Happiness is back

Richard Layard – Prospect

Over the last 50 years, we in the west have enjoyed unparalleled economic growth. We have better homes, cars, holidays, jobs, education and above all health. According to standard economic theory, this should have made us happier. But surveys show otherwise. When Britons or Americans are asked how happy they are, they report no improvement over the last 50 years. More people suffer from depression, and crime—another indicator of dissatisfaction—is also much higher.
These facts challenge many of the priorities we have set ourselves both as societies and as individuals. The truth is that we are in a situation previously unknown to man. When most people exist near the breadline, material progress does indeed make them happier. People in the rich world (above, say, $20,000 a head per year) are happier than people in poorer countries, and people in poor countries do become happier as they become richer. But when material discomfort has been banished, extra income becomes much less important than our relationships with each other: with family, with friends and in the community. The danger is that we sacrifice relationships too much in pursuit of higher income.
The desire to be happy is central to our nature. And, following the utilitarianism of Jeremy Bentham, I want a society in which people are as happy as possible and in which each person’s happiness counts equally. That should be the philosophy for our age, the guide for public policy and for individual action. And it should come to replace the intense individualism which has failed to make us happier.
Utilitarianism has, however, been out of fashion for several generations, partly because of the belief that happiness was too unfathomable. In recent years, that has begun to change. The “science” of happiness, which has emerged in the US in the last 20 years, supports the idea that happiness is an objective dimension of experience. (One of its fathers, Daniel Kahneman, won the 2002 Nobel prize in economics.) At every instant we feel good or bad, on a scale that runs from misery to bliss. Our feeling good or bad is affected by many factors, running from physical comfort to our inner sense of meaning. What matters is the totality of our happiness over months and years, not just passing pleasures. The new science may enable us to measure this and try to explain it.
To measure happiness, we can ask a person how happy he is, or we can ask his friends or independent investigators. These reports yield similar results. The breakthrough has been in neuroscience. Richard Davidson at the University of Wisconsin has identified an area in the left front of the brain where good feelings are experienced, and another in the right front where bad feelings are experienced. Activity in these brain areas alters sharply when people have good or bad experiences. Those who describe themselves as happy are more active on the left side than unhappy people, and less active on the right side. So the old behaviourist idea that we cannot know how other people feel is now under attack.
The challenge is to work out what this means for political priorities in free societies like ours. If we accept that governments can and should aim to maximise happiness, rather than simply income, how might this affect specific choices in public policy?
We must start by establishing the key factors affecting a person’s happiness. Family and personal life come top in every study, and work and community life rank high. Health and freedom are also crucial, and money counts too, but in a very specific way.
I will start with money—or more specifically with income tax policy. In any society, richer people are happier than poor people. Yet as a western country becomes richer, its people overall do not become happier. The reason for this is that over time our standards and expectations rise to meet our income. A Gallup poll has asked Americans each year: “What is the smallest amount of money a family of four needs to get along in this community?” The sums mentioned rise in line with average incomes. Since people are always comparing their incomes with what others have, or with what they are used to, they only feel better off if they move up relative to the norm.
This process can have counterproductive effects. I have an incentive to work and earn more: it will make me happier. So do other members of society, who also care about their relative standard of life. Since society as a whole cannot raise its position relative to itself, the effort which its members devote to that end could be said to be a waste—the balance between leisure and work has been shifted “inefficiently” towards work.
To reinforce the case, let me recast it in terms of status, which may derive as much from the earning of income as the spending of it. People work, in part at least, to improve their status. But status is a system of ranking: one, two, three and so on. So if one person improves his status, someone else loses an equal amount. It is a zero-sum game: private life sacrificed in order to increase status is a waste from the point of view of society as a whole. That is why the rat race is so destructive: we lose family life and peace of mind in pursuing something whose total cannot be altered.
Or so we would—if we had no income taxes. But income taxes discourage work. Most economists consider this a disadvantage. They say that when someone pays £100 in taxes, it hurts more than that—it has an “excess burden”—because of the distortion away from work. But without taxes there would be an inefficient distortion towards work. So taxes up to a certain level can help to improve the work-life balance of citizens and thus increase the overall sense of wellbeing in a society. They operate like a tax on pollution. When I earn more and adopt a more expensive lifestyle, this puts pressure on others to keep up—my action raises the norm and makes them less satisfied with what they have. I am like the factory owner who pours out his soot on to the neighbours’ laundry. And the classic economic remedy for pollution is to make the polluter pay.
People sometimes object to this argument on the grounds that it is pandering to envy or preventing self-improvement. It is true that such measures do reduce some kinds of freedom. But we cannot just wish away the pervasiveness of status comparisons; the desire for status is wired into our genes. Studies of monkeys show how it works: when a male monkey is moved from a group where he is top into a group where his status is lower, his brain experiences a sharp fall in serotonin—the neurotransmitter most clearly associated with happiness. So if the human status race is dysfunctional—from the point of view of the overall happiness in society—it makes sense to reduce freedom a small amount through taxation policy.
Those who want to cut taxes should explain why they think we should work harder and sacrifice our family and community life in pursuit of a zero-sum status race. They may say that hard work is good for the consumer. But workers are the same people as consumers. There is no point killing ourselves at work in the interest of ourselves as consumers.
And there is another consideration: if we work harder and raise our standard of living, we first appreciate it but then we get used to it. Research shows that people do not adequately foresee this process of habituation, or fully realise that once they have experienced a superior lifestyle they will feel they have to continue it. They will in effect become addicted to it. Once again, the standard economic approach to addictive spending is to tax it.
These are arguments for taxation not as a way to raise money, but in order to restrain activity which is polluting and addictive, and to help to maintain a sensible work-life balance. This should become part of the social democratic case against income tax cuts. There is also the issue of equity. The main argument for redistribution has always been that an extra pound gives less extra happiness to a rich person than a poor person. Until recently this was pure speculation; survey evidence now confirms its truth.
How else can we dampen the impact of the rat race? We have to start from human nature as it is, but we can also affect values and behaviour through the signals our institutions send out. An explicit focus on happiness would change attitudes to many aspects of policy, including in education and training, regional policy and performance-related pay.
In one sense, what people most want is respect. They seek economic status because it brings respect. But we can increase or decrease the weight we give to status. In an increasingly competitive, meritocratic society, life will become tougher for people in the bottom half of the ability range unless we develop broader criteria for respect. We should respect people who co-operate with others at no gain to themselves, and who show skill and effort at whatever level. That is why it is so important to enable everyone to develop a skill. In Britain, this means ensuring that all young people can take up an apprenticeship if they wish, so that those who have not enjoyed academic success at school can experience professional pride and avoid starting adult life believing themselves to be failures.
Equally, we should be sceptical of institutions which give greater weight to rank, such as performance-related pay (PRP). The idea of PRP is that by paying people for what they achieve, we provide the best possible system of incentives. Where we can measure people’s achievement accurately, we should pay them for it—people like travelling salesmen, foreign exchange dealers, or racehorse jockeys. And where achievement depends on a team effort, we should reward the team, provided their performance can be unambiguously measured.
But management gurus are often after something more: they want a year by year alignment between individual pay and individual performance. The problem is that in most jobs there is no objective measure of individual performance, so people must in effect be evaluated against their peers. Even if the scores purport to be objective rather than relative, most people know how many are in each grade. The effect is to put them into a ranking. If everybody agreed about the rankings, it would not be that bad. But studies have shown quite low correlations between one evaluator’s rankings and another’s. So a lot of self-respect (and often very little pay) is being attached to an uncertain ranking process that fundamentally alters the relationship of co-operation between an employee and his boss, and between an employee and his peers.
Some comparisons between people are inevitable, since hierarchy is necessary and unavoidable. Some people get promoted and others do not. Moreover, those who get promoted must be paid more, since they are talented and the employer wishes to attract talent. So pay is important at key moments as a way of affecting people’s decisions about occupations or in choosing between employers. Fortunately, promotions and moves between employers are still relatively infrequent for most people. In everyday working life, relative pay rates are not usually uppermost in their thoughts. PRP changes all that.
Economists and politicians tend to assume that when financial motives for performance are increased, other motives remain the same. But that is not so, as this example shows. At a childcare centre in Israel, parents were often late to pick up their children, so fines were introduced for lateness. The result was a surprise: more people were late. They now saw being late as something they were entitled to do as long as they paid for it; the fine became a price.
The professional ethic should be cherished. If we do not cultivate it, we may not even improve performance, let alone produce workers who enjoy their work. Financial incentives have useful effects on the careers people choose, and the employers they choose to work for. But once someone has joined an organisation, peer respect is also a powerful motivator. We should exploit this motivation. Instead, government over the last 30 years has demoralised workers by constantly appealing to motives which they consider to be “lower.”
If we want a happier society, we should focus most on the experiences which people value for their intrinsic worth and not because other people have them—above all, on relationships in the family, at work and in the community. It seems likely that the extra comforts we now enjoy have increased our happiness somewhat, but that deteriorating relationships have made us less happy. What should social policy try to achieve, notwithstanding its limited leverage over private life? Here are some examples.
Divorce and broken homes are ever more common. Research shows that the children of broken homes are more prone to depression in adulthood. To protect children, the state should act to try to make family life more manageable, through better school hours, flexible hours at work, means-tested childcare, and maternity and paternity leave. Parenting classes should also be compulsory in the school curriculum and an automatic part of antenatal care.
Unemployment is as bad an experience as divorce, as research shows. It offends our need to be needed. So low unemployment should be a major objective. Our government has done well, through sensible policies of welfare to work which have avoided generating inflationary pressures. Good policy has also halved unemployment in Denmark and Holland. But Germany and, above all, France, have been slow to adopt these policies. Poor policies towards the unemployed and bad wage policies are causing high European unemployment. Job security is not the main issue.
Job security is something people want, and reasonable protection is something a rich society can afford to provide. The same is true of good working conditions, if stress is not to drive many weaker souls into inactivity and dependence on the state. It is absurd to argue that globalisation has reduced our ability to provide a civilised life for our workers. On the contrary, it has increased it—provided that pay rises only in line with productivity.
The rise in crime between 1950 and 1980 is the most striking demonstration that economic growth does not automatically increase social harmony. This rise occurred in every advanced country except Japan, and its causes are not completely understood.


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