… and the Pursuit of Happiness - Institute of Economic Affairs

… and the pursuit of happiness
lessons the from unbearable austrian lightness and public of choice happiness economics policy
profit opportunities that could generate benefits. These negative
consequences are unobservable and unmeasurable because of
their counterfactual nature. In other words, we do not know what
would have transpired without the tax. Kirzner (ibid.) also notes
how government intervention can result in a ‘wholly superfluous
discovery process’, which occurs when an intervention results
in entrepreneurial actions that are not anticipated, potentially
resulting in negative outcomes. For example, as policymakers
design and implement happiness policies there is no doubt that
various interest groups will expend resources to attempt to influence
policy. These behaviours are profitable to the interest groups,
but destructive at a social level because they represent wasted
resources allocated to transfers instead of productive activities.
Moreover, it must be realised that government policies aimed
at maximising happiness are non-neutral. As highlighted by
Hayek (1976), questions of distribution are often misplaced in
political economy because they assume a fixed pie that is being
divided up according to rules of distribution that are judged as
fair or not. Hayek’s objection was not that fair divisions are not
desirable. His criticism was that the rules of fair division are nonneutral
with regard to the incentives and information associated
with production. In other words, the size of the pie being divided
is a function of the way we divide the pie. Interventions aimed at
redistribution shift the incentives and information faced by those
engaged in the process that produces the goods being redistributed.
Policies based on the size of the pie at one point in time will
influence the size of the pie in future periods.
What ‘public goods’?
As noted earlier, many happiness scholars conclude that a policy
of taxing labour and certain goods is a way to resolve the progress
paradox. Not only will this resolve the paradox, they contend, but
the tax revenue can then be used to fund public goods that benefit
society. Little focus or discussion, however, ever surrounds how
policymakers will actually make decisions regarding the allocation
of tax revenue to these public goods. To understand the practical
issues at work, consider the standard logic behind public good
provision.
A pure public good has two specific characteristics. The first
characteristic is that it is non-rivalrous, meaning that one individual’s
consumption does not reduce others’ ability to consume
the good. The second characteristic is that it is non-excludable,
which means that once the good is produced, individuals cannot
be prevented from consuming the good. In theory, public goods
are under-supplied on the unhampered market because of issues
associated with free-riding and pricing. The standard solution to
problems associated with public goods is some combination of
government provision and government subsidies to correct for the
shortfall. Practical difficulties emerge, however, in the movement
from theory to practice to solve the public good problem.
The core problem is obtaining the knowledge necessary to
provide the ‘right’ amount of the good. Market failures emerge
from the inability of unhampered markets to achieve allocative
efficiency – in the case of public goods this results in an undersupply
of the good. In theory, government interventions can
contribute to the achievement of this ideal by increasing production.
This justification for government intervention in the market
assumes, however, that government agents know the optimal level
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