Economics 101: Why are good Americans dissatisfied with their standard of living?

Posted on April 7, 2010 by


Are Americans satisfied with their standard of living?  1998 Nobel Prize winning economist Amartya Sen defined standard of living as “functionings and capabilities”.1

I found a Gallup poll dating back to February 2010 that makes the claim that North Dakotans are in fact the most satisfied with their standard of living:  

On a state-by-state basis, U.S. adults’ average satisfaction in 2009 with their own standard of living — that is, “all the things you can buy and do” — fell in a fairly narrow range, from 82.3% in North Dakota at the high end to 69% in Nevada at the low end. 2

Interestingly enough, North Dakota, Nebraska and South Dakota are the 3 states with the least unemployment as reported by the US Dept of Labor Bureau of Labor Statistics. 3  

With very few exceptions, the states with the highest unemployment rates are among the states at the bottom of the list in the standard of living poll.  If we subscribe to the Gallup definition of standard of living “all the things you can buy and do”, the unemployed would be among the dissatisfied because they can’t afford to buy or do very much.

Indiana –9.8 %

New Jersey –9.8%

Oregon – 10.5 %

District of Columbia – 11.9%

California –12.5 %

Nevada –13.2 %

My analysis couldn’t just stop there and so I started to get curious about the states with unemployment higher than the national 9.7% unemployment rate (March 2010).  Although correlation does not imply causation, and there are many other variables that explain the unemployment rate, I found that the states with the highest standard of living dissatisfaction rate and the highest unemployment rates also had the highest marginal tax rates.  To me it’s not too surprising because taxes on labor income and on consumption negatively affect household consumption and savings.  Under a high tax burden, the firms also can’t afford the costs of the factors of production (rent on capital and wages for labor).  Taxation also reduces the incentive to produce more goods and services, since a large portion of your earnings is taken away by the State, so it’s easy to understand why people are losing their jobs and the majority of Americans are suffering at the hand of their own elected officials:  BIG Government!

1. Amartya Kumar Sen, Geoffrey Hawthorn, The Standard of living