THERE IS a shocking fact: we are no happier than we were 50 years ago, despite unparalleled economic growth. This fact, revealed in surveys in Britain and the US, challenges our most basic assumptions about the goals of society and our personal life.

In many ways it is surprising. People certainly want to be richer, and in any society richer people are on average happier than poorer people. So why are richer societies not happier than poorer ones — which they are not, once their members have an income of more than $20,000 (£10,400) a head?

The main answer is that people are comparing their incomes with those of other people. They are trying to keep up with the Joneses. But in a richer society the Joneses are richer also, and it is impossible for the average person to raise his relative position. So the attempt at relative betterment fails. The effort devoted to it is a total waste in terms of the satisfaction generated. People would have done better to spend the time with their families and friends than in trying to achieve the unachievable.

All this sets the tax system in a new light. Usually, economists complain that taxes discourage work effort, so taxes get bad marks. But if some work is pointless, it is good to discourage it. Taxes are helping to create a balance between work and private life.

The problem is in some ways like that of pollution. In environmental policy, the standard way to discourage pollution is to tax it — to make the polluter experience a cost equivalent to the cost he imposes on others. Such a tax is corrective, not distorting. Likewise, general taxation has a corrective function in discouraging the rat race.

We do not want a French-style regulation of hours, because some people love their work or need money more than others. But we do have in the tax system a less invasive mechanism which helps to preserve a balance of sanity in the way we spend our time. People who want us to cut taxes should be asked: do you really want us to spend less time with our families?

Libertarians reject this whole line of argument. They imply that it is up to us whether we take any notice of what other people get or how they live. But the desire for status is deeply wired inside us. In an experiment with male monkeys, one experimenter altered the status of the monkeys by moving them between groups. When their status rose, there was a marked increase in their level of serotonin, a neurotransmitter connected with feeling good; and vice versa. Humans have inherited a similar reward mechanism for status.

Our social institutions can either accentuate or damp down this concern with status. The trend today is to accentuate it. For example, performance-related pay normally involves a regular assessment of workers in comparison with their colleagues. Such an assessment is, of course, inevitable at intervals when promotions have to be made. But when frequently assessed, PRP increases the salience of these comparisons. PRP may or may not improve performance, but it certainly helps to explain the well-documented increase in stress at work. In any system of ranking there is a fixed number of top places. So, however hard people work, the aggregate amount of status to be won is fixed. Yet the more salient that reward is, the more effort will be devoted to increasing what cannot in aggregate be increased.

The intensification of all this effort could be justified only in the interests of the consumer. But consumers are the same people as the workers. So we should work harder only if the gain to us as consumers is enough to justify our sacrifice as workers. That sacrifice can be considerable. For the new science of happiness shows clearly that the main factors affecting our happiness are our relationships with family and with friends. Wealth has quite a small effect. It is time that we seriously questioned whether we are not sacrificing our relationships too much in the interests of ourselves as consumers.

In fact, there is something wrong in much of our tough rhetoric. Why should we be the most dynamic economy in the world? Surely, we should rather aim to be the happiest society. Is it not madness if, despite all of our wealth, people feel increasing pressure and difficulty in managing their lives?

Globalisation is often used to explain why this is inevitable. But the reasoning is false: globalisation increases our possibilities. We can certainly buy our previous quality of working life, provided our pay increases do not exceed our growth in productivity.

Advertising adds to the rat race by making us feel we need things we never previously needed. Of course, it can also provide vital information, and as adults we should be able to sift the wheat from the chaff. But the pressure on children is intense — to feel they must have the latest form of trainer or Barbie doll. That pressure gets transmitted to their parents, pushing them to earn more. In Sweden the response has been to ban advertising aimed at children under 12 — something we should also consider.

A society based on getting ahead cannot be truly happy, for as many get behind as get ahead. We need a society in which co-operation receives a lot more esteem. The World Health Organisation recently asked 11 to 15-year-olds in different countries whether “most of the students in your classes are kind and helpful?” In Scandinavia and Germany, three quarters said yes, in Britain under a half. We have some way to go.

Richard Layard’s new book is Happiness: Lessons from a New Science

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