It seems likely that reducing inequality can make us happier

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Professor Charles Adams had a fascinating post on Progressive Pulse earlier this week, developing my theme on inequality and the Gini coefficient. As he asked:

What should politicians do? Make us happier of course. UK politicians are not doing great at this – we are only 18th in the happiness league table of OECD countries. Maybe politicians have got their priorities wrong? As I show below, as happiness and equality are related, maybe they should be doing more about inequality (also discussed recently over at TRUK and Stumblings)?

His analysis went like this:

As with everything there are a range of views on inequality, and there are a range of measures too. It is widely accepted that the most commonly used metric – the Gini index – is misleading at best. Representing a distribution by a single number is never going to tell the whole story.

Thomas Piketty in Capital in the Twenty first century uses the wealth and income share of the top 1%.

Others prefer the Palma index – the ratio of income share of the top 10 % to the bottom 40%.

I prefer to look at distributions, but here I shall focus on the Palma index. A Palma index of around 1 appears to be healthy, whereas a Palma index much greater than 1 appears to be less healthy. Why do I say that? Well, you can correlate happiness (using data from the World Happiness report) with the Palma index (using data from the OECD) as shown in the plot below.

As Charles notes:

I have included the top 18 `happy’ countries in the OECD – the UK is bottom at number 18. Top of the list is Finland with a happiness score of 7.632.

Now the top 4 happy countries – Finland, Norway and Denmark along with Iceland (all in the green zone) – all have low income inequality – a Palma index significantly less than 1. The UK – with a happiness index of 6.814 – is significantly less happy, and with a Palma index of 1.52 – significantly less equal too.

But he carefully adds:

Could lowering inequality make us happier? Well, the inverse correlation between inequality and happiness is not perfect. Reducing inequality does not guarantee happiness(you could end up in the blue/purple zone – along with Germany, Austria, Belgium and Ireland – more equal but still not happy), but high inequality – as in the UK and US – does appear to exclude high happiness (the red zone).

Nonetheless a wise politician might heed Charles' advice:

So it seems pretty obvious where politicians should be directing more of their attention – if they care about trying to make us happier?

But will they?