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August 10, 2006

Richard Layard's Happiness is not a convincing argument for increasing rates of marginal taxation to boost overall happiness, argues Tim Worstall: Happiness: Lessons from a New Science - Richard Layard

Posted by Tim Worstall

Happiness: Lessons from a New Science
by Richard Layard
London: Penguin, 2005
Paperback, £8.99

My Noble Lord Layard's latest tome, discussing not just the importance of happiness but what causes it, has received much attention, rightly so. Who but the most curmudgeonly could argue with attempting to work out what we actually know about the subject and how to increase its incidence?

Allow me to be curmudgeonly. There are two grave errors, one in the argument of the book itself, the second in the way it has been greeted by the Guardianista types, whose knowledge of the current economic situation has led them to misunderstand an economic point.

The essential argument of the book is that Bentham's Utilitarianism (here defined as the greatest happiness of the greatest number) is the correct motivating ideal for the functions of government. We can agree or disagree with this on the basis of our own philosophic traditions and reasonings (the mere idea that John Prescott is going to be in any way responsible for my happiness fills me with dread but perhaps that's just a personal reaction) but if we accept it the rest of the thrust of the research makes perfect sense. What is it that makes people happy? Followed by, what can the government do to promote such?

Some issues are clear and obvious: friends and a rich social life are indeed a part of a happy existence. Marriage equally so and it is nice to see that the Professor learnt so much from people like myself, his past undergraduates. Sex is flagged as being one of those activities which adds to human joyousness and as we - that early 80s generation - were (as I am convinced) the first to discover this, it is gratifying to see that the imparting of knowledge between student and teacher was not simply uni-directional.

Mental health problems are, almost certainly, correctly identified as the greatest cause of unhappiness. One only needs to skim the archives of the NHS Blog Doctor to see that the current treatment options amount to somewhere between little and nothing, despite the recent invention of a number of happy pills. It is as if mental health were the ginger stepchild of the NHS: acknowledged but little or no attention or resources dedicated to it and Layard rightly agitates for an expansion of treatment here.

However, he seems all too enamoured of cognitive behaviour therapy (in itself a huge advance on Freudian nonsenses) which according to one Consultant Psychiatrist of my acquaintance is all very well but not all that productive. CBT works very well with those with mild problems and does almost nothing for those with serious, disabling depression (nor anything at all for those with what used to be called madness, if I am still allowed to use such a categorical word). Layard's proposed expansion of such therapy might have marginal effect therefore, but isn't going to make great inroads into the major problems.

As a tip toe through what makes people happy and what might be done to increase the number so everything seems fine until we come to the issue of monetary income. Layard proposes that there are two reasons why happiness doesn't seem to increase very much (if at all, according to him) once income rises above that necessary to provide for the basics. Depending upon where he's been writing this ranges from £10,000 to $20,000 (in real money, around £12,000) and once personal income goes above this number the extra cash rolling in seems not to induce yet ever more joy.

One reason given is that of adaptation. New shiny gew gaws do indeed make us happy, that promotion at work, that new car, a marriage, introduce a bolus of happiness into life. After some six months or so levels seem to edge back to where they were before and unless we go off and achieve some greater feat, we are, in terms of happiness, no better off in the long term. (As an aside, this may be why the Americans talk so much of the "pursuit of happiness" rather than its achievement.) This then, in the analysis, leads to a hedonic treadmill, where we seriously damage our work life balance by pursuing ever more gew gaws to provide that jolt.

According to Layard far better that we should simply be happy with what we have rather than chase such a will o' the wisp and he suggests that income above that £12,000 figure should be taxed at 30% in order dissuade us from wasting our efforts in this manner. It seems not to occur that our three score and ten might actually have room in it for 140 achievements which would each give us that six months of excessive jollity.

The second is that of jealousy, not that it is given that name so baldly. Rather, we compare ourselves to our peer group and if some of them should, by luck or hard work, get one or more of the magpie's shiny treasures, we feel somehow put out. In fact, from his Robbins Lectures (upon which the book is built) the estimation is that an extra pound of income to another (to whom I compare myself) actually causes 30 pence of pain to me. This is pollution, for which the producer should pay, so there should be a further tax rate of 30% of income above that £12,000 figure to compensate.

This thought is also accompanied by the (obviously) true statement that social status and the competition for it is a zero sum game. We cannot all have high status within our society, some must be on top and others not. Thus, we should equalise social status to a degree by equalising incomes to a degree. This is fine until we see one of the reasons given: that those of low status suffer greater disease than those of high status (true, by the way) and this is illustrated by animal and primate studies.

Err, were the animals or primates using money? Of course not, as indeed is noted, but there seems to be no connection made between this and the futility of restricting monetary income in order to restrict status rivalry. We will always compete for status and if we change society so that money is not the measure (as it largely is currently) then something else will take its place. As it has in other societies at times and in places: order of birth, the position of one's parents, religious zeal, one's ability at hacking at peasants with a broadsword, all of these have been used in our own isles. It would be difficult to argue that these would be better than vying for money via invention or hard work: for the latter method has at least one positive externality, that my higher production, which brings those greater rewards, will be consumed by others which will, presumably, bring them at least that six months boost of happiness.

So I am less than convinced that we have been presented with the killer argument for Scandinavian style taxation. Indeed, Layard himself points out that that isn't quite what he's saying either: again in the Robbins lectures he refers to Western European taxation levels, not Swedish. The detail is that he is referring to all marginal taxation, not just that on income, indirect as well as direct.

Which is where our friends of The Guardian persuasion have come a little unstuck. It has become almost a cliché (it has got as far as Polly Toynbee which I think is the definition of such these days, nicht wahr?) that Layard's argument is that higher than current taxation on the rich will make us happy, or at least happier. The unfortunate - for those pushing this point - fact is that Layard’s own numbers show absolutely nothing of the kind.

He does indeed conclude that for income above £12,000 a year, happiness will be maximised by a 60% tax rate, direct and indirect taxes included. As Patrick Minford has pointed out, those at the top end of our tax system already pay 57.1% marginal rates calculated in the same manner. It's difficult to see that a rise in the top income tax rate of 2 or 3 % is going to appreciably increase the amount of happiness in the country at large: I'm not sure that it would even create a happy crowd in Farringdon Road.

We could also take this further and make the assumption that if happiness is what we should be thinking about as the basic motivating premise of State action, and that happiness does indeed increase up to that £12,000 figure, then we should not be taking said income in any form, neither directly nor indirectly. So we should, perhaps, raise the personal allowance to some £15,000 a year (to take account of VAT, council and excise taxes, just at a wild guess) and then have the same regime we have for current higher rate earners for all income over that. I have to admit, I'd be all in favour of such a scheme. It would be vastly more progressive than our current system (I tend to the thought that only those on more than median income should pay tax at all) and best of all, would bring in some £100 billion or so less than the current regime. What joy, to slash the State by 20% or more because it has been scientifically proven that this will maximise happiness!

In the end I think the book is fascinating. There's much in it worthy of further thought, much to chew over. However, the good bits tend to be the biology and the sociology, the arguable parts the economics, which seems odd for a book written by an economist.

Tim Worstall graduated from the LSE and immediately went into small business where he has remained for twenty odd years, working in the US, UK and Russia in fields as diverse as newspaper distribution, offshore programming and exotic metals. He is the author of 2005 Blogged: Dispatches from the Blogosphere and blogs at

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I agree, Layard's strategy for improving mental health is quite short-sighted. He sees medication as some panacea. Psychiatric medication has harmful side effect, barely outperforms placebo (sugar pills) in clinical trials, and "antidepressants" actually double the risk of suicide (oops). Further, they are better at getting rid of symptoms than increasing happiness (e.g. they may make depressed people emotionally flat, but not happy).

You underestimate CBT. It is very useful for treating depression and anxiety, which are the most common mental health issues. You also underestimate the psychoanalytic approach. I think if you were to watch a psychoanalytic session or a CBT session, you would see they are very similar and often use similar techniques (though using different vocabulary).

The way I see it, the government could do a lot to improve mental health. Here in the states, Reagan was very scared of scientists and cut a lot of funding for scientists decades ago. Psychology has also been too embracing of the medical model, but the drugs do little to help solve complex social and emotional issues, and third world countries where the medical model is rejected often have much higher recovery rates. We need the government to invest big bucks in the top psychology researchers to develop better therapies because right now drug companies are the only ones with substantial research dollars and their medication is not impressive.

Prevention could also help. About 20% of schizophrenia cases (or madness as you call it) are accounted for by obstetric complications. If our government provided a basic minimum standard of health care as ethicists such as John Rawls have argued, a substantial portion of these cases could be avoided. Poverty and discrimination also contribute to severe mental health issues, though these facets are so pervasive, their effect is difficult to quantify.

Michael Hoerger

Posted by: Hoerger at August 11, 2006 05:02 AM

The left has spent the better part of 200 years trying to prove that envy is not a sin. In days of old they tried to tell us that punitive taxes would make things "fairer" or would improve the economy. Neither of these claims were true. Anyone who lived through the 60s and 70s knows that. High taxation is a blight that kills incentive. Layard seems to think happinees is ignorance and refual to strive for anything. That is the way of the dolt and the inane seeker of "entertainment; the "Land of Cockayne" dreamed of by the prole throughout the ages. If Layard really envisages that a punitive tax regime will lead to a a state where we all weave our own yohurt and endlessly discuss Chekov whilst weraing William Morris smocks he definitely needs to change his medication.

The call to impose a swinging rate of tax on the better off in an effort to make the less well off happy is just another attempt to turn envy from a vice into a virtue. Personally, I think the left needs group therapy to get over their obsession with "equality" and to rid themselves of this strange demon of envy which animates their twisted souls.

The Founding Fathers of the US got it right: happiness is something to be pursued- a retrospective pleasure in a life well lived. In truth, your average lefty finds happiness in his endless pursuit of that chimera "equality." If such "equlaity" was ever achieved your lefty would feel miserable, as he might realise that happiness also consists of having challenges to meet. We should therefore asssit him by making sure that he never achieves his dream. That will keep him happy. It will also reduce the unhappiness of those of us who have actually passed through adolescence and realise that competition is that which animates the human race and all other animals too.

Posted by: Peter L at August 11, 2006 08:45 AM

It is as well to point out that nearly everything Michael says is at best tendentious. I would like a source for the claim that 20% of schizophenia cases are "accounted for" by obstetric complications. As for the claims about antidepressants, again there is a heated debate in psychological and psychiatric circles about these issues, as can be seen here:

As can be seen, even the harshest critics of the studies which have found that antidepressants improve symptoms for those with depression do not say it is "exactly the same as placebo", but only slightly better. As summarised by Andresoi and Haddad (from the above):

"Addressing the most forceful criticism, whether or not antidepressants really work (i.e. have a pharmacologically specific action), we do have to turn to RCT evidence as this is the only way to tease out the effects of placebo v. drug. The key issue is that of publication bias. Kirsch et al (2002) identified all available acute treatment studies comparing newer antidepressants with placebo in evidence submitted to the US Food and Drug Administration. This included previously unreported ‘negative’ studies and is likely to be as complete a data-set as possible. The outcome from pooling the studies is a highly statistically significant effect in favour of antidepressants. Therefore, whatever the size and cause of the effect, the central question as to whether there really is an effect is answered in the affirmative."

Furthermore, the evidence that antidepressants help prevent relapse is robust (ironically, much more robust than the evidence that antidepressants lead to recovery) - see Carney et al, 2001.

Various methodological issues bedevil the study of the claim that serotenergic antidepressants increase suicide rates (again, I would like a source for Michael's claim that they "double" it) - put simply, those who suffer more severe depressive symptoms may be both more likely to be prescribed antidepressants and more likely to attempt suicide. There is also increasing awareness that some cases diagnosed as "depression" may in fact be bipolar affective disoder (what used to be called "manic depression") which can be "swtiched" from depression to mania by serotoninergic agents (note that, again contrary to the impression created by Michael's blithe assertions, the concern with this issue focuses on a particular class of antidepressant)

Consideration of mental illness provokes emotional reactions. This is equally true of therapy. When therapies, whether psychological or pharmacological, are first introduced there is a honeymoon spell in which enthusiasts spread the word, followed by reaction. Fluoxetine (prozac) was the subject of such absurd hype that it was inevitable that there would be a reacion. It is often observed by opponents of medical models that doctors are attached by virtue of their training to biological explanations, and are defensive about their methods. This is true. What is less often remarked is that ALL health professionals - including psychologists - are subject to the same bias.

If there is one thing worse than the knee-jerk prescription of psychotropic medications, its the knee-jerk rejection of psychotropic medication. Those who suffer from mental health problems are not well served by psychiatrists orientated purely towards biological models of mental illness. And they are not well served by psychologists and biologically minded psychiatrists who are dismissive of the potentialities of pharmacological treatments. There is a false dichotomy between psychological and pharmacological treatment that all sensible therapists will avoid.

Posted by: james mcqueen at August 21, 2006 10:52 AM
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