Happiness and Income Inequality

Yglesias writes:

I think the links between taxation, spending, and inequality are the most plausible explanation of the fact that the highest-taxed countries are the happiest. It can’t be that paying taxes makes Danes happy. But plausibly, living in a relatively egalitarian society makes people happy.

I wrote a paper about this! At the time, the studies showed no notable systematic relationship between income inequality and happiness. (I know Betsey Stevenson and Justin Wolfers are looking at the question again with the bigger, better Gallup survey, so maybe they’ll offer a somewhat differnet, more accurate picture.) Danes say they’re really happy and have the lowest inequality. But Americans are nearly as happy and have high inequality for an OECD country. Mexicans are a quite upbeat lot, but have really, really high income inequality. So there’s not much of a clear pattern in the data. The effect of inequality on happiness appears to be pretty strongly ideologically mediated. Unsurprisingly, high inequality tends to be disquieting to egalitarians. But it doesn’t so much bother meritocrats. Additionally, the causes of high inequality are various. Economic predation by political elites (lots of Latin America and Africa) is pretty likely to create a sense of victimization and injustice. But high levels of wealth creation in more or less fair institutions but with relatively little fiscal redistribution (the U.S.) doesn’t bother people as long as they think the system is more or less fair. So the national income inequality variable itself tends to have little or no independent effect. The effect it does have depends on other things people believe and care about and the specific causes of inequality in different places. Anyway, why would you expect nation-level income inequality to figure much into an individual’s assessment of life satisfaction? People don’t experience national Gini coefficients. They worry about their neighbor’s car.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

31 thoughts

  1. Will, your ideological component also helps explain the consistent group happiness difference within the US between people on the left and people on the right — namely, people on the left (who are less happy) assume inequality is due to systemic unfairness whereas people on the right do not. Alex, Thomas Sowell had a nice line about “social justice” being an publicly acceptable way of expressing envy.

  2. Ew, envy. Ew, greed. Ew, lust. Those feelings are just … icky! Let’s design Utopian public policies on the assumption that humans aren’t motivated by such base dynamics. After all, that worked so well for the Communists!Admittedly, Will offers some good arguments undermining the idea that envy commands the same power over human behavior that greed and lust do. But what if it did? How bad would it be for public policy if we had to acknowledge that, like greed and lust, people are irreducibly motivated by envy, all our efforts to stigmatize that motivation notwithstanding?

  3. I liked how, when I read this post on happiness via Google Reader, Google's helpful ad syndication feature displayed an advertisement for the Church of Scientology's L. Ron Hubbard Dianetics book.

  4. Violence and sexual aggression “command power over human behavior,” but we rightly outlaw acting on these “base dynamics.” Envy spurs some to be very productive, but in many it causes problems and unhappiness. I don't think we gain much from the state recognizing envy as a legitimate basis for policy making. I would argue morality requires us to actively check our envy, just like, for example, morality requires men to check their desire to have sex with women regardless of their consent.

  5. To be sure, society says NO to some expressions of lust — but only in the context of saying YES to other expressions. St. Paul famously disapproved of sex, yet acknowledged the need to provide some accommodation for the great bulk of humanity that would not embrace his own lifestyle. I suspect any effort to say NO to all expressions of lust would be doomed. Must society provide some analogous accommodation for envy?

  6. So to make the US as happy as Denmark we should kill off nearly all the minorities, nearly all the whiteys too (gotta get that population down to 5 million), and then make sure 95% of them are Lutheran?Denmark should never be used as an example for anything. When it is used, it should be explicitly stated that it is a tiny country full of white people who all share the same religion.I'm surprised we don't see white supremacists citing Denmark as often as Leftists cite it.

  7. The key is aggression against others–something like Mill's Harm Principle. Sex before marriage = legal; sex without consent = not legal. Analogously, for envy, gaining income/status through productive activity = legal; gaining utility by needlessly taking money from other people = not legal. I'm in favor of a welfare safety net. I'm not in favor of validating people's envy through coercive redistribution. There is at least some justification for transfer payments to those in dire straits. Do we really want transfer payments to people who are “suffering” because their neighbor has a nicer car?

  8. I'm pretty sure one can experience the national Gini coefficient, but it takes a lot of psychotropic drugs and an existing predilection to such things.

  9. Maybe you libertarians of the sociopathic variety are okay with telling people to stop being people, but I don't see how you can just say, “Envy is bad” and leave it at that. You might want evaluate envy's flip side as well.Will, have you read up on Robert Sapolsky, stress, and SES gradients?

  10. I guess the real question is: will more transfer payments stop people from being envious? Or will it just cause higher taxes on the productive while encouraging the envious to be pissed because the Gini Coefficient is not 0.0 (or that their neighbor has a more attractive spouse, or smarter kids, etc.)?

  11. I've always been puzzled when people blithely say “and inequality is harmful” without saying *how* it is harmful. I understand how if one is committed to equality that inequality is undesirable, but one's commitment to equality does not make inequality harmful, it makes them unhappy in the face of inequality. Implied is the notion that if we're unhappy it's harmful- but then if we're unhappy because we think that it's harmful, that leaves us in the trap of self-fulfilling prediction: it's harmful because people are unhappy, they're unhappy because we assert that it's harmful. A possibly false assertion becomes effectively true if we all agree that it is true.I'm quite willing to accept the notion that this is how people think, since there are examples of this logic everywhere- but at the same time, I find this sort of logic disturbing simply because it's not logic: it's fiat masquerading as such. I would certainly welcome plausible evidence or research to disprove my little theory.

  12. I would think rather than income disparity the issue might be the feeling of relative stability of what's seen as a necessity. In Europe you never have to worry that you or your child might be without health care, or that without a car you won't be able to find a job. Losing a job in the US is a far more devastating experience so I could see that lack of a stronger safety net causing much more stress than the rest of the developed world.

  13. If you ask a Scandinavian, whose son is in jail, daughter is a stripper, wife just ran off with another woman, and his dog has just died, how are you?The answer you will get back is, “Can't complain.”This is why country music will never be popular in Scandinavia.

  14. I like this explanation better: http://www.nakedcapitalism.com/2009/05/populist… The author argues among other things “This is a story of unequal re-distribution of wealth from the less fortunate to the more fortunate. This is a story of the United States in which the rich get richer at the expense of everybody else.”Or, to put it in terms appropriate to this discussion: Inequality is ok if a rising tide lifts all boats, but that's not what's happening in America. We don't have a split between egalitarians and meritocrats. We have a kleptocracy gone bad.The author claims to be a libertarian.

  15. [Democracy] is connected with the political ideal that men should be equally treated. You then make a stealthy transition in their minds from this political ideal to a factual belief that all men ARE equal. Especially the man you are working on. As a result you can use the word DEMOCRACY to sanction in his thoughts the most degrading … of all human feelings…. The feeling I mean is of course that which prompts a man to say, “I’m as good as you.” [Y]ou thus induce him to enthrone at the centre of his life a good, solid resounding lie. I don’t mean merely that this statement is false in fact, that he is no more equal to everyone he meets in kindness, honesty, and good sense than in height or waist-measurement. I mean that he does not believe it himself. No man who says, “I’m as good as you” believes it. He would not say it if he did. The St. Bernard never says it to the toy dog, nor the scholar to the dunce…. What it expresses is precisely the itching, smarting, writhing awareness of an inferiority which the patient refuses to accept. And therefore resents. Yes, and therefore resents every kind of superiority in others; denigrates it; wishes its annihilation. Presently he suspects every mere difference of being a claim to superiority. No one must be different from himself in voice, clothes, manners… “Here is someone who speaks English rather more clearly and euphoniously than I – it must be a vile, upstate, lah-di-dah affectation. Here’s a fellow who says he doesn’t like hot dogs – thinks himself too good for them no doubt…. If they were the right sort of chaps they’d be like me. They’ve no business to be different. It’s undemocratic.”* * * Under the influence of this incantation [“undemocratic”] those who are in any or every way inferior can labour more wholeheartedly and successfully than ever to pull down everyone else to their own level…. Under the same influence, those who come, or could come, nearer to a full humanity, actually draw back from it for fear of being UNDEMOCRATIC…. To accept [their unique gifts] might make them Different, might offend against the Way of Life, take them out of Togetherness, impair their Integration with the Group. They might (horror of horrors!) become individuals. Screwtape, “Screwtape Proposes a Toast” (1959)

  16. Maybe we should stop talking about recession and crisis and keep buying stocks and make money Someone should write a song for their children to sing: Gloriously: NYbankers pass their debt onto the common and slink away from defense ofcapitalism, during crisis periods, when capitalism might need adefender. NY banks then want to privatize their profits. Privatize their gains during the good years. Have one bad year in the cycling ofcapitalism and there is Paulson as their front man, to unload theirdebt onto others.Chorus: In a hurry to offload their debt obligations, and in a hurryto be private again. Dow 14000 soon??perhaps the financial crisis has been fixed according to various indicators such as libor and yield curves as written in more detail http://iamned.com/blog/ very compelling

  17. The inherent vice of capitalism is the unequal sharing of blessings;the inherent virtue of socialism is the equal sharing of misery. — ChurchillEnvy and ambition at times motivate people to make something of themselves. The key word is “motivate”. Who makes something of him or herself without motivation?

  18. I have heard you argue that you aren't an egalitarian because you aren't a nationalist. Why aren't you a global egalitarian? In other words if we had a single global community would you be an egalitarian? Also do you have to be an egalitarian at all to notice that our political system is biased against poor people and to push back against that bias? It seems like if this bias could be balanced by some opposing force that happiness might increase.

  19. But it doesn’t so much bother meritocrats. The problem is, meritocrats so often have a naive or outright incorrect view on whether something is the product of merit or of other factors.

  20. Yes, when the effect of a variable is ideologically mediated, it can be annoying that some people have the wrong ideology. Likewise, egalitarians often have a naive or outright incorrect view on the causes of inequality.

  21. Will, I suppose you saw this paper by Justin Wolfers and Betsy Stevenson? Greg Mankiw highlighted it.Both of them study inequality a lot. In any case, by subjective happiness measures– the same sorts of things that Matt is praising in his post, women's happiness in USA has gone down dramatically since the 1970s. It used to be higher than that of men, now it is lower. Very strange that this would have happened after women's liberation.I suspect that the paper may cause some to reject reliance on subjective happiness measures.

  22. I don't think it's accurate to say that anybody here is trying to tell people to stop being people- I suspect rather that they're saying that since somebody's always going to be unhappy, the rules might as well focus on being fair instead of trying to make everybody feel better (an impossible task).Calling out envy for what it is raises a valid point: where a motive exists to tilt the table in your favor, it's reasonable to double-check whether what you propose will really be just or fair for everyone.

  23. I don't think it's accurate to say that anybody here is trying to tell people to stop being people- I suspect rather that they're saying that since somebody's always going to be unhappy, the rules might as well focus on being fair instead of trying to make everybody feel better (an impossible task).Calling out envy for what it is raises a valid point: where a motive exists to tilt the table in your favor, it's reasonable to double-check whether what you propose will really be just or fair for everyone.

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