Wednesday, March 28, 2012

Does belief in technological progress have to involve faith?

In an essay entitled ‘The Idea of Progress’ (published in 1979) Robert Nisbet, an American sociologist, suggested:
 ‘Disillusionment with science and technology is very much a part of the intellectual landscape, and it would be a rash soul indeed who declared it a purely peripheral and transitory thing’.

It would probably be fair to say that disillusionment with science and technology is now fairly common among the general populace of high income countries. Data from World Values Surveys conducted in 2005-08 show that the percentages who completely agree with the proposition that science and technology are making our lives healthier, easier and more comfortable are only around 14% in Australia, 11% in the US and 6% in Japan. The corresponding percentages are much higher for countries with lower incomes: 31% for Mexico and China and 40% for Indonesia.

Nisbet argued that the idea of progress was born of Greek imagery and is central to Christianity with its emphasis on hope - to be given gratification in this world as well as the next. He observes that rationalist-secular confidence, once so great in Western society, has been fast-diminishing as a result of boredom with the goods, material and psychic, provided by modernity as well as disillusionment with science and technology. In his concluding paragraph he speculates that a renascence of religion might ‘fill the vacuum brought on by those elements of modernity … and with this, a shoring-up of the idea of progress from past to future’.

Nisbet seems to be suggesting that belief in progress involves faith. It arose from religious faith and may return to those roots as enthusiasm for science and technology wanes.
Does belief in progress have to involve faith? For a couple of centuries in western countries enthusiasm for technological progress did involve faith. It was akin to religious faith, with doctrines about the inevitability of progress – in some accounts even according to laws of evolution or laws of history. It is possible, however, to believe that, on balance technological advances are beneficial, without having much confidence that they will necessarily make our lives healthier, easier and more comfortable.

Data in the World Values surveys on whether it would be a good or bad thing if there was more emphasis on technology in future may reflect a widespread belief that, on balance, technological advances are beneficial. Despite their reluctance to agree completely that technology is making their lives better, only a small percentage of people in high income countries say that more emphasis on technology would be a bad thing – and the percentages don’t differ in any obvious way from those for low income countries. (The relevant percentages for Australia, US, Japan, Mexico, China and Indonesia are 6%, 7%, 5%, 7%,1% and 14% respectively.)

It seems to me that Karl Popper’s institutional theory of scientific and technological progress provides an appropriate framework in which to consider the possibility of progress. The basis of Popper’s theory is that there are ‘conditions for progress’ and hence conditions under which progress may be arrested. Popper emphasized that science is based on free competition and thought:
‘If the growth of reason is to continue, and human rationality to survive, then the diversity of individuals and their opinions, aims, and purposes must never be interfered with (except in extreme cases where political freedom is endangered). Even the emotionally satisfying appeal for a common purpose, however excellent, is an appeal to abandon all rival moral opinions and the cross-criticisms and arguments to which they give rise. It is an appeal to abandon rational thought’.

Popper concluded:
‘The mainspring of evolution and progress is the variety of the material which may become subject to selection. So far as human evolution is concerned it is the 'freedom to be odd and unlike one's neighbour'--'to disagree with the majority, and go one's own way'. Holistic control, which must lead to the equalization not of human rights but of human minds, would mean the end of progress’ (‘The Poverty of Historicism’, 1957, Chapter IV).

Wednesday, March 21, 2012

How does the United Nations view social progress?

I have previously expressed the view on this blog that if progress is to have any meaning from a public policy perspective it must mean movement toward a good society or movement from a good society to a better society. The improvement of society can, of course, be referred to as ‘social progress’.

When I did an internet search on ‘social progress’, the second item listed was the United Nations Declaration on Social Progress and Development adopted in 1969. This Declaration stands in stark contrast to the resolution sponsored by Bhutan and adopted in July last year calling on Member States ‘to pursue public policy steps that would better capture the importance of pursuing happiness and well-being in development’.
As might be expected, the 1969 UN declaration begins by asserting the value of humans and the rights of everyone to enjoy the fruits of social progress. Without attempting to define social progress it then goes on to assert that social progress requires the ‘full utilization of human resources’ and giving everyone the ‘right to work’. The declaration then proclaims the importance of economic growth to social progress:
‘The rapid expansion of national income and wealth and their equitable distribution among all members of society are fundamental to all social progress, and they should therefore be in the forefront of the preoccupations of every State and Government’.

I guess the authors were trying to make the point that growth in productivity and technological progress are central to meeting the aspirations of people to improve their living standards. In the preamble to ‘Part II Objectives’ it is asserted that ‘progress and development shall aim at the continuous raising of the material and spiritual standards of living of all members of society’. The recognition of spiritual needs is interesting, but the authors gave no hint of what they meant by ‘spiritual standards of living’. Considered as a whole, the document has the appearance of having been drafted by economic planners to foster greater recognition of their own importance.

Perhaps I should view the UN Declaration on Social Progress as a product of its times and be glad that the UN has moved on. I can’t help feeling, however, that the wording of the document is particularly crass, even given views that were prevalent at the time the document was written.

If the authors had wanted to emphasize the aspirations that people have for improvement of their material living standards it would not have been hard for them to come up with an appropriate definition of social progress in those terms. For example, they could have written a definition, along the lines I have drafted below, based on words used by Ludwig von Mises, leader of the Austrian School of economic thought, in his book ‘Theory and History’, which was published in 1957:
Most humans want to live and to prolong their lives; they want to be healthy and to avoid sickness; they want to live comfortably and not to exist on the verge of starvation. Advance toward these goals means progress, the reverse means retrogression.

If the authors had set their sights a little higher they might even have been able to benefit from the thoughts of another famous Austrian economist, Friedrich Hayek:
‘In one sense, civilization is progress and progress is civilization. The preservation of the kind of civilization that we know depends on the operation of forces which, under favourable conditions, produce progress. If it is true that evolution does not always lead to better things, it is also true that without the forces which produce it, civilization and all we value – indeed almost all that distinguishes man from beast – would neither exist nor could long be maintained’ (‘Constitution of Liberty’, 1960, 39-40).

Hayek saw progress as a process of learning, the cumulative growth of knowledge which when achieved becomes available for the benefit of all. He wrote:
‘It is through this free gift of the knowledge acquired by the experiments of some members of society that general progress is made possible, that the achievements of those who have gone before facilitate the advance of those who follow’ (p 43).

Monday, March 12, 2012

How much does personality change over time?

A post I wrote on this topic in 2010 attracted a fair amount of interest. That might be explained by the provocative  title: ‘Once a neurotic always a neurotic?’ The view presented was that while personality is generally fixed by about age 30, there is some evidence of personality change among older adults, associated with such things as use of anti-depressant drugs, cognitive behavioural therapy and meditation.

Recent research has provided evidence that personality is much more variable than it was previously thought to be. The findings of some relevant research by Christopher Boyce, Alex Wood and Nattavudh Powdthavee are summed up in the title of their article: ‘Is Personality Fixed? Personality changes as much as “variable” economic factors and more strongly predicts changes to life satisfaction’. (The article has been published in ‘Social Indicators Research’).

The research uses data from the HILDA surveys, which in 2005 and 2009 asked 8,625 Australians questions designed to measure their personality according to the Big Five criteria: openness to experiences, conscientiousness, extraversion, agreeableness and neuroticism. The authors found substantial variation of all personality criteria between the surveys. The variation of agreeableness and neuroticism for the same individual was about half as great as the variation between individuals.

In their initial analysis the authors corroborated earlier cross-section research showing that some personality factors have large impacts on life satisfaction. They found that emotional stability (the opposite of neuroticism) had the greatest impact, followed by agreeableness and extraversion. The estimated coefficients on the personality variables were generally somewhat lower in the analyses focusing on the effects of changes over time suggesting to me that some of the apparent change in personality might be attributable to measurement error. Nevertheless, the implied impacts of change in personality are still relatively large by comparison with the impacts of the economic variables such as income and employment status.

What are the implications of the finding that individual life satisfaction may change substantially over time as a result of personality changes? The answer depends partly on how important we see life satisfaction in the context of the overall quality of life. For example, it is interesting to speculate that the phenomenon that Carol Graham describes as the happy peasant, frustrated achiever paradox – happiness declining for some people whose wealth is rising – could be attributable to personality change. People may choose to have opportunities for better education and higher incomes, even if this may result in some loss of contentment (perhaps as a consequence of personality changes).

It is difficult to consider the implications of changes in personality without knowing what causes personality to change. I found it surprising that the results suggest that the adverse impact of unemployment on life satisfaction is independent of personality change. (The estimated coefficient on unemployment remains unchanged when the personality variables are introduced into the analysis.)
Boyce et al speculate that personality change could be associated with environmental factors and that public policy could foster positive environments. However, the example they give of the possibility of personality change through improved availability of mental health services might have more to do with changing perceptions of experience and of identity than with changes in environmental factors.

It is possible that the effects of individual personality changes might tend to wash out in large samples. Those whose life satisfaction rises as a result of personality changes might be balanced by those whose life satisfaction falls.  But is not inevitable that this will happen. Perhaps pervasive changes in personality at an individual level might be reflected in changes at a national level in the extent of uncertainty avoidance or in the extent to which people are prepared to trust others.

It will be fascinating to see what light further research is able to shed on the causes and effects of personality changes.

Saturday, March 10, 2012

Is inequality of income distribution determined by social values?

There has been a spirited discussion in recent years about the effects of inequality of income distribution on the social fabric and the quality of life. As noted in an earlier post, it seems likely that inequality has some adverse effects on life satisfaction which are independent of the income levels of the individuals concerned. Stronger claims have been made by Richard Wilkinson and Kate Pickett in their book, ‘The Spirit Level: Why More Equal Societies Almost Always Do Better’. These authors suggest that in association with lower social trust, a wide range of health and social problems are worse in societies in which inequality is higher. The evidence has been hotly contested - references to opposing contributions listed on a Wikipedia site.

It seems more likely that the correlation that has been observed between low income inequality and high social trust is the result of high social trust leading to a reduction in inequality, rather than a reduction in inequality leading to higher social trust. The big welfare states have been undeniably successful in reducing inequality of income redistribution. Andreas Bergh and Christian Bjornskov have provided evidence that historical levels of social trust may predict the current size of welfare states. High trust levels could be expected to help sustain big welfare states by limiting problems caused by free riding on welfare, by reducing the costs of regulation and monitoring, and by reducing tax evasion and revenue collection problems.

In this post I want to discuss evidence linking trust levels with the importance that people in different countries place on progress toward a more humane society and government action to reduce income inequality.
The first step is to consider whether there is a link between social trust and high priority for progress towards a more humane society. The World Values Survey asks respondents to choose which goal is most important: a stable economy; progress toward a less impersonal and more humane society; ideas count more than money; and the fight against crime. Individuals who say that most people can be trusted are more likely to select a humane society and less likely to select the fight against crime as the most important objective. The percentages from the 2005-08 survey choosing progress toward a less impersonal and more humane society are plotted in Figure 1 below against levels of social trust for 53 countries.

Figure 1 suggests that in societies in which there are high levels of social trust, a higher proportion of the population tend to attach most importance to the humane society objective. The main exceptions are for low income countries (China, Vietnam and Indonesia) in which priorities could be expected to be different. France is also exceptional in having a relatively high attachment to the humane society objective despite relatively low levels of trust. This case is particularly interesting in terms of the direction of causation. There are some obvious historical reasons why French people could be expected to attach importance to the humane society objective (egality, fraternity etc.) despite relatively low social trust, but there does not seem to be any obvious reason why French people should have relatively low levels of trust if causation ran in the opposite direction.

The next step is to look at the link between the humane society objective and income inequality. Figure 2 shows the level of income inequality after taxes and transfers (as measure by the gini coefficient) plotted against the proportion of the population attaching most importance to the humane society objective for 21 OECD countries.
Figure 3 shows the link between the humane society objective and government involvement in income redistribution for the 21 OECD countries. The extent of income redistribution is measured as the ratio of the gini coefficient after taxes and transfers to the gini coefficient before taxes and transfers. The value of the variable would be 1.0 if there are no taxes and transfers which reduce income distribution. The ratio is shown in reverse order on the vertical axis. Countries with the greatest income redistribution appear at the top of the chart.
Figure 4 shows the link between the humane society objective and a measure of egalitarian sentiment from the World Values Survey. This measure is derived from responses to a question asking for a value from 1 to 10 to be assigned depending on whether views are closer to the proposition ‘Incomes should be made more equal’ (1) or ‘We need larger income differences as incentives’ (10). The percentages with ratings from 1 to 4 were used as a measure of egalitarian sentiment.

Figure 2 shows that disposable income (i.e. income distribution after tax and transfers) tends to be more equal in countries where a relatively high proportion of the population view the humane society objective as particularly important. Chile is an obvious exception.
Figure 3 shows that the extent of government income redistribution tends to be greatest in countries where support for the humane society objective is greatest. The extent of redistribution is lower than would be predicted on this basis in Chile, Mexico, Turkey and Korea, but these are all countries with relatively low average incomes by OECD standards.
Figure 4 shows that, as might be expected, egalitarian sentiment tends to be greatest in countries in countries in which there is greatest support for the humane society objective. However, comparing Figure 3 and Figure 4, it is apparent that high levels of redistribution are not always associated with strong egalitarian sentiment. For example, egalitarian sentiment seems to be particularly strong in Chile and Switzerland which have redistribution levels somewhat lower than might be predicted on the basis of support for the humane society objective. In the case of Sweden, redistribution is greater than might be predicted and egalitarian sentiment is lower than might be predicted.

The overall picture that emerges is consistent with the view that inequality of income distribution tends to reflect social values. People in high trust societies tend to have greatest support for moving toward a more humane society and greatest income redistribution, leading to relatively low income inequality. Although egalitarian sentiment tends to be greatest in countries where there is greatest support for moving towards a more humane society, it is stronger in some countries in which there has been little income distribution than in countries that have extensive redistribution. The experience of a big welfare state may dampen egalitarian sentiment.

Monday, March 5, 2012

How concerned should we be about trends in income distribution?

At the end of my last post I suggested that the evidence on changing income redistribution – in the OECDs recent publication ‘Divided We Stand’ - poses some serious questions to those of us who are inclined to argue that governments can create widespread opportunities by just getting out of the way. I stick by that, but I don’t see much that is of particular concern in trends in income distribution in OECD countries since the mid-1980s.

In his discussion of Wayne Swan’s recent ravings about income distribution, Henry Ergas agreed with Swan that it is possible to avoid a rising gap between income growth of those at the top of the income distribution and those at the bottom. He noted, however, that ‘the four countries that from the mid-1980s on, most conspicuously did so’ were ‘Portugal, Ireland, Greece and Spain, usually known as the PIGS. In those countries, the bottom 10 percent’s incomes increased by about 1.7 percent more a year than those of the 10 percent at the top’.

I had missed this point when I first looked at the ‘Overview’ of ‘Divided We Stand’. When I looked at the relevant table, it seemed like a good idea to graph the data. The result is shown below.

The PIGS certainly stand out for their success in achieving relatively high rates of growth for those in the bottom 10% of the income distribution. As expected, the growth in average incomes of those at the bottom of the income distribution in the United States was substantially lower than for those at the top – but the same is also true of Sweden. This presumably reflects substantial economic reforms undertaken in Sweden since the mid-1980s.

The growth in incomes for those in the lowest 10% of the income distribution in Australia looks fairly good by comparison with most other countries, and the income growth that occurred is hopefully more likely to be sustained that for the PIGS.

The overall picture shown in the graph suggests a fairly loose relationship between the growth in incomes at the top and bottom of the income distribution. Is the relationship any closer between growth in incomes at the top and in the middle of the distribution?

The second graph suggests that there has been a fairly close relationship between growth in incomes at the top of the income distribution and those in the middle. Given all the talk about rising income inequality in the United States, I was surprised to see that the US does not stand out in terms of incomes at the top rising much more rapidly than those in the middle. What is all the fuss about? Are the researchers who view rising inequality in the US as something exceptional looking at more recent trends? Or are they jumping at shadows?


After some further reading, I am inclined to answer my questions as follows:

1.         Most of the fuss has been about increases in incomes of the top 1% in the US. The increase in share of the top 1% was relatively large by comparison with most other OECD countries. See Figure 12 of the ‘Overview’ of ‘Divided We Stand’.

2.        Growth in incomes of the top 1% has been highly volatile in the US. See Figure 2, of the Congressional Budget Office report: ‘Trendsin the Distribution of household Income Between 1979 and 2007’.

3.      The issue is whether the increase in the incomes of the top 1% is at the expense of the rest of the population. Various explanations have been given for the rapid increase in incomes at the very top of the distribution, but I don’t think a convincing case has been made that there has been systemic market failure. With the benefit of hindsight some remuneration experiments could be counted as failures, but it would be unreasonable to expect all market experiments to succeed. Failure of particular remuneration experiments doesn’t mean that the 99% would benefit from regulation of the remuneration of the 1%, or from higher taxation of the income of the 1%.  

Sunday, March 4, 2012

Is Australia's 'fair go' ethos under threat?

In his recent essay about the rising influence of ‘vested interests’ in Australia, Wayne Swan, the treasurer, notes that we Australians ‘always prided ourselves on being a nation that’s more equal than most – a place where if you work hard, you can create a better life for yourself and your family’ (‘The Monthly’ March 2012). He argues that this ‘fair go’ ethic is ‘under threat’ from ‘the rising power of vested interests’. He was not referring to the union movement, which has exercised extraordinary influence under the Gillard government. He was referring to wealthy people who have campaigned in recent years against a new resource rent tax and carbon taxes.

 Swan claims:
‘A handful of vested interests that have pocketed a disproportionate share of the nation’s economic success now feel they have a right to shape Australia’s future to satisfy their own self interest’.

An editorial in the Australian Financial Review (AFR, 3-4 March) contrasted the tone of Wayne Swan’s essay with that of an essay by Bob Carr, former premier of New South Wales, which was published in the AFR on the preceding day. The AFR noted:
‘Mr Carr’s thoughtful musings on the crisis of democratic socialism and the need for Labor to embrace the reform era of the Hawke-Keating era stand in stark contrast to Mr Swan’s belligerent swipe against private enterprise’.

Carr’s comments about the reforms of the Hawke-Keating era are worth quoting:
‘The best bet for Australian Labor might be to embrace and not shy away from the bold economic reform of the Hawke-Keating era. British Labor will sound absolutely inauthentic if it repudiates Blairism. In a similar spirit, Australian Labor cannot walk away from its legacy and is entitled to define itself as the party of economic liberalism, open markets and rising living standards’.

Bob Carr’s article was written before he knew that he was about to become Australia’s foreign minister. Unfortunately, it is not likely that he will be able to continue to write sensibly about Labor politics while in his new position.

The AFR editorial went on to suggest that Swan ‘is wedded to an outdated ideology’ and to claim that ‘Mr Swan is arguably the most left-wing treasurer since Jim Cairns’. (Jim Cairns was federal treasurer for a brief period in the 1970s.)

I rarely read newspaper editorials, let alone quote them, but that one seemed to me to be exceptionally good. There are, however, a couple of points that I would like to add.

My first point is that it is particularly obnoxious for a government representative to criticize people for trying to defend their wealth against confiscatory taxation. There may be a strong case for governments (state rather than federal) to obtain a larger share of resource rents on behalf of citizens, but it was outrageous for the federal government to seek to do this by changing the rules applying to existing mining projects. When an investment has been made on the basis that governments will take a share of rents according to a particular set of rules it is extreme opportunism (if not theft) to announce a sudden change in the rules which enable the government to take a larger slice of rents. In my view the miners are entitled to argue that such behaviour is contrary to Australia’s ‘fair go’ ethos.

My second point is that the tone Wayne Swan has adopted is counter-productive if his aim is to promote serious consideration of the issues associated with changes in income distribution. Swan refers to the recent OECD publication, ‘Divided We Stand: Why Inequality KeepsRising’. This report suggests that income inequality is likely to rise in countries like Australia in the absence of ongoing government involvement in extensive income redistribution.

The evidence on changing income redistribution poses some serious questions to those of us who are inclined to argue that governments can create widespread opportunities by just getting out of the way. It also poses the serious question for advocates of redistribution of how they propose to build widespread community support for removal of disincentives in the tax-welfare system. In that regard, Wayne Swan’s performance could only be described as abysmal.