Who says money can't buy happiness?

THERE'S A THEORY going around -- popularized most recently in a book by British economist Richard Layard -- that money doesn't buy happiness. Earning more money, Layard argues, won't make us happy because most of us are interested in relative wealth rather than absolute wealth. If we earn more money, but our neighbors do too, then we're not going to be any happier than we were before. We quickly grow accustomed to our new level of wealth and begin to aspire to still more. It's a "hedonic treadmill."

Layard looks at these issues not on the individual level but on a macro scale -- as an economist determining priorities for government policy. His studies indicate that there is a dramatic jump in the reported well-being of a nation when it moves from an average national income of about $5,000 to $15,000 a year. But at that point, satisfaction levels off. From this, Layard concludes that we shouldn't emphasize economic growth as much as we do, but we should increase taxes, discourage hard work, slow down mobility and give ourselves more time to do the things that actually increase our happiness -- spending time with family and friends and reading Layard's books.

But is that the right conclusion? I'm not so sure.

Imagine for a moment that you are happy because you have a lot of nice dinners and parties to look forward to in the upcoming months. Sure, after they're over, Layard could come in, ask you a bunch of questions and determine that you are no more happy than you were before -- and conclude that you should stop devoting time and energy to parties because they apparently don't increase your happiness.

That is a bizarre conclusion. After all, would you have been as happy if you hadn't had all those nice parties to look forward to? Isn't it possible that the same goes for wealth?

The fact that rising incomes do not increase happiness much does not mean that the prospect of a higher income serves no purpose. It might be that the potential for economic growth down the road is what makes it possible for us to continue to believe in a better future and to continue experiencing such high levels of happiness.

FROM SURVEYS we know that hope correlates strongly with happiness. If you want to meet a happy European, try someone who thinks that his personal situation will be better five years from now. And we see the same when we compare Americans to Europeans. According to a Harris poll, 65% in the United States -- but only 44% in the European Union -- think their situation will improve in the next five years. And we also find that 58% of the Americans are very satisfied with their lives, compared to only 31% of the Europeans.