Incomes & satisfaction

In her brilliant The People: The Rise and Fall of the Working Class Selina Todd writes:

In 1949 Mass Observation interviewed 2040 people across England about their income and speding patterns. The investigators discovered widespread satisfaction, especially among manual workers and their families: " a third say that they have no particular wants beyond those thay they can afford."

I very much doubt that so high a fraction would say that today, despite the fact that real wages have shot up since then: a male factory worker back then was doing well to get £7 a week, implying that wages have risen by around 80 per cent since then in real terms.

This poses the question. Why was it that in the 1940s there was satisfaction with incomes whereas today we have a cost of living crisis when real wages are far higher? Here are some possibilities.

First, real wages had risen a lot between the 30s and late 40s. This meant that many people felt well off simply because they had not yet become habituated to their higher incomes. By contrast, real wages today are lower than a few years ago. As Adam Smith said:

It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining melancholy.  

Secondly, there are now more potentially adverse comparisons a worker can make between his living standards and his neighbours. In the 40s, almost no worker had a car, TV or took a foreign holiday so workers who didn't have these didn't feel they were missing anything. Today, our neighbours spend more so we feel dissatisfied if we don't keep up; peer effects matter for spending, probably because we feel as if we are missing out if we don't keep up with the Joneses.

This process might be exacerbated by television. There's some evidence that watching TV can make us unhappy in part because adverts and the sight of glamorous lifestyles can increase aspirations and discontent. Back in the 40s, this wasn't a problem.

Thirdly, economic growth doesn't consist merely (or even mainly) of producing more of the same stuff. It consists in an increased proliferation of goods. There are millions of products - from olive oil to iPads - in the UK economy today that didn't exist in the 40s. As Eric Beinhocker pointed out in The Origin of Wealth, the biggest difference between a rich and poor socieity isn't the level of incomes, but the number of different goods.

This profusion, though, has a drawback - it increases our opportunity costs; £10 spent at Nandos is £10 less to spend topping up your phone. Because of this, as Jan Sokolowsky and Katherine Guthrie have shown, more choice can mean less happiness.

In saying all this I don't mean to deny that there is a cost of living crisis. What I am doing though, is challenging sceptics about the Easterlin paradox such as Diane Coyle. She's said that the paradox is based on a statistical misunderstanding; GDP is unbounded whereas happiness ranges on a 1-10 scale, so the two will look unrelated. As a statistical point, this is correct. But even so, there's some historical evidence, and psychological mechanisms, which suggest the paradox is a real one.

Comments

[Rumplestatskin]

What about the war? Weren't there rations in the UK till at least 1943?

Surely the end of the war and the beginnings of a recovery/normality would make anyone self-assess their happiness as being particularly high.

[Jim]

@Rumplestatskin: rationing lasted in the UK until 1954, meat rationing being the last to go. As usual, controls on the population kept in place by socialists, removed by Tories.

Anyone thinking that the 1940s were a better time to live had better go and spend a few months living with this guy: http://www.bbc.co.uk/news/magazine-2810646

Even he demands a fridge over a meat safe, so I doubt many of todays moaners over their 'standard of living' will be that taken with blacking the stove every day, living on rationed food, crapping in a bucket, or listening to Glenn Miller on a wind up gramophone for entertainment.

[theOnlySanePersonOnPlanetEarth]

"a male factory worker back then was doing well to get £7 a week, implying that wages have risen by around 80 per cent since then in real terms."

If you look at the wages of male factory workers now, in for example China, or Cambodia or Bangladesh, Vietnam etc I would say the global average wage of the average factory worker has not risen that much.

[Dave Timoney]

@Jim, the process of removing items from raion began in 1948 under Labour, starting with bread and clothes. There was no ideological difference between the parties on the subject, though the Tories campaigned on the false claim that there was.

The biggest factor in the timeline for the end of rationing was the balance of payments. Imports had to be choked until domestic and export production was converted from wartime use. On top of this, the US insistence on early replayment of Lend-Lease made hoarding Dollars the priority.

This meant minimising spending outside the Sterling area, hence imported items such as meat (from South America), wood (from Scandinavia for furniture), sugar (and thus sweets) and (famously) bananas were only taken off ration later on.

The timeline of UK rationing owed more to US economic power and intransignece at Bretton Woods than it did to the killjoy spirit of socialism.

[Tim Worstall]

"First, real wages had risen a lot between the 30s and late 40s. This meant that many people felt well off simply because they had not yet become habituated to their higher incomes. By contrast, real wages today are lower than a few years ago. "

And thus my understanding of what drives the Easterlin Paradox. That's it's recent changes in growth rate (or, if you prefer, real wages) which drive the happiness bit. The connection between this and generally richer countries is that generally richer countries are those places that have tended to have rising real wages for quite some time now.

[Rumplestatskin]

The big lesson from Easterlin, and happiness economics generally, is that humans make relative comparisons.

No one really cares about absolute levels - as Tim Worstall says, it is recent changes that are key.

Hence, if you've been on bread and clothes rations for seven years, which are then dropped, you'd rank your happiness quite high to highlight the massive relative increase.

Also, there are equality factors to consider, again related to ranking. If everyone has very close levels of consumption, which I imagine was the case during wartime (and soon after), then exactly what upside comparison can I make?

I'm actually quite well off in relative terms (as in I feel not too far from the top of the wealth/income hierarchy).

And of course, how is one in 1949 supposed to know the path of future wealth? They can only compare backwards. In retrospect people seemed poor in the late 1940s, but at they time they didn't have the benefit of hindsight. They were as rich as they had been for quite a long time.

So when the author says "a third say that they have no particular wants beyond those thay they can afford", you have to think about where wants come from.

They come from relative comparisons. Since at the time people where just finishing rations, their consumption increased. Their previous wants were being satisfied.

These days, we have a high inequality world where comparisons can be easily made. Rich lifestyles are a feature of film and tv, so the poor know what they are missing, and know high and imposing the social ladder is. These days we can easily rank ourselves quite low - perhaps even if that is distorted perception. But we certainly are better than ever before at stimulating wants across the social spectrum.

[An Alien Visitor]

I often think these rules are good for deciding whether to vote for the government or not:

If TV people tell you the economy is great and everything is growing but you feel you are struggling to make end meets, then do not vote for the government.

If TV people tell you the economy is great and everything is growing and you feel you are doing well, then vote for the government.

If TV people tell you the economy is bad and everything is stagnating but you feel you are doing well, then vote for the government.

If TV people tell you the economy is bad and everything is stagnating and you feel you are doing badly, then do not vote for the government.

I think Oliver James comes at the question from the right direction and gets more to the source of the problem, starts by looking at the health outcomes, increased rates of mental health problems, depression etc and then moves back into the economic world and pinpoints certain aspects that can account for the clinical data.

[Christiaan Hofman]

I have always thought that happiness is related not to what a person has or has achieved, but to what it has relative to what it expects. That's why poor people with modest expectations can be very happy, while billionaires who really need the world and more can be so whiny.

[rogerh]

I suppose relative wealth is a big part. Then in 1949 there may have been an atmosphere of gee-wizz hope for the future, Woomera and atomic vacuum cleaners just around the corner to say nothing of NH glasses and teeth. Things were only going to get better - then.

[Churm Rincewind]

I'm not convinced that television has got anything to do with it. Sure, TV has given us "Dynasty" and "Lifestyles of the Rich and Famous" but mass appeal programmes such as "Coronation Street" and "East Enders" apply themselves to an entirely different set of social circumstances.

Comparison with the 1940's doesn't support this argument either. Movies, the mass medium of the time, was, if anything, even more focussed on glamorous lifestyles than today's TV output.

[Socialism In One Bedroom]

I am skeptical of these happiness surveys myself. I often see this they are happy despite having nothing in those shows where some middle class white guy goes to live with a jungle tribe.

The question that should be put to the white guy is not how happy you are in relation to these people but would you want to live like them. I can already tell you the answer.

So relativity is important and people may say they are less happy now but they sure as hell don't want to go back to those days.

But modern life is shit!

[joe]

Born just before the end of WW2 I lived through those days. Comforts (at a high cost)have increased today eg motor car and central heating but there were huge economic and practical advantages to family life in the 40s/50s.

Each generation manages to adapt to the circumstances it is in. Today you need ample cash in hand to cope. Then you did not need very much to have a very good life.

Rents were controlled.
A starter home could be bought for £300.
There was a waiting list but 400,000 new homes were being built each year and to a space standard far higher than today. You may have had to wait 6 months but not a lifetime for a council house.

The 1948 NHS meant that the real fear of the cost of falling ill was removed. Diets were healthy and seasonal, and meals were home cooked from fresh ingredients. Fish and meat were cheap, as were locally grown vegetables. Fish and chips were 9 old pence.

Hire purchase was just starting but no credit cards and so little debt burden. If you wanted something you saved up. Jobs were plentiful and so was paid overtime if needed. Unions ensured fair and safe working practices.

Your relatives were of large families and they lived within walking distance. Child care costs were zero.

Grammar Schools provided the equivalent for free of a public school education. University was free.
Kids walked to school by themselves.

The close communities meant that there was always someone with the knowledge or skill to fix something in return for help on something else. Goods were readily repairable in those days.

Entertainment was reading, cinema, the radio, cycling, walking, swimming, cubs or scouts and kids played safely for hours in the street or at the park. It was never dull.

We have lost a hell of a lot to become the selfish and morally bankrupt society of today.

[George Carty]

Joe -- it sounds like the two big reasons for the decline in the working-class standard of living are globalization and car dependency.