Friday, November 19, 2010

Gross National Happiness, Tax Cuts and Income Inequality

It is going to cause grief and discomfort to the statisticians, but British PM David Cameron indicated this week that he was adamant at developing national indicators of happiness to guide public policy. So perhaps instead of bar charts and graphs, government ministers might issue smiley faces and frowny faces depending on what the mood of the citizenry might be.

In this age of austerity, this might not be such a good idea as many public services are going to be subject to the hatchet. On the other hand, if the science of happiness is anything to go by, increasing happiness might be a function of simply reducing inequality (meaning the absolute level of wealth is not what matters, but the relative level). If this is what will bring happiness to the greater number of people, then the last decade of growth that benefited the top tier of society may have had the adverse effect of reducing national happiness in America.

Paradoxically, the party that wants to extend tax cuts to this top tier has been restored to power in the lower house of Congress by the simple fact that many felt Obama gave a handout to the banks and the powerful lobbyists. Their theory of course is that tax cuts will bring growth which will lift all boats (increasing absolute wealth for all, never mind the way the wealth is distributed). That theory may come back to bite them if they repeal the health care measures passed by the last Congress which is aimed at ensuring a minimum threshold of income protection for millions (improving relative wealth). As in Britain, the threat of service cuts makes for a heroic posture, but time will tell if it really pays off in the end.