How useful is the WELLBY concept in assessing the benefits and costs of alternative policies?

 

There are good reasons why public policy discussions often revolve around the benefits and costs of alternative policies. Discussions that begin with the consideration of rights often require participants to acknowledge conflicting rights and to weigh up consequences in a search for the principles that can most appropriately be applied.

For example, consider what followed when I suggested recently in a discussion of the merits of lockdowns to counter the spread of COVID19 that such policies should be assessed against the principle that individuals have a right to direct their own flourishing, provided they do not interfere with the similar rights of other people. The latter part of that assertion implies a willingness to consider whether infected people who spread disease are interfering with the rights of others. At an early stage of the discussion, I acknowledged that it would be a step too far to insist that everyone has the right to recklessly endanger the lives of others. I argued that there should nevertheless be a presumption in favour of freedom, and that those who advocate restriction of freedom should be required to demonstrate that the benefits clearly exceed the costs.

That illustrates how the discussion of benefits and costs tends to rule the roost in civilized discussions of public policy. An exchange of different views about rights can be enlightening, but endless repetition of conflicting assertions about rights does not qualify as civilized discussion in my view.

A WELLBY (or Wellbeing Year) is equal to a one-point increment on a 10-point life satisfaction scale. If you assessed your level of life satisfaction as 8/10 in 2019 and 7/10 in 2020, that would be a decline of one WELLBY.

I began thinking about the WELLBY concept while considering how it is possible to measure the costs and benefits of lockdowns, but in this article, I will focus on the usefulness of that concept rather than on the question of whether benefits of lockdowns could ever exceed the associated costs.

Assessing the psychological cost of lockdowns

Indicators of subjective well-being are obviously relevant in assessing the psychological costs associated with policies that require people to stay at home. Available evidence suggests that lockdowns caused a decline in average life satisfaction of about half a point in the UK and similar countries in the
period to March 2021. On that basis, Paul Frijters, Gigi Foster, and Michael Baker estimate that lockdowns cause loss of life satisfaction to the general public in the U.K. of 41,667 WELLBYs per million citizens for each month of lockdown. This estimate is in Chapter 5 of their book, The Great Covid Panic, 2021.

I think that is an appropriate use of the WELLBY concept. If anyone knows of a better way to assess the psychological costs of lockdowns, I would be interested to know what it is.

Frijters, Foster, and Baker incorporate several other items in their assessment of the costs of lockdowns. I will consider one of those later, but I want to turn now to use of the WELLBY concept in the assessment of the main hypothetical benefit of lockdowns, namely lives potentially saved.

Assessing the value of a life saved

Richard Layard and Ekaterina Oparina have published a provocative article using a WELLBY approach to assess the monetary value of preventing the loss of one year of human life (Chapter 8 of World Happiness Report, 2021).

Layard and Oparina begin their discussion by observing that the average WELLBY is 7.5 in advanced countries. On that basis, they claim that preventing the loss of one year of the life of one person saves 7.5 WELLBYs.

The authors draw upon information on the relationship between income and life satisfaction in order to assess the monetary value of that loss. After some discussion of relevant research, they suggest that a coefficient of 0.3 is an appropriate measure of the impact on life satisfaction of a unit change in absolute log income. With average income of $30, 000, the loss of $1 is equivalent to 1/100,000 WELLBYs (0.3/30,000). It follows, they suggest, that “we” should be willing to pay up to around $750, 000 to save a year of life (7.5 WELLBYs).

Layard and Oparina point out that the $750, 000 would be shared over the whole population. Nevertheless, it still seems an extremely large sum to pay to prolong a life by just one year.

One possible source of error is that life may have no value for people with very low life satisfaction, for example those with a rating less than 2/10. If you assume that a life year is equivalent to 5.5 WELLBYs (7.5 minus 2.0), the estimated sum that “we” should be willing to pay to prolong life by one year is reduced to $550, 000. That still seems implausibly high.

The estimate could be further reduced by taking account of the fact that the people who are most vulnerable to COVID19 often have pre-existing ailments that would tend to reduce their life satisfaction, and many of those in nursing homes would be unlikely to live another year in any case.

However, let us return to the question of whether $550,000 is a plausible estimate of what “we” should be prepared to pay to prolong by one year the life of a person with an average life satisfaction rating. An alternative way to approach the issue of determining the monetary value of a year of life is to consider estimates of the impact of changes in healthy life expectancy on average life satisfaction. Regression analysis suggests that the addition of one year to healthy life expectancy adds only 0.033 to average life satisfaction (Table 2.1, World Happiness Report, 2019). The income loss providing an equivalent loss of life satisfaction is only $3,300 (0.033*100,000). That strikes me as an implausibly low estimate of the value of a year of life.

My view of what is a plausible estimate of the value of one year of life is not based solely on my own gut feelings. The assumed value of a life year in cost-benefit analysis typically ranges from $50, 000 to $250, 000. Those assumptions are based on surveys asking people how much they would be willing to pay to extend their lives and estimates of amounts people need to be paid to accept jobs involving greater risks to life.

Estimates of the value of a year of life within that range seem to be broadly consistent with community expectations. Some groups may lobby for lives to be valued more highly in assessing whether life-saving drugs should be subsidized by governments. However, I don’t see large numbers of people suggesting that they would be willing to pay higher taxes to fund that.

There seems to me to be a fundamental problem in attempting to assess the value of a life-year from the relationship between average income and average WELLBYs. As I explain in Freedom, Progress, and Human Flourishing, psychological well-being is just one of the basic goods of a flourishing human. When you ask individuals open-ended questions about how they are faring, their responses are not confined to the extent that they are “satisfied” with life. They are likely to talk about whether they are achieving their aspirations, the state of their health and their personal relationships. If you ask a person who already has high life satisfaction why they aspire to earn a higher income, they are not likely to claim that they expect a higher income to enable them to become more satisfied with their own life. They are more likely to say that they want to put some money aside for various reasons, for example to assist with education of children or grandchildren, or to have something to fall back on in the event of illness.

If an individual is faced with a decision about whether to use accumulated wealth (or to mortgage their house) to purchase an expensive drug that might prolong their life for a year, the quality of that extended life (WELBYs) is not the only factor that they are likely to consider. The choice they make may well give consideration to their desire to improve opportunities available to the next generation of their family. There is an intergenerational choice involved in placing a value on an additional year of life.

What value should be placed on the lives of potential humans?

Frijters, Foster, and Baker include among the costs of lockdown the shutting down of the in-vitro fertilization (IVF) program during lockdowns in the UK because it was deemed to be a nonessential service. This resulted in about 30 fewer IVF births per million citizens per month of lockdown.

The cost of disruption of the IVF program is not critical to the authors’ conclusion that the cost of lockdowns exceed the benefits. Nevertheless, in my view there is a strong case for it to be taken into account. Potential parents clearly place a high value on the new lives that the program makes possible.

However, the methodology which Frijters, Foster, and Baker use to estimate the cost of disruption of the IVF program is a straightforward application of the WELBY concept to value lives. They calculate that each of these potential humans could be expected to enjoy 480 WELLBYs during his or her life – each is assumed to have a value equal to 6 WELLBYs and to live on average for 80 years. With the loss of 30 IVF babies per month, that amounts to the loss of 14,400 WELLBYs worth of human well-being per month per million citizens.

The reasoning is impeccable if you accept the utilitarian assumptions associated with use of the WELLBY concept to measure the value of a human life. Within that framework, if government policies prevent potential humans from being born, that diminishes the sum of human happiness by the amount of happiness they would have enjoyed during their lifetimes.

I have already indicated that I don’t accept that people value their own lives exclusively on the basis of WELLBYs. However, if I have not yet persuaded you to reject the WELLBY approach to evaluation of lives, you may wish to consider the following possible outcome of applying that approach.

Let us suppose that a government is considering a ban on all forms of contraception and seeks the services of some utilitarian advocates of maximization of human happiness to evaluate the costs and benefits of the proposal. It seems reasonable to predict that the utilitarians would conclude that the additional births resulting from the policy change would result in a large net increase in WELLBYs, and therefore an increase in the sum of human happiness. The more, the merrier they might say!

Conclusions

The WELLBY concept has a useful role to play in evaluation of some policies that have an impact on psychological well-being.

However, the valuation of lives according to the number of WELLBYs individuals might enjoy seems to be at variance with the approach that individuals take in making choices in relation to extension of their own lives. That approach to valuing lives is widely at variance with the approach most people in advanced countries adopt in considering the value of potential lives of the many additional humans that they could bring into the world if they felt inclined to do so. It counts the lives of potential people as having equal value to the lives of the living.

The WELLBY approach to valuation of human life should be rejected.

Postscript

A survey conducted by UBS has provided relevant information on the proportion of wealth that investors are willing to sacrifice for additional years of life. The survey covered 5,000 wealthy investors in 10 countries. On average, those with financial wealth in the $1 to $2 million range indicated that they were willing to give up 32% of their wealth for an additional decade of healthy living. That may seem a lot, but amounts to only $32,000 to $64,000 per annum when spread over 10 years.

Those figures are far lower than the $750,000 (discussed above) that an application of the WELLBY approach to life evaluation has suggested that “we” should be willing to pay to save a year of life.

Do political partisans make credible assessments of the views of their opponents?

 

The charts shown above suggest that some of the assessments that political partisans make of the views of their opponents are wildly inaccurate. The probability that a Democrat will consider that men should be protected from false accusations of sexual assault is higher than Republicans believe it to be, and the probability of a Republican accepting that racism still exists is higher that Democrats believe it to be. The organization which published the data makes the point that Americans have much more similar views on many controversial issues than is commonly thought, especially among the most politically active. My focus here is on why partisans make such large errors in assessing the views of their opponents.

Probability assessment is not always easy.

Steven Pinker included “a sense of probability” in his list of 10 cognitive faculties and intuitions that have evolved to enable humans to keep in touch with aspects of reality (Blank Slate, 220). Individuals obtain obvious benefits from an ability to keep track of the relative frequency of events affecting their lives. A capacity to reason about the likelihood of different events helps them to advantage of favorable circumstances and to avoid harm.

Pinker points out that our perceptions of probability are prone to error, but Daniel Kahneman has a much more comprehensive discussion of this in Thinking, Fast and Slow. Kahneman points out that even people who have studied probability can be fooled into making errors in assessing probability when they are led to focus unduly on information that appears particularly pertinent and to ignore other relevant information. He gives the example of a cab involved in a hit and run accident in the city in which 85% of cabs are Green and 15% are blue. A witness identifies the cab responsible as Blue, and the court establishes that he would be able to identify colors correctly 80% of the time under circumstances that existed on the night of the accident. What is the probability that the cab is Blue? Most people say 80%, but the correct answer, provided by Bayes’ rule, is about half that (Loc 3005-3020). People tend to make a large error because they overlook the fact that a high proportion of Green cabs means that there is a good chance that the witness has mistakenly identified a Green cab to be Blue, even though his observations are accurate 80% of the time.

Kahneman notes that people are more likely to make errors in assessing probability when they “think fast” rather than analytically. However, it is not necessary to understand and apply Bayes’ rule to solve problems such as the one presented above. A simple arithmetic example can suffice. If there were 1,000 cabs in the city, there would be 850 Green cabs and 150 Blue cabs. If we had no more information, the probability of a Blue cab being responsible for the accident would be 15%. We are told the witness saw a Blue cab and would correctly identify 80% of the 150 Blue cabs as Blue (i.e. 120 cabs) and would mistakenly identify 20% of the 850 Green cabs as Blue (i.e. 170 cabs). The total number of cabs that he would identify as Blue is 290 (120+170). The probability that the witness has correctly identified a Blue cab is 0.414 (120/290) or 41.4%.

Kahneman also makes a point about causal stereotypes. He does this by altering the example to substitute information that Green cabs are responsible for 85% of the accidents, for the information that 85% of the cabs are Green. Other information is unchanged. The two versions of the problem are mathematically indistinguishable. If the only information we had was that Green cabs are responsible for 85% of accidents, we would assess the probability of a Blue cab being responsible at 15%. As before, if we evaluate the witness information correctly, it raises the probability of a Blue cab being responsible to 41.4%.

However, when people are presented with the second version, the answers they give tend to be much closer to the correct one. They apparently interpret the information that the Green drivers are responsible for 85% of the accidents to mean that the Green drivers are reckless. That causal stereotype is less readily disregarded in the face of witness evidence, so the two pieces of evidence pull in opposite directions.

Political partisans don’t have much incentive to make accurate assessments of the views of their opponents.

The potential for errors in fast thinking and the impact of cultural stereotypes may account for much of the error of partisans in assessing the views of their opponents, as shown in the above charts. People do not have a strong personal incentive to ensure that they accurately assess the views of their political opponents. Potential errors do not affect their income and lifestyle to the same extent as, say, errors in the probability assessments they make relating to personal occupational and investment choices.

In addition, political partisans may not even see any particular reason to be concerned that they may be misrepresenting the views of their opponents.

Reasoning along those lines seems to me to provide a straightforward explanation for the prevalence of partisan conspiracy theories. Research by Steven Smallpage et al (in an article entitled ‘The partisan contours of conspiracy theory beliefs’) suggests that partisans know which conspiracy theory is owned by which party, and that belief in partisan conspiracy theories is highly correlated to partisanship. The authors conclude:

“Many conspiracy theories function more like associative partisan attitudes than markers of an alienated psychology”.

Extreme partisans tend to promote theories that discredit their opponents. Perhaps that is the way we should expect partisans to play politics in a society where many people think it is ok to “bear false witness” because they believe everyone has “their own truths” and objective reality does not exist.

We do not have to speculate that partisans are deluded or crazy when they hold firmly to improbable theories about their opponents in the face of contrary evidence. They are more likely to be ignoring the evidence to demonstrate loyalty to their party and its leaders.  

However, that doesn’t offer us much solace. Some of the conspiracy theories currently circulating seem similar to the false rumors that governments circulate about their enemies during wartime. Extremists among political partisans may be circulating those rumors with the intention of promoting greater political polarization and a breakdown of the values that have hitherto made it possible for people with divergent views to coexist peacefully.

Is increasing polarization inevitable?

Much depends on the attitudes of the majority of people who currently disinclined to spread rumors that they believe to be false and likely to promote social conflict. If people with moderate views make known that they expect political leaders to disavow false rumors about their opponents, they can encourage that to happen. Leaders of the major parties have an incentive to try to attract voters with moderate views away from opposing parties. If leaders disavow false rumors, partisans will tend to echo their views.

Is it possible to have sensible policy discussions about climate change?

 

Development of public policy depends to a large extent on sensible public discussion to filter out stupid proposals.  Climate change is no exception. The problem is that instead of having sensible discussions a lot of people just accuse one another of being deniers or alarmists, and use political stunts to advance or defend stupid policies.

It is easy to get the impression that most people can be classed as either deniers or alarmists, but surveys suggest to me that such extremists make up a relatively small proportion of the population of most countries. How many people get classified as deniers and alarmists is obviously influenced by the way these concepts are defined.

It makes sense to classify people as “deniers” if they claim climate change is “not a threat”. A survey by the Pew Research Center conducted in 2018 found that the percentages saying that climate change is not a threat vary substantially among the 26 countries included, from 21% in Nigeria to 3% in France and South Korea. Corresponding numbers were 16% in the U.S., 9% in Australia and 4% in Sweden.

The Pew survey found that in most countries a majority viewed climate change as “a major threat”, but it would be an exaggeration to label all those as alarmists. The people I describe as alarmists tend to say things like: “It is already too late to avoid the worst effects of climate change”. An international poll by YouGov, taken in 2019, found that people who say that vary from 20% of the population in France to 4% in Oman. Corresponding numbers were 10% in the U.S. and Australia, 8% in Sweden, 11% in Britain, and 6% in China.

False alarm

I was prompted to attempt to get a handle on the percentages of deniers and alarmists by my reading Bjorn Lomborg’s latest book, FalseAlarm: How climate change panic costs us trillions, hurts the poor, and fails to fix the planet. Lomborg sees climate change alarmism as a greater problem than denial. He suggests that the arguments of the deniers have been “thoroughly debunked” and approves of media refusing to give space to deniers. His main gripe is that media are “failing to hold climate alarmists to account for their exaggerated claims”.

However, it seems to me that different media outlets have different biases. Some pander to the prejudices of the noisy alarmists among their readers, while others pander to the noisy deniers. Unfortunately, the mass media no longer does much to promote sensible discussion of issues that have become politicized.

Lomborg’s book seems to me to advance a coherent viewpoint that could provide a basis for sensible discussion among people who are not wedded to extreme positions. His main points are as follows:

• Climate change is real. The amount of CO2 in the atmosphere affects global temperature.
• Global warming will have a negative impact on human well-being. Estimates of the likely damage from global warming by 2100 amount to a modest percentage of GDP (about 4%) if allowance is made for adaptation, fertilization (positive impacts of CO2 on crop yields and forest production) and the expanding bullseye effect (the tendency for more people to live in flood prone and fire prone areas).
• If all nations met their promises under the Paris Agreement, that would have only a small impact on global warming.
• With known technology and using the most efficient policy instrument to achieve Paris Agreement targets, the cost involved would be much higher (perhaps 3 times higher) than the expected benefits.
• There is potential for research and development to reduce the cost of green energy alternatives to use of fossil fuels. However, governments are not meeting the commitments they have made to expand relevant R&D activities.
• Carbon taxes and green energy innovation will not obviate the need for adaptation to a warmer climate over coming decades. Adaptation is a less costly option than attempting to reduce CO2 emissions to zero over the next few decades.
• Geo-engineering is worth researching as a backup plan to be used as required, e.g. if the West Antarctic ice sheet starts to melt precipitately.
• People in low-income countries will be better able to cope with the adverse impacts of climate change if they become wealthier. Holland and Bangladesh both have substantial areas of land below sea level, but Holland can afford infrastructure that enables it to cope better. 

 

My overall impression is that Lomborg has made a serious effort to focus discussion on things that are worth discussing. I have some reservations about his views, which I will mention below, but my initial focus is whether the book is generating useful discussion. I have found a couple of reviews by people who could be expected to challenge the argument that Lomborg advances.

Reviews

The first review is by Joseph Stiglitz, a Nobel prize winning economist. Stiglitz’s review was published in the New York Times. Rather than addressing the cost of current policies, Stiglitz appeals to an authority which he seems to view as infallible - an international panel chaired by himself and Lord Nicholas Stern – which apparently “concluded that those goals could be achieved at moderate cost”. I have not been able to find that conclusion in the report of his High-Level Commission, but I can’t claim to have read the document thoroughly. My brief reading left me with the impression that the costs will only be moderate if there is rapid progress in development of green technology. Stiglitz does not acknowledge that Lomborg advocates increased R&D for to promote more rapid development of green technology.

Stiglitz concludes by asserting:

“Lomborg’s work would be downright dangerous if it were to succeed in persuading anyone that there was merit in its arguments”.

Rather than engaging in sensible discussion, Stiglitz seems to me to be intent on using polemics to defend alarmism.

Surprisingly, there has been more sensible review in “The Guardian”. That review is by Bob Ward, who is associated with the Grantham Research Institute on Climate Change at the LSE. Ward combines his review of Lomborg’s book with a review of Michael Shellenberger’s book, Apocalypse Never. Ward’s remarks are somewhat offensive - he labels the authors as “lukewarmers”, promoting a “form of climate change denial”. Nevertheless, he manages to acknowledge that they make legitimate criticisms of alarmism by environmentalists. He agrees that the world should be investing more in helping poor people become more resilient to climate change. He also expresses sympathy for the view that nuclear power has a role to play in creating a zero-carbon energy system.

My reservations

The main problem I see with Lomborg’s argument relates to the use of GDP as a welfare measure. As well as the usual problems in the use of GDP in this way, there is the additional problem that many of the costs of adaptation are counted as making a positive contribution to GDP. For example, infrastructure investment to build walls to hold back rising sea levels is counted as part of GDP. As such adaptation investment comes to represent an increasing share of total investment, it will crowd out other investments that have potential to enhance human well-being.

This line of reasoning reinforces the importance of R&D that has potential to reduce the cost of alternative energy and hence to reduce the cost of mitigation. If it becomes less costly to pursue greater mitigation over the next few decades, that can obviously reduce the combined total of damage and adaptation costs over the longer term.

My other reservation relates to something that is not central to Lomborg’s argument, as outlined above, but is difficult to let pass. It is his endorsement of the proposition that “if everyone does a little, we’ll achieve only a little”. That seems to me to promote unwarranted pessimism about the likelihood of success of the polycentric approach promoted by Elinor Ostrom.

In a paper presented to the World Bank in 2009, Ostrom suggested that rather than wait for national governments to take concerted action, the best way forward was multi-layered action by individuals and firms, as well as by local, state, and national governments. The polycentric approach is messy, but there are hopeful signs emerging that it is developing sufficient momentum to facilitate effective action. The individual actions of environmentally conscious individuals may not add up to much by themselves, but they seem to be inducing an increasing number of firms to modify their behaviour. Some firms are presenting an environmentally friendly image without doing much to back it up, but others seem to be actively planning for a carbon-free future. The announcement last year by the world's largest asset management firm, BlackRock, that it will put climate change at the centre of its investment strategy, seems to me to signify a substantial change in the way the game is being played. If enough firms adopt R&D, innovation and investment strategies based on expectations of a carbon-free future, those expectations will tend to become self-fulfilling.

Bottom line

Lomborg’s book is not likely to persuade many climate change alarmists (or deniers) to modify their views, but it provides a basis for the rest of us to have sensible discussions about policy options.

How can governments mitigate the impact of COVID-19 on human flourishing?

This is an appropriate question for economists with an interest in public policy to be considering. It recognizes a possible role for governments and recognizes that an approach focused on human flourishing is likely to be more appropriate than one focused entirely on reducing the death rate or reducing adverse impacts on GDP.

The possible role for government stems from the perception that people who are most vulnerable would not able be to protect themselves adequately without some government intervention. People who know they are vulnerable have a strong incentive to practice social distancing, but personal circumstances often make that difficult. Without the threat of coercion, it is unlikely that we will see the degree of social distancing necessary to reduce the rate of spread of the virus. In that event, hospital services are likely to be over-whelmed by the number of people requiring treatment. 

As always, with government intervention, there is a risk that the cure will end up worse that the disease, but the risk is probably worth taking in this instance.

What is the appropriate indicator of human flourishing to be used as a policy objective? There isn’t just one! The prime candidates, per capita GDP and average life satisfaction both suffer from the same flaw – they don’t account for the impact of early death on the well-being of the dear departed. We should continue to consider the impacts of policies on death rates as well as their impacts on the well-being of the living.

Per capita GDP was never intended to be a measure of well-being, but it is relevant. Many factors that impinge on well-being – such as the ability of people to afford food, housing and health care – are influenced by per capita GDP levels. However, per capita GDP cannot account for impacts of coercive policy interventions, such as enforced home confinement, on psychological well-being.

Average life satisfaction seems to be a reasonable indicator of the average psychological well-being of groups of people. It is a poor indicator of economic and social progress because it doesn’t account for the extent that members of one generation perceive themselves to be better off, or worse off, than members of preceding generations. Fortunately, that deficiency is not pertinent for present purposes.

There is some evidence that lock-down and GDP decline have potential to have substantial negative impacts on average life satisfaction.

An article entitled ‘Health, distress and life satisfaction of people in China one month into the COVID-19 outbreak’, has recently been published by Stephen X Zhang, Yifei Wang, Andreas Rauch, and Feng Wei. The article is a pre-print and has not been subjected to peer review, but no major flaws are obvious to me. As might be expected, the study suggests that the life satisfaction of people with chronic medical conditions was adversely affected in locations with severe outbreaks of COVID-19.

However, the life satisfaction of people who exercised a lot was also adversely affected in locations with more severe outbreaks, suggesting frustration at restrictions imposed. Those who were able to continue to work had higher life satisfaction than those who had stopped work, with people who were able to work “at the office” having higher life satisfaction than those who worked at home.

The relationship between per capita GDP and average life satisfaction is complicated. Average life satisfaction is relatively high in countries with high per capita GDP, but tends to grow very slowly, if at all, as per capita GDP rises further in such countries.  However, there is some evidence suggesting that when per capita GDP falls in high-income countries, this is likely to be accompanied by substantial declines in average life satisfaction. Austerity in Greece reduced per capita GDP by about 26% over the decade to 2017 and was accompanied by a decline in average life satisfaction of about 20% (GDP data from OECD and life satisfaction data from World Happiness Report, 2020).

Hopefully, COVID-19 will result in much smaller declines in per capita GDP than in Greece. and economic recovery will be much more rapid.

What are the trade-offs involved in shut-down? The human welfare implications of shutting down large parts of an economy for an extended period are enormous. However, a short close-down of all those activities in which social distancing is difficult might be preferable to a less severe and more prolonged lock-down. Tomas Pueyo’s discussion of the hammer and dance (see graphic above) makes sense to me, even if the Hammer needs to last more than 3-7 weeks.

Social distancing and lock-down is an investment in buying time. Buying time for what? It can’t be for development of a vaccine. That will take too long!

It makes sense to buy time to build up the stock of respirators, ICU beds etc. to help cope with an influx of hospital patients needing treatment.

It also makes sense to buy time to obtain testing equipment that can give accurate results within a short time frame. Speedy and accurate testing has potential to enable infectious people to be detected and temporarily taken out of circulation, so that the rest of the population can return to something like normal life.

This post has not yet referred to stimulus packages. I support giving money to people to help them survive a crisis that is likely to depress aggregate demand. Please note, however, that what people can buy depends ultimately on what is produced. When an economy closes down the necessities of life tend to become scarce.

My conclusions:

• Policies to mitigate COVID-19 should be considered from a human flourishing perspective rather than solely in terms of either minimizing deaths or minimizing damage to an economy.

• The best policy seems to be to buy time by enforcing strict social distancing for a relatively short period rather than less strict distancing for a longer period. The policy aim should be to buy enough time to enable hospitals to cope better with an influx of patients and to put in place a testing regime that can enable life to return to something like normal as soon as possible.

Postscript: May 6, 2020

There isn’t a great deal of substance that I would like to change in this article with the benefit of 6 weeks hindsight. The graphs showing possible outcomes in terms of exponential growth and bell curves still look right. Some countries, including Australia, have moved along to the end of “the hammer” phase of the bell curve and are beginning the tricky “dance”. Perhaps infection rates may be greatly under-estimated and there is now considerable herd immunity, but I doubt it.

Although the governments of some countries are behaving abominably, at this stage I am confident that in Australia the intervention ‘cure’ (palliative might be a better word) will not be worse than the disease. To a large degree, the shutdown occurred spontaneously, with governments playing catchup, as large numbers of people stayed home, and businesses shut down. There has been some coercion, e.g. shutting of beaches in metropolitan areas and travel restrictions. Some police have risked public goodwill by excessively diligent (stupid) enforcement, e.g. picking on individuals sunning themselves in parks many metres away from any other human. Most people seem to be following social distancing rules because they accept that it is a sensible precaution to take for their own benefit and/or the benefit of others.

From an analytical perspective, I have been reminded that it is possible to incorporate deaths and economic considerations in a common metric if you try hard enough. Richard Layard, Andrew Clark et. al. have presented a WELLBY analysis that seeks to do that in a paper entitled, ‘When to release the lockdown: A wellbeing framework for analysing costs and benefits’. The authors use estimates of wellbeing-years (based on life satisfaction surveys) to balance the impact of policy decisions upon the number of deaths from COVID-19 against incomes, unemployment, mental health, public confidence and other factors (including CO2 emissions).

Their analytical framework looks elegant, but I am concerned about the implied policy context. It seems to me that this kind of analysis is more relevant to decision-making by a benevolent dictator (one applying utilitarian philosophy) than to a society where government should see its prime responsibility as protecting the lives and liberty of citizens.

Another article that has been brought to my attention is: ‘Some basic economics of COVID-19 policy’, by Casey Mulligan, Kevin Murphy and Robert Topel. This article looks at the trade-offs we face in regulating behavior during the pandemic.  It uses conventional cost benefit analysis to consider several possible policy objectives, including buying time and limiting the cumulative cost of a pandemic that will ultimately run its course. They conclude:

“The key difference in terms of the optimal strategy is whether our focus is on keeping the disease contained. If the objective is to buy time, then our analysis favors early and aggressive intervention. This minimizes the overall impact … . In contrast, limiting the cumulative cost of a pandemic that will ultimately run its course argues for aggressive policies later, when they will have the biggest impact on the peak load problem for the health-care system and when they will have the greatest impact on the ultimate number infected”.

The authors conclude by listing some simple economic principles to guide how public policy should proceed when faced with a new but poorly understood pandemic. Those principles include buying time upfront, and using that time wisely to gather information to implement a screen, test, trace and quarantine (STTQ) policy. They suggest that both the “buy-time” and long-term containment strategies will have to be based on an effective STTQ policy.

The approach adopted by Mulligan et. al. of considering the nature of trade-offs and suggesting policy principles is more to my liking. If these authors had used their conventional cost benefit analyses to provide specific recommendations of the kind provided by Layard et. al. I would raise the same concerns about the implied policy context of advising a benevolent dictator, rather than informing a democratic political process.

I have misgivings about the valuation of life in both studies, but have not considered the relative merits of each approach, and have nothing better to offer other than directly considering the economic cost of saving lives under alternative strategies.  

"How dare you?"

I have stopped laughing about Greta Thunberg’s performance at the United Nations a few months ago.

At the time, I was amused by her quixotic antics in attacking world leaders. People who think they can change the world by staging tantrums do not deserve to be taken seriously. It was predictable that Greta’s outburst would have a negligible impact on climate change policies.

I was also amused by Greta’s misconceptions about the relationship between economic growth and climate change.

On reflection, however, those misconceptions are no laughing matter. They are more widely held than I had imagined, including among some people who have had a great deal more education than Greta. By making economic growth the villain, climate activists seem likely to antagonize many of the people who would like more action to be taken to reduce greenhouse gas emissions.

Global climate change is perceived to be a serious problem by a high proportion of the population in many different countries. However, there is much less support for action to be taken to limit greenhouse gas emissions. The obvious obstacle is the additional cost to consumers of transition to alternative energy sources (including the cost of energy storage and backup to ensure reliable supplies). The advocates of zero economic growth add another obstacle by telling people they will have to make huge changes in their lifestyles to mitigate climate change. The lifestyle changes required for adaptation may seem preferable to many people.

The nature of economic growth

Misconceptions about the relationship between economic growth and climate change stem largely from ignorance about the nature of economic growth.

When economists talk about economic growth, defined as an increase in the amounts of goods and services produced, some environmentalists just think of increases in the amount of stuff they don’t like. A little further thought might enable them to acknowledge that much additional stuff is being produced these days under environmentally friendly conditions. They might even be particularly fond of some additional stuff e.g. organic food, solar panels, electric cars and batteries. There are also some services they might like, such as health and education. 

Greta and her followers are probably concerned that economic growth requires us to dig up more and more natural resources until there are no more to be discovered. If that was true, it would be easy to understand why they might see endless economic growth as a fairy tale. However, growth in capital stock - created by transforming natural resources into equipment, buildings and infrastructure - typically accounts for only a small proportion of economic growth. In the 1950s, research by Robert Solow, a Nobel prize-winning economist, showed that only one-eighth of the increase in gross national product per man-hour in the United States between 1909 to 1949 could be attributed to increased capital stock. The remaining seven-eighth, which became known as the Solow residual, was attributed to technical change. Subsequent research has shown part of the Solow residual to be associated with improvement in labour skills, with the remainder, often described as total productivity growth (or multifactor productivity growth) being attributed to innovation, technological progress and the advance of knowledge.

Economic growth will probably end one day, but there doesn't seem to be anything inherent within the growth process that must bring that about. How do Greta and her followers propose to end economic growth? Do they propose to require people to take the benefits of technological progress in the form of more leisure, rather than more goods and services? Or do they propose to stop the advance of knowledge and innovation? 

The former approach seems more likely. It is certainly not unprecedented in human history for the advance of knowledge to come to a virtual standstill for long periods. However, it would be surprising to see the environmentalists of wealthy countries advocate policies to make that occur.

Environmental impacts of growth

If economic growth is largely about innovation, technological progress and the advance of knowledge, does it necessarily have adverse environmental impacts?  Of course not! In recent years, a significant amount of research, development and innovation has been directly related to development of alternative energy or other environmentally friendly activities.

Much of the other innovation that has occurred over the last decade or so - for example, improvements in communication technology - seems to have been benign in terms of its environmental impacts. It is possible to think of technological innovations that have raised environmental concerns, e.g. fracking and genetically modified crops, but that could hardly justify the blanket ban on innovation that is implicit in a zero economic growth scenario.

My view of growth

At this point some readers might have gained the impression that I am an advocate of endless GDP growth. That is not so. My reservations about GDP as a measure of well-being, and of GDP growth as a societal objective have been on display in articles I have written over the past 15 year (for example one on the priority given to economic growth in Australia, and one on the concept of Gross National Happiness).

As discussed previously on this blog, I advocate growth in opportunities for human flourishing - that is, growth of opportunities for individuals to live the lives that they aspire to have. If increasing numbers of individuals choose a lifestyle involving stable incomes and more leisure to one with rising incomes, I can see no reason to object (unless they want me to subsidize their lifestyle choice). In my view, there is certainly no case for governments to require or induce people to work harder or longer to foster growth of GDP.

However, it seems likely, even in high income countries, that for the foreseeable future the aggregate outcome of choices freely made by individuals as consumers and producers of goods and services will continue to involve economic growth. That outcomes seems likely, even in the presence of the minimal restrictions on individual freedom are necessary to achieve widely accepted environmental goals.

Those who urge the introduction of policies to stop economic growth are contemplating a great deal more interference with the rights of individuals to manage their own lives than could possibly be justified to pursue widely accepted environmental goals.

Bottom line

Despite substantial reductions in the cost of alternative energy that have occurred over the last decade or so, the cost of transition to alternative energy still seems to be a major obstacle to effective international action to reduce greenhouse gas emissions. Those who make the false claim that economic growth is incompatible with widely accepted environmental objectives are adding a further obstacle to effective international action.

Instead of frightening people by urging governments to impose huge changes in lifestyles on citizens, perhaps environmental activists could pursue their goals more effectively by making a case for further government funding of research to help make alternative energy more affordable.

Are values opposed to virtues?

In an article recently published in “The Australian”, Peter Kurti, a senior research fellow at the Centre for Independent Studies, noted:

“Unease is growing in Australia that something has changed for the worse in our live-and-let-live culture”.

The context of his comment is the “opprobrium and venom” that dissent from “prevailing new orthodoxies” about gender and sexual orientation seems to attract. The author suggests this has contributed to “the sense that the common bonds of civility that helped to build mutual trust in our society are under strain”.

I concur with those sentiments. They are consistent with views recently expressed on this blog: Does Israel Folau deserve support from advocates of free speech?

However, the headline of Kurti’s article “Israel Folau: Moral compass all askew as virtue is eclipsed by values” seems to me to be codswallop. Unfortunately, the headline accurately reflects Kurti’s explanation for the fracturing of our culture in terms of what he describes as “the eclipse of virtue by values”.

It is difficult to see how values can be opposed to virtues in terms of common usage of those terms in discussions of ethics. The Concise Oxford defines the terms as follows:

Virtue: “moral excellence, uprightness, goodness”; “the seven cardinal virtues”.

Value: “one’s principles or standards, one’s judgement of what is valuable or important in life”.

Kurti makes values appear to be opposed to virtues by claiming that values “are simply emotional statements about personal beliefs, feelings or attitudes”. He claims that values “cannot be normative because it is impossible to erect any shared meaning on the foundation of something that is personal and subjective”.

Those claims are clearly incorrect. For example, when Friedrich Hayek writes about the “values of a free civilization” he is not referring merely to emotional statements about personal beliefs, feelings or attitudes. What Hayek and others have written about shared values is clearly closely related to norms of behaviour.

Kurti doesn’t seem to recognise the existence of shared values. His constructivist perspective, evident in use of the term “erect” when discussing the possibility of shared meaning, has apparently made it impossible for him to comprehend that the common values of an open and free society could evolve spontaneously as individuals pursue what is important in their lives.

Perhaps what Kurti was intending to convey is that the common bonds of civility are fracturing because people are increasingly adopting personal beliefs, feelings and attitudes that are inconsistent with common bonds of civility. So, why does he seek to discredit values language?

I was hoping that question might be answered by reading Kurti’s recently published CIS paper, entitled Cracking Up? Culture and the Displacement of Virtue. No such luck! In that paper, Gertrude Himmelfarb and Iain Benson are quoted as asserting that values language rejects the idea of shared moral goods, but they are no less wrong about that than Peter Kurti.

I agree with much of what Kurti writes about the importance of the traditional virtues. However, when Kurti refers to virtues he is referring only to the traditional virtues. I think that poses a problem for him. He claims “prevailing new orthodoxies” exist, so he must surely acknowledge that the people who subscribe to those new orthodoxies see political correctness as a virtue.

In my view it is probably an overstatement to claim that the new orthodoxies are “prevailing”. But it is impossible to deny that there has been a shift in what many people perceive to be virtuous that is inextricably linked to a shift in their values.

There is a more fundamental problem is asserting that cracks appearing in our live-and-let-live culture can be mended by appealing to the traditional virtues. The traditional virtues have been acknowledged for thousands of years, but our live-and-let-live culture has only recently evolved.  Freedom of religion has had a firm legal basis in only a few countries for only a couple of centuries. The idea that members of minority religions should not be discriminated against has been a widely shared value and accepted norm of behaviour for less than a century in most western countries, including Australia. Our live-and-let-live culture, with harmonious collaboration between people of different religions, ethnic backgrounds and gender in work and community organisations, has only been in existence for a few decades, despite the lip service paid to civility in earlier times. Live-and-let-live has been inclusive of LGBT people for an even shorter period.

The shared values underlying our live-and-let-live culture include freedom of expression, tolerance and politeness.  The norms of behaviour associated with these shared values enable people to obtain mutual benefit from working, playing sport and socializing with people whose attitudes and behaviours they disagree with, and in some instances may even consider to be immoral.

The main threat to our live-and-let-live culture comes from those who insist that to enhance social harmony people should exercise much greater restraint in what they say and publish to avoid the possibility of giving offence to members of the religious, ethnic, gender and LGBT groups pandered to by identity politics. This gives rise to the potential for a return to tribal values as members of an increasing number of individual groups abandon shared values and threaten social disharmony in order to redress perceived disadvantages or to obtain advantages over others. 

The most obvious and straight forward way to avoid a return to tribal values is for supporters of our live-and-let-live culture to make their views heard whenever the shared values of that culture come under threat from those who take offence unreasonably. A return to tribal values can be avoided if enough people of goodwill continue to support the rights of others to express views they disagree with.  

How does skin in the game help solve the Black Swan problem?

As I was reading Skin in the Game, Nassim Taleb’s latest book, the thought crossed my mind that the author might classify me as an IYI (intellectual yet idiot). He puts economists in the IYI category along with psychologists.

Taleb writes: 

“Knowing ‘economics’ doesn’t mean knowing anything about economics in the sense of the real activity, rather than the theories … produced by economists”. 

I agree. Some economists know little about the real world.

Despite his low opinion of economists, the author acknowledges that some of the economists I admire, including Friedrich Hayek, Ronald Coase and Elinor Ostrom, had useful insights about the real world. He even suggests that Paul Samuelson made a useful contribution by pointing out that people reveal their preferences in their market behaviour rather than in what they say.

Rather than viewing Nassim Taleb’s offensive anti-intellectualism as evidence that he suffers from SFB, I think economists and psychologists should view it as a clever ploy to attract the attention of their students. I hope Taleb succeeds, and also hope that his book helps students to pose difficult questions for some of their professors.

There is some irony in the fact that Taleb has a low opinion of intellectuals, since Daniel Kahneman views Nassim Taleb as “one of the world’s top intellectuals”. Kahneman, a psychologist, won the Nobel prize for economics, largely for his research on asymmetry in the way people value potential gains and losses in making decisions. Taleb is critical of that research.

The question I raised at the outset was prompted by the following passage:

“Skin in the game helps to solve the Black Swan problem and other matters of uncertainty at the level of both the individual and the collective: what has survived has revealed its robustness to Black Swan events and removing skin in the game disrupts such selection mechanisms. Without skin in the game, we fail to get the Intelligence of Time".

It is worth trying to take that apart to understand the reasoning behind it.

Skin in the game is about more than just sharing in the benefits of an activity. It involves symmetry and reciprocity – paying a penalty if something goes wrong as well as sharing in the rewards for risk taking.

Most people who provide us with goods and services still pursue occupations where they have skin in the game. The problem is that many of the people who don’t have skin in the game - for example, politicians, bureaucrats, bankers and university professors - occupy positions where their mistakes can have far-reaching consequences.

The Black Swan problem arises when we ignore extreme events – potential disasters - that occur infrequently. Taleb’s main point is that there are some risks that we can’t afford to take even though there is a low probability that they will occur at any point in time. His book, The Black Swan, was published in 2007 and made him famous following the 2008 financial crisis. Taleb contends that banks and trading firms are vulnerable to hazardous Black Swan events. The bank blow-ups occurred in 2008 as a result of hidden and asymmetric risks in the financial system.

At the level of the individual, skin in the game helps to solve the Black Swan problem because it helps people to focus on their need to survive in order to succeed. Taleb argues for profiting from risk-taking that doesn’t threaten survival. He points out that Warren Buffet made his billions by picking opportunities that passed a high threshold, rather than by applying cost benefit analysis.

At the collective level, skin in the game helps to solve the Black Swan problem because it requires decentralization of decision-making. Under a decentralized system the costs of the mistakes made by individuals are borne by those individuals, without necessarily affecting other participants. Centralized systems are exposed to the Black Swan problem because they can only be run by people who are not directly exposed to the cost of errors.

What has survived has revealed its robustness to Black Swan events. That applies to ideas, institutions, technologies, political systems, procedures, intellectual productions, car models, scientific theories etc. The only effective judge of things is time, because time is equivalent to disorder. The longer things survive, the more likely it is that they will have survived Black Swan events.

Removal of skin in the game disrupts selection mechanisms. When people have skin in the game they are less likely to reject ideas that have withstood the test of time in favour of new ideas that that have been published in peer-reviewed journals. A lot of findings published in peer reviewed journals fail subsequent replication tests.  

Without skin in the game, we fail to get the Intelligence of Time. Time removes the fragile and keeps the robust. The life expectancy of the nonfragile lengthens with time. Taleb writes:

The only definition of rationality that I’ve found that is practically, empirically, and mathematically rigorous is the following: what is rational is that which allows for survival."

I think Nassim Taleb is correct in his view that skin in the game helps to solve the Black Swan problem. Unfortunately, however, when it is comes to consideration of potential Black Swan events that threaten the survival of humanity, the political systems we have inherited do not ensure that political leaders have enough skin in the game for their minds to focus appropriately. Political leaders focus on their survival at the next election rather than on the survival of humanity. It is up to citizens who are concerned about potential Black Swan disasters to initiate appropriate action themselves.

What should be done about echo chambers in the social media?

Why bother reading a book by Cass Sunstein which suggests that echo chambers in the social media are becoming a problem for democracy and that something should be done about them? That was a question I had to ask myself before deciding to read Sunstein’s recently published book, Republic: Divided Democracy in the Age of Social Media.

The people who are likely to be most enthusiastic about reading this book will be concerned about echo chambers already, and be fans of Sunstein. I was already concerned about echo chambers before reading the book, but reading other books by Sunstein did not induce me to join his fan club. From his interview about this book with Russ Roberts on Econ Talk, I thought some of the views presented would be challenging. 

I was in no hurry to read the book.

That illustrates a problem with echo chambers. Many of us have a tendency to avoid being challenged even when there is potential to learn something useful from people who have opposing viewpoints. I only read the book because I have recently been thinking and writing about the potential benefits of listening to opposing viewpoints.

The book was worth reading to help me clarify my own views. In summary, Sunstein suggests: 

“to the extent that people are using social media to create echo chambers, and wall themselves off from topics and opinions that they would prefer to avoid, they are creating serious dangers. And if we believe that a system of free expression calls for unrestricted choices by individual consumers, we will not even understand the dangers as such”.

The serious dangers that Sunstein is referring to include group polarisation, the spreading of falsehoods within echo chambers, a high degree of social fragmentation and greater difficulty of mutual understanding.

The author doesn’t claim that this is currently the general pattern, or that group polarisation and cybercascades are always bad. He recognizes that it is sometimes good for a perception or point of view to spread rapidly among a group of like-minded people. His claim is that group polarisation can, nevertheless, be a significant risk even if only a small number of people choose to listen and speak solely with those who are like-minded. Enclave deliberation can cause members of groups to move to positions that lack merit e.g. terrorist agendas. “In the extreme case, enclave deliberation may even put social stability at risk”.

Turning to the second part of the quoted passage, readers may wonder how Sunstein can argue that a system of free expression can be consistent with regulation of consumer choices.  His argument seems to rest on two propositions:

·         First, free speech is not an absolute – despite the free speech guarantee in the U.S. constitution, government is permitted to restrict speech in various ways e.g. attempted bribery, criminal conspiracy, child pornography.

·         Second, the free speech principle should be read in light of the commitment to democratic deliberation rather than consumer sovereignty. From the perspective of supporting democratic deliberation, regulation of television, radio and the Internet may be permissible to promote democratic goals.

I’m uneasy about the second proposition. The U.S. Supreme Court would presumably disallow legislation which purported to support democratic deliberation in a manner that conflicted seriously with fundamental freedoms. In parliamentary systems that have no constitutional guarantees of liberty, however, legislative action to support democratic deliberation could be far-reaching and ideological. For example,  it could mandate coverage in school curriculums of the foundations of democracy in the history of western civilization, or alternatively, its foundation in the history of protest movements and revolutions.

The purpose for which Sunstein seeks government action to support democratic deliberation is to ensure a measure of social integration by promoting exposure of people to issues and views that might otherwise escape their attention. He writes:

“A society with general-interest intermediaries, like a society with a robust set of public forums, promotes a shared set of experiences at the same time that it exposes countless people to information and opinions that they would not have sought out in advance. These features of a well-functioning system of free expression might well be compromised when individuals personalize their own communications packages—and certainly if they personalize in a way that narrows their horizons”.

I support those sentiments  but I am wary of government intervention in support of them.  Seemingly benign government action in support of public forums can be counterproductive. I have in mind particularly the Q&A program of Australia’s public broadcaster. This is a taxpayer funded public forum which exposes people to opinions they would not seek to be exposed to. On issues that have become politicized, the people watching the show might be entertained by the antics of those presenting opposing views but are unlikely to have gained a better understanding of the issues.  

There are already many public forums on the Internet. If people choose to join forums that don’t welcome dissent from prevailing views that is akin to people avoiding public places where public demonstrations are held. That choice should be respected. 

If a growing proportion of the population chooses to spend an increasing proportion of their time echo chambers rather than open forums, that is a cultural problem with potential implications for democratic deliberation.  it should be dealt with as a cultural problem rather than a public policy problem.

Those of us who are concerned that echo chambers are becoming more prevalent should remember that sectarian echo chambers have warped democratic deliberation in the past. How were those religion-based echo chambers dismantled? I can’t claim to know much about the history, but I doubt that government intervention played a significant role. It was a cultural shift. It was presumably led by influential people within some factional forums who took a stand in favour of allowing dissenting voices to be heard. Influential people outside the echo chambers must also been active in encouraging individuals to think for themselves rather than to parrot the views of church leaders and sectarian politicians. In many organisations, tolerance of dissent came to be viewed as the norm and thinking for one’s self came to be viewed as a virtue.

Could that happen again?

What kind of government is most likely to promote human flourishing?

One way to approach this question is to rule out those kinds of government that are least likely to enable people to live lives that they value.

We can begin by ruling out those kinds of government that exercise absolute power in a cruel and oppressive way. There is no need to explain why that kind of despotism is inimical to human flourishing.

If you ask yourself how we can avoid being ruled by a cruel and oppressive despot you will probably begin to sketch out some constitutional rules requiring fair elections and preventing concentrations of power in a few hands. There is a fair chance that the constitutional rules you specify would describe liberal democracy. So far so good.

However, some written constitutions that appear to embody ideals of liberal democracy end up as a façade for oppressive government. So, I have to ask myself why some experiments in liberal democracy been more successful than others.

Before I can attempt to answer that I need to explain what I have previously described as democracy’s basic problem – which could also be described as the tragedy of democracy because of its similarity to the tragedy of the commons (see my preceding post). Democracy’s basic problem arises because of inherent tendencies for the responsibilities of elected governments to expand beyond their capacity to cope. That results from a combination of two factors. First, the perceived benefits to individual voters of proposals for an expansion of government responsibilities in areas of particular interest to them exceed the additional costs they incur as a result of those proposals. Second, when an individual elector sees others declaring their support for political parties which promise additional spending or regulation in their particular fields of interest, it is natural for her to feel that her interests will likewise be better served by behaving similarly. (Democracy’s basic problem is further explained in Chapter 8 of Free to Flourish.)

Democracy’s basic problem could be expected to result in an ongoing expansion of government spending, an increasing regulatory burden constraining growth in productivity, higher tax rates on those least able to protect themselves politically (e.g. foreign investors) with adverse effects on investment incentives, and expanding fiscal deficits with public debt growing beyond the capacity of the government to service it.

Those trends obviously can’t continue indefinitely. At some stage, the government’s bankers will refuse to advance additional credit. That means that funds will no longer be available to fund social services or to pay government employees. Civil disorder is likely to ensue. It is open to speculation who the main characters will be in the next act, as the political theatre turns into a democratic tragedy. Voters may resort to electing demagogues whose policies will cause further deterioration in the economy. In the final act it is quite common for the generals to take over the reins of government to restore order.

Thus, on the basis of that reasoning it might appear that democracy is unlikely to be a sustainable form of government over the longer term.

So, how come some democracies have survived for well over a century?

One possible explanation, which could be described as the Schumpeterian explanation, after the economist Joseph Schumpeter, is that this has been achieved by constraining democracy to ensure that “the effective range of political decision should not be extended too far”. (Again, there is more discussion of this in Chapter 8 of Free to Flourish.)

Another possible explanation (not adequately discussed in Free to Flourish) is that the culture of some countries has fostered normative conditions that have prevented democracy’s basic problem from emerging with irresistible force. In his book, Why I, too, am not a conservative, James Buchanan identified two norms that underpin liberal democracy:

·         that a sufficient proportion of the population can make their own choices and prefer to be autonomous rather than dependent on others; and

·         that a sufficient proportion of the population enter relationships with others on the basis of reciprocity, fair dealing and mutual respect.

The first norm needs to be met for people to be able to cast their votes to achieve outcomes that they prefer, whilst exercising restraint in the demands that they make on others through the political process. The second norm needs to be met to ensure that those who depend on transfers from the public purse do not consider those transfers to reflect successful exploitation of others through the political process, and that those whose tax payments fund those transfers do not consider themselves to be exploited.

Buchanan concluded:

“Generalized or widespread failure of persons to adhere to these norms, along with widespread recognition that others also disregard the standards, will insure that the liberal order itself must fail, quite independently from any institutional safeguards.” (p 28)

As early as the 1830s, Alexis de Tocqueville expressed similar concerns in Democracy in America about the implications for democracy of the emergence of a culture of dependence on government.  In his discussion of the “sort of despotism that democratic nations have to fear” he suggested that democratic governments might take upon themselves full responsibility for the happiness of citizens, reducing each nation “to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd”.  Tocqueville remarked:

“It is indeed, difficult to conceive how men who have entirely given up the habit of self-government should succeed in making a proper choice of those by whom they are to be governed; and no one will ever believe that a liberal, wise, and energetic government can spring from the suffrages of a subservient people. … The vices of rulers and the ineptitude of the people would speedily bring about its ruin … ” See: Democracy in America, Book 4, Chapter 6.

Tocqueville doesn’t seem to have mentioned norms of reciprocity (or even adherence to the golden rule) explicitly as one of the factors that had led to maintenance of democracy in America, but he emphasised the importance of “the manners and customs of the people” and “the whole moral and intellectual condition of a people”.

Vincent Ostrom commented as follows:

“In light of the meaning to be assigned to the manner and customs of the people, we can understand why Tocqueville identified religion as the first of their political institutions even though religion took no direct part in the government of society. The place of religion was important to the whole moral and intellectual tradition of a people when complemented by the place of families, friends, neighbors, and schooling in the shaping of what might be called "habits of the heart and mind." The place of habits of the heart and mind is critical to the possibility that societies of men might establish systems of governance appropriate to the exercise of reflection and choice as ways of coping with problems of conflict and conflict reso­lution.” Vincent Ostrom, The Meaning of Democracy and the Vulnerability of Democracies, p 14.

Most readers will probably have gathered by now that I think that adherence to the norms that underpin liberal democracy has now diminished to such an extent that this form of government is in deep trouble, even in the western countries where it has been sustained most successfully in the past. So, we are faced with an ongoing struggle to avoid a democratic tragedy, with adverse implications for human flourishing.

However, such prognostications don’t help us much in answering the question I began with. The best way to move toward an answer, it now seems to me, is to follow the lead of Vincent Ostrom and to ask what forms of governance are likely to emerge when it recognized that each person “is first his or her own governor and is then responsible for fashioning mutually productive relationships with others” (p 84).