And so they have managed to prove that human beings can never have too much income.
Or have they?
Looking closely at the graph presented above, we can verify the use a logarithmic (log) scale on the x-axis and of a linear scale on the y-axis. This type of representation is known as a lin-log plot.
Lin-log representations have to be interpreted in a particular way. Here, a 45º line (similar to the ones above) means that Y = log (X) or, more specifically, that “Self-Reported Life Satisfaction” = K (Constant) + log (“Self-Reported Annual Income”).
Therefore, in this singular presentation, this set of straight lines in different colors implicitly tell us that, no matter the country, increases in income hold diminishing returns in terms of satisfaction.
Please note that the core interpretation made by those at The Economist magazine is not wrong: in fact, the study suggests that the relationsip between income and satisfaction is always positive (meaning that more money will never hurt your overall satisfaction).
Is just that the Easterlin paradox still applies after all: increases in income hold greater returns in terms of satisfaction for individuals experiencing low levels of income.
This is common sense, I mean, if I have millions of dollars in my multiple bank accounts, an one euro increase in one of them is pretty much negligible no? However, for a number of households facing severe deprivation all around the world one dollar can be a matter of life and death.
Now, if we depart from this atomistic vision of satisfaction (as presented until here) and take the satisfaction of your community as a whole, think about the huge aggregate satisfaction gains that would result from the very rich willing to somehow give some of their income to the very poor who value it much more.
Wouldn’t the rich folk even get some additional satisfaction from the exercise of active citizenship?
Taking the diminishing returns of income referred above, couldn’t this ‘community’ gains even generate greater satisfaction for the rich than the passive accumulation of income?
May I ask: in what kind of society would you prefer to get your satisfaction?