America's dangerous Powerball economy
Unearned income—as from the lottery or entitlements—doesn't buy happiness.

Reuters

A shopkeeper waits for customers to buy tickets for the Powerball lottery in New York, November 28, 2012.

  • Title:

    The Road to Freedom
  • Format:

    HardCover
  • Hardcover Price:

    25.99
  • Hardcover ISBN:

    978-0465029402
  • Buy the Book

Article Highlights

  • What can the state lottery teach us about dealing with the fiscal cliff? Quite a bit, actually. @ArthurBrooks

    Tweet This

  • There is a huge amount of research showing that money, when earned, has a generally positive association with happiness.

    Tweet This

  • Above basic subsistence, happiness comes not from money per se, but from the value creation it is rewarding.

    Tweet This

  • While earned success facilitates the pursuit of happiness, unearned transfers generally impede it. @ArthurBrooks

    Tweet This

  • The US entitlement state is impoverishing the lives of the growing millions dependent on unearned resources.

    Tweet This

What can the state lottery teach us about how to deal with the fiscal cliff? Quite a bit, actually.

Last month, two families in Missouri and Arizona had their dreams come true when they shared the largest Powerball lottery jackpot in history: $587 million. "We are truly blessed," one of the winners told the press.

Perhaps. People always imagine all the nice things that would happen to them if they won the lottery: They would travel more, buy a beautiful home, start a foundation or quit a tiresome job. Rarely do people say, "If I won the lottery, I'd marry somebody who doesn't love me, buy a bunch of things I don't really want, and then start an ugly alcoholic spiral."

But hitting the jackpot generally leads to unhappiness. A famous 1978 study of major lottery winners in the Journal of Personality and Social Psychology showed that while the winners experienced an immediate happiness boost right after winning, it didn't last. Within a few months, their happiness levels receded to where they had been before winning. As time passed, they found they were actually less happy than they had been before winning.

Does this suggest that money makes us unhappy? Not at all. There is a huge amount of research showing that money, when earned, has a generally positive association with happiness. The problem is when it is unearned, when raw purchasing power is untethered from hard work and merit. Above basic subsistence, happiness comes not from money per se, but from the value creation it is rewarding.

The University of Chicago's General Social Survey reveals that people are twice as likely to feel "very happy" about their lives if they feel "very successful" or "completely successful" at work, rather than "somewhat successful." The differences persist whether they earn more or less income.

Entrepreneurs of all types rate their well-being higher than do members of all other professional groups in America, according to years of polling by the Gallup organization. And it's not because of the money. The employment website CareerBuilder.com reported in 2011 that small business owners made 19% less per year than government managers.

While earned success facilitates the pursuit of happiness, unearned transfers generally impede it. According to the Panel Study of Income Dynamics, going on the welfare rolls increases by 16% the likelihood of a person saying he or she has felt inconsolably sad over the past month (even after controlling for poverty and unemployment). A study by economist John Ifcher at Santa Clara University shows that single mothers who were required by the 1990s welfare reform to work for their benefits—and therefore lost leisure time, had to find child care and the like—were still significantly happier about their lives after the reforms than before.

All this data relates to our policy debates because every year, fewer and fewer people earn their way in America without a government subsidy. As my colleague Nicholas Eberstadt has written, entitlements have doubled as a percentage of the ballooning federal budget since 1960. Today, more than half of American households receive government transfer benefits.

And this isn't just a case of senior citizens taking the Social Security they have paid for. Unearned transfers are exploding. Consider that the number of Americans receiving disability benefits has increased almost 20-fold since 1960, to 8.6 million today from 455,000. The Tax Foundation notes that nearly 70% of Americans now take more out of the tax system than they pay into it.

It is a simple fact that the United States is becoming an entitlement state. The problem with this is not just that it is bankrupting the country. It is that the entitlement state is impoverishing the lives of the growing millions dependent on unearned resources. The good news is that we have a golden opportunity to rein in entitlements, for the first time in many years.

But there is bad news, too. President Obama argues that the real problem is undertaxing the public, not overspending on entitlements. He is currently asking Congress for $1.3 trillion in tax increases over a decade but less than $1 trillion in spending cuts—largely deferred, meaning much of that may not even take place. A study by Ernst & Young shows that Mr. Obama's proposed tax hikes would force small businesses to eliminate about 710,000 jobs.

Mr. Obama's proposal suggests he is entirely comfortable with an entitlement state. His telling entrepreneurs that they weren't responsible for their success on the specious grounds that government was responsible for the country's infrastructure—"You didn't build that"—wasn't just an inartful turn of phrase. It implied he is blind to the moral difference between what is earned and what is unearned.

Before us today is a chance to improve the true welfare of our nation while changing our overspending ways. By reforming entitlements and the tax system instead of extracting more money with higher tax rates, the economy could be reoriented away from unearned transfers to earned wages. This would make the economy fairer and sounder. And in the process it could build a happier country for ourselves and our children.

Mr. Brooks is president of the American Enterprise Institute and author of "The Road to Freedom" (Basic Books, 2012).

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Arthur C.
Brooks
  • Arthur C. Brooks is president of the American Enterprise Institute (AEI). He is also the Beth and Ravenel Curry Scholar in Free Enterprise at AEI.

    Immediately before joining AEI, Brooks was the Louis A. Bantle Professor of Business and Government at Syracuse University, where he taught economics and social entrepreneurship.

    Brooks is the author of 10 books and hundreds of articles on topics including the role of government, fairness, economic opportunity, happiness, and the morality of free enterprise. His latest book, “The Road to Freedom: How to Win the Fight for Free Enterprise” (2012) was a New York Times bestseller. Among his earlier books are “Gross National Happiness” (2008), “Social Entrepreneurship” (2008), and “Who Really Cares” (2006). Before pursuing his work in public policy, Brooks spent 12 years as a classical musician in the United States and Spain.

    Brooks is a frequent guest on national television and radio talk shows and has been published widely in publications including The New York Times, The Wall Street Journal, and The Washington Post.

    Brooks has a Ph.D. and an M.Phil. in policy analysis from RAND Graduate School. He also holds an M.A. in economics from Florida Atlantic University and a B.A. in economics from Thomas Edison State College.


    Follow Arthur Brooks on Twitter.

  • Assistant Info

    Name: Danielle Duncan
    Phone: 202.419.5213
    Email: danielle.duncan@aei.org

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.