What CAN Money Buy?

Well, according to the Beatles' song (Paul McCartney, John Lennon), Money Can't Buy Me Love.

So, what do you think? Can money buy happiness, satisfaction? Can it prevent loneliness or worry? If the Gallup Organization surveyed you, where would you place yourself on the Cantril's Self-Anchoring Scale (described in the article below as "a ladder scale in which 0 is 'the worst possible life for you' and 10 is 'the best possible life for you.'")

Daniel Kahneman and Angus Deaton of Princeton University's Center for Health and Well-Being decided to study the effects of wealth on the emotional outlook of Americans and have published their findings in the article High Income Improves Evaluation of Life But Not Emotional Well-Being. This article is set to be published in the Proceedings of the National Academy of Sciences of the United States of America (PNAS), but is available now online in an "early edition." Here is the abstract of the article:

Recent research has begun to distinguish two aspects of subjective well-being. Emotional well-being refers to the emotional quality of an individual's everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant. Life evaluation refers to the thoughts that people have about their life when they think about it. We raise the question of whether money buys happiness, separately for these two aspects of well-being. We report an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents conducted by the Gallup Organization. We find that emotional well-being (measured by questions about emotional experiences yesterday) and life evaluation (measured by Cantril's Self-Anchoring Scale) have different correlates. Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ∼$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being. [emphasis added]

How Can You Compare Dollars (or Pounds or Yen) Over Time?

Measuring Worth is a website by two economic historians -- backed by an impressive advisory board -- to help us make sense of monetary amounts at different times. They introduce the topic like this:

Intrinsic things are priceless. The love of your life or a beautiful sunset. There is no objective way to measure these, nor should there be.

The worth of monetary transactions is also difficult to measure. While there is a price, wage, or other kind of transaction that can be recorded at a precise price, the worth of the amount must be interpreted.

The price of a hamburger is probably worth more to a starving homeless person than to a very wealthy one. An allowance of five pennies a week was worth more to a child in 1902 than it is to a child today.

It can be more difficult when the question is to determine the "historical" worth of something. The price, even deflated for inflation, is not enough. Was Andrew Carnegie richer than Bill Gates? Did Babe Ruth make more than David Beckham? Was the cost of a loaf of bread more then than now? These questions all depend on the context and the calculators on this web site enable users to make their own comparisons.

Suppose you're reading a case about a cow that was sold for $80 in 1886 (Sherwood v. Walker, 33 N.W. 919(Mich. 1887)). If you want to get a sense of what $80 meant in 1886, go to the Relative Values - US $ calculator. You find that there are different ways to look at it:

In 2008, $80.00 from 1886 is worth:

$1,888.62 using the Consumer Price Index
$1,775.84 using the GDP deflator, using the value of consumer bundle
$10,610.85 using the unskilled wage
$18,146.12 using the nominal GDP per capita
$94,854.54 using the relative share of GDP

No matter what, you see that $80 is not what it used to be.

By the way, if you'd like to learn the outside-the-casebook story of Sherwood v. Walker, see Norman Otto Stockmeyer, To Err Is Human, To Moo Bovine: The Rose of Aberlone Story, 24 T.M. Cooley L. Rev. 491 (2007), available at SSRN: http://ssrn.com/abstract=1223402.