Why happiness suddenly matters

If you’re a politician, there are only a couple of ways you can tackle the falling-income problem

Why happiness suddenly  matters

Lionel Bonaventure/AFP/Getty Images

Politics is the art of taking credit, and politicians have been known to insert themselves into the receiving line for kudos for everything from Olympic gold medals to sunshine in July. But what they really like to take credit for is economic growth, which is why an election-starved Michael Ignatieff has been going around lately asking Canadians whether they are any better off today than they were four years ago. The recession bit hard, recovery has been slow, and Canadians and their governments find themselves mired in debt.

What Ignatieff should really be asking, though, is whether we’re any better off today than we were 40 years ago. The economist Tyler Cowen recently released a short e-book called The Great Stagnation, in which he points out that between 1947 and 1973, inflation-adjusted median income in the United States more than doubled. But from 1973 to 2004, it rose only 22 per cent, and over the past decade median income has actually declined. He notes that if pre-1973 growth rates had continued for the next three decades, “median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.”

So, what happened?

Cowen’s argument is that the West spent most of the 20th century living off the easy proceeds of the Industrial Revolution. Thanks to machinery powered by cheap fossil fuels, industry grabbed almost all of the low-hanging fruit available for increasing productivity, and that got widely shared out in the form of steadily growing wages for all workers. But now we’ve reached a technological plateau, and while Cowen thinks things will get better, eventually, it will be a while before we see a true dividend from biotech, or clean and cheap alternative energies. In the meantime, income growth will continue to flatline.

Given the extended slump the world is in right now, it’s no surprise, then, to find leaders looking around for other ways of showing what a great job they are doing. Back in November, British Prime Minister David Cameron sagely remarked that there was “more to life than money,” and suggested that GDP was an unsatisfactory measure of how well people were doing. He tasked the Office for National Statistics with devising some sort of happiness survey that would take into account broader indicators of well-being such as education levels, subjective feelings about personal health, education and the environment.

Cameron’s happiness index echoes an ongoing proposal from French President Nicolas Sarkozy, who in 2009 said that his country might want to consider following the kingdom of Bhutan in measuring Gross National Happiness (GNH), which would downplay material wealth in favour of more Gallic notions of joie de vivre.

And now even the Coca-Cola Company is getting into the game. Celebrating its 125th anniversary as “one of the original purveyors of happiness,” last week the company threw its support behind growing calls for a Canadian GNH index, and announced that it is sponsoring a cross-country study that will ask Canadians what makes them happy, “whether it’s spending time with family, working out, volunteering or enjoying a moment of peace and quiet.”

It’s easy to see what Coke is doing—they just want to sell more soda pop. But when it comes to our political leaders, there are almost certainly cynical motives at work.

If you’re a politician, there are a couple of ways you could tackle the falling-income problem. One involves making smart policy: accepting the need for governments to live within their means while investing as heavily as possible in the drivers of innovation—education, infrastructure, and research and development. The other is to try to bamboozle people by concocting some woolly-headed alternative measure of well-being.

But, for decades, governments in the West, especially Canada and the U.S., have relied on near-constant growth to raise living standards, integrate increasingly diverse populations and mitigate the effects of ever-greater inequality. As long as everyone is getting even a little better off, year after year, it is relatively easy to sustain social trust and solidarity.

In fact, the hefty revenues that go along with steady growth have been used to mask all sorts of dumb or even counterproductive policy decisions, and politicians of all colours have long made a point of using the treasury and the tax code to pander to special interests. Now that we might be in for a period of near-zero growth, access to tax revenues will be an increasing zero-sum game: what you give to one interest group must come at the expense of another, and yes, what we really need is smart, strategic public policy.

As this “happiness” craze continues to froth, it is clear which path our political leaders have decided upon. No major party is ready to support a plausible path to fiscal balance, or to acknowledge how little control politicians actually have over future growth.

That is why smart taxation and smart investment will have to be the rallying cry of the Great Stagnation. If it isn’t, if low growth continues to be accompanied by stupid policy, then an entire generation of political leaders will soon discover just how unhappy the people can get.


Why happiness suddenly matters

  1. Curiously, while the median income has not risen in almost 20 years, the incomes of the wealthy have surged. It is not that worker productivity has flatlined, it is rather that the wealthy have succeeded in changing both the legistlative and cultural agenda from what existed post WWII until the 1970s. Unions have declined. Taxes have dropped overwhelmingly for the wealthy.

    • Nice story, but problematic for a number of reason. First, unionization peaked in the US in the mid-1950s. If staganation is due to declining unionization, it should have started in teh 50's not the 70s'. Second, taxes haven't dropped overwelmingly fo rthe wealthy. Quite the contrary, in 1979, the effective US federal tax rate for the wealthiest 20% was 27.5%. In 2005, the same figure was 25.5%. Meanwhile, the effective tax rate for every income group in the US has fallen by significantly more. In 1979, the wealthiest 20% of paid 56% of federal US tax, in 2005, that percentage was almost 69%. Similarly, the percentage paid by the top 1% has almost doubled, from 15% to almost 28%.

      But why let facts get in the way of a good rant.

  2. Very simple deduction. The rich get richer and the poor get poorer, in the meantime, in between time. ain't we got fun.

  3. Brink Lindsey's critique of Cowen's work is pretty damning:

    Median family income:

    1820 – 1870 1.3%

    1870 – 1913 1.8%

    1913 – 1950 1.6%

    1950 – 1973 2.5%

    1973 2007 1.9%

    The Great "Stagnation" looks second best here. Not bad.

    Productivity increases:

    1947 – 1973 2.8%

    1973 – 1995 1.4%

    1995 – 2007 2.7%

    Cowen has not adequately addressed these points. We all look forward to what he has to say about them.

  4. Actually Mr. Lindsey's critique is not that damning — and he actually agrees with the premise that the low hanging fruit has been picked. The main point is that laissez-faire economics won't work any more.

  5. The poor did indeed get poorer.

    They also got, flat screen HD televisions, cell phones and ipods, and endless violent video games, with realistic graphics.

    Not to mention endless sex, oops, I meant the internet.

    My Bad.

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