It was 2002. I was in Trivandrum after I had just passed my MS and become a qualified Surgeon. Trivandrum was a place crawling with specialists of all disciplines. I got a job as junior surgeon in one of the private hospitals. They gave me ten thousand rupees a month.
I went to a conference to Jaipur the next month. On the train I met a bunch of newly minted software professionals, all four to five years younger than me. We got talking. One asked me about my salary. It is not an impolite query in India. When he heard my answer, he whistled.
“That is so low, man. All of us earn more than 25000 a month.”
This did nothing to lift up my mood. I became depressed. True- as a bachelor, I could live quite comfortably on that money. It was a temporary job. There was a long way to go. My full earning potential was not yet realised. I knew all that. Still I felt incredibly frustrated. Many of my classmates were getting thirty to forty thousand in many other hospitals elsewhere. And these kids…..I felt my blood boiling. As a junior Resident while doing my MS at JIPMER, I was getting 15000 as stipend. I felt double pissed off that my income has actually fallen.
I was still brooding like hell when I alighted at the station. Some ten cycle rickshaw wallahs accosted me with incessant Hindi. I wanted a ride to the hotel. But I was so irritated that I decided to walk the four kilometres to the place. Five of the rickshaw men followed me.
“The hyson? Hotel Prsidency? I will take you, saab.” The clamour was deafening. I shouted at them to shut up and walked briskly. After a kilometre, I looked back when I heard the sound of wheels rattling in a gutter. One person was still following me. Betel stained teeth smiled beseechingly. I was sweating now. I decided to get in. There were still two or three kilometres to go.
The man strained at the pedals with full force. Thin thighs pistoned up and down. Sweat poured from his face. The Sun beat down mercilessly. The light reflected off his nearly bald head.
I got down at the hotel. He collected my luggage and handed it to me. I rummaged in my purse. I was looking for a fifty rupee note.
“Two rupees, saab” He said. I stared incredulously. I pushed a twenty rupee note into his palm and said:
“Keep it Bhaiya.” It was as far as my Hindi went.
The look on his face was pure joy and gratitude. And I got a lesson in perspective. On hindsight, he was taking everything in cash. He was hoarding Black Money, the poor thing.
We certainly believe that a big increase in our earnings will make us happy on a long term basis. Almost all people interviewed across countries felt firmly that a million dollars or roubles or whatever will solve a lot of their problems and they will become permanently happier. But the truth is that it has only a temporary effect. Research among lottery winners has shown that.
Yet I am not going to tell you that money won’t buy you happiness. I am not feeding you the cliché that money doesn’t matter. Money does matter. Rich people are happier. Many studies have also show it. The issue is complex and we see conflicting results. What is happening here?
Abject poverty and misery definitely makes folks unhappy. Rich countries are generally happier. India and China have become happier recently, on an average. But the correlation is not perfect, with income. Some poor African countries are among the unhappiest. But many of the former Soviet countries come at the bottom in the happiness scale, in spite of higher income.
But over the last fifty years, as we discussed earlier, purchasing power and real incomes have risen across the western world, with no increase in happiness.
The chief reason is that we become adapted to increase in the wages. We escalate our needs to keep up with the income. When the money pours in, we want a new house, the new car. We can afford that private school now. And within a year we are back to square one. We have scaled up our aspirations, our needs, and our expectations. We see the happiness treadmill in full form, when it comes to money. Yet the richest in any society is happier. There is conflicting research on money and happiness. Why?
It is because it is not our absolute earnings that matter, but our relative income.
We are always comparing ourselves to our peers, neighbours, relatives. People in our immediate community determine our standard. I am not comparing myself with Mukesh Ambani. But I am acutely aware of the income of my brother-in-law, who is a software engineer. I keenly watch the life style of the lawyer next door. I know that the businessman, who is my wife’s best friend’s husband, is sending both his kids to an expensive international school. But the fact that the washerwoman’s kids are going to the government school down the street doesn’t register in my brain.
As an entire community or country become richer, the society doesn’t become happier because the relative incomes stay the same.
Yet the richer you are, many people in your reference population, cannot afford your lifestyle. So your status is elevated slightly. So you are happier. If one is a rich man and all his neighbours, relatives and friends are middle class, he is satisfied. If he moves to a rich neighbourhood, all is lost. Then he and his family have to live up to them. Oh, what an effort!
Another feature of money is the difference in happiness that it can create depends on how much money you already have. If one is earning only 3000 rupees a month, you are really struggling. If he gets 3000 more a month, it makes a real difference. He is much happier. Another person earning 30000 per month wouldn’t become that happy if he gets an additional 3000. The man who gets 300000 a month will not even notice the difference. So, at lower levels of income money has more power to boost the well-being.
What one is used to getting is very important. If the amount falls from even a high value you get very frustrated. More than gain, humans just hate losing. That has been shown in surveys. So, if the flow of money becomes lower than a previous level it is big blow. You have become used to the high level that you are getting.
This is one reason why inequality is a potent breeding ground for unhappiness in society. Equal societies are happier, though forced equality through communist policies have historically generated unhappiness. This is likely because of curtails on individual freedom.
Again we reach the middle of the road. We cant have only a small portion of society build up hoards of unaccounted cash. We compare and weep. We compare and lament. We compare and revolt.
In very unequal societies, even the rich are less happy than the rich in naturally egalitarian places. This is inspite of the comparison effect. This is probably because of greater levels of trust, security and general feel-good factor.
This is one strong justification for direct taxation, and measures against unfair practices. But too much tax, and most lose interest to earn, and economy will suffer. It is a fine balance.
Economics is ultimately, applied Psychology.