Overpaying for happiness?

Yes we are. Not only on an individual level but as societies too. See e.g. Happy Planet Index for some comparison of countries by the average amount of happiness per consumption.

People who live in developed Western countries usually make and spend much more money than people in poorer countries, but aren't that much happier.

Indeed. The index above shows not exactly the opposite but that there are poorer countries that are happier than lots of devloped nations.

I agree with your assessment and would even add that our 'progress' has caused lots of Unfriendly Natural Intelligence that doesn't really maximize our values.