What should politicians do? Make us happier of course. UK politicians are not doing great at this – we are only 18th in the happiness league table of OECD countries.* Maybe politicians have got their priorities wrong? As I show below, as happiness and equality are related, maybe they should be doing more about inequality (also discussed recently over at TRUK and Stumblings)?
As with everything there are a range of views on inequality, and there are a range of measures too. It is widely accepted that the most commonly used metric – the Gini index – is misleading at best. Representing a distribution by a single number is never going to tell the whole story. Thomas Piketty in Capital in the Twenty first century uses the wealth and income share of the top 1%. Others prefer the Palma index – the ratio of income share of the top 10 % to the bottom 40%. I prefer to look at distributions, but here I shall focus on the Palma index. A Palma index of around 1 appears to be healthy, whereas a Palma index much greater than 1 appears to be less healthy. Why do I say that? Well, you can correlate happiness (using data from the World Happiness report) with the Palma index (using data from the OECD) as shown in the plot below.
I have included the top 18 `happy’ countries in the OECD – the UK is bottom at number 18. Top of the list is Finland with a happiness score of 7.632. Now the top 4 happy countries – Finland, Norway and Denmark along with Iceland (all in the green zone) – all have low income inequality – a Palma index significantly less than 1. The UK – with a happiness index of 6.814 – is significantly less happy, and with a Palma index of 1.52 – significantly less equal too. Could lowering inequality make us happier?
Well, the inverse correlation between inequality and happiness is not perfect. Reducing inequality does not guarantee happiness** (you could end up in the blue/purple zone – along with Germany, Austria, Belgium and Ireland – more equal but still not happy), but high inequality – as in the UK and US – does appear to exclude high happiness (the red zone).
So it seems pretty obvious where politicians should be directing more of their attention – if they care about trying to make us happier?
* To see what economists think about our ability to measure happiness see here.
** See e.g. Fig. 7.9 in the World Happiness Report for other factors.