Conservatives and the economics of happiness

Lord Young's remark that most Britons 'had never had it so good' received a great deal of criticism last week and saw him resign from his role as a government advisor. Given the current economic circumstances and the depth of the Coalition's cuts even David Cameron called the comment 'insensitive and inaccurate'. Insensitive, yes, but inaccurate? 

Rolling news has a habit of picking up on these gaffes, cranking up the hyperbole and making more of them than is really necessary. "Tory makes insensitive remark about the the poor shocker!" "Cameron makes a dig at a man for being short!" It is not really news, is it? The problem with this sort of reporting is that it may fill airtime but it also generates a slightly fraught atmosphere. It betrays a tendency to play to the mob. 

The trouble with Young's remark is that from a historical perspective it may be true. Like a Don in Tom Sharpe's 'Porterhouse College' - historians (sorry real historians who read this) tend to find that 'current economic circumstances only last ten years or so'. From this perspective, even making allowances for the mirage of wealth during the highly inflated house-price boom - most of us really have never had it so good. Now calm down and let me explain. During my lifetime we have seen our country transformed. The grey, conservative world of my childhood has disappeared. Never again will tinned mushrooms be regarded as a rather sophisticated addition to a meal or orange juice be seen an acceptable starter in a restaurant. 

Our society has been transformed. A huge proportion of lives have been changed for the better. Sexual equality, racial equality, gay rights, a huge increase in the standard of living for the vast majority and, of course, the advent of 52 inch plasma TVs. As this blog testifies, I think there are still huge problems but the advent of the minimum wage, statutory housing responsibilities, free pre-school education demonstrates how successive governments have attempted to address the barriers to social inclusion to varying degrees. Yes, it's a work in progress but please don't get caught up in a sentimental vision of Britain. Have you read any of David Peace's novels?

Please don't take away my TV

Yet the sting in the tale is that despite all the improvements we are more unhappy than ever. In the highly respected Legatum Prosperity Index, which annually measures well-being across a range of eight indicators from economic to social cohesion, the UK came 13th but 20th in terms of life satisfaction. Compared to most 'developed' countries: we are more scared of crime, work longer hours, have an older retirement age and despite a very high level of political stability, a very low regard for our politicians. One of the saddest statistics was that only 35% of the population believed they could trust other people. In the top country, Norway, 74.2% felt they could trust others and even the USA beat us.

Since 1990 Richard Layard, now Baron Layard, has been promoting an alternative view of economics in his role as Programme Director at the Centre for Economic Performance at the LSE. Layard's work has become known as 'Happiness economics'. Briefly, he argues that relative rather than absolute income is the best indicator of happiness. People compare themselves to their peers and judge their 'happiness' accordingly. Increased purchasing power may make us unhappier if our position compared to others is worse. This effect may nullify any positive effects of economic growth and simply drive people to work harder in order to bridge the relative wealth gap. He calls this the rat race effect.

Richard layard

This research, however may seem like a debate that can only relate to the few very rich developed countries. It is no accident that the happiest countries are some of the wealthiest. At he very least it would be simplistic not to recognise that there is a minimum level of income that allows people to stop subsisting and instead start living. However, even leading free-market organisations have begun to advocate 'sharing the wealth'.

Layard's conclusions are supported by the Organisation for Economic Co-operation and Development (OECD). Their 2010 report demonstrates the happiest countries also have the least inequality in income between rich and poor. Meanwhile the significantly less satisfied Brits and Yanks have a much great divergence in wealth. The OECD also concludes that in order to maximise worldwide economic growth, policy-makers should address levels of income inequality. Economic growth is not enough. It is a win-win situation because they note, as an aside, that there may also be a 'poverty reduction dividend' attached to these measures.

David Cameron's announcement that the Coalition will spend £2 million in an attempt to measure our  happiness has been met with derision. The rolling news juggernaut has got to work already and the mob are at the gates. Let's hope he has the political courage to see this through. I think he may be onto something. Despite the 'historical' trend of growing wealth we are less happy. Making 'happiness' rather than purely economic growth the goal would could have a profound effect on the assumptions of our policy-makers. It's an exciting thought.

Pure economic interests might drive a foreign policy that lands us in Iraq, but would a policy based on broader outcomes like social cohesion do the same? We are constantly warned that our top bankers will flee to other countries if the government dares to regulate their activities. Well, according to the OECD, it is in virtually everybody's self-interest to let them go.

To think that Ken Dodd was right all along...

"To me this old world is a wonderful place

And I'm just about the luckiest human in the whole human race

I've got no silver and I've got no gold

Just a whole lot of happiness in my soul"