Happiness is no longer a dry martini . . . it's a tax

It is a trivial fact too often forgotten that the human condition has amazingly improved throughout history, the doom-and-gloom peddlers notwithstanding. I could fully appreciate that when Jane, who has done some genealogical research on our families, dug out the details on my known ancestors' occupations. Some two centuries ago, one worked in a vegetable oil mill. Twelve-hour workdays, heavy lifting, noise, noxious fumes, dust, scorching heat, and dangerous machinery were this Tyler Mudgeon's lot. Yet, he had passed age seventy when he left this world. He must have been a happy man, because he had a steady job and was lucky enough not to have caught diphtheria at age ten or tetanus at age thirty. Since then, generation after generation, the Mudgeons' circumstances got better and better, thanks to technological advances, education, and the Mudgeon spirit. Every morning I tell myself---the eldest Mudgeon above ground---that I am bloody fortunate to live in our times and not in the Middle Ages. And that keeps me happy for the whole day.

But world happiness surveys show that most people are not that happy with their lives. One states that only 46% of Americans, 37% of Indians, and 36% of Britons are happy, and those three make the top of the list. Other polls rank countries somewhat differently---one of them finds utmost happiness in Bangladesh, and places Ghana and Croatia well ahead of the United States. The United States figure of 46%, however, shows up in several studies and looks quite plausible. It means that a majority of Americans are unhappy, even though most of them work in quiet, clean, well-lit places with air conditioning, do no heavy lifting, and have been vaccinated against all possible diseases. Their homes have indoor plumbing, televisions, magazines, books, and compact-disc players. They no longer have to sew patches on worn-out pants, or mend socks, or darn sweaters, or go hungry. Food is cheap, and so is clothing. Kids attend schools and need not work in insalubrious workshops or factories to earn their daily bread. So, what would keep people from being as happy as the oldest Mudgeon alive?

Well, one answer to that question may have to do with the method by which happiness is measured, and the validity of the data so collected. But since happiness is essentially a matter of individual expectation and perception, it is rather vain to dispute the methods. What is more interesting is to look at what some social scientists and economists do with the data, however fuzzy they may be.

Happiness is a popular topic of study. While it was long believed that it correlated tightly to prosperity, economists and social scientists have been working hard at disproving that notion for the past thirty years. One can conjecture that the motives of these efforts were partly rooted in a reaction to the consumerism of the post-World-War-Two decade and the spread of anticapitalist ideologies in academia. In any case, the subject has received particular attention in Europe, where happiness is seen as a state priority and a convenient substitute for prosperity, given the poor results of economic dirigisme and abusive taxation.

A great deal of literature dedicated to happiness finds trends that do not match prosperity data. For example, a study covering the period 1946-1970 detects no increase of happiness in the United States in spite of the tremendous post-war economic expansion. Other studies based on data for the following twenty years also report no progress for the United States, a regression for the United Kingdom, Germany, and Italy, and---surprise!---an improvement for France. Note that France, where the government practically runs the economy, experienced for this period a rather feeble economic performance, a high rate of unemployment, record taxation, and a bureaucratic repression of individual initiative and entrepreneurship. But people must like that, according to the study. Aha! The implications of this finding are truly momentous, and would seem to prove that we, Americans, are wrong-headed about happiness, and that free markets, low taxes, prosperity, and individual freedom of choice are irrelevant notions.

This line of thinking is exemplified by a July 2001 article in The Economic Journal of the Royal Economic Society. Starting from a definition of ultimate happiness as the absence of envy, it appears to take for granted that envy is a natural, irrepressible, quasi-righteous reaction to differences in social or economic status. The three authors-from Britain, Germany, and France-set out to show that taxation has a beneficial impact on national happiness---a great way to get government research grants. As they see it, taxation can reduce envy by checking "conspicuous consumption." In short, they claim that restricting the accessibility of "status goods" not only makes people happier, but also has other desirable economic effects. That would be funny if it were all done in jest, but it is not. What is funny, however, is the scholarly fog that "validates" notoriously failed economic policies. Of course, a mathematical model plays an important rôle in the validation. Mathematics can model anything, including silly ideas, but any mathematical model that validates a silly idea has to be a silly model.

Building on other economists' works, the authors consider a market of "normal goods" and "status goods." The former are useful and contribute to economic utility. The latter are futile, increasingly detract from economic utility, and require relentless innovation at the expense of the R&D of normal goods. That they are available only to the rich makes them status goods, which elicit envy and decrease happiness. Much of this is highly questionable, and the camouflage deployed in the form of a mathematical model does not help much.

But things get even better. Policies to avoid runaway envy and negative growth of economic utility are suggested to government planners in a special section. And guess what? This is where taxation is called to the rescue. And that must be right, because the model says so---it produces equilibria! After a scholarly discussion on whether taxation should apply to the R&D of status goods or the goods themselves, the authors conclude that the latter is better because it reduces both innovation and consumption. Duh! Must one be an economist to come up with that? And with a mathematical model?

Covering all bases, the paper finally addresses the case where status goods are not identifiable (?), for which they advise either a tax on all R&D, or a progressive income tax with redistribution. The redistribution, however, must be finely tuned to prevent its beneficiaries to buy status goods. Duh!

Recall that this pap was published in a journal of the Royal Economic Society. It must have been approved by respected economists acting as referees who either cannot tell scholarship from a joke, or have not read the news since 1917, or are moved by statist ideologies and government grants. Like most taxes, "luxury taxes" inescapably hit unintended targets the hardest. In 1990, the US Congress voted a 10% tax on pleasure boats, private airplanes, expensive cars, jewelry, and furs---let's soak the rich! This tax just punished the workers and retailers of these status goods. Boat buyers took their business to the Bahamas and the domestic industry went belly up, which surely did not increase its workers' happiness. As to the government gross revenue from the tax, it was in the first year a paltry one-tenth of the expected amount, from which the cost of enforcement had to be deducted. The charade ended in 1993 when the US Congress repealed the tax.

All this business about happiness, status, and envy is lunacy, and government fiscal policies to suppress envy---an individually controllable sentiment---would just turn any modern country into another Soviet Union or Cuba. Status, which goes with success, if not externalized by the possession of expensive goods, can also be found in numbers. What if the Joneses have more Yugos in their driveway than the Mudgeons? Or more bicycles? Or more sabots? Or . . .? Well, then let governments make everybody happy by banning success, enforcing poverty, and rationing all goods.

Johnny Carson had it wrong when he wrote in 1965 that "happiness is a dry martini." Some economists have proved in 2001 that true happiness is a tax on dry martinis.