Tax Unhappiness?

Last week I described how Robert Frank wants to discourage “conspicuous consumption” via big houses, cars, and barbecues, because he thinks they cause large positional (i.e., relative status) harms on others.  After describing our best data on positionality, I asked if Frank would endorse its implication that we tax should beauty aids, education, and sports.

Both Robert Frank and Geoffrey Miller eagerly point out when data shows folks being less happy doing what Frank and Miller dislike, but this doesn’t obviously fit their big theories: it is not obvious why activities that produce positional side effects (Frank), or activities that are inefficient signals (Miller), should make us less happy.

There is a very different argument one could offer however, even if neither Frank nor Miller offer it directly.  One could argue that we should in general tax the activities that make people less happy.  To justify this we’d have to assume that humans tend for some reason to do too little of what makes them happy, but it doesn’t require that we know exactly what that reason is.

Below is Table 6.1, from a 2008 paper on the “net affect” of 45 ways we spent our time.  (Net affect combines six emotions felt during the activity: happy, tired, stress, sad, interested, and pain.)  A simple policy of taxing low affect activities and subsidizing the others would have us subsidize not just parties, doing and spectating sports, exercise, playing with kids, walking dogs, and music, but also subsidize religion, eating out, and shopping.  We would tax not just work, commuting, home maintenance, and most housework, but also tax school and homework, writing by hand, buying medical services, doing personal medical care, and caring for adults.

If you don’t endorse these policies, you must have other policy criteria than just encouraging activities that directly make us happy.  That table:

Happiness

As that paper concludes:

The method of [National Time Accounting] does not lead to immediate policy recommendations.  For example, the fact that spending time socializing may be more enjoyable than working for pay for the average person does not necessarily lead to the recommendation that people should socialize more and work less.  Paid work is obviously required to afford a certain life style.
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  • conchis

    “If you don’t endorse these policies, you must have other policy criteria than just encouraging activities that make us happy.”

    The final paragraph you quote explains why this isn’t necessarily true: ceteris paribus doesn’t necessarily hold.

  • psychohistorian

    Has anyone ever actually proposed we tax or subsidize activities on the sole criteria of how high our self-reported happiness is while doing them and irrespective of any other criteria? If not, this is more than a little bit of a straw man.

    We obviously do some things (health care, homework, and more) because we are happier having done them than if we hadn’t. Similarly, I expect that the enjoyment people derive from shopping is quite fleeting – you see the perfect X, think you’ll use it all the time, and three days later it’s sitting in a closet because you now found Y, which is even better, and so on.

    One could make an argument for taxing/subsidizing off of a fully inclusive “happiness” calculus. I have never heard of anyone seriously arguing that we should tax and subsidize goods or activities based solely on the pleasure we experience while engaged in doing them, and irrespective of their non-immediate effects (and externalities).

  • http://profile.typepad.com/robinhanson Robin Hanson

    conchis and psycho, Frank and Miller almost seem to say we should tax work because it makes us less happy; they don’t mention and seem to discount the fact that we get happier later spending the money we make.

  • http://macroethics.blogspot.com nazgulnarsil

    so this is simply redistributing from people with strange tastes to people with mainstream tastes? the market already does that. it’s called economies of scale.

  • George

    Interesting post. Many people I encounter believe that free market transactions make people unhappy (particularly anything labeled as “consumerism”). I’ve always had difficulty convincing them that both parties are better off. I think your post might be related to this.

  • conchis

    Robin, sure, that’s silly; but it doesn’t make the claim I objected to true.

  • http://profile.typepad.com/andrewducker Andrew Ducker

    It seems to me that taxing those things that increase _overall, long term_ unhappiness. People will tend to maximise their instantaneous happiness perfectly well by themselves, but are notoriously bad at medium/long term thinking.

  • http://macroethics.blogspot.com nazgulnarsil

    did you mean that you want to tax short term happiness producing goods and subsidize things that produce long term happiness?

    I admit that a large part of the reason free markets work is that it creates an incentive to subvert the natural hyperbolic discounting and allocate resources rationally given the time scales of modern civilization are vastly different (you don’t get eaten by a panther at age 30).

    further increasing this effect would be an interesting experiment.

  • http://yudkowsky.net/ Eliezer Yudkowsky

    Why not just tax unhappiness directly, if you want to encourage people to be less unhappy?

  • magfrump

    Eliezer: it would instate an inescapable hegemony for the poor.

    Unless you want an intensely progressive unhappiness tax.

  • michael vassar

    magfrump:

    GREAT IDEA! Seriously. If a person is already near maximally miserable with massive spending cutting their spending does little harm.
    But base your progressive unhappiness tax on spending, not on wealth, in order to enable philanthropy etc.

  • michael vassar

    Robin, it’s obvious that Miller and Frank should dislike activities that they believe make people unhappy. It’s not obvious that negative externalities should make people unhappy, but you might expect this if the effect is for them to associate with higher status people but not raise their status relative to those around themselves. It’s also worth noting though that breast implants are a famous exception, an obviously negative sum signaling activity that raises happiness abnormally much.

    It’s obvious that doing anything efficiently should buy more happiness than doing that thing inefficiently.

  • spime wrangler

    I get the feeling that taxing conspicuous consumption without a corresponding modification of social norms to look down on such consumption might do more harm than good.

    Is not the point of this consumption to demonstrate your wealth? It seems by making such displays even more costly we’re right back where we started with only the super-rich having access to cars and barbecues and an even larger number of people envying their neighbor’s wealth.

    Wouldn’t the logical conclusion be subsidizing these displays of consumption to increase access instead of taxing to limit it?

  • Yvain

    You’re missing some important steps.

    First, about unhappy activities: we usually do them to gain something else further down the line. I hate homework as much as any student, but I do it because I think I’ll be happier later if I learn more. If I’m right and you tax homework in a way that successfully discourages me from doing it, you’re hurting my future happiness. Likewise, when we don’t do something that makes us happy, we often have a good reason for it. Most people don’t spend their whole lives partying (my next-door neighbors excepted) because they know it would impact their health. You’d need a very different list from this one if you wanted to fully analyze the eudaimonic consequences of an activity. Some people might say that in such a list, we would always find ourselves doing activities in proportion to the utility they gave us (we’d never deliberately choose a low utility action) but I don’t think that’s quite true (see paragraph 4).

    Second problem – assuming our goal is a government policy to increase happiness and that we think subsidization works – we should subsidize activities that make people happy if and only if subsidizing them would make people do more of them, and doing more of them would make people happier. We should tax unhappy activities if and only if taxing them would make people do less of them, and doing less of them would make people happier. There may be a law of diminishing returns: I enjoy the parties I go to, but going to more parties wouldn’t make me even happier. By your logic, you could say “Yvain likes pizza, so we should make him eat pizza every night to maximize his happiness.”

    Now I know you’re holding up this position as a reductio ad absurdum and don’t really believe it, but the problem is that it does make sense in a few specific cases. If there’s some activity that people are doing too much of for irrational reasons, even though they don’t like it and it brings them no benefit, and taxing it would decrease it and make people happier, then taxing it is a good policy. Likewise, if there’s some activity people are doing too little of for some irrational reason, even though they like it and doing more would bring them great benefit, then subsidizing it would make a good policy.

    We have a lot of evidence that things in this class do exist; we know from happiness research that people are terrible at predicting what would make them happy and often avoid things that statistically are very likely to make them happier. This suggests that, if you have this philosophy that one should use government as a tool to increase happiness, taxing and subsidizing activities in this class is a good idea. But you can’t simply assume that every possible activity that increases or decreases happiness is in this class, just cause you found it on a Big List Of Activities With Happiness Numbers Next To Them.

    And even in that case, you’d need to demonstrate or at least reasonably believe that the benefit you got from shifting people to better activities was greater than the cost in penalizing people with strange tastes (as nazgul pointed out).

    Straw man argument, needs more subtle thinking. From the few quotes I’ve seen from Frank and Miller, I get the impression they had that subtle thinking.

  • http://profile.typepad.com/robinhanson Robin Hanson

    Eliezer, if we could monitor well enough to enforce such a tax, it could be worth considering, at least if we believe people are biased against happiness.

    Yvian, yes there’d be a lot more work to do to establish than an activity contributed to happiness overall, all things considered. Contrary to you, I don’t at all have the impression that Frank or Miller are up to that task.

  • http://www.edwardgaffney.com Millian

    SQ ante: Couple buys $5M of wedding services, signalling $5M disposable income. Couple enjoys full value of wedding services.
    Post: Individual buys $4M of wedding services, pays $1M tax. It may be smaller but people aren’t stupid and they know it’s signalling $5M disposable income. Couple enjoys less wedding services even if there is DMU. Government gets less than $1M due to administrative costs in taxing consumption. Society gets even less due to individual costs of compliance.

    Where exactly is the reduction of positional harm? It is a consumption tax. Nothing more.

  • anon

    Where exactly is the reduction of positional harm? It is a consumption tax. Nothing more.

    Millian, in the signaling model, the $5M of wedding services is entirely wasted, in that as far as we know, its only purpose is signaling the couple’s vanity. In the post-tax scenario, the couple enjoys the same vanity benefit (after all, it’s still signaling $5M in disposable income), but part of the resources are transfered to the government rather than being wasted.

    In other words, the purpose of taxing conspicuous consumption is not just to discourage activities we dislike, but to capture a socially-created rent that would otherwise be dissipated.

  • Dave

    Not sure if you’ve seen, but Robert Frank has been posting about progressive consumption taxes on FiveThirtyEight here, here, and here.

  • Pingback: Consommation ostentatoire, signalement et évolution culturelle « Rationalité Limitée

  • Cameron

    Robin,

    I like where you are going with this, but these data are a bad place to start for trying to figure out what makes us happy and what doesn’t. Work, for example, provided it is matched to our ability, can supposedly make us very happy, and fulfilled. Long commutes and big houses make us slightly LESS happy than short commutes and small houses – hence in this instance the consumption tax would be efficient for maximum happiness.

    This might be a good place to start:

    http://www.happinesshypothesis.com/

  • Pablo Stafforini

    at least if we believe people are biased against happiness.

    We do know that people are very bad at recollecting past experience and at forecasting future experience. Rather than a tax on unhappiness, however, I would favor a subsidy on hedonimeters (see Kahneman and Rees, p. 292). People could in principle overcome these affective biases if they could precisely measure and record how happy they are.