… and the Pursuit of Happiness - Institute of Economic Affairs

… and the pursuit of happiness
wellbeing and the size of government
for Knaves’: a set of effective rules that will keep politicians from
inflicting harm whether they are benevolent or not (Brennan and
Buchanan, 1983). As all constitutions – written or unwritten – fall
well short of this goal, one cannot automatically assume as the
default that political decisions on government interventions and
public expenditures are supposed to have, let alone will have in
practice, positive consequences for the wellbeing of the population.
A more realistic depiction of politics would tend to lead one
to the opposite conclusion.
Instead, a logical, consequentialist requirement for anyone
arguing for increasing the size and scope of government activities
– more interventions, more activist policy or higher or more
progressive taxes – must be that they document that the overall
size of government is positively associated with national average
wellbeing. Whether there are any effects – positive or negative –
and whether government policy affects other elements that drive
wellbeing differences are the questions explored in this chapter.
As argued below, the general answer is no – increased government
intervention is not positively associated with increases in
wellbeing.
Government ability and incentives
When considering government behaviour, one first has to ask
two questions: 1) is government able to provide the ‘right’ amount
and extent of public goods and redistribution (if any); and 2) does
government have any incentives to do so?
An implicit assumption in most active policy proposals
coming from happiness scholars seems to be that the government
is sufficiently informed about the distribution of preferences
in the population. In other words, the government knows what
people want. This assumption is inconsistent with the complexity
of any modern society, as real-world politicians face a massive
Hayekian information problem (Hayek, 1960). In small, local
societies, leaders may have sufficient knowledge to direct policies
towards those in actual need or towards groups with specific preferences.
Yet in only slightly larger societies, it becomes impossible
to know enough about the preferences and needs of the population
to precisely direct policies in such a way. Instead, politicians
arguably need to rely on what the typical or median person in the
population prefers.
Yet even if politicians knew the approximate preferences of
the median voter, they would still face a heterogeneity problem:
although the government might be able to get the right public
goods provision to the median voter, a large share of people would
find specific public goods over-provided and another share would
find them under-provided. Consequently, most people would
be paying the wrong amount of taxes for public goods provision
targeted merely to the median voter. They would be paying for
not only the wrong level of public goods but also the wrong mix.
A second problem is that of how decisions are reached in
politics. Dictatorships may arguably be able to focus policies on
meeting the desires of relatively narrow elites while providing
enough order and public goods to prevent social unrest. In principle,
democracies ought to be different and provide a wider
set of necessary public goods in accordance with the needs and
preferences of the population. Owing to information problems,
being able to do so may nevertheless be prohibitively difficult.
In addition, politicians often have incentives that aggravate this
problem and undermine their willingness to try.
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