Is it absolute income or relative income which makes you happy?

November 16, 2017


In a youtube video called ‘driving with John Chow’ John provides a simple explanation of the differences between the two. Simply put actual income is what you earn, whilst relative income is what you earn relative to the time you have to do other things that make you happy. So earning £100K working all hours, with no time to enjoy it, compared to earning £50K with lots of time to enjoy it. John King has described his experience with relative and absolute income, and the conclusion is ‘Relative Income makes you happier’. Questions then arise around this answer for me. First, if you love your job as much as say, David Abraham (former CEO of Channel 4), and your ‘happy’ moments are wrapped up in your job- does that then mean relative and actual income are the same? A youtube video by Adrienne Hill describes how the ‘pursuit of happiness is an inalienable right’ in the US constitution. She discusses how people are willing to ‘do work’ without necessarily being paid to do it. This makes us feel good. ‘Thus more money has diminishing returns—Beyond a certain level of income the additional dollar has diminishing returns in terms of our day to day well being—If you have more money added it will not affect how you live’. This leads to the question ‘what then is the point of economic growth’?


I will come back to this point but I would like to look at the issue of relative poverty in relation to absolute poverty as well. The determinants will vary from community to community and across countries. Within a community where everyone is in absolute poverty there is less unhappiness as their lot is accepted and they work within what they have. Poor people become unhappy when they come to realise that relative to others with more money they are living in poverty. There then begins the interpersonal comparison between communities and then between countries. I already touched on this when I mentioned rural Gambia and how that landscape is changing as young people have left the country to earn more money for their families back home.


If more money and thus more stuff will not make people or a nation happier why then is there the pursuit of economic growth? Economic growth provides a better life for its citizens without a doubt? The question really is what is the point of economic growth if people are still unhappy? The Bhutanese feel that the point of economic growth is to ensure the population is also happy. The new focus on ensuring well being of the population alongside measuring economic growth provides a better measure of economic growth and sustainability. The World Happiness Report update 2016 stated they found people were happiest in countries where they were closest to achieving the SDGs.


The Bhutan model of GDH: Environmental Conservation, cultural promotion, sustainable and equitable development and good governance appears to be the way forward and many Western countries including the UK are including this in their economic analysis of the country, and using this information to influence policy. From the little I have seen of the Bhutanese, I would say they look happier than the West. They appear content and at one with the environment. I think a single religious focus and culture also makes this possible. This aspect of a single religious and cultural focus is of course quite difficult to achieve in the West. I mentioned in one of my posts that the rise of capitalism had come about at the same time as the removal of religion as a central focus in many Western societies. In the World Happiness Report update 2016 the writers look at how the central focus of the Christian religion had been a cohesive force, and how the greatest achievement of the 21st century will be to replicate a focus on one such unifying force.


This will be a massive challenge for the West as migration and divergent views and faiths have come to define Western culture, making our society more diverse and heterogeneous compared to that of Bhutan. Indeed very few countries in the world can boast of that homogeneity. Countries like Saudi Arabia and other religious based countries are much closer to this position. (Maybe that is why the President of The Gambia has declared the country an Islamic State-I suppose at some point there will be ethnic cleansing of the 5% of Christians). ‘...the world needs an ethical system that is both convincing and inspiring. To supplement what is seen as a global decline in the impact of religious ethics, the chapter offers the principle of the greatest happiness as one that can inspire and unite people from all backgrounds and cultures, and that is also in harmony with major religious traditions. But to sustain people in living good lives, more than a principle is needed. Living organisations are needed, including those already provided by many religions, in which people meet regularly for uplift and mutual support. To create secular organisations of this type in addition to religious institutions is an important opportunity to promote well-being in the 21st century’. World Happiness Report Update 2016


Swedenborg calls us spiritual beings having a physical experience. He suggests that humans pursue things that are driven by their deepest motivations. If then our motivation is solely our income we are never truly happy as money is a physical value which fails to satisfy our spiritual cravings. Rather if we pursue what we love and stay connected to our authentic selves, we get deeper satisfaction and happiness as we satisfy our spiritual being.


There is a lot to learn from the Dannish because they appear to have a clear understanding of what will make their population happy, and they have taken deliberate steps and measures to support their well being. The UK perhaps needs to initiate steps beyond trying to manage people, to creating policies that will support people in achieving happiness. Capital gains tax is a tricky one as Richard has mentioned however far more deliberate measures to support the elderly, youth and working women need to be undertaken. Nudging needs to focus a bit more on encouraging civic engagement so people are better motivated to contribute to national economic development as ownership, pride and other factors are greater motivating factors beyond income.


Economic development needs to be carefully balanced with mental, physical and spiritual health, the environment and the quality of life a lesson the little nation of Bhutan is teaching the world.


In 1968 President Robert Kennedy said economic measures alone ‘measures neither our wit nor our courage, neither our wisdom nor our learning, neither compassion nor our devotion to our country, it measures everything in short except that which makes life worthwhile’.


Culled from my essay for my Executive MBA in the Creative Industries

Ashridge Businees School

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