Illustration: Andrew Dyson.
Never believe a rich person who tells you money doesn't matter. I used to be one of them. Not rich in financial assets, but on a high-enough income.
I used to appear on the ABC and in newspapers spouting the then conventional economic wisdom that (beyond a certain point) more money didn't make people more happy.
Of course it seems to, I would say. An individual who gets a pay rise will feel better off than his or her less fortunate neighbours but that's just because of a change in status. If an entire nation (or an entire state) gets a pay rise no one in it will feel any better off.
It's what the data seemed to show. In the United States average happiness had merely bounced around for decades as income per person climbed. Internationally high-income countries seemed to be scarcely any happier than low-income ones, except for cases of extreme poverty.
The buzzwords of the time were ''habituation'', ''homeostasis'' and the ''hedonic treadmill''. We were meant to have a sort of thermostat inside us. People who had lost their legs were said to feel little worse than when they had them. People who had won the lottery were said to feel little better than if they had lost. As Ethan Hawke put it in the movie Before Sunset: ''If they were basically optimistic and jovial, now they're optimistic and jovial in a wheelchair. If they were petty and miserable, now they're petty and miserable with a new Cadillac, a house and a boat.''
By all means get more money, the argument went, but if you really want to be happy, stop comparing yourself to your neighbours.
It reached its high point in 2006 with an article in the prestigious Financial Times headed: ''The hippies were right all along''.
Victoria's Treasurer had better hope they were indeed right. In the past six months 27,000 Victorians have lost their jobs. Melbourne incomes are growing at only half their usual rate and on one measure are falling.
But the hippies are wrong. And I was wrong, and probably Ethan Hawke. A re-examination of the data shows money is about as closely related to happiness as could be.
After comparing the results of 160 Gallup polls in 160 nations with gross domestic product per capita in those nations, Australian economist Justin Wolfers described it as ''one of the tightest cross-country relationships I have ever seen''.
Previous surveys had only compared handfuls of nations.
In 2008 he and University of Michigan colleague Betsey Stevenson found that GDP per person wasn't merely correlated to happiness, but correlated at a level of 0.8. And that was assuming the data was accurate. Wolfers believes the underlying correlation is even stronger.
Both GDP per capita and happiness are hard to measure. (Happiness turns out to be easier. It's a simple question, asked on a scale of 0 to 10 in all countries all around the world. GDP is harder. It is calculated by adding up everything produced, spent and earned in each nation. In some places it isn't done well.)
''It is amazing that the estimated correlation is as high as 0.8, given that it's a correlation between two noisy measures,'' Wolfers says. The actual correlation might be nearer 100 per cent.
And just as with income there seems to be no limit. The more money a person or a society gets, the happier they get - without end. Wolfers and Stevenson find that a doubling of a high income lifts happiness by about as much as a doubling of a low income. ''If there is a satiation point, we are yet to reach it,'' Stevenson says.
The downside is that as income per person slides, happiness or ''life satisfaction'' slides. We feel uneasy.
Which brings us to Victoria. SGS Economics and Planning says Melbourne's economy has typically grown by 3 per cent per year. In the past financial year it grew only 1.7 per cent.
When adjusted for population, GDP per person went backwards. On average, each resident of Melbourne made and earned less than the year before.
Treasurer Michael O'Brien doesn't like the conclusion. He points out that Victorians are having babies at a record rate. He says it's the births that have turned GDP per person negative. Adult Victorians probably may not have lost real income.
But Melbourne's GDP per capita has slipped in three of the past five years. It's looking like a trend.
Ten years ago manufacturing accounted for 17 per cent of what Melbourne did. It's now less than 8 per cent. Sydney does more manufacturing than Melbourne.
The finance industry has grown. SGS says it accounts for 12 per cent of what Melbourne does, up from 7 per cent. Much of it is setting up in Southbank and the Docklands, straining the ability of public transport to get people to work.
Away from the centre, work in the middle and outer suburbs is hollowing out.
It's probably adding to frustration and anxiety. And if the established relationship between GDP per capita and happiness holds, it's making us grumpy.
It's an awful environment in which to be standing for re-election.
Peter Martin is economics editor of The Age.
Twitter: @1petermartin
