Tuesday, January 31, 2012

Where is Ross Gittins coming from?

A few days ago, Evan, a person who comments on Jim Belshaw’s blog, wrote: ‘I think Ross Gittins is a good model for how to write on economics’. That was in response to a discussion Jim and I were having about Robert Frank’s ‘The Darwin Economy’ and the difficulty that we were experiencing in communicating on the issue of whether the ideology of the market is having too much influence in modern society. At least, that is my take on what the discussion was about. Jim and I agreed with Evan that Ross does write well.

It occurred to me soon afterwards that I have been ignoring Ross Gittins’ views on happiness for too long. Ross is the economics editor of the Sydney Morning Herald (SMH) and the leading economic journalist in Australia writing about happiness. When people have asked me what I think of Ross’s views on happiness I have refrained from saying much on the grounds that I rarely buy the SMH and haven’t read many of Ross’s columns in recent years.  I can’t use the excuse any longer, however, because I have discovered that Ross has a web site on which he posts his columns. (I have recenly included a link to the site on this blog to encourage myself to read his columns more regularly.)

When I looked at Ross’s site it was clear that, as well as the happiness theme, he is sometimes still playing an old tune that I like about the benefits of free trade. For example, one of the articles I read warns of the dangers to the rest of the economy from attempts to shield manufacturing industries from the consequences of the boom in the resources sector. This is consistent with the contribution Ross has made throughout his journalistic career in bringing good sense to public discussion of many economic issues.  I have a particularly high regard for the contribution that Ross made in earlier years in helping to improve public understanding of the costs of high trade barriers that were supporting inefficient resources use and unproductive work practices in this country. He deserves a medal!

But, what about Ross’s views on happiness? It wasn’t hard to find his review of ‘The Darwin Economy’. While well written and informative, the review is totally uncritical. In concluding his review, Ross gives the author, Robert Frank, the last word: ‘Frank concludes that the real reason we regulate markets is to protect ourselves from the consequences of excessive competition’. I was left with the impression that Ross concurs with that view.

How does Ross reconcile the view that regulation is desirable to protect against competition with his knowledge of how regulation has worked in the past in Australia to protect privileged interests at the expense of the rest of the community? How does Ross reconcile his opposition to economic growth, with his apparent ongoing support for productivity growth? I decided to buy Ross’s book, ‘The Happy Economist’ to see whether I could understand where he is coming from. (Since Ross is a strong supporter of international competition I’m sure he will not mind if I let readers of this blog know that I purchased the Kindle edition from Amazon for $9.99, rather than paying Allen and Unwin $26.99.)

I enjoyed reading Part I of the book, which is a discussion about such things as the nature of happiness, the evolutionary purpose of happiness, who is happy, whether wealth makes people happy, whether work makes them happy. This part of the book ends with a discussion of 10 hints about how to be happy. Perhaps it is strange for an economic journalist to be offering such advice, but from my (fairly extensive) reading in this field I get the impression that the advice Ross offers is based on the best research available.

Part II is comprised largely of an attack on mainstream economics and a sermon on ecological economics, mixed up with a strong dose of paternalism and proposals for increased government regulation. Despite all that, Ross manages somehow to convey the impression that he is more concerned about adulation of ‘the market’ than the actual existence of markets and competition.

Ross seems to be particularly concerned about the tendency of humans to over-indulge. He notes that many of us are tempted ‘to eat too much, get too little exercise, smoke, drink too much, shop too much, save too little, put too much on our credit cards, and work too much at the expense of our family and other relationships’.  He suggests that ‘individuals know they have trouble controlling themselves and would appreciate government taking temptation out of their way’.

This reminds me of a comment by the late Roger Kerr, executive director of the New Zealand Business Roundtable, in a speech aboutthe concept of progress that he made in 2009. Roger suggested that one consequence of the ‘fashionable academic preoccupation with happiness’ might be for more people to adopt the view: “I’m bald, fat and grumpy. What’s the government going to do about it?” I don’t think that is a necessary consequence of happiness research, but it seems to me that Ross is encouraging that kind of attitude in his paternalistic proposals. Among other things, Ross apparently wants governments to re-regulate shopping hours, limit advertising and take action to discourage spending on positional goods.

Ross’s presentation of his views on productivity, economic efficiency, market preferences and regulation involve as many twists and turns as the road from Thimphu to Punakha. At the risk of making this post excessively long, an appropriate place to begin might be with Ross’s claim that the regard mainstream economists have for ‘revealed preference’ – the idea that the choices people make reveals their preferences - has somehow led them to become ‘the great facilitators and advocators of economic growth – the high priests in the temple of Mammon’ (p 164). Economists who respect revealed preference actually have a long tradition of opposition to proposals by economic planners to lift savings and investment rates or give people incentives to work longer and harder in order to raise economic growth rates. My attitude has always been that if individuals prefer to spend rather than save or to enjoy leisure rather that to work long hours, their choices should be respected. A substantial component of my work involved providing advice about how governments could facilitate economic growth, but facilitating is about removing obstacles rather than pushing people around.

Ross makes it clear that he doesn’t see economic growth as being able to continue indefinitely – and in this regard he sees himself as one of history’s hastening agents (if I may borrow a phrase much used by a former work colleague). His discussion about ecological limits to growth and the desirability of the stationary state had me wondering how he was proposing to stop technological progress – a major source of economic growth. Ross eventually acknowledges that improvements in the efficiency with which resources are used are desirable. He suggests: ‘its growth in the throughput of natural resources we should forswear, not the rise in gross domestic product that comes from the continued pursuit of productivity improvement’ (p 221).

However, a few pages on Ross tried to convince me that I shouldn’t fear the end of economic growth. He states:
‘Many of the things that reduce our happiness stem from the search for greater efficiency so as to contribute to economic growth. Easing the efficiency imperative would be hugely liberating’ (p 229).
So, we will have productivity growth without the ‘efficiency imperative’ of market disciplines?

Ross agonizes further about efficiency a few pages later:
‘My fear is that, were the goal of increased efficiency to be abandoned, the motive of rolling back areas of privilege would be lost. It would then be a matter of first in, best dressed. Workers in unprotected industries would be obliged to continue propping up protected industries in perpetuity, with a great likelihood that, should further difficult times emerge, the privileged industries would be first in line for additional assistance in the name of preserving the status quo’ (p 233).

Well put! I am glad that Ross is troubled by that thought.

The closing sentence of Ross’s book reads: ‘In the end we are what we feel’. I think that might contain the key to the problem Ross has in reconciling his belief that because individual humans are inherently fallible they can’t be trusted to pursue happiness as they wish, with his admiration for the efficiency of markets and his understanding that governments are neither angelic nor infallible .

Our feelings are important. We obviously make ourselves unhappy when we make bad choices. But they are our choices. The nature of humans is such that we cannot flourish unless we have responsibility for our own lives.  

Wednesday, January 25, 2012

Should wasteful competition for positional goods be taken into account in tax policy?

In my last post I began my review of Robert Frank’s ‘The Darwin Economy’, by outlining how Adam Smith viewed the strivings of people to better their condition as being motivated to a large extent by concerns about their relative position in society. I suggested that if there are negative externalities associated with strivings to improve relative position, these should be balanced against the positive externalities relating to technological progress identified by Smith.

The negative externalities that Robert Frank is most concerned about arise when people forgo something that they value (e.g. leisure or workplace safety) in order to engage in competition for positional goods. The basic idea is that while this competition makes sense from the perspective of each individual, it is socially wasteful because individuals are forgoing something they value in order to compete for positional goods.

There is an important definitional issue, which I will come to later, about whether the supply of positional goods is fixed. Let us assume initially, however, that there is only one positional good which is fixed in supply – housing land with views – and that humans have such a strong urge to obtain a house with a good view that, once their subsistence needs have been satisfied, all their efforts go into obtaining better views. If we now make the additional assumption that the government has to raise a certain amount of revenue to fund provision of public goods (e.g. defence, law enforcement) I think it would probably be reasonable to suppose that a tax on income above a certain level, which causes people to substitute leisure for income, would be an efficient tax to use in such circumstances. (This runs counter to my prior view which would have been in favour of a tax, or combination of taxes, with a neutral impact on income-leisure choices.)

Now, let us add some complications relating to the real world. Account should be taken of the fact that different people have different preferences and tastes. Some people are particularly interested in houses with views, some like to live near water, some are interested in living near good educational facilities and some like to live near their work. Then, there are the people who prefer to spend additional income on goods other than housing.

House sites in good locations are not the only good for which there is a relatively high income elasticity of demand. In the case of most high income elasticity goods, however, an increase in demand tends to result in a supply response and a reduction in price. Moreover, many studies suggest that there is a relatively high income elasticity of demand for leisure. Such considerations suggest to me that potential economic losses associated with competition for positional goods are likely to be quite small.

At this point I should introduce the further complication relating to the definition of positional goods. Frank adopts Fred Hirsch’s definition of positional goods ‘as ones whose evaluations are particularly sensitive to context’. House sites with views would be considered to be strongly sensitive to context if people would generally prefer to live in a location where they have better views than their neighbours, than to live in a location where the views are generally much better, but their neighbours have better views than they have.

On the basis of thought experiments he has asked students to undertake, Frank suggests that size of house is strongly sensitive to context, whereas workplace safety and time spent on vacation are not strongly sensitive to context. Frank argues that positional concerns are stronger for luxury goods than for necessities. He suggests that since ‘luxury is an inherently context-dependent phenomenon, it’s uncontroversial to say that the last dollars spent by those who spend most are most likely to be spent on luxuries’. This reasoning leads him to argue in favour of a steeply progressive consumption tax to replace personal income tax.

In the end, it seems to me that the view Frank is presenting boils down to an assertion that those fortunate (or silly) enough to have high levels of consumption spending impose an externality on the rest of the community who feel that their relative standing is diminished unless they make the sacrifices required to emulate this behaviour. The main problem I have with this this line of reasoning is that people can choose not to get involved in such emulation games, and many people have made such choices.

Furthermore, I don’t think relative income or consumption levels are nearly as important to life satisfaction as people might suggest in their responses to thought experiments. A rough calculation I reported on this blog a few years ago suggests that the probability of a poor person in a rich country being satisfied with life is about 60 percent higher than for a rich person in a poor country.

International migration patterns are also inconsistent with the view that relative position is of huge importance. Many people seem to be willing to migrate from poor countries, where they are relatively wealthy, to wealthy countries, where they are relatively poor, in order to give better opportunities to their children.

My bottom line is that while I think there may be a grain of truth in the idea that competition for some positional goods (goods which are fixed in supply) is wasteful, Robert Frank has not succeeded in establishing a case on efficiency grounds for a steeply progressive consumption tax.

Tuesday, January 24, 2012

What did Adam Smith think of externalities associated with the efforts of individuals to improve their relative position?

bookjacketI have enjoyed reading Robert Frank’s new book, ‘The Darwin Economy: Liberty, Competition and the Common Good’, more than I thought I would. This may be because I felt that the book had been written for people like me - the author seems to want people who have a strong regard for individual liberty to give serious consideration to his views.

I had expected Frank to argue that competition for positional goods involves a negative externality because those who are most successful are envied by many of those who are less successful. However, the view he presents of the nature of externalities associated with competition for positional goods is more subtle and less easily dismissed.

The starting point of Frank’s analysis is the ‘invisible hand’ of the market, which Adam Smith had suggested in ‘Wealth of Nations’ leads self-interested individuals to promote the greater good of society, without intending to do so. Frank describes Smith’s invisible hand as ‘a genuinely groundbreaking insight’, even though, as Smith recognized, the invisible hand ‘breaks down’ to some extent in the presence of externalities, public goods, and so forth. The particular negative externality that Frank is most concerned about in this book is associated with circumstances where individual rewards depend on relative performance and result from the strivings of individuals to improve their relative position. He contrasts this striving to improve relative position (which he describes as Darwinian competition) with the benign competitive forces associated with Adam Smith’s invisible hand.

Frank’s discussion of the different views of competition that he attributes to Darwin and Smith reminded me that Adam Smith had actually written about the strivings of individuals to improve their relative positions in ‘The Theory of Moral Sentiments’ (TMS). Smith suggested in TMS that what people hope to achieve by bettering their condition is not ‘ease’ or ‘pleasure’ but ‘to be taken notice of with sympathy, complacency and approbation’ (p 50-51, Liberty Fund edition, 1982). Later in the book, Smith suggests, however, that ‘the poor man’s son, whom heaven in its anger has visited with ambition’ imagines that if he attained wealth and greatness ‘he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquillity of his situation’. According to the story, this ambitious man endures a great deal of misery striving to better his position. By the time he achieves his goal, however, he is near the end of his life ‘his body wasted with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments …’. At this point he begins to think that ‘wealth and greatness are mere trinkets of frivolous utility’ offering little ‘ease of body or tranquillity of mind’ (p 181).

In my view, Smith’s story understates the benefits that people obtain from wealth because it doesn’t take account of the greater autonomy wealth enables them to enjoy. (I have discussed the link between wealth and autonomy previously on this blog.)

Smith was suggesting that people tend to make cognitive errors of the kind discussed by Daniel Gilbert in his book, ‘Stumbling on Happiness’. This view of strivings to improve relative position differs from that of Robert Frank, who does not rely on departures from the individual rationality assumptions normally used in neo-classical economics.

The similarity between the views of Adam Smith and Robert Frank in relation to strivings to improve relative position lies in the fact that both seem to see this as more or less a zero sum game, with externalities involved. Adam Smith wrote as follows about the externalities associated with the strivings of individuals to better their condition:
‘The pleasures of wealth and greatness … strike the imagination as something grand and beautiful and noble, of which the attainment is well worth all the toil and anxiety which we are apt to bestow upon it.
And it is well that nature imposes upon us in this manner. It is this deception which arouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and the arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth’ (p 183).

These days many people would be less inclined to count as a benefit some of the ways in which the face of the globe is being changed by the motion of industry. But Smith’s insight that strivings of individuals to improve relative position can encourage technological progress is still relevant. If such strivings also result in negative externalities, those need to be balanced against the positive externalities that Adam Smith identified.
I promise to write about Robert Frank’s views in my next post.

Saturday, January 21, 2012

Can measurement of subjective well-being help us to assess whether life is getting better?

The British government has recently taken some steps toward measurement of subjective well-being in the hope that this will provide ‘a general picture of whether life is improving’ and eventually ‘lead to government policy that is more focused not just on the bottom line, but on all those things that make life worthwhile’.

The quoted words are from David Cameron, the British prime minister. I find it interesting that he refers to ‘the bottom line’ as though the bottom line in British politics has always had a pound sign in front of it. Philip Booth, editor of the recent Institute of Economic Affairs (IEA) publication ‘… and the Pursuit of Happiness’, suggests that the prime minister was attacking a ‘straw man’; the British government has always had a multitude of objectives.

Booth makes the point that attempts to ‘centrally direct policy toward improving general wellbeing’ will fail just as attempts to increase GDP growth through use of central planning also failed. I agree with the point, but I suspect that it is also a straw man. I doubt whether David Cameron is proposing to adopt some form of central planning in an attempt to raise national happiness. It seems to me that attempts to obtain a better picture of whether life is improving are no more likely to encourage central planning than was the measurement of national income likely to encourage central planning. Like many happiness researchers, the pioneers in the field of national income measurement were of an interventionist frame of mind. They actually wanted better measures of economic activity as an aid to implementation of Keynesian macro policies.  The central planners were not slow to jump on the national income measurement bandwagon, but there was no slippery slope leading inevitably from national income measurement to increased government intervention.

However, I can’t claim to know what the British prime minister has in mind. Initial survey work by the Office of National Statistics (ONS) has focused on a comparison of different measures of subjective well-being. Some of the results are interesting. For example, there is a fairly high level of correlation (0.66) between responses to a standard life satisfaction question (How satisfied are you with your life nowadays?) and a eudenomic question (Overall, to what extent do you think the things you do in your life are worthwhile?).

Yet, that kind of information will not tell us much about whether life is getting better. As Paul Ormerod demonstrates in his chapter of the IEA publication, levels of life satisfaction in high income countries tend to fluctuate over time without any obvious trend – and despite improvements in many different well-being indicators. I think the metaphor of a ladder attached to a helicopter, which I used in a recent post, is helpful to an understanding of why successive snapshots of life satisfaction cannot measure progress. If I am climbing a ladder that is attached to a helicopter, my height above the ground depends on the height of the helicopter as well as on which rung of the ladder I have reached. The ladder represents the benchmark of possibilities against which I assess my life satisfaction, but upward movement of the helicopter (i.e. expanding possibilities) may be my main source of progress.

In my view, if you want to know whether people feel that their lives are improving you need to provide them with an appropriate benchmark against which to make that comparison. The ONS survey enables this by also asking respondents to rate their life satisfaction a year ago and five years ago. The scores for life satisfaction five years ago and one year ago were slightly lower than those for current life satisfaction. This suggests, somewhat surprisingly, that Brits generally feel that their lives are still improving despite the global financial crisis and its aftermath. That kind of information seems to me to be worth having.

Unfortunately, I couldn’t find any discussion in the IEA publication of what measures of progress would be superior to the successive snapshots of life satisfaction that are targeted for criticism by several of the authors. The publication certainly serves a useful purpose in bringing together the contributions of a range of authors who question false assertions that have been made on the basis of happiness research and caution against government attempts to use the findings of happiness research to introduce policies to promote happiness. Nevertheless, I was slightly disappointed that the editor did not show a little more sympathy for the idea that there could be some merit in the aim of the British prime minister to obtain a better picture of whether life is improving in that country. 

I expect that if government policies were focused more clearly at expanding the opportunities that make life worthwhile, there would actually be less government regulation in most countries, including the UK.

Tuesday, January 17, 2012

Does GNH measure progress towards a better society?

In my last post, ‘Can happiness be aggregated?’, I suggested that any statement about aggregate happiness or gross national happiness (GNH) involves judgements – explicit or implicit – about the characteristics of a good society.

I used the example of Mary, who is flourishing at level 9, and Jane, who is just surviving at level 1, and asked whether their combined level of flourishing is equivalent to that of two other people who are flourishing at level 5 ( i.e. (9+1)/2).  I suggested that you may feel that combining the ratings of different individuals together should involve value judgements rather than just arithmetic. I argued that if we introduce value weights into the process of aggregating the flourishing of different individuals, we are making a judgement about the extent to which the distribution of flourishing is consistent with our views about characteristics of a good society. 

I think the issues raised by the example of Mary and Jane can be brought into sharper focus if we consider whether aggregate flourishing increases to the same extent if Mary’s level of flourishing rises from 9 to 10 as when Jane’s level of flourishing rises from 1 to 2. I think most people would feel that Jane’s increased flourishing should receive more weight than Mary’s in the assessment of aggregate happiness. As argued above, the assignment of relative weights involves a value judgement. Different people can be expected to have different opinions about this matter.

The people responsible for the GNH survey in Bhutan have taken the position that ‘beyond a certain point, we don’t need to keep adding in higher achievements to the quality of life mechanically’. Their methodology would not count the increase in Mary’s level of flourishing as making any contribution to GNH on the grounds that it is appropriate to confine attention to ‘a middle band of achievements that contribute significantly to human wellbeing for most people’. I am not sure whether these implicit weightings reflect a consensus of the people of Bhutan, but in any case the weightings in the GNH index have validity as an expression of the values of the elected government.

The way I see it, Bhutan’s GNH index is the method that the government of Bhutan has chosen to measure progress toward a better society.

Monday, January 16, 2012

Can happiness be aggregated?

My starting point for this post is take it as given that everyone agrees that for public policy purposes it is appropriate to view happiness in terms of individual flourishing. My reasons for this view have been presented in the draft of chapter 2 of the book that I have been writing.

I doubt whether it is possible to obtain an accurate measure of the extent to which each individual in the community is flourishing because some of the subjective information involved is probably not accessible to people conducting surveys. But let us assume that we have a measure that is good enough to compare the extent to which different people are flourishing in terms of a rating scale from 1 to 10, with a rating of 1 indicating that the individual is just surviving and a rating of 10 indicating that the individual is fully flourishing.

The measurement system that I am assuming would enable us to determine the percentage of people at different levels of flourishing within a particular community. If other communities adopted the same measurement system we could make observations about the percentage of people who are flourishing in different communities. It might be possible to say, for example, that 50 per cent of the population in community A are flourishing at a moderate level (with a rating of 7 or above) whereas the corresponding percentage in community B is only 40 per cent. There could be considerable interest in such observations, particularly if they enabled comparisons to be made between countries and over time.

Would such a measurement system enable us to say that the aggregate or average level of flourishing is higher in one country than another? I don't think so. For example if you are told that 50% of the population is flourishing in country A and 40% is flourishing in country B, that doesn’t necessarily mean that the average level of flourishing is higher in A than B. It is possible that 20% are struggling for survival in country A while only 5% are struggling for survival in country B. The average (mean) calculated from the percentages flourishing at each level might indicate that the level of flourishing is higher in B than in A. In this instance, is the mean a better measure of the 'average' than the median?

There is also a more fundamental problem. Let us assume that Mary is flourishing at level 9 and Jane is just surviving at level 1. Is their combined level of flourishing equivalent to that of two other people who are flourishing at level 5 ( i.e (9+1)/2) ? I don’t think so. It seems to me that, other things equal, it is preferable to have two people flourishing at level 5 than to have one person at level 1 and the other at level 9. But that judgement reflects my own values and is not related to the preferences of the people most directly concerned? We should ask Mary and Jane what they think. But their views might differ. Perhaps we could ask a random sample of the population what they think, or conduct experiments to find out what choices most people might make behind a veil of ignorance. (I have in mind the kind of experiment conducted by Hörisch Hannah, which I described in an earlier post.)

The point I am getting to is that even if you can conceive of ratings corresponding to different levels of flourishing, you may have good reasons to feel that combining the ratings of different individuals together should involve value judgements rather than just arithmetic. You may not be comfortable in thinking of the combined level of flourishing of Mary and Jane as though these individuals are just metric stations.

However, if we introduce value weights into the process of aggregating the flourishing of different individuals, are we not then making a judgement about the extent to which the distribution of flourishing is consistent with our views about the characteristics of a good society? It seems to me that any statement about aggregate happiness or gross national happiness involves judgements – explicit or implicit – about the characteristics of a good society.

So, why not ask directly whether society A is better than B, rather than asking whether aggregate happiness is greater in A than B? This would mean attempting to achieve consensus on the characteristics of a good society. I presented some thoughts about this in a post a couple of years ago.

Saturday, January 14, 2012

Has the United States become a secular theocracy too?

Secular theocracy is a result of the tendency in the modern world for faith in government to replace faith in God. In the past I have tended to associate secular theocracy with Australia, New Zealand, Britain and other countries in Europe, rather than the United States. When I first visited the US in the 1970s, I remember mentioning to someone that Americans seemed to take religion much more seriously than I had expected. He pulled a bill from his wallet and pointed to the words, ‘In God we trust’, suggesting that those words were a key to understanding America.

Until very recently I thought that the differing influence of secular theocracy in different countries could be explained entirely by the differing influence of collectivist ideas – a desire for security being satisfied by the welfare state rather than by religion. From where I sit, in Australia, it seemed that secular theocracy could be attributed to the varying influence of ideas of people like Karl Marx and J S Mill, leading to establishment of more extensive welfare states in some countries than in others. While I am an admirer of many of Mill’s writings, it seems to me that his introduction of the term ‘social justice’ played a significant role in the development of secular theocracy in some countries. The faith that many people have in social justice seems to me to be much like religious faith.  When people say that social justice demands this or that, it seems to me that they are actually using nebulous secular language to make claims about our religious duties toward other humans.

So, how did I react when it was suggested to me recently that secular theocracy stems from the separation of church and state? My initial reaction was not favourable. From my limited knowledge of history, the separation of church and state seems to be inextricably linked to the history of recognition of religious freedom and individual liberty. According to this view, the separation of church and state stems from recognition that in order to promote and preserve individual liberty it is necessary for religious organizations to be kept away from exercise of the coercive powers of the state.

An article recently published by David Theroux, president of the Independent Institute in the US, presents a somewhat different view of secular theocracy. David suggests that modern America has become a secular theocracy, with a civic religion (nationalism) replacing God. The view he presents is linked to that of C S Lewis, who argued that there is no sacred/secular divide and that a theopolitical world view of hope, joy, liberty and justice enabled Christians to discover objective natural-law principles of ethics, science and theology, producing immense human flourishing.

In support of his view that nationalism has replaced God, David Theroux points to a statement by Supreme Court Justice William Brennan in a land mark case in 1963 relating to bible reading in schools. Brennan argued that the function of public schools is the training of American citizens in an atmosphere in which children may assimilate a heritage that is ‘civic and patriotic’. He went on to suggest that ‘patriotic and united allegiance to the United States is the cure for the divisiveness of religion in public’.

David Theroux argues that in the United States secular theology ‘exalts a sovereign and powerful state that pervades all of life and compels obedience not just to its mandates but to secular nationalism of the Zeitgeist itself, for which the populace is forced to conform to and to fund’. The flag has become the most sacred object in US society. He suggests: ‘The religious-secular split enables public loyalty by Christians to the nation state’s secular violence, including invasive wars, torture, and “collateral damage”, while avoiding direct confrontation with Christian beliefs about the supremacy of God and natural law teachings’.

I have no hesitation in recommending David Theroux’s article. The existence of a pervasive secular theology of nationalism seems to me to be another important key to understanding modern America. 

Thursday, January 12, 2012

When can you trust your intuitions?

In my last post I discussed the part of Daniel Kahneman’s ‘Thinking Fast and Thinking Slow’ that I like least. In this post I will to discuss the part that I most enjoyed reading.

At the beginning of his book Kahneman sets up the idea that the human mind can be thought of as being comprised of two systems. System 1 operates quickly, with little effort and no sense of voluntary control. System 2 allocates attention to the effortful mental activities that demand it.

When I read that I immediately began to search for links to Timothy Gallwey’s concept of Self 1 and Self 2. Gallwey is a sports and business coach and author of popular ‘inner game’ books. I have read nearly all of Gallwey’s books and have written about them previously on this blog.

Gallwey observed that when he was playing tennis he seemed to have two identities. Self 2 was playing tennis and Self 1 was constantly interfering by telling him how to play and trying to get him to conform to his instructions.

It struck me that Gallwey’s Self 1 might correspond roughly to Kahneman’s System 2 and that Gallwey’s Self 2 might correspond with Kahneman’s System 1. Anyhow I didn’t find the link until I read Chapter 22 of ‘Thinking Fast and Thinking Slow’ in which Kahneman discusses his collaboration with Gary Klein, who turns out to be an admirer of Tim Gallwey's books.

Klein and Kahneman collaborated in a study directed toward answering the question of when you can trust an experienced professional who claims to have an intuition. Kahneman’s scepticism about intuitions was shaped by observing failures of intuitive judgements by experienced professionals.  He observed that experienced professional e.g. clinicians, stock pickers and political scientists often had too much confidence in their intuitions. He suggests that this occurs because System 1 tends to produce quick answers to complex questions, creating coherence where there is none.

Klein’s optimism about intuitive judgements by experienced professional was shaped by studies of leaders of fire fighting teams who seem to be able to make good decisions in emergencies without comparing options or knowing how they are able to sense the best course of action to take.

Klein and Kahneman agreed that successful intuitive judgement involves pattern recognition. Two basic conditions are necessary for acquiring a skill in intuitive judgement: an environment with sufficient statistical regularity for patterns to exist; and an opportunity to learn these regularities through prolonged practice.
Examples of statistically regular environments include sports, games such as chess, bridge and poker, and professions such as medical practice, nursing and fire fighting. By contrast, the failure of stock pickers and political scientists who make long term forecasts reflects the unpredictability of the events they are trying to forecast.

This all makes sense to me. When I am playing golf I should learn to trust Self 2 (System 1) and when I am trying to understand economic issues I should employ System 2 (Self 1).

However, that is an over-simplification. It probably isn’t wise to rely entirely on intuition when selecting which club to use when playing golf and the intuitions of economists have probably been the source of many a useful hypothesis about relationships between economic variables.

I particularly liked the way Kahneman ends his discussion of the relationship between System 1 and System 2 in the final chapter of his book. He suggests that System 2 is who we think we are – it articulates judgements and makes choices. (That is presumably why Tim Gallwey labelled it as Self 1.) Kahneman goes on to make the point that while System 1 is the origin of most of what we do wrong, it is also the origin of most of what we do right. The judgements and choices made by System 2 often involve endorsement or rationalization of ideas and feelings generated by System 1. 

Wednesday, January 4, 2012

Does libertarianism rest on rational actor assumptions?

‘The assumption that agents are rational provides the intellectual foundation for the libertarian approach to public policy: do not interfere with the individual’s right to choose, unless the choices harm others’ – Daniel Kahneman, ‘Thinking Fast and Slow’, Penguin, 2011.

Book Cover:  Thinking, Fast and SlowI feel as though I am being somewhat churlish in protesting about Kahneman’s comments on libertarianism, which amount to only a few pages near the end of a 400 page book. In my view Kahneman’s book deserves high praise and it has indeed been widely praised (for example, even in a post on his blog by  David Friedman, who describes himself as an anarchist-anachronist-economist). Having thought slowly about the matter, however, it seems to me that it is important to try to prevent paternalists from getting a free kick from the reasoning that Kahneman develops in this book.

Much of Kahneman’s book is a discussion of research findings relating to biases in intuitive thinking. The view presented is that intuitive thinking (fast thinking) tends to be much more influential than we realize – it is responsible for many of the choices and judgements that we make. The confidence we have in our intuitions is usually justified, but they can lead us badly astray on issues that require deliberation (slow thinking).  For example, most people have particular difficulty in making judgements that require an understanding of probabilities. Kahneman is not optimistic that people can easily learn to recognize when they are in a cognitive minefield in which they need to slow down and question their intuitions. When people feel the stress of having to make a big decision, more doubt is likely to be the last thing they want.

My intuitions tell me that Kahneman may be too pessimistic about our ability to recognize when we are about to enter a cognitive minefield. It seems to me that many people have developed emotional systems that provide ample warnings when they are about to enter cognitive minefields. Since I am feeling such warning signals right now, however, my intuitions about this could well be wrong. I should confine my remarks to matters about which I can write with some confidence.

When I set out to write this post the plan in the back of my mind was to refer to some earlier posts in which I distance myself from the rational actor model employed by people like Gary Becker (whose theory of rational addiction is cited by Kahneman) and then to proceed to demonstrate that the classical foundations of libertarianism do not require the assumptions of that model. However, my early warning system suggested to me that it might be a good idea to check whether Becker actually bases his defence of libertarianism on the rational actor model.  It turns out that in the defence of libertarianism that I found, Becker actually distances himself from rational actor assumptions. (This is a post he wrote on the Becker-Posner blog in 2007 on the peculiar concept of libertarian paternalism - supported by Kahneman, but advocated originally by Cass Sunstein and Richard Thaler.)

Becker presents the view that I had planned to present more eloquently than I could, so I will quote him:
‘Classical arguments for libertarianism do not assume that adults never make mistakes, always know their interests, or even are able always to act on their interests when they know them. Rather, it assumes that adults very typically know their own interests better than government officials, professors, or anyone else ... . In addition, the classical libertarian case partly rests on a presumption that being able to make mistakes through having the right to make one's own choices leads in the long run to more self-reliant, competent, and independent individuals. It has been observed, for example, that prisoners often lose the ability to make choices for themselves after spending many years in prison where life is rigidly regulated. In effect, the libertarian claim is that the "process" of making choices leads to individuals who are more capable of making good choices’. 

Arnold Kling’s views on the implications of the cognitive biases documented by Kahneman are also worth quoting:
‘If social phenomena are too complex for any of us to understand, and if individuals consistently overestimate their knowledge of these phenomena, then prudence would dictate trying to find institutional arrangements that minimize the potential risks and costs that any individual can impose on society through his own ignorance. To me, this is an argument for limited government.
Instead of using government to consciously impose an institutional structure based on the maps of cognitively impaired individuals, I would prefer to see institutions evolve through a trial-and-error process. People can be “nudged” by all manner of social and religious customs. I would hope that the better norms and customs would tend to survive in a competitive environment. This was Hayek's view of the evolution of language, morals, common law, and other forms of what he called spontaneous order. In contrast, counting on government officials to provide the right nudges strikes me as a recipe for institutional fragility.
If Kahneman is correct that we have “an almost unlimited ability to ignore our own ignorance,” then all of us are prone to mistakes. We need institutions that attempt to protect us from ourselves, but we also need institutions that protect us from one another. Limited government is one such institution’  (‘The PoliticalImplications of Ignoring Our Own Ignorance’, The American, December 2011).

In responding to comments on his post, David Friedman has made a similar point that on balance Kahneman's work may actually favour the libertarian position that market decision processes are superior to political decision processes:
‘The arguments suggest that people are more nearly rational when they use the slow mind than the fast and, since the slow mind's attention is a scarce resource, they are more likely to use it the more important getting a decision right is. My market decisions are almost always more important to me than my political decisions, since the former directly affect outcomes for me, the latter do not. That suggests that people will be less rational in their political decisions than their market decisions.’

It is also worth noting that we do not have to choose between relying on our own individual thinking processes and relying on governments to guide us. In those areas of decision-making where we  may not be able to rely on our intuitions and deliberations we have family, friends, representatives of voluntary organizations of various kinds and paid professionals who may be willing to act as our advisers or our agents (as well as the social norms and customs mentioned by Kling). If I need an agent to make decisions for me, it seems to me to be preferable to appoint one to act as my servant than to appoint one to act as my master.

Finally, we should also recognize that when governments make paternalistic laws to criminalize stupidity they don't necessarily stop people from behaving stupidly. They may just add to the problems of the people they are trying to help.