TCS Daily

The Third Way to Happiness

By Tim Worstall - September 16, 2004 12:00 AM

So-called "happiness research" has been discussed at length recently with economist and TCS contributing editor Arnold Kling writing and blogging about it, and economist Tyler Cowen responding at his blog. That exchange, and the mention of a new book on the subject piqued my interest and some further research led me to the answer: 60% marginal tax rates, that's what will make society happy.

This is not, unfortunately, a joke, nor is it the musing of some wingnut or crank. A distinguished Professor at the London School of Economics is seriously suggesting that the outcome of this research into what makes people happy is that we should all pay taxes (both direct and indirect) of 60 cents on each and every extra dollar we make over $15,000 a year.

Richard Layard (for it is he) is an advisor to the UK Government, has been one to the Russian, and is sufficiently highly thought of for such work that he has been made a member of the House of Lords on the strength of it. Just as his research into "workfare" or welfare reform in the 1980's had passed into common currency by the late 1990's, so it may be with his latest ideas.

His new book is not yet published so I am using his Robbins Lectures of last year as the basis of his thoughts. As he expressly claims that the book is based upon them this seems fair.

The first anchor of his argument is based upon the idea of habituation. That the promotion, pay rise, marriage, attainment of tenure that makes us happy does so for a short time. Six months is an oft mentioned estimate. This may well be true and a normal answer to it would be that having achieved one goal one should set a further one which when achieved will provide a further jolt of that delicious happiness. Perhaps after achieving connubial bliss one might work on a child or two (multiple marriages being rather frowned upon) or one promotion whetting the appetite for the next. To think that way would be to betray an awful ignorance of the thinking of the modern day political left. For what is actually suggested is that since the pleasures of achievement are so transient, people should be dissuaded by the tax system from making any attempt to gain them. Taxation of 30% at the margin is what is proposed as a way of stopping us from, well, what exactly? Getting ideas above our station? Striving to improve our lot? Something like that anyway as we wouldn't want the plebians to actually, like, work in order to improve their lives now would we?

His second foundation is the not unusual observation that human beings can be jealous of the success of others, something he terms rivalry. Various systems of moral teaching have attempted to deal with this unfortunate fact: the Christian heritage that some of us share regarded envy as one of the Seven Deadly Sins, and we were, at least at some points in the past, enjoined to rejoice in the good fortune of others and abjure jealousy. No doubt other systems of belief about which I know too little had similar injunctions against such selfish thoughts. Again, to think that way is to misunderstand our new moral universe:

"To be precise, if my income increases, the loss of happiness to everybody else is about 30% of the gain in happiness to me.

"This is a form of pollution, and to discourage excessive pollution, the polluter should pay for the disbenefit he causes. So the polluter should lose 30 pence out of every 100 pence that he earns -- a tax rate of 30% on all additional income. "

With these two ideas our Professor has now shown that happiness will be maximised with 60% marginal tax rates. Revenue collection is no longer the dreary problem of how to get enough cash to pay for the things that we demand from the State, it is a moral activity in its own right, something that we should rejoice in, in and of itself, for it is for the good of society you see. Even to the point that we should not worry about the effects of high taxation on other matters, like growth, incentives or even fairness:

"Rivalry and habituation lead to a quite different conclusion. They tell us that in an efficient economy, there will be substantial levels of corrective taxation. And so long as taxation is not higher than that, cost-benefit analysis of public expenditure need not worry about any excess burden coming from the costs of financing the expenditure."

Implicit in his above reasoning is that places with said 60% marginal tax rates will be happier than those with lower ones. That would explain of course why Monaco and Hong Kong are such hopelessly depressed places that they have to haul the suicides out of the ocean by the boatload. Such trivial appeals to empirical evidence are not, unfortunately, enough. For as he goes on to state:

"But the time is now ripe to make this argument explicit -- as one of the central features of Social Democracy, or dare I say it the Third Way."

When the "Third Way" gets to the eastern side of the Atlantic it is called being a "New Democrat" or, if you prefer, a Clintonista.

Allow me to recast his argument in less elevated language. We're all so stupid that we cannot be trusted to work out our own desires in life so the State should tax us into the approved "don't try too hard" mode. If we persist in our foolishness and actually achieve something then this will hurt the feelings of the cowed little baa lambs who surround us and we should pay further for this pollution.

It used to be said that the first way, capitalism, was the exploitation of man by man, and that the second way, socialism, was the opposite. I always knew there was something odd about the Third Way but to have it actually stated so baldly, that it is based on the consensus that we are all as dumb as a sack of rocks and jealous to boot, well, you can regard me as just a little surprised.

Still, I suppose there is some comfort to be gained from this, at least we now know what our Lords and Masters really think of us.

The author is a TCS contributor. Find more of his writing here.


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