A timely look at happiness

A couple of weeks ago, we had the joy of our granddaughter staying over for a few days. That Friday night, worrying about the escalating war, I sat watching her sleep – experiencing, as all grandparents can attest, moments of pure happiness.

That moment came back to me when I later read that Friday, March 20, marked the International Day of Happiness. Happiness – or “well-being” – is a deeply subjective notion that is difficult to pinpoint, let alone measure. Yet efforts have been made to do just that, with the World Happiness Report publishing an annual index, sponsored by Gallup, the UN and Oxford University.

The 2026 report makes for interesting reading and offers important insights. Cyprus, unfortunately, continues its decline in the rankings, reaching 62nd position out of 147 countries in 2025 – down from 39th in 2020 and 46th in 2022. This makes a mockery of the ad nauseam government celebrations for above-average European GDP growth.

Finland retained the top spot for the ninth consecutive year, followed by Iceland, Denmark, Costa Rica, Sweden, Norway, the Netherlands, Israel, Luxembourg and Switzerland. Looking at this top ten, one can begin to identify common drivers of happiness.

The Nordic countries have consistently ranked highly. A recent paper by Frontier Economics (a UK economics consultancy firm) highlights that one key factor is citizens’ trust in institutions, alongside strong and effective welfare systems. While declining trust has clearly damaged well-being in several Western economies (Cyprus included), the welfare debate remains more complex, with questions about scale and effectiveness continuing to divide opinion.

The World Happiness Index was developed to capture what matters in people’s lives beyond GDP – a measure devised by economist Simon Kuznets in the 1930s. While GDP per capita is undeniably important, it is, in economic terms, a “necessary but not sufficient” condition for well-being. The United States, for example, ranks 26th in happiness while standing 6th in GDP per capita. The index considers factors beyond financial wealth, such as social support, life expectancy, freedom of choice, generosity and perceptions of corruption.

Even with these measures, happiness remains elusive. Among the top ten countries, two stand out for defying conventional expectations: Israel and Costa Rica.

Israel’s ranking may partly reflect what Frontier Economics describes as the heightened morale often seen in societies under threat, where adversity can strengthen social cohesion and perceived well-being.

Costa Rica, by contrast, stands out globally for having no standing army since 1948, redirecting resources toward education and environmental protection. Known for its biodiversity, it is a stable and peaceful democracy with a relatively high standard of living compared to its neighbours. This unique combination may help explain its strong sense of well-being.

Inequality, although not explicitly included among the index’s core factors, is widely explored in the report for its indirect impact – so much so that inequality rankings are presented separately.

Inequality is often misunderstood and misrepresented, frequently mixed up with ideological debates about socialism. Yet Adam Smith – widely regarded as the father of modern economics, and a darling of the right – argued that prosperity must be broadly shared: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” His words, written 250 years ago in The Wealth of Nations, are often overlooked by those who portray him as a simplistic champion of free markets.

Addressing inequality does not mean enforcing equality of outcomes – that is neither realistic nor desirable. Promoting fairness, however, is a more widely accepted goal, even if, like happiness, it remains subjective. After all, many of us favour a fairer tax system – provided someone else bears the cost.

A more nuanced approach to fairness was put forward by liberal philosopher John Rawls and explored by Daniel Chandler in Free and Equal. Rawls introduces a key thought experiment: the “original position”. Imagine designing society without knowing your class, race, gender, talents, or religion.

This is what he calls the “veil of ignorance”. In this framework, fairness arises from impartial decision-making rather than self-interest. Chandler presents fairness as a middle ground between extreme equality and free-market inequality – designing society as if you did not know your place within it.

Designing tax systems that prioritise fair redistribution is essential. One need not be a staunch supporter of progressive politics to recognise this. Mitt Romney, the Republican presidential candidate in 2012, argued in a New York Times article (“Tax the Rich, Like Me,” December 2025) for higher taxes on the wealthy. Similarly, an open letter signed by nearly 400 high-net-worth individuals at the World Economic Forum in Davos called for increased taxation of the super-rich.

More recently, billionaire AI investor Vinod Khosla has argued that capital gains should be taxed at the same rate as income, particularly as artificial intelligence accelerates the concentration of wealth and power. Taxing the value created by such technologies, he suggests, could ease the transition. Khosla also observed that policymakers often focus too heavily on preserving jobs, rather than providing security for those displaced. These are fundamentally different objectives.

Khosla is right – but the issue extends beyond AI. Our economic system, for all its strengths, inherently concentrates wealth among a minority. It rightly rewards successful entrepreneurs while eliminating inefficient ones. Without effective redistribution, however, wealth accumulation becomes increasingly concentrated. This is not only a moral concern but an economic one: without sustained demand across society, growth will falter, ultimately harming both winners and losers. Thus economic growth without fairness undermines the very well-being it claims to create.

A well-designed redistribution system must therefore strike the right balance. Many on the left call for wealth taxes but I am not convinced they fulfill the fairness criterion. Taxing capital gains on the other hand – as Khosla suggests – may be a better alternative. A more detailed analysis can be found in Sheila Bair’s (former chair of the US Federal Deposit Insurance Corporation) Financial Times article on 31/3/2026.

Unfortunately, Cyprus’ recent tax reforms appear short-sighted, ignoring both capital gains and the broader challenge of inequality. This may partly explain the country’s slippage in the happiness rankings.

As we wait for a more enlightened approach, we should cherish those fleeting moments of individual happiness. Let us appreciate and make the most of them, counting in the process our lucky stars. And if we are fortunate, the “stars” we see will indeed be stars, not some ballistic missile headed our way!