “hedonic treadmill.”

The effect of economic development on subjective well-being

So far as we can tell at the close of the twentieth century, market economies generate economic growth better than any proposed alternative, but whether or not the resulting increased standards of living make people happier is contested. On the basis of an early cross-cultural study by Cantril, Easterlin says: “In all societies, more money for the individual typically means more individual happiness. However, raising the incomes of all does not increase the happiness of all.”