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The recent speculative boom and financial crash have forced a rethink about the way we live now. As the bankers line up in front of the Treasury Select Committee, we can ponder our own behaviour. Did we really need that new car we put on the mortgage? What have we got to show for our ¡°prudent¡± investments? What are our city breaks doing to the environment? Is the result of all our spending on the high street really greater happiness?

The contention of Richard Wilkinson and Kate Pickett is that in advanced societies, unprecedented levels of wealth and comfort have been accompanied by mental and emotional suffering. Put another way, there is a striking contrast between their material success and social failure.

While economic growth has been the engine of progress, we are close to the end of what it can do for us. As countries get richer, increases in average living standards do less and less for health. When average incomes reach about $25,000 (?17,200) per capita, for instance, happiness levels off: ¡°if you are hungry, a loaf of bread is everything, but when your hunger is satisfied, many more loaves don¡¯t particularly help you and might become a nuisance as they go stale¡±. In rich countries, diseases of poverty have been replaced by ones of affluence, such as obesity, and it is the latter that are now particularly inflicted upon the poor in those nations.

While it is often assumed that social problems bear little relationship to average incomes, the evidence suggests that income differentials within populations matter a great deal, and this is as true of American states as it is of countries around the world.

Levels of anxiety, depression and stress have risen; greater social mobility has made us more self-conscious of inequality and social status; and pride in our possessions quickly turns to shame. Thus, reducing inequality may be the best way of improving our social environment and quality of life.

The costs of income inequality are clear. The most equal countries are Japan, Sweden, Norway and Finland, and the most unequal are the US, Portugal, the UK and New Zealand. Similarly, the most equal US states include Alaska, Utah, New Hampshire and Wisconsin, and New York, Louisiana, Massachusetts and Connecticut are among the most unequal.

In those countries and states where income differentials are larger, social relations deteriorate and levels of trust are lower. In the US during the 1980s and 1990s, for example, increasingly popular sports utility vehicles began to bear macho names including Outlander, Cherokee, Defender, Shogun and Crossfire.

In the most unequal countries and states, there is more gender inequality, too, and these places are less generous. A higher proportion of people suffer from mental illness, and more use drugs.

Less egalitarian countries have six times as much obesity. Educational attainment is poorer, with higher dropout rates, shorter periods of paid maternity leave and less early childhood education. Teenage birth rates are higher, and it is young men from disadvantaged neighbourhoods who are most likely to be the victims and perpetrators of violence.

In more unequal countries, children experience more bullying, fights and conflict, and rates of imprisonment are five times higher. Although it is possible that heath and social problems cause bigger income differentials, inequalities are the common denominator.

Wilkinson and Pickett argue that social structures that create relationships based on inequality, inferiority and social exclusion must inflict social pain, and that we need to allow a more ¡°sociable¡± human nature to emerge. Inequalities ratchet up the competitive pressure to consume; indeed, our compulsive need to shop is itself a reflection of how social we are. Reducing inequality, they suggest, is ¡°about shifting the balance from the divisive, self-interested consumerism driven by status competition towards a more socially integrated and affiliative society¡±.

More equal countries recycle more, are involved in international trade and discussions about reducing carbon emissions, and take positions favourable to developing countries.

Think what the health and social benefits might be if the US and the UK were more like Japan, Norway, Sweden and Finland. Social emancipation, controls on earning differentials, wealth redistribution, improvements in productivity, and people feeling part of the community may be how we get there. Share ownership, more participative management methods and technological trends that point towards free access may show the way. Whatever we do, the message from the data seems clear: ¡°greater equality is the material foundation on which better social relations are built¡±.

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