Humans are deeply social beings? Most people prefer to be in company most of the time. Friendship and marriage make people happier. Unemployment causes misery that goes far beyond the effect of losing income, because it breaks a social tie. In fact to a large extent our social ties define our personal identity and give meaning to our life. So it is a deep fallacy of many economists to think of human interaction as mainly a means to an end, rather than also an end in itself. This applies also to the political process. Many economists complain that people care about processes and not simply about "outcomes." But if people are like that, who are we to say they should be different?
As social beings, we want to trust each other.
The average happiness in one country compared with another can be largely explained by six key factors (and so can the suicide rate). These are: the proportion of people who say that other people can be trusted; the proportion who belong to social organisations; the divorce rate; the unemployment rate; the quality of government; and religious belief. Unhappily, over the last forty years levels of trust have fallen drastically in Britain and America, though not in continental Europe. In the United States and Britain today the percentage of adults who think that most people can be trusted is half that of the 1950s. Policies that encourage trust are thus extremely important. These include moral education in schools, and policies to build stable families, communities and work-places.
We do not want high turnover in jobs, in housing or in marriages, except where clear advantages outweigh the human and other costs. Nor do we want our firms and public services to be repeatedly restructured, with massive loss of trust at every stage. Unfortunately, political leaders in the United States and Britain have elevated "flexibility" and "change" to the same level as motherhood and apple pie. But there are huge advantages to inflexibility and predictability, as continental Europeans appreciate. The evidence shows that continuous reoptimisation is not the best route to happiness: you are more likely to be happy if
A you settle for what is "good enough" than if you feel you must always have the most.
People also want to be trusted and respected themselves. This requires that they have some autonomy. Most of us like to feel we are working well or helping others because we could not expect to be respected otherwise. That/is a key element in the motivation to work-the satisfaction of the professional norm. Yet in recent years employers have used more and more financial incentives to motivate people; performance-related pay has been creeping in everywhere, including the public services.
Those who favour it believe that if they add an extra incentive, people are bound to work harder. They assume that all other incentives will retain their existing force. Yet that is not how people are. If you pay people for something, they stop feeling that you automatically expect it of them. In consequence they may even work less. So introducing targets and paying people to achieve them may not be the best way to revolutionise the public services.
People are also deeply attached to the status quo.
They hate loss of any kind, and they care less about gains than about losses. Researchers typically find that an income loss of £100 hurts twice as much as an income gain of £100 helps. This is not an inconvenience to be ignored, but a fact to be respected. Yet rationalisers happily reorganise things without weighing properly the cost to happiness from breaking up a settled order.
More generally, people like what is familiar to then.. Crime and mental illness are higher in transient or mixed communities, other things being equal. This is an important cost of high mobility. Anglo-American economists may preach to Europeans that they should move house more often. This would surely in- crease productivity, but it is not desirable unless the gains from higher productivity would outweigh the costs of greater crime and family instability. Happiness, not dynamism, should be the goal of public policy.
Human beings are also status conscious. Natural selection has planted in us the desire to do better than other people, or at least to keep up with them. This is what causes the rat race. In any race there is a fixed number of winners. For every winner there is a loser: it is a zero-sum game. This is equally true of the race for status, since the total amount of status in a society is fixed. That is one major reason why as a society we have not grown happier.
So what can be done? If a person works harder and earns more, he may himself gain by increasing his income compared with other people. But the other people lose because their income now falls relative to his. He does not care that he is polluting other people in this way, so we must provide him with an automatic incentive to do so. Taxation provides exactly this incentive. If we make taxes commensurate to the damage that an individual does to others when he earns more, then he will only work harder if there is a true net benefit to society as a whole. It is efficient to discourage work effort that makes society worse off. Thus taxation is a way of containing the rat race, and we should stop apologising for its "dreadful" disincentive effects. If taxcutters think people should work still harder, they need to new, but it is taking a real beating in the current era of unrestrained individualism. It can only win with the backing of solid intellectual argument.
Human beings are also very adaptable.
Like other animals, our feelings adapt to our experience, so that when things change, our initial reactions eventually diminish and we revert towards our initial state of feeling. If things get better, we after a while take them for granted. If they get worse, we also eventually largely accept them. This is another reason why economic growth has not increased welfare as much as we expected. The number of people who are dissatisfied with their financial position is still as high as it was thirty years ago, although people are many times richer. How depressing!
In other words, income is addictive. Suppose my income and spending rise this year: next year I will need more income still in order to achieve a given level of happiness. In fact to a large extent it is the change in income rather than income itself that affects happiness-unless you are very poor. In this respect income is very different from, say, friendship, because if I make more friends this year, that has permanent effects on my happiness-I do not take them for granted and need still more friends in the year that follows. We habituate more rapidly to things that money can buy than, to things it cannot buy-more to goods than to relationships.
Since most people do not foresee the addictive effects of income and spending, taxation has again a useful role, just as it has with other forms of addiction like smoking. Taxes discourage us from overwork, from running on a treadmill that brings less advance in happiness than we expected.
If we combine this habituation argument with the one about status-seeking, we can argue strongly that up to some level taxes are not inefficient, as is so often alleged. Rather, we need the tax on income from work in order to maintain a tolerable work-life balance. By contrast, tax cuts would of course increase production, but would they improve the quality of our lives?
In any case extra income increases happiness less and less as people get richer.
This was the traditional argument for redistributive taxation, arid modern happiness research confirms it. The argument applies both within countries and across countries. In poor countries extra income increases happiness much more than in rich countries, and that is why helping the Third World should be one of the major ethical goals for Western society. Moreover, policies that will certainly increase misery, like easier laws on gambling, can never be justified by the income they would generate. Income is not everything.
In fact happiness depends on your inner life as much as on your outer circumstances. Through education and practice, it is possible to improve your inner life-to accept yourself better and to feel more for others. In most of us there is a deep positive force, which can be liberated if we can overcome our negative thoughts. To develop this inner strength of character should be a major goal of education. For adults there is a range of spiritual practices that help to bring peace of mind, from Buddhist meditation to positive psychology. For those who are struggling, cognitive therapy has a good record of success. For those in the extremes of misery, psychiatric drugs and cognitive therapy have probably helped more than any other changes in the last fifty years, and we can expect further major advances.
Public policy can more easily remove misery than augment happiness.
This is because the causes of misery are the more obvious, especially when we look beyond the family circle. It is also morally right to give extra weight to removing misery. So that should be a major focus for public policy. In the West the most miserable group of people are the mentally ill. We know how to help most of them, but only about a quarter are currently in treatment. We owe them better.
Given all this, are mainstream economists right or wrong in how they approach our problems?
Partly right, partly wrong. Here is the good part. Each individual knows more about himself than anyone else does. So there are huge gains all round if we can freely exchange goods and services with each other- including our labour. This is especially so where markets are large and well-informed and no one affects anyone else except through the process of voluntary exchange. Indeed, economists have correctly shown that if these conditions exist and contracts can be enforced and tastes are given, the outcome will be fully "efficient." In other words, everyone will be as happy as is possible without someone else being less happy. This important claim helps to explain the extraordinary success of post-war capitalism in producing material advance.
Yet why did this advance not guarantee a rise in personal happiness?
The reason is that many of the most important things that touch us do not reach us through voluntary exchange. Nor have our tastes, expectations and norms remained unchanged-and these too affect our happiness.
Other people affect us through so many channels that volun tary exchange is only a limited part of the story. For example, we are directly affected by our experience of how other people live. Our children are affected even more. Advertising too affects our perceptions. We are also affected in a quite involuntary way by crime on the streets, the friendliness of our neighbours and, perhaps, the seductive tendencies of our spouse's colleague. That is why we have laws and codes that regulate all kinds of institutions and behaviour, going far beyond, the simple enforcement of voluntary contracts.
Moreover, our values can change. In the last forty years we have become increasingly individualistic, especially in Britain and the United States. We are ever more influenced by exaggerated versions of the "survival of the fittest" (Charles Darwin) and "the invisible hand" (Adam Smith). A result has been the welldocumented decline in trust.
Our leaders use increasingly tough language to describe the world we live in. They talk much,less of security and community, and more of the competitive struggle. They argue that we can no longer afford to provide security. As most economists would agree, this is nonsense. As we become ever richer, we can freely choose how much of our extra wealth we devote to higher living standards and how much to security in employment, in old age and in our community. The aim of politics is to make the world a more friendly place and not an assault course.
So what is my picture of a better society in which people feel under less threat and less pressure, and can really exploit the end of scarcity that science makes possible? What should we do differently if we shifted our goal towards achieving a happier way of life?
•We should monitor the development of happiness in our countries as closely as we monitor the development of income.
• We should rethink our attitude on many standard issues. On taxes, we should recognise the role they play in preserving the work-life balance. On performance-related pay, we should worry about its tendency to encourage the rat race. On mobility, we should consider its tendency to increase crime and weaken families and communities.
• We should spend more on helping the poor, especially in the Third World. The United States at present spends 0.13% of its income on overseas aid, Britain 0.31%.18 We now understand better how to spend this money.19 If you want to relieve hunger and misery, here is a ready-made route. We should be proud to make this a goal of our affluent societies.
• We should spend more on tackling the problem of mental illness. This is the greatest source of misery in the West, and the fortunate should ensure a better deal for those who suffer. Psychiatry should be a top branch of medicine, not one of the least prestigious.
• To improve family life, we should introduce more family friendly practices at work-more flexible hours, more parental leave and easier access to child care.
•We should subsidise activities that promote community life.
• We should eliminate high unemployment. Here tough-and tender works best. After a time everyone should be given a chance to work, but should have to take advantage of the opportunity in order to continue receiving support.
• To fight the constant escalation of wants, we should prohibit commercial advertising to children, as in Sweden. We should also cut tax allowances for pictorial advertising to adults by business.
• Finally, and perhaps most importantly, we need better education, including, for want of a better word, moral education. We, should teach the principles of morality not as interesting points for discussion but as established truths to hold on to, essential for a meaningful life.
We should teach the systematic practice of empathy, and the desire to serve others. This needs a proper curriculum from the beginning of school life to the end, including detailed study of role models. The curriculum should also cover control of one's own emotions, parenting, mental illness and of course citizenship. But the basic aim should be the sense of an overall purpose wider than oneself.
A society cannot flourish without some sense of shared purpose. The current pursuit of self-realisation will not work. If your sole duty is to achieve the best for yourself, life becomes just too stressful, too lonely-you are set up to fail. Instead, you need to feel you exist for something larger, and that very thought takes off some of the pressure.
We desperately need a concept of the common good. I can think of no nobler goal than to pursue the greatest happiness of all-each person counting. This goal puts us on an equal footing with our neighbours, which is where we should be, while it also gives a proper weight to our own interest, since we know more about ourselves than anyone else does.
Some people say you should not think about your own happiness, because you can only be happy as a by-product of something else.
That is a dismal philosophy, a formula for keeping oneself occupied at all costs. Of course you cannot be happy without a wider goal than yourself, but you cannot be happy either without self-knowledge and self-acceptance. If you feel low, there are centuries-old philosophies to help. Better to seek the beauty within than to have an affair.
So happiness comes from outside and from within. The two are not in contradiction. The true pilgrim fights the evils in the world out there and cultivates the spirit within.
The secret is compassion towards oneself and others, and the principle of the Greatest Happiness is essentially the expression of that ideal. Perhaps these two ideas could be the cornerstones of our future culture.
Mankind has come a long way since the Stone Age, and we in the West are probably happiçr than any previous society. But the anxieties that were useful in the Stone Age ought to be unnecessary today. So we should rededicate our society to the pursuit of happiness rather than the goal of dynamic efficiency. Life is for living. Through science, absolute material scarcity has been conquered in the West, and we need to think hard about what would now constitute progress. I believe passionately that progress is possible.
Richard Layard, see also my book “Happiness”.