How good is this image of self-actualization?

When you think about Abraham Maslow’s hierarchy of needs, what is the image that appears in your mind? I expect that most people who have some knowledge of the concept would think of a pyramid in which needs are layered one on top of the other, with physiological needs at the bottom and self-actualization needs at the top. If you have no idea what I am talking about, there is no need to worry. Andy Ogden’s sailboat illustration, provided above, is better. That image has been used effectively by Scott Barry Kaufman in Transcend, his recently published book which seeking to update Maslow’s hierarchy.

Kaufman points out that the pyramid image was created by a management consultant rather than by Maslow. He argues that the pyramid “had the unfortunate consequence of reducing Maslow’s rich and nuanced intellectual contributions to a parody and has betrayed the actual spirit of Maslow’s notion of self-actualization as realizing one’s creative potential for humanitarian ends”.

I have read many books aimed at the self-help market, but Transcend has more endorsements by psychologists than any I have previously read. Those praising the book include Martin Seligman, Steven Hayes and Steven Pinker. My inner economist tells me that there must be something wrong with a book preceded by five pages of praise, but I haven’t found much wrong with this one.

Kaufman’s sailboat image captures Maslow’s idea that all needs can be grouped into two main classes, deficiency needs and growth needs. The planks of the boat represent deficiency needs and the sails represents growth (or self-actualization). 

In explaining his metaphor, Kaufman suggests:

“Life isn’t a trek up a summit but a journey to travel through – a vast blue ocean, full of opportunities for new meaning and discovery but also danger and uncertainty”.

The deficiency needs that comprise the boat, safety, connection, and self-esteem work as a dynamic system. Under good conditions they work together toward greater security and stability. Under unfavourable conditions, they can lead toward insecurity and instability, causing people to focus attention on defending themselves.

The growth needs comprising the sails are exploration, love, and purpose. Kaufman suggests that “the drive for exploration is the core motive underlying self-actualization”. It involves the desire to seek out and make sense of novel, challenging and uncertain events. Love and purpose can build on the fundamental need for exploration. Loving is noted to be a powerful force, linked to growth, compassion, coping and authenticity. Purpose is defined as “the need for an overarching aspiration that energizes one’s efforts and provides a central source of meaning and significance in one’s life”.

Kaufman sensibly emphasizes the hazards of attempting to fulfill a need for purpose without working on other areas of growth:

“It is entirely possible to choose a striving that brings out the worst in yourself and others because it is motivated by a desperate, never-ending quest to fill a deficiency in one of the security needs, whether it’s safety, belonging, or self-esteem”.

The need for transcendence is depicted as being in the sky above the sails. Kaufman suggests that transcendence “goes beyond individual growth (and even health and happiness) and allows for the highest levels of unity and harmony within oneself and with the world”. Some further explanation might be helpful for those who, like me, read that and think immediately that they don’t need mystical experiences. The transcending experiences written about are not all mystical. Kaufman notes that transcendence incorporates a “unitary continuum,” of experiences ranging from becoming engrossed in a book, sports performance, or creative activity (what psychologist Mihaly Csikszentmihalyi refers to as the flow experience), to experiencing awe at a beautiful sunset etc, all the way up to the great mystical illumination.

A particularly useful contribution of the book is to make a clear distinction between healthy self-esteem and narcissism. Kaufman points out that narcissism is not just high self-esteem, in the sense of a quiet and sturdy confidence in oneself. Narcissists feel superior; they are arrogant and unwilling to accept criticism.

In writing the book, Kaufman has drawn on Maslow’s unpublished writings to illustrate the range and depth of his thinking. This passage, written by Maslow about 50 years ago, has contemporary relevance:

 “It is … vital to emphasize that a democratic society is rooted in a set of feelings toward other people—feelings like compassion and respect. …  If we did not trust other people, if we did not like them, if we did not pity them, if we did not have brotherly or sisterly feelings for them, then a democratic society would of course be out of the question. Obviously, human history provides many examples to prove this point.”

Readers may have guessed already that I am impressed by Kaufman’s book. In my view he does an excellent job in bringing together many findings of psychologists relating to personal development. I particularly like the imagery in his use of the sailboat metaphor because it recognizes that each individual has prime responsibility for his or her own journey through life.

How is behavioral economics relevant to human flourishing?

The practitioners of behavioral economics have tended to direct their research findings mainly at “choice architects”, including paternalistic governments. For example, in their book, Nudge, Richard Thaler and Cass Sunstein adopt the term “libertarian paternalism” to propose:

“Choice architects can preserve freedom of choice while also nudging people in directions that will improve their lives”.

An example might help to clarify what a nudge involves. If the government were to invest a certain proportion of your income in a superannuation fund on your behalf this would amount to a nudge, rather than a push or a shove, if you were allowed to withdraw the funds at any time to use as you wished. Because of a tendency for people to avoid choices, or to choose default options, such an arrangement would be likely to result in more investment in superannuation than one that relied solely on tax incentives. It would do this without the interference in personal choice that is involved in compulsory superannuation, such as exists in Australia. (That example is taken from my review of Nudge.)

However, if you view human flourishing as an essentially self-directed activity, as I do, you may be sceptical about claims that such nudging can improve your life. Even if the people doing the nudging have your interests at heart, their perception of what will improve your life will not necessarily accord with your own preferences.

In the example provided above, additional transactions costs may be imposed on the person being nudged. For example, investment in superannuation might not be the best option for a young person wanting to save for a deposit on a house. Over the longer term, the value of an investment in a superannuation fund could be expected to rise to a greater extent than cash in the bank, but short term fluctuations in equity prices make superannuation a less suitable vehicle for shorter term saving. Withdrawing funds for a house deposit could result in capital losses being incurred.

Robert Sugden suggests that “something is clearly wrong if economists think that their response to the discovery of mistakes in individual decision-making must take the form of a recommendation about public policy” (The Community of Advantage, p 44). If you want to help individuals to make better decisions it makes more sense to address the information to those individuals rather than to address it to autocrats.  (I have previously discussed The Community of Advantage here, here and here.)

Sugden makes the point that nudgees (people who are nudged) do not always explain their failure to follow expert advice in terms of self-control problems. For example, an obese person who fails to follow expert advice about choosing fruit rather than cake, could explain his choice in a range of different ways that do not involve a self-control problem. If he sees nothing wrong with his choices, he has no reason to want to be nudged by having the fruit placed in a more prominent position in the cafeteria relative to the cake (p 47).

However, if the obese person acknowledges that he has a self-control problem, research findings about the influence of placement of products on consumer purchases might help him to modify his behaviour. His trusted advisers might be able to suggest how he could nudge himself to make better choices. By coincidence, earlier today, I heard a news item indicating that there is a supermarket chain in Australia that refrains from placing confectionary near checkouts. That information could be relevant to a person with an acknowledged self-control problem, who was wanting to avoid impulse purchases of confectionary.

The fact that supermarkets often place confectionary near checkouts illustrates that choice architects may not always have paternalistic motives. It should not be assumed, however, that their motives are exploitive. Supermarkets want loyal customers, so it is not likely to be in their interests to have shoppers end up feeling that they have been manipulated to make unhealthy choices and/or to spend more money than they wanted to spend. It is possible that the placement of the confectionary helps give most shoppers good feelings about their shopping experience. The nudge that one person views as manipulative may be viewed by others as benign, or even as providing a helpful reminder.

As a rule, it is good to be aware how you are being nudged in the choices you make. It is necessary to be aware that you are being nudged, as the first step in making a conscious choice to accept or reject the suggestion involved. Behavioural economics can make a useful contribution in helping to make us aware of how nudges may affect the choices we make.

Sugden suggests that behavioural economists who discover possible mistakes in individual decision-making are in an analogous situation to epidemiologists who discover an apparent causal relationship between some activity and the prevalence of an illness. The epidemiological findings are made available to the public in various ways and begin to influence behaviour prior to any public policy intervention being contemplated (p 43). 

Similarly, happiness researchers who discover that average life satisfaction of various groups is affected by factors such as leisure, or commute times, are providing information that individuals may wish to consider in the choices they make.  Individuals are likely to be affected differently, but rarely so differently that information about others is irrelevant.

Sugden acknowledges that normative economics has almost always been directed toward public decision-makers rather than private individuals, but suggests that “since economists often characterize their discipline as the science of rational choice one might expect them to recognize the potential value of helping individuals to make better decisions in their private lives” (p 43). He notes that Philip Wicksteed, one of the founders of neoclassical economics, presented economics as a study of the “general laws of the administration of resources” and insisted that these laws apply “from end to end of life”. He gave practical advice on how to avoid common mistakes in decision-making. The passage quoted above reflects the role he saw for economists in helping people to make better choices.

Sugden’s view that there is a role for economists in helping individuals to make better choices seems somewhat at variance with the view of James Buchanan. In his article “What should economists do?”, published in 1964, Buchanan argued that the theory of choice should be removed from “its position of eminence in the economist’s thought processes”. He suggested that economists should concentrate their attention on human behaviour in market relationships and other voluntaristic exchange processes, and upon the various institutional arrangements that can arise as a result of this form of activity.

I maintain the view, as previously expressed, that Buchanan is correct in identifying the heartland of economics to be concerned with voluntaristic exchange processes, but that does not rule out the potential for economists to make useful contributions in helping individuals to make better personal choices. It is in the latter context that behavioural economics is most relevant to human flourishing.

What are the implications of declining productivity growth in high-income countries?

The graph shown above indicates that productivity growth rates in high-income countries have declined. That decline seems evident even if we disregard the low productivity growth in the years immediately following the global financial crisis. (Selection of high-income countries for inclusion in the graph was based largely on aggregate GDP.)

The productivity indicator used in the graph - multifactor productivity (MFP) – is that part of GDP growth that cannot be explained by changes in labour and capital inputs. It reflects the influence of technological progress and production efficiency.

The most obvious implication of a decline in MFP growth rates is a lower rate of growth in per capita incomes. Declines in MFP growth are sometimes offset by more rapid growth of employment, through higher immigration, or more rapid growth of capital stock, through higher investment levels. However, such offsetting factors are not sustainable over the longer term.

In most instances, and in the longer term, it seems reasonable to expect a ½ percent lower rate of growth in MPF to be reflected in a ½ percent lower rate of growth in average incomes. Over 10 years, a decline in average income growth from, say, 2 percent per annum to 1.5 percent per annum would amount to the difference between a 22 percent and 16 percent increase in income.

That is not negligible, but it doesn’t cause me a great deal of angst. As noted previously on this blog (in a post written when I was more sceptical about the number of countries experiencing a decline in productivity growth) the slow-down in measured productivity growth in the U.S. and some other countries may be attributable, in part, to difficulty in measuring the outputs of the information and communications technologies (ICT) industries. When consumers can download more stuff that they do not have to pay for, the quality of their lives improves, even though that isn’t reflected in average income and consumption measurements.

It is also likely that some part of the decline in measured productivity growth may be attributable to environmental and social regulation. I am sceptical about the merits of much of that regulation, but I acknowledge that some of it provides benefits to humans that should be offset against associated income losses.

However, there is an implication of declining productivity growth that governments and their dependents should be thinking more seriously about. That is the potential for revenue growth to decline. Unless the revenue to GDP ratio is raised, a lower rate of growth of MFP is likely to translate to lower growth of government revenue. (Note that the same difficulty in measuring the outputs of the ITC industries for productivity estimation also applies to measuring income, sales and value added for tax purposes.)

Lower revenue growth has interesting implications in the context of expected ongoing increases in government spending. As previously discussed on this blog, under existing programs, substantial increases in government spending seem likely to occur as the proportion of elderly people in the populations of many countries continues to rise.

So, why not raise the revenue to GDP ratio by changing the tax mix in favour of more efficient taxes that have less adverse effects on economic incentives? The political obstacles to tax reforms have not always been insuperable, but revenue-raising reform proposals are less likely to be supported than revenue-neutral proposals.

Another option is to raise the revenue to GDP ratio by raising tax rates. That is also likely to encounter political obstacles but, more importantly, the adverse effects on incentives seem likely to further reduce productivity growth. The marginal excess burden of taxes tends to rise as the tax rate is increased (see discussion here).

Yet another option is to let public debt continue to rise and hope debt servicing doesn’t become too much of a problem. We may actually see some problems emerging with that strategy over the next few years with increased public debt incurred in response to COVID-19. Perhaps central banks will succumb to government urging to over-stimulate economies to allow the “inflation tax” to reduce debt to GDP ratios. However, that would make ongoing debt accumulation a more costly strategy because it would result in high interest rates and thus higher costs of debt servicing over the longer term.

We haven’t considered debt default, but you have to be desperate to consider that!

My point is that governments and their dependents do not have any easy options available to adjust to an ongoing decline in productivity growth.

Economists advising governments will likely suggest that the best way forward is adoption of a package of reforms (including tax reforms) to raise productivity growth, combined with action to prune government spending. What governments will do, however, will depend to a large extent on the relative political power of different interest groups. In most countries, that seems to me likely to point more toward spending cuts than toward productivity-increasing reforms.

So, it seems reasonable to speculate that declining growth in productivity will be ongoing and result in cuts in government spending in policy areas where political resistance is likely to be weakest. Which policy areas are likely to be most affected?