January 7, 2006
Yes - We Will Feel Better if We are Taxed More. It's True!
We all feel bad. We all feel sad. We all have those “need-to-be-taxed-more” blues. This is the remarkable conclusion being drawn from British economist Richard Layard’s recent book, Happiness: Lessons from a New Science.
We are being told that although wealth has increased dramatically over recent decades, people are no happier today than in the past, when they were much poorer. Assuming that this problem needs a remedy, the Intellectual Left has come up with a brilliant answer - we should be taxed more.
I find this proposal for a “Happy-Tax” surprising. One of the big differences between now and, say, the 1950s, is that taxes were much lower during that decade than they are today. For example, today’s married woman who decides to go out to work normally does no more than bring home, in her net pay, the extra taxes now paid by her working husband. I am ready to believe many of today’s households are less happy as a result.
On the face of it, reducing taxes would increase these families’ happiness. The Intellectual Left, however, have other ideas. They claim someone else getting rich makes us unhappy. It makes our own income and lifestyle look inadequate, and all that striving makes us spend too much time at work - away from family and friends. I suspect many embittered academics hold these beliefs. As for me, frankly, other people’s wealth does not make me feel bad at all. I accept they have made other choices.
On the second point, my own research shows high taxes make some people spend too much time at work - trying to get back what the state has taken away from their spouses. But these new, high-tax advocates believe the way to stop me from feeling bad about the rich is to tax the high earners more, so bringing everyone back to a similar income. This, they believe, would reduce envy. Hence we’d all be happier.
Similarly, if we knew that working hard did not add to income we would all spend less time working - and be much happier. This assumes most of us hate our work.
These are the same old “socialist equality” arguments dressed up in new drag.
Some of these new “Happy-Taxers” claim support from the economic theory that dollars redistributed from the rich to the poor have more value to the poor than the dollars taken from the rich. Hence higher taxes increase the sum total of happiness.
If only human behaviour were that simple.
The fatal flaw lies in the assumption that people today are no happier than those who lived in times past. As I read it, the research tells us people’s expectations and aspirations today are no more satisfied than they were previously. But people now have much higher expectations and aspirations than people of the past.
Curiously, the best evidence that people are happier today than in some Golden Age since past, comes from those deep studies in social science called “reality TV” - in particular, from those series which sent contemporary families back to live in a “Victorian House”, a “Pioneer House” or even an “Iron Age House”. While those families claim to have benefited from their experience, none of them could wait to return to the modern world of washing machines, refrigerators, hot showers, antibiotics and comfortable clothes. In other words, when the same people are able to compare their own happiness “now” with their own happiness “then”, they enthusiastically opt for “now”.
New Zealand’s Maori Party Co-Leader, Tariana Turia, and her friends would like us to believe that Maori were happier before the colonials arrived. We shall wait a long time for Maori TV to produce “Pre-European House” because they would never find a family prepared to live out that real life experience, just as I would not volunteer to live out Irish life before the arrival of the Romans. Now is good.
America is the fountainhead of modern capitalism, so the enemies of capitalism love to tell us the American poor are getting poorer and the rich are getting richer. These claims are based on movements in real income corrected for inflation, and overlook productivity gains and changes in earning structure. The statistics of ownership of goods, however, present a different picture.
According to Arnold Kling in "How much worse off are we?" the percentage of US households lacking such basic items as a telephone, refrigerator, stove, color television, vehicle and complete plumbing was about 50 times higher in 1970 than in 2004. In 2001, the US economy enabled households in “poverty” to own the same percentage of the old “luxury” whitegoods as found in the average household only three decades earlier. By 2001, many luxury goods, which did not exist in 1970, for example large-screen televisions, answering machines, VCRs and microwave ovens, were commonplace in households - even in those below the poverty line. If these figures are evidence of the failure of capitalism, what would count as success?
But what terrible price have these families paid to earn the money to own these frivolous goods? Obviously they have had to work far too long and enjoyed too little leisure. The way we allocate our time varies according to our goals of the day, but over the long term, we are the winners.
Contrary to another popular myth, Americans are working much less than they used to. In The Escape from Hunger and Premature Death, 1700 - 2100, economist and Nobel Laureate Robert Fogel, writes, “In 1890, retirement was a rare phenomenon. Virtually all workers died while still in the labour force. Today, half of those in the labour force, supported by generous pensions, retire in their fifties”. Furthermore, Americans work many fewer days than they did a century ago. Assuming a work year is 365 days, Fogel calculates that in 1880 an average male head of household worked 8.5 hours per day, while his 1995 counterpart worked only 4.7 hours per day.
With less time spent working and somewhat better health, total leisure available has more than tripled - from 1.8 to 5.8 hours per day. Additionally, the lifespan of the average male has more than doubled since 1800. Before governments attempt to solve social problems with more social engineering they should be sure these problems actually exist.
In New Zealand, we are told of our increasing poverty and how we are failing to reduce the number of children in poverty. This is hardly surprising when a household is defined as “in poverty” if its income is less than half the average. By 2100, when the average household income will be about a million dollars a year, families earning a miserable $250,000 a year will remain officially below the poverty line.
So, reducing poverty is hard - but increasing poverty is easy. All we have to do is persuade Bill Gates to move his head office and key staff to New Zealand. The immediate effect would be to increase the average income - and so increase the number of households in poverty.
We can’t have that - can we?
is Director of the Centre for Resource Management Studies (www.RMAStudies.org.nz), a privately sponsored New Zealand-based “think tank” specialising in resource management matters. The Centre’s activities are funded by the Centre for Resource Management Studies Trust, which is registered as a charitable trust for educational purposes. He has New Zealand degrees in Architecture and Town Planning and also studied Urban Economics at UC Berkeley towards a Masters Degree in City and Regional Planning. He writes a fortnightly column for New Zealand's National Business Review, titled “Straight Thinking” and has been published in many magazines and newspapers including the Wall Street Journal and the Far Eastern Economic Review