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July 19, 2007

Joseph Rowntree Foundation Report VII

Really?

And Layard (2005) argues that, if money is transferred from a richer person to a poorer person, the poor person gains more happiness than the rich person loses. Therefore:

… a country will have a higher level of average happiness the more
equally its income is distributed.
(Layard, 2005, p. 52)

Up to a certain point: as Layard's thesis rests upon the fact that above a certain point money does not increase happiness, or not enough that we can measure it, there must be an upper limit to the level of income we should redistribute to. In his writings Layard appears to claim that it's about $15,000 a year or at current exchange rates, some £2.50 a year or, when he was writing, some £8,000 a year. Thus this increase in happiness does not occur when the recipient is getting more than that sum a year.

Which leads to a really rather interesting thought. The current poverty level is 60% of median: which is I think some £16 k a year? Thus the poverty level of 60% is £ 9,600....meaning that we have already defined poverty as being above the level at which we can maximise societal happiness through redistribution.

July 19, 2007 in Economics | Permalink

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Comments

>if money is transferred from a richer person to a poorer person, the poor person gains more happiness than the rich person loses.

That may be true if the rich person transfers the money of his own free will, and the poor person gains the money through work. But when it's a case of taking the money from the rich person against their will, and giving it as a handout to the poorer person, then it's not at all clear that this is true.

Posted by: Blithering Bunny | Jul 19, 2007 4:43:22 PM

I think you're missing the point here.

Layard is convinced that if rich person A gives money to poor person B, then A will be no less happy and B will be more happy. We have added to the sum of human happiness, no question.

So how do we decide at which point A is rich enough to give money to B and effect this increase in general happiness? Simple, A must be richer than Lord Layard. Otherwise Layard would have sold his house and given a proportion of the proceeds to the poor (after all he's so passionate about this happiness schtick that he never stops banging on about it). Since he hasn't done this we must assume that the magic sum must be greater than Lord Layard's wealth.

Posted by: Horace Dunn | Jul 20, 2007 12:15:42 AM

That is an elementary mistake from Layard. A more equal society would possess a higher average level of happiness provided that everyone had an identical set of preferences/utility as a function of income. But they don't so it is impossible to infer one from the other.

Posted by: JH | Jul 20, 2007 3:25:18 PM