Do you know what?

Kevin Rudd is back. He is rocking around the place, cooking with gas. But will he be able to save the Labor party? On the face of it, there is a natural complementarity between his two philosophical approaches and a complementarity that could be developed further in the direction of some form of conceptual synthesis. All he has to do is to reverse engineer and start at the third year and move back to the first.

You might be thinking that is just a load of balderdash, a load of absolute bunkum. Well, fair shake of the sauce bottle! Let’s be fair dinkum.

It seems to me that Kevin 07’s second coming has brought humour back into Australian politics. I had to laugh when, just after his re-election to leadership of the Labor party, he said that there is too much negative personal politics in Australia and that ‘all this must stop’. He didn’t seem to be aware of the irony of saying that after having told us earlier in the day that he was contesting the leadership of the Labor party in order to ‘prevent Mr Abbott from becoming prime minister’. It would be hard to imagine anything more negative and personal than a political campaign to prevent another person from being elected.

Unfortunately, I don’t think Kevin would have known he was joking. I don’t think he knew he was joking either during the 2007 election campaign when he accused John Howard of engaging in an ‘irresponsible spending spree’ and said that this ‘reckless spending’ must stop. I didn’t know he was joking then, either. I thought that we had seen a convergence between the two sides of Australian politics and that the Labor party under Kevin Rudd would give high priority to responsible economic management. I even hoped that it might pursue productivity-enhancing reform with some vigour.

Looking back now, I must have been aware that some of the policies announced by Rudd were jokes played on a gullible electorate. For example, I must have suspected that fuel watch and grocery watch were political exercises designed to tell voters that Kevin was listening to their concerns and was prepared to engage in frenzied activity to give the appearance of doing something about them without actually doing anything. I suppose I thought that all governments have a tendency to play those kinds of games.

However, it is now clear that nearly all Kevin Rudd’s policies were like that. Rudd’s first government was like a swan attempting to do backstroke. Rather than gliding effortlessly across the surface of the water, with all its energy being expended below the surface, there was a lot of splashing around in public and a tendency to move backwards. It was as though Rudd saw his purpose in politics as being to just splash around and improve his popularity rating.

My book, Free to Flourish, contains the following suggestion:

‘A more critical attitude should be taken toward the efforts of politicians to be seen to be responding to public opinion. Democratic politics is reduced to comedy when individual members of the public look to politicians for leadership when forming their opinions and politicians look to public opinion polls in developing their policies. Politicians should be expected to maintain principled positions that are not blown around by changes in public sentiment.’

There is no prize for guessing which politician was at the forefront of my mind when I wrote that.

Like many other people in this country, I feel that the Labor caucus has righted a wrong in restoring Kevin Rudd to leadership of the Labor party. It is pleasing that those voters who are able to see through the practical jokes that Kevin 07 played on them (and himself) when he was previously prime minister have now been given the opportunity to vote against him.

What questions should the 'science of morality' be seeking to answer?

In a recent article on Scepticblog entitled 'Towards a Science of Morality', Michael Shermer suggests: 'determining the conditions by which humans best survive and flourish ought to be the goal of a science of morality'. I agree, more or less, but see some problems with the reasoning he uses to get to that point, and urge him to consider more explicitly the questions that the science of morality should be seeking to answer or the problems it should be attempting to solve. (By the way, thanks to Steven Pinker for drawing attention to Shermer's article via Twitter.)

Shermer's first proposition is a 'principle of moral good': 

'Always act with someone else's moral good in mind …'.

Why? Perhaps I misunderstand, but that seems to imply that it is always good, for example, to sacrifice your health for the benefit of others. I can think of real world situations where in my judgement such conduct has not been good for either the actor or the recipient. I think an impartial spectator would say that it is good for people to act with some regard for their own needs as well as seeking to benefit others.

What is the basic moral principle? My answer is that we should always seek to act ethically. I guess that stems from a belief that moral instincts and a capacity for moral reasoning are part of human nature and exist for good reasons. Humans have a basic need to feel that they are acting ethically.

Shermer's second proposition is that to find out whether an action towards some other individual is right or wrong we should ask them. I agree. We should recognize the rights of other individuals (adults) to decide whether or not to accept proposed actions that are intended for their benefit. But that proposition seems to me to belong after establishing that 'the survival and human flourishing of the individual is the foundation for establishing values and morals'. Acceptance that we all begin our lives with a passion to survive and flourish seems to me to gives greater moral force to the observation that different individuals have different goals in life and a capacity to take responsibility (as adults) for decisions they make.

Is it defensible to argue that the survival and flourishing of the individual is the foundation for establishing values and morals? That seems clearly defensible if we think of the passion of humans to survive and flourish as a product of evolution. The moral intuitions of our ancestors could be expected to have pre-disposed them to favour theories of morality in which human flourishing is viewed as the purpose of life. It is also defensible if we think in terms of codes of morality and as the outcome of cultural evolution. As Hayek and others have suggested, those groups with codes of morality most conducive to individual flourishing – thou shalt not do things that infringe the rights of other individuals - have tended to be more successful.

If we accept that individual flourishing is the foundation on which our moral intuitions are based, does it necessarily follow that 'determining the conditions by which humans best survive and flourish ought to be the goal of a science of morality'. No! We can't derive an 'ought' statement from an 'is' statement. Nevertheless, there is nothing to stop us from feeling that there is a smooth transition between the two statements, or that the statements are closely aligned.   

As I see it, however, it is worth taking a step back to ask what our purpose is in asserting that some topic ought to be the goal of a science of morality. It seems to me that the purpose is to assert that the science of morality should be aiming to answer a particular question (or set of questions) or to solve some problem.

So, why not simply assert that the science of morality should be concerned with questions relating to human survival and flourishing? The assertion can be justified with reference to evolutionary considerations, by Aristotle's question about the chief good that is desired for itself rather than because it enables us to obtain something else, by introspection or other considerations. The important issue is whether the assertion is able to stand up to criticism.

One possible basis for criticism is that the science of morality should be concerned with questions relating to the survival and flourishing of other living things as well as humans. Perhaps that objection might be overcome by asserting that questions relating to human survival and flourishing are an important part of the science of morality.

However, that still leaves open the potential for confusion over the meaning of 'the science of morality'. What I think it means is that preferences relating to moral proposals should be based on their ability to stand up to criticism rather than that they are falsifiable. (That probably means rejection of the boundary that Karl Popper attempted to draw around science, but it is consistent with his broader views about the importance of criticism.) Some moral proposals involve value judgements that can be criticized, but cannot be proved wrong. Perhaps we can avoid confusion by further rephrasing our assertion along these lines:

Given the importance of human survival and flourishing it is important to for all questions relating to this topic to be fully explored, including the influence of values, social norms, constitutions, laws and regulations.

After asserting that the conditions by which humans best survive and flourish ought to be the goal of a science of morality, Shermer proceeds to provide examples of moral actions directed toward survival and human flourishing. These actions included reducing extreme poverty and facilitating economic growth and hence improvement in average levels of subjective well-being.

I agree with the examples that Michael Shermer provides, but having asserted the importance of exploring questions relating to human survival and flourishing it seems to me to be important to attempt to clarify the nature of the problem. In order to do so it would be appropriate to attempt to consider relevant questions in a sequence which recognizes that the way we answer one question may influence the way we frame subsequent questions.

For example, in Free to Flourish, my first set of question was about whether human flourishing should remain largely the responsibility individuals in voluntary cooperation with others, or whether it should be pursued primarily through government action directed toward achieving national goals. My answers to those questions led me to then consider the characteristics of societies that are most conducive to human flourishing. My answer to that question led to a consideration of the main drivers of progress and the greatest threats to progress.

How can governments stop encouraging banks to be highly geared?

A reader of my book, Free to Flourish, is puzzled by a brief comment I made about fundamental weaknesses in the financial system. He asks whether the following passage implies the existence of a fundamental market failure with respect to the financial system:

'The underlying incentives that the system provides for participants to take risks with borrowed funds might even tempt saints to behave imprudently. Another outbreak of gambling with borrowed funds will become increasingly more likely as memories of the recent crisis recede, unless fundamental reforms are introduced. Required reforms include the removal of any implicit guarantees that any financial institutions are 'too big to fail' - by taking action to penalise rather than assist the owners of financial institutions which are at risk of default - and removal of distortions in tax systems which favour debt funding relative to equity funding' (Chapter 8).

I accept that there may be market failure in the financial system. There can be negative externalities associated with bank failures. If the failure one bank leads to loss of confidence in some other banks, there may be a market failure involved. Then again, there may not be. If the failure of one bank leads to loss of confidence in banks that have taken similar risks, leaving other banks unaffected, it would be reasonable to argue that the market is just taking appropriate account of new information. Nevertheless, at an aggregate level, I accept that central banks may be able to play a useful role in sustaining expectations of ongoing growth in aggregate demand when bank failures occur.

However, my concerns about the fragility of the financial system – as it exists at present – cannot be attributed to market failure.

The following hypothetical example might help to begin to explain the nature of the problem as I see it. Let us focus on two banks competing in a free market, without government interventions. Both banks are the same in nearly all respects, but while Bank A is profitable, Bank B is having difficulty competing for deposits. The reason for this is that the level of shareholder equity in Bank A is relatively high and potential depositors feel that the interest rate being offered on deposits in Bank B (the same as for Bank A) would not adequately remunerate them for the additional risks they would be taking. 

There are several options that Bank B might consider to become more competitive. For example, it could offer a higher interest rate to reflect the greater risks involved for depositors; it could reduce the risks in its asset portfolio (perhaps by having a higher proportion of its portfolio in relatively safe government securities); or it could issue more equity capital and become more like Bank A. The optimal level of equity depends on factors such as the riskiness of the bank's asset portfolio and the extent to which depositors require higher interest to compensate for risk.

Is this example plausible? Is it conceivable that it might be possible in a free market for a bank to be profitable with a relatively high level of shareholder equity? Many would argue that the example I have given is unrealistic because an equity risk premium must be paid for access to equity capital. On that basis, it is argued that banks with relatively high equity could be expected to have a relatively high cost of capital and thus to be less profitable than banks with relatively low equity.

Anat Admati and three of her colleagues provided a pertinent response to the suggestion that increased equity would increase funding costs for banks in their paper: 'Fallacies, Irrelevant Facts and Myths in the discussion of Capital Regulation: Why Bank Equity is Not Expensive'.  These authors draw attention to the Modigliani-Miller (MM) analysis which shows that increases in the amount of equity relative to debt financing simply re-distribute risk among investors. The total funding cost is determined by the total risk that is inherent in the bank's asset portfolio and is independent of gearing. In that context, any losses from using less borrowed funds must be offset by the correspondingly lower cost of equity capital.

The essential assumption of the MM analysis - apart from the assumption (discussed below) of no government intervention favouring either debt or equity funding - is that investors are able to take account of portfolio risk and gearing when pricing securities. Admati et al make the telling point that banks make this assumption in managing their risks.

So, what happens if we relax the assumptions of the MM model by introducing a tax system that encourages debt relative to equity, a government guarantee that banks will not be allowed to fail and protection for depositors? We should expect to get banking systems that are highly geared and fragile – like our current banking systems.

How can governments remove those distortions?  The obvious answer is just do it! However, removal of the tax distortions will require major tax reforms in countries that have classical company taxes. The problem in relation to government guarantees and protection of depositors is that announcements  that they will no longer apply are not likely to be credible (except when made by governments that are so heavily indebted already that further bank bailouts would be impossible in any case).

Does that mean that the best option is for governments to regulate bank behaviour to such an extent that bank failure becomes highly improbable? That approach would suggest that if Basel III is not restrictive enough to make bank failure sufficiently improbable, we should be prepared to move on to Basel IV, and then Basel V, and even to nationalisation of banking if necessary.

At that point I begin to see red. If we are not dealing with a market failure, why are we attempting to displace the market? Is it really necessary to put the entire banking system into a regulatory strait jacket, with all the inefficiencies that involves, in order to live with the consequences of past regulatory failure? Would it not be possible for governments to make a credible commitment never to bail out another bank if they were prepared to spell out punitive action to be taken if regulatory agencies assess banks to be at risk of default? For example, why not announce plans for pre-emptive action to install administrators to restructure banks if they are assessed to be at risk of default?  

Postscript:

With the benefit of comments from kvd and Jim Belshaw (see below) it is clear that the line of argument presented above is not as clear as it could be and contains some unnecessary red herrings.

1.      The definition of banks. For the purposes of this discussion, the distinguishing characteristic a bank is that it is a company with relatively low shareholder equity and a relatively high proportion of debts repayable on demand. Later in the post, my focus is narrowed to financial institutions with deposits guaranteed by governments and/or viewed by governments as 'too big to fail'.

2.      The definition of externalities and market failure. The discussion in the paragraph immediately following the quote from Free to Flourish raises issues concerning the technical definition of externalities and market failure that are a largely a red herring from the perspective of the general line of argument I am developing here. All I needed to say was that while I acknowledge that there may be a case for government intervention based on the existence of market failure, that is not the basis for my concerns about the fragility of the banking system. (Nevertheless, the discussion is raising interesting points. There might be something wrong with our definition of market failure if new information about bank solvency that leads to the collapse of the banking system does not qualify as evidence of market failure. The question that kvd has raised about whether there is a case for government guarantees to cover use bank facilities for every day transactions using is alsoof interest to me. I will try to follow that up in a subsequent post.)

3.      My hypothetical example involving Bank A and Bank B. The example seems to have clouded the point I was trying to make, rather than illustrate it. The point the example was intended to illustrate is that in a free market banks would not have an incentive to seek ever-greater leverage. The rate of return on shareholder funds may rise as leverage increases, but depositors and shareholders would have an incentive to take account of the increasing risk of bank insolvency. As leverage increases the cost of borrowing additional funds could be expected to rise (i.e. the interest rate on deposits would need to rise). And at some point the increase in expected return on shareholder's funds will not be sufficient to compensate shareholders for the increased risk of failure of the firm.

4. Should the Australian government continue to guarantee banks deposits? That is the title of a later post in which I discuss issues raised by kvd.

How easy is it to self-publish a Kindle eBook?

Only a few days have passed since I published 'Free to Flourish' at Amazon, but I am already starting to think that it can't have been as difficult as it seemed at the time.

If I didn't have any end notes or images it would have been easy. The book, 'Building Your Book for Kindle', published by Kindle Direct Publishing (KDP) is easy to follow and provides adequate guidance for a publication with no end notes or images.

My book contains a substantial number of end notes and images, and I wanted the end notes to be 'active'. The advantage of active end notes is fairly obvious. They enable you to click on a number, read the note, click return to get back to the spot you were reading, and then read on without any problems. By contrast, without active notes, you first have to find the note you want to read, which may require you to go back to the contents page first to find what chapter you were reading. After you have found the note and read it, you then have to get back to the spot you were reading. This is manageable with a printed book if you can remember to keep a finger inserted in the relevant page, but you can't insert your finger into an eBook.

I found Scott Locke's book, 'The Kindle Publisher's Guide', particularly useful for instruction on how to deal with notes and images.

Scott Locke recommends use of kindle-notes, freely available third party software, to make footnotes active. It is necessary to get the text in the required format for this purpose, but the time-consuming part of the exercise was restoring punctuation in the document after it had been processed.

After processing in kindle-notes, my document was returned with just about all punctuation other than full stops and commas replaced by question marks. This meant that it was necessary to look at every question mark in the document and decide whether it was meant to be a question mark, inverted comma, a dash, a colon or whatever. I tried to do it quickly late at night, made a lot of mistakes and then had to correct them (with the help of my editor). This is not a process that anyone would want to go through more than once per book. Once in a life-time might be enough for me!

Scott Locke recommends the use of Mobipocket Creator to insert images back into the document prior to uploading at KDP. I found that to be good advice. The alternative method recommended by KDP (creating and uploading a zipped file) didn't work for me, possibly because I had a substantial number of images to deal with.

In retrospect, I can't claim that it was enormously difficult to publish a Kindle eBook with a substantial number of end notes and images. The process was just more tedious and time-consuming than I thought it would be. This was despite the warnings I had been given by others (including the suggestion that it might be wise to use an aggregator, alluded to in an addendum to a guest post on self-publishing on this blog in October).

I still don't understand why publishing an eBook is a much more tedious and time-consuming process than publishing pdf documents and web pages. No doubt the technology will improve. At this stage, however, direct publishing of eBooks with a lot of notes and images is not a piece of cake.

Do we need to be free to flourish?

I hope that anyone who wants an answer to that question will be able to find it in my book, 'Free to Flourish' which has just been published as a Kindle eBook.

The book can be downloaded free of charge until about mid-night on December 21, 2012 - after which the price will be US $5.00.

Much of the material in the book has appeared as a first draft on this blog at some stage over the last few years. The book refines the main messages and draws them together in a more coherent form in order to make them more readily accessible.

As I wrote the book, I was asked by various people what audience I was writing for. The answer I have given in the Preface is that the book is intended to be read by anyone who has an interest in happiness, politics, or public policy - although different parts of it have been written with different readers in mind. People who only want a broad overview of the book should be able to obtain what they are looking for by reading the first and final chapters. Researchers and students who wish to scrutinise the underlying reasoning and evidence should be able to find plenty to interest them in the notes provided.

 I added that I hope the book will provide a catalyst for further discussion at all levels. If readers send me comments, I will endeavour to respond and may open up further discussion of particular issues on this blog.

Postscript:
If you don't have a Kindle or Kindle app on a tablet, an app for personal computers can be downloaded for free from this site.

How should we get started with self-publishing?

A guest post by Sarah Rexman:

Getting a book published can be a long, uphill battle. After facing dozens of rejections, you may start thinking that you just don’t have what it takes – that maybe you weren’t really meant to be an author after all. The reality is that much more than talent determines whether your book will be accepted by a traditional publisher, including market trends, the timing, and even the person who happens to pick up your book from the slush pile.

You don’t have to wait for all these elements to align and get accepted by a traditional publisher in order to be published. With the increasing popularity of e-readers, many authors are finding success publishing their own books and selling them to readers directly.

Here’s what you need to know about how to get started with self-publishing to realize your dream of becoming a published author:

Choose an Outlet

There are many sites that sell self-published e-books, including giants Amazon, Smashwords and Lulu. Each of these sites has a different user base and different rules for how to format, upload, and distribute content. They also offer different models for compensation, with different commission rates based on the parameters you choose for selling your book.

Take the time to get to know each of these sites and decide if you want to sell on one of them or all of them and what the advantages and disadvantages will be.

Format Your Book

Once you know where you intend to sell your book, you can figure out how to properly format it. Each site will have its own guidelines for formatting the book, and it may take you awhile figuring out how to get your book just right to meet those guidelines.

You will also need to design a creative cover for your book. If you aren’t able to design the cover yourself, you can hire a freelance designer to create one for you.

Get Reviews

Good reviews will help you build buzz around your book and sell more copies. You can get more reviews for your book by sending it to bloggers, book reviewers for local publications, and even to family and friends.

While it is OK to ask for reviews from family and friends, you should be careful not to influence the content of those reviews. If your readers suspect that your reviews are not honest, they may reject your book.

Market Your Book

In addition to getting good reviews for your book, you must also market it to build buzz and promote sales. You can start a blog, host contests in which you give away copies of your book, or even buy online advertising to promote your book.

Don’t stop at formal marketing. Be prepared to talk up your book to anyone you meet. Carry business cards with information about your book. The next time someone asks you what you do, tell them that you’re a published author and hand them your business card.

Publishing your own book is not a difficult process, but it will take the same kind of dedication it took for you to write your book in the first place. When you’re finished, you will be able to say that you are a published author and can find success on your own terms.

Sarah Rexman is the main researcher and writer for bedbugs.org. Her most recent accomplishments include graduating from Florida State, with a degree in environmental science.  Her current focus for the site involves researching updated websites.

Addendum by Winton

Sarah’s offer of a guest post on this topic came at an opportune time since I am currently considering publication options for the book I am writing.

Self-publishing seems to me to be an attractive option for the reasons Sarah mentions, but also because it gives authors greater control of the process. I recently learned that authors often don’t even have much say over the titles for their books when they use traditional publishers.

The main considerations for me in choosing a method of self-publishing are to obtain a professional-looking product, access to the main sites that sell e-books and a small print run, while containing costs.

Jim Belshaw had some relevant discussion on his blog a few weeks ago.  Jim suggested that it might be worth considering use of an aggregator, such Australian e-book publisher (AEP) to put content into the right form and arrange for its lodgment with the e-store.  As Jim says, a price has to be paid for this, but it makes things simpler. Since AEP offers a range of different services it would not be necessary to get them to take over the whole publishing exercise.

Another option I am thinking about is the use of Dpublishing, which has links to Dymocks book stores. Dpublishing seems to provide good guidance on formatting etc and makes it easy to also have a printed version of the book. The downside is that Dymocks does not have links to Amazon, so I would need to arrange separately to get the book in suitable form to be sold on Kindle.

Postscript:

In the end I decided to publish the book as a Kindle eBook at Amazon. My comments can be found in a later post.