Happiness Is…Higher Taxes

Is one man's productivity another man's pollution?


Happiness: Lessons From a New Science, by Richard Layard, New York: Penguin Press, 310 pages, $25.95

If you'd like to pay your respects to Jeremy Bentham, the ur-utilitarian and social reformer, head to the campus of University College London, where his dessicated, wax-headed corpse rests inside a glass cabinet. Legend has it that Bentham-in-a-box is wheeled into faculty meetings, where he is noted in the minutes as "present but not voting."

Bentham's moldering London presence is not limited to displays of human taxidermy. It also can be found in the fond thoughts of Richard Layard–member of the House of Lords, director of the Center for Economic Performance at the London School of Economics, and author of Happiness: Lessons From a New Science, a manifesto that embraces one of Bentham's core ideas: that nothing has value–not excellence, not knowledge, not self-creation, not dignity, not community with God–unless it produces the warm glow of happy feelings.??

Layard, Lord of Highgate, aims to tear down modern welfare economics and policy analysis, which do not presume to pass judgment on individual preferences and projects, and replace them with a data-driven Benthamism, according to which you get to do what you like as long as the collective likes what you do. The political moral of Layard's story is that we are duty-bound to contrive a more Swedish America (and Britain), a point the prescient Labour Party economist was pressing years before he chanced upon the exciting "new science" of happiness.

Layard is no isolated crackpot. Like public health activists of the mind, a new wave of paternalists, including a spate of prominent psychologists and economists, draw on the latest research on happiness to argue that the state must "encourage" us to buy smaller houses, travel by train, and get out of the office–for our own good. Swedophiles should think twice before rejoicing, though, for casual examination reveals more holes in Layard's argument than in Bentham's beetle-eaten breeches.

Psychologists and social scientists have been combing the world gathering data on happiness–what they call "subjective well-being," or SWB for short–by asking people questions such as "Taking all things together, would you say you are very happy, quite happy, or not very happy?" This might seem to be a pretty, well, subjective way of getting at how happy people really are, but it turns out that self-reports of SWB generally line up with third-party estimates and brain imaging evidence. These surveys allow researchers to pin down the variables–income level, marital status, employment, etc.–that correlate with SWB or lack thereof.

The show-stopping result–the "paradox at the heart of our lives," as Layard puts it–is that Americans, on average, are a lot richer than they were 50 years ago but are no happier. This has led some journalists to report that it is now a Scientific Fact that money can't buy happiness.

Yet in every society, people who make and have more money generally report greater happiness. It's true that the more you already have, the less an extra buck will buck you up. And after about $10,000 a year, the positive effect on happiness of additional income pales in comparison to that of matrimony or a clean bill of health. Still, the data show that $1 million makes for greater happiness than $100,000. The flummoxing part is that the correlation between greater wealth and greater well-being doesn't hold between countries or over time. How can this be?

A large part of the answer is that after people cross a certain income threshold, their perception of their relative position in the income distribution matters more for self-reported happiness than their absolute income. A move up the local income distribution tends to make people feel happier. But inhabitants of the middle of the distribution will tend to feel about the same, however big the number in the middle may be. An average U.S. paycheck in 2005 will make you feel about as happy as your grandfather's average paycheck made him feel, or as about as happy as an average paycheck in Greece makes a Greek clock puncher feel, even though you make, in real terms, about twice as much as each. Sure, you have a fancier car than Grandpa circa 1950 or Nikos in Greece, but you don't compare yourself to Grandpa or Nikos. You compare yourself to that jerk next door who just bought a new Beemer. Your satisfaction with your income depends on him, and vice versa.

This comparative character of income's effect on happiness is the engine that drives many of the policy proposals in Layard's Happiness. Arguing in a tradition that runs from Thorsten Veblen through Fred Hirsch and Robert Frank, Layard maintains that the race for higher relative position in the income distribution can be nothing but a monumental waste. If the extra wealth created in the zero-sum dash for higher position does not generate more joy, our work was futile, and our extra money isn't worth the paper it's printed on. Because your gain in position and happiness must be someone else's loss, Layard lumps upward income mobility together with classic "negative externalities" such as toxic sludge dumped in a stream or the roar of jets taking off from a nearby airport. Economic success is, by Layard's reckoning, "pollution." The solution to pollution? In a nutshell: Tax everybody until they spend less time at work and more time on vacation.

Layard's justification for higher taxes fails even if we grant his utilitarian premises. First, he unaccountably ignores the seminal work of the Nobel-winning economist Ronald Coase, who forever put asunder the unholy marriage of externalities and taxation. In 1960, Coase observed that externalities are essentially interactive. If I smell like raw sewage, there's no problem as long as I'm out of whiffing range. And if you like the smell of raw sewage, there's still no problem. The problem is my stinking combined with your retching. Even then, the solution needn't be that I bathe. If it puts you out less to just walk out of whiffing range, then you should walk. I may be the "polluter," but you're the "least-cost avoider."

Similarly, if I make more money than you do, but you don't mind, there's no "pollution." Therefore it doesn't necessarily follow that the best solution is my working and earning less. It may be that you should get your envy under control and care less about what other people have. Layard himself touts the benefits of Buddhist meditation and cognitive therapy, recommends that we learn to "control our tendency to compare ourselves to others," and argues that "education of the spirit is a public good." Layard's later chapters suggest that he owes us an extra argument, which he doesn't provide, to establish higher taxes as the best strategy for taking on the "pollution" problem.

Second, Layard ignores some crucial implications of the fact that economic interconnectivity binds us beyond our borders. (He is, however, a fan of globalization.) Like water to the thirsty, small increases in income have a very large effect on the happiness of the severely impoverished. About 1 billion people live on $2 or less a day. Income in the developing world has been on the rise, largely due to trade with wealthier nations. But if wealthy nations put a brake on growth with taxes designed to shift workers from work to leisure, people inside the morally arbitrary borders of desperately poor countries will pay the price in lost income and lost happiness.

As economic historian John Nye has pointed out, even if competition for relative position is a zero-sum game, the increase in total wealth created by the productive investments of the wealthy benefits the poor. Layard's hated "arms race" for status doesn't demand a tax because it is a tax–a voluntary tax on happiness that the rich pay to the world's poor. Bentham would be pleased.

Far more troubling than Layard's specific bad arguments for astronomical tax rates is the very idea of his book: that the job of the state is to discover what will make us happy and then make sure we do it. Because liberal democracy happens to be the happiest form of government going, Layard favors it. Yet he fails completely to grasp that the most important policy problem in a liberal, cosmopolitan society is to coordinate the helter-skelter of competing isms, not to maximize utility (or equality, fidelity to divine law, or whatever). Like a God-fearing man meeting his first atheist, Layard seems baffled by the fact that there are people who don't see the world his way. He seems impatient with the duty of addressing critics and flippantly dismisses the formidable array of philosophical arguments against his brand of utilitarianism. If he had considered some of them more carefully, he might have been led to reconsider his naive approach to government.

Layard's account of economic success as "pollution" is a striking illustration of what the philosopher John Rawls had in mind when he argued that utilitarianism fails to take seriously the separateness of persons. If it is legitimate to use the coercive arm of the state to discourage work simply because it makes other people feel bad, then our liberty to pursue our own ends, for our own reasons, is hostage to the way the brains of strangers happen to light up. The aims and beliefs that make us distinct persons are reduced to nothing, except as they count in the summing. When we are reduced to mere vessels of utility, it becomes difficult to take seriously the rich plurality of moral conviction, or to give full weight to the fact that others believe with equal intensity that theirs is the one true vision of the good. In the face of rampant philosophical diversity, utilitarians too often miss the point and ask whether pluralism is good for utility when they ought to step back and consider that others would like to rule according to their dogma too.

In response to the fact that family is of overwhelming importance for happiness, Layard blithely prescribes mandatory state-funded parenting classes. He never pauses to consider that the curriculum of a compulsory parenting class would be a battleground of clashing ideologies, or that its message might be drawn more from James Dobson than from the learned pages of the Journal of Marriage and Family. Or perhaps he is sure his side would win, which is what Dobson probably thinks too.

In a land where Mormons, Muslims, and masochists walk side by side, and none is specially positioned to certify the correct concept of value, the role of government is not to pick a philosophy and shove it down our throats. It is to provide a reasonably neutral framework that allows each of us to pursue our ends peacefully in the light of our own convictions about the good. There's a reason liberal democracies get top marks in happiness.?