Be happy not rich

Layard’s conclusion is that taxation is therefore corrective, not distorting. This is a fundamental challenge to conventional thinking. According to these (admittedly) approximate numbers, a top marginal taxation rate of 60 per cent would be a “neutral” figure. It is, in fact, the typical marginal tax rate in Europe, where happiness is generally greater than in the US or Britain. The decreasing positive impact of wealth increases on happiness also suggests a strongly progressive taxation rather than the flatter income tax regimes being pushed currently (not to mention the regressive GST).

As described above, job security is a major source of happiness and unemployment a major source of misery. Under the proposed WorkChoices legislation, individuals should be able to trade security for income or other conditions. However, in practice, individuals do not have this choice: any such suggestion will cast doubt on one’s willingness to work. It is clear therefore, that job security and additional time for family and community activities (key drivers of happiness) need to be negotiated collectively. The WorkChoices proposal, with its emphasis on flexibility and individual negotiation, may potentially increase productivity and therefore wealth, but is bound to decrease happiness.

While not going into detail, it is clear that policies relating to health, family and community are also key to promoting happiness. Layard reports that mental illness causes the most misery in society. However, a recent report (“Goverment program failing unemployed: report", SMH, October 25, 2005) concluded government programs were significantly under-funded and under resourced. To make significant inroads into unhappiness, the resources applied to mental health would need to be increased significantly.

One further policy area demands mention. Television creates discontent by bombarding us with images of perfection and promising that we can achieve these through increased consumption. These promises are of course false but the process increases feelings of discontent. Hence arguably television advertising directly reduces happiness. Both Layard and Hamilton recommend restrictions on advertising including bans in advertising to children under 12-years-old. Layard suggests that all advertising be limited to the provision of factual information while Hamilton goes even further. Such proposals may seem radical but only “radical” if society’s aim were to maximise wealth and not happiness.

Wealth and happiness are not necessarily mutually exclusive. However, for those of us in western countries, pursuit of one may lead to less of the other. The current consensus is that wealth maximisation should be the goal of public policy. Richard Layard has now given us an alternative. The challenge now is to convince our major political parties that we would rather be happy than rich.