If only you could buy happiness?

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.

Comments

  1. Tony_B -

    Charles,

    Shame to the UK. To an extent you can buy emotional well-being (happiness), see [1].

    UK politicians now design policy to control and subsume the population, as they are afraid of a confident, thinking and empowered population.

    Why is the UK doing poorly here; an example, NHS doctors, a profession that is considered privileged. Think about those training doctors, right up to qualifying consultant level, they often work under intolerable conditions of long hours (7-11 daily, is not uncommon without breaks), constant workplace pressure, separated from family, can’t afford their own housing/flat (certainly in London), often relocating every year, and some doctors rest over night in their sleeping bags or keep warm under newspapers (I have the evidence). Trainee doctors are required to sign-off virtually all their activity in a tick box first culture, but the NHS does not have a tick box culture for assessing their most precious asset – their staff. No record of their mental well being is standard practice or their actual duties, as in many professions they are considered to work 37.5 hrs. Unsurprisingly I have examples; e.g. Greek trainee consultants returning to Greece as a better alternative (in terms of well being) than training in the UK. I suspect London is one particularly taxing environment.

    I quite liked the following paper [1] about how income affects [emotional] well-being, which increases up to an income of $75k. Above this “High income improves evaluation of life but not emotional well-being”. I used this reference to explain to my VC why his salary does not lead to greater well-being, that he sometimes complains about.

    [1] http://www.pnas.org/cgi/doi/10.1073/pnas.1011492107

    1. Sean Danaher -

      Tony
      thanks. Agree. With my wife being a hospital doctor and being an academic myself I am very familiar with all this.
      Interesting article. I note Daniel Kahneman is one of the authors, presumably the same person as the author of the excellent “Thinking Fast and Slow”?

    2. Charles Adams -

      Thanks for the link. Deaton won the Nobel Memorial Prize for his work on these topics in 2015. Here’s a quote from him about the US.

      Letter from America – ‘Madmen in authority’ and health care reform

      “Life expectancy in the US is among the lowest in all rich countries, and in the last two years has been falling, uniquely among comparable countries. Working-class whites are dying from an epidemic of suicides, drug addiction and alcoholism, and are facing rising death rates from heart disease. The mixed system of government and private provision has generated a machine that is perfectly designed for profitable rent seeking, but appallingly designed for improving or even maintaining health.”

      Deaton finishes his letter by quoting another eminent US economist Kenneth Arrow (New York 1921 – Palo Alto 2017) Nobel Memorial Prize in 1972:

      “the laissez-faire solution for medicine is intolerable”.

      In other words, the market solution just does not work but it is `perfect’ for rent seeking.

      See http://www.res.org.uk/view/art1Apr17Corresp.html

  2. Sean Danaher -

    Charles

    The UK figure sadly does not surprise me. I suspect matters will get worse over the next few years while Brexit plays out.

    I’m not sure about Germany, Austria and Belgium, but the Irish happiness metric plunged after the 2008 GFC but is rising again. It would be interesting to explore why Germany is so different to the Scandinavian countries in terms of Happiness score.

    1. Charles Adams -

      In relatively wealthy countries, other factors such a mental illness and family circumstances become more significant. Re: Ireland I was surprised it has a much lower Palma index than the UK.

      1. Sean Danaher -

        Ireland has a much more progressive taxation system and redistribution on a much larger scale than the UK. I’m not sure about the Palma index but the Gini coefficient is similar to the UK before tax etc but drops significantly after tax etc. Things like pensions and welfare payments are also much higher in Ireland.

  3. Peter May -

    It always seems to me that what is often missed is that there is no (real) market in healthcare in the UK or Costa Rica (I know of no other places?) and taking the market away by making it free at the point of use causes pensions to buy more – in effect. I wonder if the statistics reflect this?

    1. Charles Adams -

      Maybe. Costa Rica is the happiest country outside the OECD with a happiness score of 7.072 in 13th place overall between Austria and Ireland. It has off the scale income inequality (Palma 2.98), but as you point out universal health care, see

      https://en.wikipedia.org/wiki/Healthcare_in_Costa_Rica

      make it an exceptional case.

      1. Peter May -

        Oh dear! I thought I might be on to something but it must be the weather…

  4. Pingback: It seems likely that reducing inequality can make us happier
  5. Donald Liverpool -

    Charles, what’s your evidence that you have causation the right way round?

    1. Charles Adams -

      “right way round” Do you mean that unhappiness causes inequality? Either way, correlation does not imply causation, but still you can ask, could we do better?

      1. Donald Liverpool -

        That would be the corollary.
        You’ve found a correlation between happiness and equality of outcome. It’s pretty clear that you desperately want that to mean there might be a causal link between introducing policies that reduce inequality and happiness results.
        It’s just as possible on the evidence presented here that there’s a causal link between pursuing policies that increase happiness ( or reduce misery ) and more equality will result as a consequence.
        There’s a book out by Walter Scheidler – ‘The Leveller’ which has amassed a stack of evidence that peoples intent on pursuing more equality of outcome are no more likely to achieve it than peoples who ignore that goal.

        1. Graham -

          “a book out by Walter Scheidler (sic) – ‘The Leveller’ (sic) which has amassed a stack of evidence that peoples intent on pursuing more equality of outcome are no more likely to achieve it than peoples who ignore that goal.”

          If I may say so that’s a very peculiar reading of Scheidel’s book “The Great Leveler”. His main thrust is that throughout history it has been what he calls “The Four Horsemen”: “Four different kinds of violent ruptures have flattened inequality: mass mobilization warfare, transformative revolution, state failure, and lethal pandemics.”

          Certainly, he is pessimistic that planned policy reform will be equal to the task of countering the rampant and increasing inequality through accumulation of capital and concentration of income which seems to have been set in motion since the 80’s. But as he asks, what is the alternative? Or perhaps this time, in the long run, things will be different.

          Personally, I can see things being different if there’s some kind of mass movement to get rid of the current crop of dysfunctional politicians, euthanise the rentiers and oligarchs and work towards a citizens’ deliberative democracy.

  6. Charles Adams -

    “pursuing policies that increase happiness ( or reduce misery ) and more equality will result as a consequence”

    I would support that.

    “you desperately want that to mean there might be a causal link between introducing policies that reduce inequality and happiness results”

    That is not correct, my only aim is to give more people, more opportunity, more freedom, better health and education, and hopefully more happiness will follow.

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