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February 24, 2005

More Layard on Happiness.

Richard Layard has an essay in Prospect Magazine to coincide with the publication of his book, Happiness. I’ve sniped at his thoughts on this issue a number of times, starting with his Robbins Lectures a year or so back. One more go:

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.

In just three paragraphs he manages to destroy his own argument!

Humans always compete for status, that’s just what humans do. There are bad effects from humans competing for status. One of these is that by working too much, humans chase status at the expense of other matters. So, we should tax humans to stop them competing for status via work.

That’s his argument.

But if human beings always compete for status then human beings will always compete for status, whether through work or some other method. So the bad effects will always be there, as competing is just what humans do....choking off competition via excessive working hours does not remove that, it only changes the competition from a method that at least, in the long run, makes us all richer, to one which does not, but leaves all of the same attendant problems, differences in status and the compeition for them, entirely unchanged.

As he points out in other places, this idea is at the very heart of Third Way thinking. No wonder the country’s in a mess.

February 24, 2005 in Economics | Permalink


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Sir! Your blog updates too fast to keep track of. Not that I mind. Good read.

Posted by: Vijay | Feb 24, 2005 12:14:28 PM

The penny drops: the buggering bastards are thinking of taxing happiness.

Posted by: dearieme | Feb 24, 2005 6:30:00 PM

I think Richard's argument is more sophisticated than that. Consdier where he says: "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"

Consider if everyone works 50 hours and everyone has a certain amount of status, dependant on what they earn. Now, what happens if everyone works 40 hours, instead? They all earn less, but they all earn less by the samre amount, so their place on the ladder of earnings -- and therefore their status -- is the same. But they all have 10 hours more leisure time.

Tim adds: Well, exactly. We have the same status system, the same stress, the same unhappiness at relative status and the society is 20% poorer in material wealth. Where’s the point in that?

Posted by: Phil Hunt | Feb 24, 2005 7:27:31 PM

I think you are Layard too hard here, although I agree that the parts of 'Happiness' about relative status and the rat race are some of the weaker bits of an excellent book.

While Layard does not deny that humans will continue to compete for status, or indeed for wealth, he does go into some depth that the incentives to compete for that status should be reduced wherever possible. His idea is if you give people financial incentives to work less (i.e. via altering taxation rates), they will spend time doing other things they should enjoy more than working, and will spend less time working to improve their status.

Bit tenuous, but it's not as circular as you present it here...

Posted by: Jon Worth | Jul 20, 2005 5:05:55 PM