Happiness and Big Government: Student, Professor Measure Public Spending To Citizen Satisfaction

Apr. 26, 2011

FLORENCE, Ala. – A grant received by the University of North Alabama Department of Economics and Finances recently helped fund a study conducted by senior economics major Cory Hamilton and economics professor Dr. Jim Couch. In the study, Hamilton and Couch analyzed the happiness and satisfaction of individuals in correlation to the increasing size of government and levels of government spending on a per capita basis. A summary of their research is included below. For interviews with Hamilton and Couch, contact the Office of University Communications at 256-765-4225 or jlwoods1@una.edu.

“Is Big Government Demand Driven?”

By Cory Hamilton and Jim F. Couch

James Madison wrote in Federalist No. 62 that government should concern itself with happiness. In particular, he stated, “A good government implies two things: first, fidelity to the object of government, which is the happiness of the people; secondly, a knowledge of the means by which that object can be best attained.”

If fidelity to happiness is indeed a guiding principle of the political class, then they must believe citizens desire a vast quantity of state supplied goods and services. By any measure, the growth in the size and in the scope of the government over the past few decades has been nothing short of astounding. Economists Thomas Garrett and Russell Rhine show that, adjusted for inflation and on a per capita basis, the federal government spent over 50 times as much in 2004 as it did in 1910. The number of cabinet level departments has doubled since 1953.

Some assert that the observed growth is merely a reflection of the desire by citizens for goods and services produced by the government. According to this view, government is simply responding to the demand for its programs.

Others argue that the growth of the state is not demand driven but instead the result of the public sector’s tendency to waste resources coupled with the incentives faced by bureaucrats to grow the agencies they manage.

Do citizens truly desire ever more state produced output? Has the tremendous growth of the government led to greater happiness? And are taxes and happiness related? These are the questions we sought to address by using a clever measure of citizen happiness made available by researchers Andrew Oswald and Stephen Wu. Using a survey of residents in all fifty states, the professors constructed a happiness index for each state.

Happy citizens—according to the happiness index—reside in Louisiana, Hawaii, Florida, Tennessee, Arizona, Mississippi, South Carolina and Alabama. Relatively speaking, the unhappy live in California, Indiana, Michigan, New Jersey, Connecticut and New York.

Building an econometric model and controlling for factors thought to influence happiness, we find that states with high property taxes and high income taxes are home to unhappy citizens. These taxes contribute in a statistically significant manner to unhappiness. In short, low taxes translate into happy residents.

On the other hand, examining the relationship between per capita spending on various state activities and happiness led to some interesting conclusions. State and local expenditures on fire protection, law enforcement and parks and recreation did not contribute to happiness. Neither did expenditures for higher education or welfare programs. In fact, greater spending on K-12 education in a state was related to greater unhappiness. Surprisingly, those states that spent the most on primary and secondary education were home to the most miserable people! From our entire list of state activities, only health care expenditures and highway construction spending was associated with happier citizens.

Our results from the 50 states dovetail nicely with the findings of Professor Ruut Veenhoven—the so-called professor of happiness—who studies happiness from nation to nation. Veenhoven found no support for the notion that those nations with a larger welfare state resulted in happier citizens.

States with high taxes—and, in particular, income and property taxes—are associated with greater unhappiness. In addition, few of the activities of state and local governments are related to greater happiness—evidence that the extreme growth of government is not entirely demand driven.

Madison might advise our modern day politicians to support lower taxes and to significantly scale back government expenditures if the “happiness of the people” and the “knowledge of the means by which that object can be best attained” is truly the impetus for their behavior.