Some Number Crunching

After reading an article detailing some of the reasons behind the protests going on at Wall Street I decided to do some data analysis. I started with the list of the world's happiest countries, from a Forbes article. They ranked the countries according to a composite score based on questions covering different aspects of a person's life. The individual category scores were added to create a composite score, and based on the value, the person was classified as thriving, struggling, or suffering. Countries were ranked by the percentage of citizens scoring in the thriving range. I also added the CIA's data for income inequality, calculated using the Gini coefficient.


Chart 1: Heat maps generated using the heat map gadget it google docs. You can toggle between the various maps.

The Orange map is the Gini coefficient. Transparent countries (light blue because the background ocean color shows through them) are those for which there is no data. Notice that they are primarily confined to Africa, and the surrounding countries have pretty high values, as represented by a darker orange color. Since the Gini coefficient is measure of wealth disparity, a high value represents an inequitable distribution of wealth. It's worth noting the other countries with the same color as the U.S. You can see this data in a different visual form at informationisbeautiful.net. The U.S. has one of the most inequitable income distributions in the developed world, and this data is from 2008. In the past 2 years the income disparity in the U.S. has increased. Also, keep in mind that this is income, not wealth. An individual making $50,000 per year from a paycheck is considered the same as someone making $50,000 a year in capital gains on their investment portfolio. A 5% rate of return would require a 1 million dollar portfolio. If you have investments, take a look at how they've done in the past few years, and then realize that wealthy investors aren't investing the same as you, because their net worth has been going up significantly since late 2008.


The blue map shows per capita GDP. I had to exclude Qatar because its per capita GDP of $179,000 was an outlier that destroyed the color gradient of the map. As you can see, the US is a wealth country, but again, the wealth is much less equitably distributed than even comparably wealthy countries. What that means is that the percentage of US citizens living what we consider a middle class lifestyle may be lower than a number of European nations.

The green map shows the percent thriving, and as you can see, the U.S. is doing pretty good. We come in at #14 on the list. Scandinavia owns the top spots.

I was curious about correlations, as just by looking at the heat maps you can see that high GDP and equitable income distributions appear to match with a greater % of the populace thriving.

Chart 2: Scatter plot of % thriving vs Gini coefficient. Correlation Coefficients give relative correlation. Values with absolute values closer to 1 represent higher correlation. The negative values indicate that % thriving correlates with more equitable income distribution. This correlation is greater for the top 10 countries as ranked by % thriving.

Notice that the only countries with similar levels of % thriving but greater income inequality are Latin American countries. In fact, that entire area around the US is sort of a cluster of the Americas. The upper left is Europe.

Then I took a look at GDP

Chart 3: % thriving and per Capita GDP.

It is worth noting that while the GDP correlation to % thriving (.54) is higher than for income equality amongst all nations (.21), for the top 10 happiest nations it's actually lower (.26 & .50). Thus, for the happiest countries, it seems to matter more that the wealth be equitably distributed rather than more wealth added to the system.

What I find most notable, is that there is only one country with a higher GDP than the U.S. that has more people thriving. It's Norway, and it just so happens that Norway has a small population and a large amount of offshore oil reserves that are handled by StatOil, of which the government owns 67%, and uses the revenue for government operations, including a large amount of social welfare. The chart seems to beg the question, "Why is there so much focus on increasing the GDP as a cure to the U.S. malaise, when countries with a higher per capita GDP than the U.S. have less happy citizens?" The data supports the theory that beyond a certain level of per capita GDP (~40,000), which the U.S. has surpassed, income equality is more strongly correlated with a country's happiness, than the total amount of money floating around. In fact, the correlation between per capita GDP and % thriving becomes negative (-.21) when we consider only nations with per capita GDP >$40,000, while the correlation between Gini Coefficient and % thriving is an even larger -.76. This means that above a certain level of per capita GDP, commonly used as a measure of a countries overall wealth, that wealth becomes more concentrated, and the % of people thriving decreases.

This may be due to an actual decrease in standard of living for people, or it may be a perceptual one due to a few people becoming much wealthier. In other words, a rising tide may lift all ships, but people become less satisfied with their boat when they see the guy who owns the yacht next to them leaving on his helicopter in advance of the approaching storm. And in the last few years that rising tide was actually the storm surge preceding a hurricane. In the U.S., over the last few years, most people's income and living standard have been decreasing, with the exception of those above a certain income threshold.

As a final note. While correlation does not equal causation, there have been enough studies done that I feel confident stating that it is much more likely that money, up to some amount, makes people happier, than being happy makes people wealthier.