The GOP Plot to Screw the Economy and the Middle Class

Bob Cesca comments on The GOP Plot to Screw the Economy and the Middle Class.

Buffett warns Obama U.S. economy only halfway back

Recent surveys suggest that U.S. citizens are increasingly dissatisfied with President Obama's leadership, primarily because unemployment remains high. What people fail to realize, however, is that economic recovery frequently takes time, regardless of the actions taken by political leaders. Billionaire Warren Buffett understands this and conveyed his feelings to the President.

Political leaders frequently receive too much blame for poor economic performance and too much credit for prosperity. A better understanding of the sources of economic growth might make public perceptions more accurate.

In the July 16 Reuters article "Buffett warns Obama U.S. economy only halfway back," Alister Bull summarizes Buffett's claim that the economic recovery will take time, regardless of the country's leadership.

WASHINGTON (Reuters) – President Barack Obama heard a sobering message from Warren Buffett when he asked for the investment guru's views about the economic recovery, according to an interview Obama gave NBC News on Thursday.

"I'll tell you exactly what Warren Buffett said. He said, 'We went through a wrenching recession. And so we have not fully recovered. We're about 40, 50 percent back. But we've still got a long way to go'," Obama told NBC during a visit to Holland, Michigan, to promote his job creation policies.

Obama chatted with Buffett in the Oval office on Wednesday as he sought ideas on how to translate higher U.S. growth into stronger hiring. This would help him deliver on an election year promise to tackle unemployment currently at 9.5 percent.

Buffett, who built an estimated $47 billion fortune running his insurance and investment company Berkshire Hathaway Inc, warned Obama the recession created a huge overhang of excess capacity in the economy that would simply take time to mop up.

Obama said Buffett specifically used the example of the U.S. housing market, noting 1.2 million new homes were built on average per year in the United States, according to historic trends. That number soared above 2 million during the property bubble, but construction activity has since collapsed.

"What Warren pointed out was, look, we're gonna get back to 1.2 (million). But right now we're soaking up a whole bunch of inventory. So a lot of -- the challenge is to work our way through this recession," Obama said.

High unemployment is another type of excess economic capacity. Obama's Democrats risk severe punishment by voters in midterm congressional elections on November 2 if he fails to convince them stronger U.S. growth means better times ahead.

New White House report claims more jobs from stimulus bill

According to the July 14, 2010 article "New WH report claims more jobs from stimulus bill," the Obama administration claims the federal government stimulus spending program prevented unemployment in the U.S. from being worse than it was. Claims such as this are impossible to prove (or disprove), however. The report is an attempt to deflect blame from the President for the condition of the economy and to inform the public that the Obama administration has been pursuing the standard remedies for fighting economic recession: expansionary fiscal policy (in the forms of increased government spending and tax cuts) and expansionary monetary policy (in the form of low interest rates).

According to the article:

WASHINGTON – A new White House report says last year's $862 billion stimulus law has now "saved or created" between 2.5 million and 3.6 million jobs.

That's up from 2.2 million to 2.8 million in the last quarterly report from the White House Council of Economic Advisers.

Christina Romer, head of the council, says in congressional testimony prepared for Wednesday that every $1 from the stimulus bill is matched by $3 in private money.

She says the law "appears to be stimulating private investment and job creation at a time when the economy needs it most."

President Barack Obama has traveled the country telling voters that as bad as things are, they'd be worse without the stimulus. He acknowledges the message is a tough sell. Obama travels Thursday to Michigan.

Misunderstandings about Socialism

The irony of this billboard is that it seems to be based in fear and ignorance, yet purports to inform its readers to be mindful of fear and naiveté. Socialism is fundamentally about the public ownership and operation of the means of production in an economy.

In the July 13, 2010 article "Billboard linking Obama, Hitler draws complaints," Associated Press writer Luke Meredith explains how the sign caused controversy, even within the tea party movement.

DES MOINES, Iowa – A billboard created by an Iowa tea party group that compares President Barack Obama to Adolf Hitler and Vladimir Lenin is drawing sharp criticism — even from fellow tea party activists who have condemned it as offensive and a waste of money.

The North Iowa Tea Party began displaying the billboard in downtown Mason City last week. The sign shows large photographs of Obama, Nazi leader Hitler and communist leader Lenin beneath the labels "Democrat Socialism," "National Socialism," and "Marxist Socialism."

Beneath the photos is the phrase, "Radical leaders prey on the fearful & naive."

The co-founder of the roughly 200-person group said the billboard was intended to send an anti-socialist message. But Bob Johnson admitted Tuesday that the message may have gotten lost amid the images of fascist and communist leaders.

"The purpose of the billboard was to draw attention to the socialism. It seems to have been lost in the visuals," Johnson said. "The pictures overwhelmed the message. The message is socialism." He said he didn't know of any plans to remove the sign.

But others in the tea party movement criticized the sign.

"That's just a waste of money, time, resources and it's not going to further our cause," said Shelby Blakely, a leaders of the Tea Party Patriots, a national group. "It's not going to help our cause. It's going to make people think that the tea party is full of a bunch of right-wing fringe people, and that's not true."

Blakely also expressed outrage at linking Obama to Hitler, the leader of Nazi Germany who oversaw the killing of 6 million Jews and whose invasions of neighboring countries led to World War II.

"When you compare Obama to Hitler, that to me does a disservice to the Jews who both survived and died in the Holocaust and to the Germans who lived under Nazi regime rule," Blakely said.

John White, an Iowa coordinator of the Tea Party Patriots, said that he can understand the North Iowa group's perception that Obama is "Hitler-esque," but he thinks the billboard is offensive and unproductive. White said that he planned to discuss the matter with national tea party officials.

"I fear they may end up in some kind of trouble over it, because it's basically slanderous," White said. "I don't know that it's the message we want to send. I'd much rather see billboards that say 'Remember in November. Get Out and Vote.'"

The billboard is owned by Waitt Outdoor of Omaha, Neb. Waitt general manager, Kent Beatty, said the company didn't have a problem with the message.

"We believe in freedom of speech," Beatty said. "It doesn't reflect our views, necessarily."

The White House declined to comment on the sign.

One person who welcomed the billboard was Dean Genth, a Democratic activist from Mason City, a city of 30,000 people just south of the Minnesota border, who said he thinks the sign lays bare the views of tea party supporters.

"I welcome them to continue to spew that kind of stuff because I think it's going to do a lot of good for the good Democrats around the state," Genth said.
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The Only Debt You Should Hold

The July 13, 2010 Bankrate.com article "Good Debt vs. Bad Debt" provides some guidelines on when it is wise and unwise to borrrow money:

Debt is a concept as intricately intertwined with America these days as baseball, Mom and apple pie.

The amount of personal debt in this country is ever-increasing, and a large part of the reason is that credit has never been easier to get. Whereas credit card issuers previously looked for customers who could repay, today card issuers relish the chance to reel in those who'll continuously charge beyond their means at 18 percent or 20 percent.

But debt is a complex concept. Not all of it is good -- a fact a surprising number of Americans fail to realize until they're in the hole -- and yet not all of it is bad. When used intelligently, debt can be of tremendous assistance in building wealth.

One of the secrets, therefore, to being smart with your money is to differentiate between good debt and bad debt. While the differences often seem logical, it is a logic that apparently is missed by many Americans.

"When you buy something that goes down in value immediately, that's bad debt," says David Bach, CEO of Finish Rich Inc., and author of "The Finish Rich Workbook." "If it has no potential to increase in value, that's bad debt."

Good Debt

"Good debt is investment debt that creates value; for example, student loans, real estate loans, home mortgages and business loans," says Eric Gelb, CEO of Gateway Financial Advisors and author of "Getting Started in Asset Allocation."
Robert D. Manning, a professor of finance at the Rochester Institute of Technology, also recommends taking on debts that are tax-deductible and debts that produce more wealth in the long run.

"If you are talking about reducing current debt, that's where it starts to get nuanced," says Manning. "If you take a home equity loan because you have 17 percent credit card, and you go with a 6 percent loan that's tax-deductible, that's good debt."

These general rules of thumb set some clear delineations -- buying a home or refinancing to get rid of excessively high rates is usually good debt, as is generating debt to buy high-return stocks, bonds and other investments.

Bad Debt

The concept of bad debt comes in when discussing the purchase of disposable items or durable goods using high-interest credit cards and not paying the balance in full.
"The trouble is most people are not organized enough to retire the entire balance before the due date," says Gelb.

Every month that you make a partial payment on your credit account you are charged interest. The disposable or durable item you purchased continues to lose value, and the amount you paid for it continues to increase.

"When you buy clothes, they're probably worth less than 50 percent what you pay for them when you walk out the door," says Bach. "So if you borrowed to pay for them, that's bad debt."

Credit Rating Effect

Not to mention what that debt could potentially do to your credit rating. "Total personal debt should not exceed 36 percent of your total income," says Gelb. Keeping the debt-to-income ratio in mind, it's also important not to miss payments. "Missed payments are trouble," he says. "A representative of Citibank said if you don't pay within 30 days, they report that to the credit bureaus."

When it comes to buying durable goods that won't contribute to wealth generation, Bach offers a basic rule of thumb. "My grandma used to say that if you're going to buy something that doesn't go up in value, and you can't afford to pay cash, then you can't afford it."

Exacerbating the bad debt factor is that people will apply for store credit for the savings offers that say if you open a credit card account today, you can take 10 percent to 20 percent off the cost of your purchase. What people often don't realize is how much of that savings will be destroyed by the high interest rate on the card if they fail to pay for the items immediately.

"You can open a store credit card account," says Bach, "and what they're not telling you is that after the first few months, the rate jumps to 20 percent or greater."

Driving Into Debt

Another bad debt area is auto debt. While most people need an automobile, and the ultimate cost of an auto is higher than many people can pay in one lump sum, the way people go about it -- namely, purchasing more car than they need -- turns it into bad debt.

When is it worth it?

"What we would normally consider bad debt can turn into good debt in certain circumstances," says Catie Fitzgerald, a personal finance coach and registered investment adviser in Henderson, Nev. "If you use debt to buy a car that gets better gas mileage than your old vehicle, you could end up better off financially."

Bach considers auto debt a Catch-22. "People borrow to buy cars before homes," says Bach, "and that's unfortunate. For most people, their first major loan is a car loan. That's guaranteed to go down in value. So you really want to borrow less. For example, instead of rushing out to borrow to buy a $50,000 BMW, you'd be better off buying a $25,000 car."

The Best Debt

The best type of debt is debt that builds wealth over the long run, and the No. 1 example of that is mortgage debt.

"Home values have increased an average of 6.5 percent a year over the past 30 years," says Bach. "So when you borrow to buy a home, chances are that's good debt. You'll build value."

Bach heavily promotes the idea of homeownership, saying that everyone needs to own where they live. "About 40 percent of Americans are renters," says Bach, "and the fastest way to wealth in America is buying where you live."

Bach cites some shocking numbers to back this up. "The average renter has a median net worth of $4,000, and the average homeowner has a median net worth of about $150,000."

Manning also emphasizes what a good time this is to build wealth through debt. "This is the most advantageous time ever to be in debt," says Manning, "in terms of opportunities to get low-interest loans or to renegotiate or refinance."

Duh, Debt?

One of the reasons so many Americans seem mired in bad debt (Bach reports that the average American carries approximately $8,400 in credit card debt) is that financial education is pratically nonexistent. "This type of commonsense stuff isn't taught in school," says Bach, "and most Americans don't realize how bad high-rate credit cards are hurting them."

Fitzgerald advises teaching your children the difference between good debt (debt that's used to buy assets that grow in value over time) and bad debt (debt that's used to buy things that will lose value) early on.

Gelb opts for a more hands-on approach. "Give your children an allowance (without strings) beginning when they're in kindergarten and offer them the opportunity to perform extra jobs around the house for money. Stop buying them everything, and teach them how to make choices with their own money-buying decisions." The mistakes they make will help them learn and grow.

"People are getting in debt before they have a job," says Manning. "Education is important. We used to encourage kids to save, and that has been missed. Students now refer to their credit cards as 'yuppie food stamps'. They see cards as entitlement, and see they will be in debt all their lives."

Fitzgerald recommends teaching by example. Treat credit cards like emergency safety nets and your children will likely learn some money management skills. "If you have to use your credit card, immediately revise your budget, paring back on nonessential spending. Allocate the saved dollars to a pay-off plan to bring your debt balance down to zero as soon as possible," she says.

Good Debt

• Mortgage
• School Loan
• Real Estate Loan
• Business Loan

Bad Debt

• Credit Card
• Store Credit Card
• Auto Loan

Debt commission leaders paint gloomy picture

Debt commission leaders paint gloomy picture

By GLEN JOHNSON, Associated Press Writer Glen Johnson, Associated Press Writer Sun Jul 11, 9:30 pm ET

BOSTON – The heads of President Barack Obama's national debt commission painted a gloomy picture Sunday as the United States struggles to get its spending under control.

Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Association that everything needs to be considered — including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage.

The nation's total federal debt next year is expected to exceed $14 trillion — about $47,000 for every U.S. resident.

"This debt is like a cancer," Bowles said in a sober presentation nonetheless lightened by humorous asides between him and Simpson. "It is truly going to destroy the country from within."

Simpson said the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid and Social Security programs.

"The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries," said Simpson. China alone currently holds $920 billion in U.S. IOUs.

Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt.

"Just think about that: All that money, going somewhere else, to create jobs and opportunity somewhere else," he said.

Simpson, the former Republican senator from Wyoming, and Bowles, the former White House chief of staff under Democratic President Bill Clinton, head an 18-member commission. It's charged with coming up with a plan by Dec. 1 to reduce the government's annual deficits to 3 percent of the national economy by 2015.

Bowles led successful 1997 talks with Republicans on a balanced budget bill that produced government surpluses the last three years Clinton was in office and the first year of Republican George W. Bush's presidency. Simpson, as the Senate's GOP whip in 1990, helped round up votes for a budget bill in which President George H.W. Bush broke his "read my lips" pledge not to raise taxes.

Despite their backgrounds, both Simpson and Bowles said they were not 100 percent confident of success this time around.

Simpson labeled the commission members "good people of deep, deep difference, knowing the possibility of the odds of success are rather harrowing to say the least."

Bowles also said Congress had to be ready to accept the commission's findings.

"What we do is not so hard to figure out; it's the political consequences of doing it that makes it really tough," he said.

Arkansas Gov. Mike Beebe was one of those leaders who sat in rapt attention during the presentation, one of the first in public by the commission leaders.

"I don't know that I ever heard a gloomier picture painted that created more hope for me," said Beebe, commending its frankness.

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Online:

http://www.fiscalcommission.gov/

African-American women struggle to overcome wealth gap

In the July 5, 2010 BBC News article "African-American women struggle to overcome wealth gap," Paul Adams highlights some of the difficulties associated with poverty.

7.9 million jobs lost, many forever

In the July 2, 2010 CNNMoney article "7.9 million jobs lost, many forever," Chris Isidore reports that many of the jobs lost recently will not return.

Job market not growing fast enough for big rebound

In the July 2, 2010 article "Job market not growing fast enough for big rebound," Associated Press economics writers Jeannine Aversa and Christopher S. Rugaber report:

WASHINGTON – A second straight month of lackluster hiring by American businesses is sapping strength from the economic rebound.

The jobless rate fell to 9.5 percent in June, still far too high to signal a healthy economy. It came in slightly lower than the month before only because more than a half-million people gave up looking for work and were no longer counted as unemployed.

The private sector added just 83,000 jobs for the month. Looked at from that angle or almost any other, from a teetering housing market to falling factory orders, the recovery is limping along as it enters the year's second half. And that is when the benefits of most of the government's stimulus spending will begin to wear off.

The fate of the economy will hinge on whether it can stand on its own. President Barack Obama acknowledged the slow pace of the recovery and used the new jobs figures to argue for more stimulus spending and extended unemployment benefits.

"We're not headed there fast enough for a lot of Americans," the president said. "We're not headed there fast enough for me, either."

Overall, the nation's total payroll actually shrank last month by 125,000, the first decline in six months, the Labor Department said Friday. The loss reflected the end of 225,000 temporary jobs helping the U.S. Census Bureau complete its 10-year head count.

The 83,000 jobs added by the private sector was a better performance than in May, when private job creation nearly stalled. But it fell far short of what the economy needs — at least 200,000 jobs a month — to bring down the unemployment rate.

Nobody, from Obama to Federal Reserve Chairman Ben Bernanke to private economists, expects that anytime soon. And the government has mostly exhausted its realistic options for nudging the economy along faster.

Benchmark interest rates, which at low levels can encourage borrowing to spur economic growth, are already near zero. Republicans in Congress object to additional stimulus spending.

Unemployment is expected to stay above 9 percent through the midterm elections in November. And the Fed predicts joblessness could still be as high as 7.5 percent two years from now. Normal is considered closer to 6 percent, and economists say it will probably take until the middle of this decade to achieve that.

The jobless rate did come down in June from 9.7 percent the month before. But that was mainly because 652,000 people abandoned their job searches.

Even among Americans with secure jobs, confidence is fading. One gauge of consumer confidence fell in June to about 53, down nearly 10 points in a single month. And it's well below the reading of 90 typically seen in a healthy economy.

Add to that jitters over Europe's debts, an edgy stock market and cautious consumer spending, and the result is an economy essentially moving sideways. It's no surprise that businesses are reviewing their orders and seeing no reason to add to payrolls.

Few big companies say they plan to step up hiring in the second half of the year. Most auto, airline and railroad companies, for example, say they expect little or no job growth, blaming weak demand.

One that does plan to hire, Chrysler Group LLC, expects to add engineers and other workers as it updates its aging line of cars and trucks. The company has announced 1,000 factory jobs in Detroit to meet demand for the new Jeep Grand Cherokee SUV.

But other companies, like American Airlines, have no plans to significantly boost hiring this year. And major railroads, which have furloughed thousands since the recession, say they have no plans to add employees in the coming months.

In June, manufacturers, the leisure and hospitality industries, temporary staffing agencies, and education and health services providers all added jobs. Retailers, construction firms and financial service providers cut payrolls. So did state and local governments, which are wrestling with budget shortfalls.

On Wall Street, stocks sagged yet again on the news. The Dow Jones industrial average finished down 46 points, its seventh consecutive losing session. The Dow lost more than 10 percent of its value in the second quarter.

Trying to put a positive outlook on the report, Obama said it showed that "we are headed in the right direction." At the same time, he acknowledged there is a "great deal of work to do to repair the economy and get the American people back to work."

His options are limited. Senate Republicans concerned about record budget deficits this week blocked his efforts to extend unemployment benefits for millions of out-of-work Americans.

"The two things that are growing fastest in this Democrat economy are the size of the federal government and the crushing burden of the national debt," said Senate Republican leader Mitch McConnell of Kentucky, who led opposition to the extension.

All told, 14.6 million people were unemployed in June. An additional 11.2 million have given up their job searches or are working part-time but would prefer full-time work. That adds up to nearly 26 million Americans, and an "underemployment" rate of 16.5 percent.

Among the 225,000 census workers who lost their temporary jobs in June are people who had been unemployed before and now are again. One of them is Michael Stein, who worked for the census in Phoenix on and off since April 2009, after losing his job with an architectural firm.

It all ended for good two weeks ago.

Jobless again, Stein, 49, at least feels better off with the census experience on his resume.

"I was told the State of Arizona is hiring again," he said. "Because of the people I met at the census, there's a possibility if they could find the right position, they'll put in a good word for me."

Eric Model, co-owner of Seal & Co., a shop in Summit, N.J., that sells accessories and toys, said he has not replaced the two back-office workers he let go two years ago. Not including a summer hire, Model has four employees, plus himself.

"It would be nice to get some support," Model said. "But I don't want to go out on a limb and hire somebody, anticipating things will improve. I would rather run with low expenses."

Those Americans who still have jobs drew smaller paychecks last month. Average hourly wages fell 2 cents to $22.53. Workers' hours were cut, too. Those factors could dampen consumer spending in the months ahead and further weaken the recovery.

It all threatens to perpetuate a vicious cycle for the economy.

"It is a Catch-22 situation," said Sung Won Sohn, professor at California State University, Channel Islands. "Businesses are reluctant to hire for fear of a 'double-dip' recession. Without jobs, people are watchful of their spending, a danger to the recovery."

8 Problems That Could Trigger a Double-Dip Recession

8 Problems That Could Trigger a Double-Dip Recession

So what exactly is a 'double-dip' recession?

In the July 1, 2010 article "So what exactly is a 'double-dip' recession?," Associated Press economics writer Jeannine Aversa explains the answer:

WASHINGTON (AP) -- Concerns are rising that the economy is at risk of slipping into a "double-dip" recession.

High unemployment, Europe's debt crisis, a slowdown in China, a teetering housing market and sinking stock prices are all weighing on a fragile U.S. recovery.

So what exactly is a double-dip recession?

Robert Hall has an idea of what one looks like but no precise definition. He's chairman of the National Bureau of Economic Research, a group of academic economists that officially declares the starts and ends of recessions.

In Hall's view, a double dip is akin to a continuous recession that's punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn't define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: "The idea -- hypothetical because it has yet to happen -- is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle."

Hall says the closest the United States has come to a double dip was in 1980 and 1981. But the NBER concluded that those were two distinct, though closely spaced, recessions -- "not a double dip," he says.

Not so, says Sung Won Sohn, professor at California State University, Channel Islands. Sohn says the back-to-back recessions of the early '80s fit his definition of a double dip: A recession followed by a short period of growth followed by a recession.

Brian Bethune, economist at IHS Global Insight, has a view similar to Hall's: A period in which the economy shrinks, starts growing again and then shrinks again -- for at least six months.

"There is no mathematical formula; it's a judgment call," Bethune says.

The NBER has declared the economy fell into a recession in December 2007. It hasn't yet pinpointed an end to the recession. It said in April that it would be "premature" to do so.

Many other economists say the recession ended in June or July of last year. The economy returned to growth again in the third quarter of 2009, after four straight quarters of declines. More recently, the economy has added jobs in each of the first five months of this year.

Still, the threats to the recovery from overseas and at home are growing. So are the risks that the recovery will fade out. Economists say the odds of that remain low but have crept up since a couple of months ago. Analysts are downgrading their growth forecasts for the second half of this year.

In determining the starts and stops of recessions, the NBER reviews data that make up the nation's gross domestic product. The GDP measures the value of goods and services produced in the United States. The NBER also reviews incomes, employment and industrial activity.

The panel, based in Cambridge, Mass., tends to take its time in declaring when a recession has started or ended.

It announced in December 2008 that the recession had actually started one year earlier -- in December 2007.

And it declared in July 2003 that the 2001 recession was over. It had actually ended 20 months earlier -- in November 2001.

In President George W. Bush's eight years in office, the United States fell into two recessions. The first started in March 2001 and ended that November. The second started in December 2007; its end date is pending the NBER's determination.

The timing of the NBER's decision likely means little to ordinary Americans now muddling through a sluggish economic recovery and weak job market.

Many will continue to struggle. Unemployment usually keeps rising well after a recession ends. After the 2001 recession, for instance, unemployment didn't peak until June 2003 -- 19 months later.

U.S. Is Richest Nation, But Not Happiest

In the July 1, 2010 LiveScience article "U.S. Is Richest Nation, But Not Happiest," Jeanna Bryner reports on a study that questions the relationships between money and happiness:

The United States may be the richest nation on Earth, a new study indicates, but it's not the happiest.

The new analysis of Gallup World Poll data suggests, however, that trying to compare the happiness of one nation to another is not straightforward.

Rather, there are two major categories of happiness: overall life satisfaction; and more moment-to-moment enjoyment of life. And while overall satisfaction of life is strongly tied to income, meaning richer nations and individuals have more of this overall bliss, how much one enjoys life (by measures such as laughing and smiling) depends more on social and psychological needs being met. These include having social support and using one's abilities, as opposed to sitting at a mind-numbing job.

The United States, which had the highest gross domestic product per capita, came in at No. 16 for overall well-being and No. 26 for enjoyment, referred to as positive feelings. The No. 1 spot for overall well-being went to Denmark, and New Zealand landed the No. 1 slot for positive feelings. [Happiest States Revealed]

"Everybody has been looking at just life satisfaction and income," said study researcher Ed Diener of the University of Illinois and the Gallup Organization. "And while it is true that getting richer will make you more satisfied with your life, it may not have the big impact we thought on enjoying life."

The positive feelings aspect of happiness could have evolutionary roots. "Whereas life satisfaction reflects whether people are obtaining their values and goals in a long-term and big picture sense, positive feelings seem to arise from momentary things that are prewired, since feeling good about the support of others and about using skills are both necessary for humans to thrive and survive," Diener told LiveScience.

The findings are detailed this month in the Journal of Personality and Social Psychology.

Tallying happiness

The data was collected from a representative sample of more than 136,000 people across 132 nations from 2005 to 2006. The poll used telephone surveys in more affluent areas, and door-to-door interviews in rural or less-developed regions.

For global life satisfaction, respondents indicated how they would rate their lives on a scale from zero (worst possible life) to 10 (best possible life). Participants also answered questions about positive or negative emotions experienced the previous day.

On average respondents were relatively happy, judging their current life as slightly above neutral and experiencing frequent positive feelings and infrequent negative ones. While the majority of participants indicated their psychological needs are met, about 25 percent don’t have basic needs met.

Overall satisfaction with life went up with both personal and national income, suggesting societal circumstances play an important role in happiness. But positive feelings, which were slightly higher in relation to higher income, were much more strongly tied to feeling respected, having autonomy and social support and working at a fulfilling job.

"Some of the nation rankings are indeed surprising, at least if we assumed that money was the only type of wealth," Diener said. "How do some mid-level nations in terms of income, such as Costa Rica, do so well? And conversely, why do some relatively rich nations such as South Korea do less well than expected? In part, because of the quality of social relationships."

Of course there were places that got either mostly stellar or mostly dismal happiness marks. No. 1 in overall satisfaction, Denmark also came in at No. 7 for positive feelings. Impoverished nations in Africa generally scored low on both happiness measures.

While Northern European and Anglo societies are currently most successful in the economic area, Latin American societies proved to be relatively high in social-psychological well-being. Sierra Leone scored consistently low, but other nations showed divergent rankings across the measures. For instance, Russia and South Korea had substantially lower scores for meeting social-psychological needs and in positive feelings than for income.

Why money brings overall happiness

Some economists think money increases happiness at the low end of the pay scale as it helps people meet their basic needs, but doesn’t do much once a person is lifted out of poverty. This new study suggests the link between money and happiness goes beyond basic needs. While the steepest rise in overall well-being with money occurred in the poorer individuals and nations, there was still a bump in overall happiness at the higher socioeconomic status regions.

"Money is an object that many or most people desire, and pursue during the majority of their waking hours," Diener and his colleagues write.

Since most people want money, they use their financial success as a measure of overall success and a reference for how "good" their lives are.

The study also showed the income-happiness link was tied to a person’s ownership of luxury conveniences and their satisfaction with standard of living.

“We don't know why there's a strong link between income and life satisfaction, but most economists would say it's because dollars buy stuff and humans like stuff," said Andrew Oswald, a professor of behavioral science at the Warwick Business School in England, who was not involved in the current study.

He doesn’t think "stuff" fully answers the happiness question. In addition, and possibly a more critical link between money and life satisfaction, is security. "I think it has more to do with money providing a kind of buffer against the bad shocks and insecurities of life. If you have a low income and little money in the bank, you feel much more vulnerable to the threat of layoff or the threat of sickness in your family," Oswald said in a telephone interview.

As for what happiness really means, Oswald said, "We're only beginning to scratch the surface on what happiness means and ways to measure it. It’s a multifaceted concept and researchers will be working for the next 200 years trying to get to the bottom of this."