Will history judge Marx to have been right about the effects of technological progress on income distribution?

‘The instrument of labour, when it takes the form of a machine, immediately becomes a competitor of the workman himself. ... That portion of the working-class, thus by machinery rendered superfluous, i.e., no longer immediately necessary for the self-expansion of capital, either goes to the wall in the unequal contest of the old handicrafts and manufactures with machinery, or else floods all the more easily accessible branches of industry, swamps the labour-market, and sinks the price of labour-power below its value’ Karl Marx, Capital, 1887 (first English edition).

Since Marx wrote that, real wages have increased by massive amounts in industrialized countries. Authors of some books I have read recently suggest, however, that Marx’s predictions could end up being right in the end. Gregg Easterbrook warns that we should not take too much comfort from the fact that Marx’s predictions of gloom have not yet come true (‘Sonic Boom’, p 153; discussed here) and Jacques Attali suggests that tomorrows West will resemble today’s Africa (‘A brief history of the future’, discussed here).

In attempting to think our way around this question an obvious place to start is with the effects of technological progress on the demand for labour. This approach makes sense if labour can be assumed to be more or less homogeneous, that aggregate capital stock can be measured appropriately, that most income from capital tends to accrue to people with high incomes and that technological change is the only factor influencing income distribution. I’m actually not sure that any of those assumptions stand up to scrutiny, but let us keep the discussion as simple as possible to begin with.

As Marx observed, new technology often involves capital-intensive processes displacing labour-intensive processes, e.g. the use of power looms to replace hand looms in the textile industry at the beginning of the industrial revolution and, more recently, increased use of robot technology in car manufacture replacing labour-intensive assembly lines. This kind of technological change tends to increase the ratio of capital to labour. However, introduction of new technology often occurs through the introduction of superior capital equipment that replaces existing capital (or more efficient sources of energy, financing innovations, business practices etc) without necessarily increasing the ratio of capital to labour. Most importantly, new technology makes possible an increase in national product, or real national income, and with increased demand for factors of production, including labour.

The net effect of those factors on future demand for labour will depend partly on whether, on balance, the new technology is a closer substitute for labour than for existing capital equipment (and other factors of production). Further development of electronics and robotics, in particular, can be expected to displace a lot more manual and mental labour, but my guess is that before too long new technology will largely involve superior robots replacing inferior robots, leaving demand for human labour relatively unaffected. There are some parts of the economy where new technology is unlikely to have much effect at all on the ratio of capital to labour, e.g. symphony orchestras. (William Baumol made the point in the 1960s that a symphony orchestra does not become more productive by playing faster.)

Another important influence on the future demand for labour will be whether average incomes are likely to result in a changing pattern of consumer spending toward more on labour-intensive or more capital-intensive goods and services. My guess is that ‘real’ experience (of foreign travel etc.) will trump ‘virtual’ experience and that people will prefer to interact with other humans rather than robots to obtain services such as restaurant meals.

So, I think there are limits to the extent that technological progress will result in substitution of capital for labour. When we take into account the fact that labour is not homogeneous, that investment in human capital and investment in physical capital can be substitutes or complements, and that people embody new technology in the skills they acquire it is not even obvious that it is particularly helpful to think in terms of aggregate categories such as labour and capital.

It is probably more meaningful to consider demand for particular categories of labour e.g. unskilled labour. Perhaps it is reasonable to predict that demand for unskilled labour will continue to shrink, but even that is problematic if we define ‘unskilled’ in terms of lack of formal qualifications and overlook the possibility that inter-personal skills - often acquired without formal training - will become increasingly important.

The idea that there is a class of people who obtain their income from selling their labour (workers) and another class of people who obtain their income from ownership of capital (the idle rich) seems likely to become increasingly irrelevant. As working people invest for their retirement they will be increasingly buying shares in the robots that will earn the income they previously earned for themselves.

Technological progress is not the only factor influencing income distribution. Factors affecting the supply of labour, e.g. immigration, could have effects on wage rates in some countries that are as important as the effect of technological progress. Then there are the effects of globalization both in providing international competition for labour-intensive industries and, increasingly, new sources of innovation and competition for technology-intensive sectors of industrialized countries.

Finally, the taxing and spending policies of governments modify the effects of technological progress on income redistribution. If Marx turns out to have been right about technological progress, it seems likely that governments in democratic countries will come under increasing pressure to intervene further in income distribution to ensure that all groups have an opportunity to benefit from the fruits of technological progress.

However, my personal view is that history will probably continue to judge Marx to have been largely wrong about the effects of technological progress on income distribution.
Winton Bates

Does a resource rent tax solve the problem of sovereign risk?

I have been a supporter of resource rent taxes for as long as I can remember. More precisely, my view has been that taxes on rents are better than most other taxes because they extract funds with minimal distortion to production and investment decisions.


I think the best way to think your way around the question of resource rent taxes is to imagine initially that you are the sovereign of a territory in which there has been no previous mining or exploration. You want to obtain revenue from the minerals in your territory by the inducing mining firms to use their expertise to explore and to mine.

One way of obtaining revenue from minerals is to auction off mining rights and promise mining companies that there will be no further taxes on the minerals they find. A major problem with such a ‘finders keepers’ policy is that on the basis of past experience mining firms have good reason to be skeptical that sovereigns will keep their promises to let them keep what they find. When valuable resources are found sovereigns (and democratic governments) have a habit of changing their minds and wanting more revenue. As a consequence of this ‘sovereign risk’, mining companies are not likely to be willing to pay anything like what an exploration lease would be worth to them if they could believe the sovereign’s promise of finder’s keepers.

Another way that governments can obtain revenue from minerals is through a system of royalty payments based on the volume or value of minerals extracted. This is like imposing an additional cost on mining activities and can deter mining that would otherwise be commercially viable.

By contrast, under a well-designed resource rent tax the sovereign is, in effect, a silent partner in the venture. The sovereign shares in the rents and risks of the project without distorting investment and production decisions in the process.

So far so good, but Australia is not a country in which there has been no previous mining or exploration. There is currently a great deal of mining being undertaken in this country under long-established systems in which state governments obtain revenue from royalties. In that situation it becomes important to consider how to make the transition from royalty payments systems to a resource rent tax without disturbing the reasonable expectations of miners of rewards that they are entitled to receive for the risks that they have taken. If the transition to a new tax is used by the government to grab a larger slice of rents from successful mines, the miners are likely to perceive that they have under-estimated sovereign risk in this country. They will also perceive that there is a chance that the rate of resource rent tax could be increased in future, particularly if there are further increases in mineral prices. If they factor that into their calculations of expected returns they will reduce their investment in further exploration and new mines – even if the structure of the new tax minimizes disincentives to investment.

As is well known, the Australian Government has recently announced the introduction of a resource rent tax and its intention to grab a substantial additional slice of mining profits on top of revenue raised from existing mining royalties. The main source of this sovereign risk, Kevin Rudd, has defended the tax grab on the grounds that ‘what we are doing is to recover national sovereignty over our own resources’. Actually, I must confess that I don’t think Mr Rudd has used those precise words. Those words were used by Hugo Chavez, president of Venezuela. As far as I can see, however, the main difference is that Hugo is less verbose than Kevin.
Here is what Kevin Rudd has been saying:

‘Over the last decade the mining companies generated $80 billion in higher profits. At the same time governments, on behalf of the Australian people, received only an additional $9 billion over that period of time. What we're saying is that the mining companies deserve a fair return on their investment - that's important - but we also believe the Australian people deserve a fair return on the resources which they themselves own, and remember, these companies- you mention in your introduction BHP and Rio. BHP's 40 percent foreign owned. Rio Tinto's more than 70 percent foreign owned. That means these massively increased profits, the $80 billion that I referred to before, built on Australian resources, are mostly in fact going overseas’ (Interview on AM, ABC radio, 3 May, 2010).

Why is the percentage of foreign ownership of BHP and Rio relevant to the issue of resource rent taxation? The unmistakeable message is that Kevin Rudd views foreign investors as fair game. Tax reform has become a cover for expropriation of rents from assets owned by foreigners. All we can hope is that the more sensible members of the Australian government will encourage second thoughts about the rate of resource rent tax that should be imposed - and urge Kevin to restrain his rhetoric - before too much harm is done to Australia’s reputation as a safe location for investment.
Winton Bates

Postscript notes:
1. As I explained in a subsequent post I regret comparing Kevin Rudd to Hugo Chavez.
2. The additional $9 billion dollars that the prime minister refers to as the amount the Australian people have recieved from mining companies over the last decade does not include company tax.
3. Mining companies would be wise to factor into their considerations of new projects the possibility that the tax rules will be changed in future if substantial new investment projects are not profitable. Under the proposed tax mining companies are supposed to get a subsidy equal to 40% of losses. A government that is prepared to change the rules opportunistically to grab additional tax revenue could also be tempted to change the rules opportunistically to avoid substantial revenue losses at some time in the future.
4. In a subsequent post I have discussed the risk that state governments could still increase royalty rates.

Would an hedonimeter help us to choose between push-pin and poetry?

There seems to be enduring interest in the post, ‘Is push-pin as good as poetry’, that I wrote a few years ago. That post was about John Stuart Mill’s rejection of Jeremy Bentham’s assertion that if the game of push-pin gives more pleasure than poetry then it is more valuable than poetry. Mill argued that some pleasures are superior to others and that it is possible for people to become addicted to inferior pleasures. I followed up on the question of whether push-pin might be addictive in a subsequent post.


A logical place to begin this post would be to define an hedonimeter. Before I do that, however, I want to make the point that Mill’s thoughts about higher and lower pleasures seem to have been a side-track that did not lead anywhere in the subsequent development of economics. A few years after publication of Mill’s essay on utilitarianism, the famous economist, William Stanley Jevons, came down strongly in favour of Bentham’s view of utility. According to Jevons:

‘Whatever can produce pleasure or prevent pain may possess utility. ... The food which prevents the pangs of hunger, the clothes which fend off the cold of winter, possess incontestable utility; but we must beware of restricting the meaning of the word by any moral considerations. Anything which an individual is found to desire and to labour for must be assumed to possess for him utility. In the science of Economics we treat men not as they ought to be, but as they are’ (‘The Theory of Political Economy’, 1871, III.2).

Francis Edgeworth, who came with the idea of an hedonimeter, was a strong supporter of Jevons’ view that utility has two relevant dimensions: intensity and time. Edgeworth suggested that we:

‘...imagine an ideally perfect instrument, a psychophysical machine, continually registering the height of pleasure experienced by an individual ... From moment to moment the hedonimeter varies; the delicate index now flickering with the flutter of the passions, now steadied by intellectual activity, low sunk whole hours in the neighbourhood of zero, or momentarily springing up towards infinity’ (‘Mathematical Physics’, 1881).

I think that description tells us, in today’s language, that an hedonimeter might be a sexy idea. It will probably be a long time before you can buy an hedonimeter at your local supermarket but research indicates that levels of various chemicals (e.g. cortisol) in the body and activity in various parts of the brain are related to pleasant and unpleasant experiences. It seems likely that if we were able to conduct surveys using hedonimeters – perhaps one day it might be possible to carry one around like a pedometer – they would give similar results to those obtained by Daniel Kahneman and Alan Krueger using evaluated time use (ETU) techniques. In surveys using ETU techniques respondents are asked to account for time spent on various activities on the preceding day and to rate their feelings for each activity in terms of a range of affective categories e.g. happy, worried/ anxious or angry/hostile. The ETU data suggests that people tend to get most pleasure from sex and socializing and least pleasure from working and commuting.

If anyone was really interested in comparing the pleasures people obtain from push-pin and poetry it is possible to imagine conducting an experiment in which participants played push-pin and attended poetry readings and rated their experiences. If you were concerned that such information might not be relevant to you personally, you might be able to get someone to design an appropriate experiment to enable you to rate and record your emotions during the two experiences.

How would you feel about using the results of an ETU exercise (or an hedonimeter) to decide something that may actually be important to you – for example, whether to play sport A or B or have a holiday at location X or Y - on the basis of the balance of emotions that you have experienced in those activities in the past? I don’t know about you, but I would want to see whether the hedonimeter results are consistent with my memories of the different experiences before I decided whether to use them.

A recent presentation by Daniel Kahneman (on TED) suggests that what my reflective self might feel about my memories of the experiences that I want to choose between could differ substantially from the emotions that my experiencing self has actually felt (or what an accurate hedonimeter might record).

Would you ignore the evidence of an hedonimeter if it conflicted with your memories of the experience? Would you ignore suggestions from your spouse or a friend that your memories of a holiday might be biased by the way you felt about something that happened at the end? If you had a reliable hedonimeter to record your memory of past pleasures would you give less weight to consideration of what experiences it is good to have (or issues such as those raised by J S Mill about the superiority and inferiority of different pleasures) in making your choices? Why do humans have selective memories? Do our selective memories serve a useful function from an evolutionary perspective?
Winton Bates

Postscript 1:
In retrospect I would like to add some further questions: Do the reasons why human have selective memories make any difference to the way you and I should live our lives? If I am told that there are good evolutionary reasons why I should remember how an experience ended (e.g. because it was important to the survival of my ancestors to remember which of their hunting expeditions were successful and unsuccessful) is this relevant to the decisions I should make today?
I am beginning to think that while the evolutionary reasons for cognitive bias may be interesting they may not be particularly relevant to our current decision-making.

Postscript 2:
I obviously became sidetracked while attempting to answer this question. My answer is that whether the hedonimeter would help us to make the choice depends on the criterion we think is most appropriate. If the criterion is pleasure, the hedonimeter might help. If the criterion is what is good for us, then pleasure is only factor that we would take into account and an accurate measure of pleasure might not be particularly useful. We might consider that it is better for us to spend Thursday evenings reading poetry rather than playing pushpin even though we might get more pleasure from playing pushpin.

Should schools and universities teach students how to be happy?

This question arose from the education chapter of ‘The politics of happiness’, by Derek Bok. I wrote some general comments about this book in my last post. Bok’s views about education deserve further consideration, however, not least because he was president of Harvard for a large slice of his professional career.


In reading the education chapter I was particularly interested to see how the author would deal with evidence that education, like economic growth, has little direct effect on happiness in the United States. (Australian evidence suggests that university level qualifications have a negative effect on happiness.) Bok’s views on education are somewhat more positive than his views on economic growth, but he is highly critical of the weight that education policies currently give to acquisition of vocational skills.

The first paragraph of the chapter sets the tone for the discussion that follows:

‘People often misjudge what will bring them enduring happiness or pain. It stands to reason, then, that any serious attempt to increase well-being should give a prominent place to education. Schools and universities are the obvious institutions to assume this responsibility by trying to cultivate interests and supply the knowledge that will help young people make more enlightened choices about how to live their lives’ (p. 156).

I would have liked to see recognition in that paragraph of the responsibilities of parents and of young people (who should be accepting responsibility for their own lives by the time they get to university). But I guess that most parents hope that the schools their children attend will somehow help them learn how to make enlightened choices about how to live their lives.

Does that mean that the results of happiness research should be taught in schools? Bok toys with that idea. He notes that one program based on happiness research, which was presented to school students by Martin Seligman, succeeded in cutting the incidence of depression in half over a two- or three year period. In the end, however, he comes down against teaching happiness in schools on the grounds that teachers who are not adequately prepared to present such material could give students a distorted view based on pop psychology. I suppose that view is wise. I think it would certainly be unwise for time spent on happiness studies to be at the expense of literacy and numeracy skills, and the development of skills in acquiring knowledge.

Most kids probably pick up more than enough pop psychology already from various sources, including their teachers, sports coaches and the self-help section of the local bookshop. If they are lucky they might look on a different shelf at the bookshop and find something more informative, like ‘Stumbling on happiness’ by Daniel Gilbert. When they find difficulty coping with life they might also get some helpful coaching from a competent therapist. To put these thoughts less cynically, while I doubt whether it is appropriate for happiness to be taught in schools, it would be good if children could be mentored by people whose knowledge of positive psychology was not gained solely by reading best sellers on such topics as the power of positive thinking and the secret of becoming an instant success at everything you might like to do.

Professor Bok is more strongly supportive of the study of the science of happiness being included in higher education. He has some reservations, however, about the inclusion of practical exercises to help students bring about ‘a personal transformation’, on the grounds that this ‘may strike some people as uncomfortably close to indoctrination’ (p. 172). It certainly strikes me that way. I think it makes sense to draw a firm line between what is taught as part of a curriculum and practical exercises in self-help that may be offered as an extra-curricula activity.

As noted earlier, Bok is highly critical of the current emphasis in education on acquiring vocational skills. He suggests that more research is required to understand what undergraduate experiences tend to be associated with greater happiness in later life. Our lack of understanding of such matters was highlighted to me in a recent paper by Michael Dockery which indicates that young people in Australia who experience higher education switch from having relatively high to relatively low levels of happiness (compared to others of the same age) at about the time they complete their degrees (LSAY, ‘Education and happiness in the school to work transition’, 2010). A variety of explanations are possible, including the development of unrealistic expectations at universities and a change in reference group following graduation. Andrew Norton's theory is that the graduates become unhappy because they are moving from an intellectually stimulating environment where they have a great deal of freedom to one they have much less discretion over what they are doing.

I think Australian universities should be giving priority to research to shed light on the reasons for this decline in happiness. Some young people may begin to wonder whether the sacrifices they make to attend university are worthwhile when they find out that they will probably end up less happy than their contemporaries who attain less advanced vocational qualifications.
Winton Bates

Postsript:
Since writing this I have been reminded that Martin Seligman has been involved in a major experiment in teaching happiness at Geelong Grammar School. He recently worked and lived with the teaching staff for six months preparing them to teach positive psychology. A transcript of Kerry O'Brien's ABC interview with Seligman in December 2009 can be found here.

Would the politics of happiness be any better than what we have now?

While reading the first few chapters of Derek Bok’s recent book, ‘The politics of happiness’, I thought its main contribution would be to help to highlight findings of happiness research that are relevant to government policy. This book turned out, however, to be more of a treatise arguing that politics should focus on raising average happiness levels of the population. People interested in an explicit discussion of the policy-relevance of happiness research should look elsewhere, for example: Ed Diener et al, ‘Well-being for Public Policy’ (which I discussed here and here and in a review essay for ‘Policy’, Summer 2009-10).


The first five chapters of ‘The politics of happiness’ provide a lucid discussion of broad findings of happiness research, the reliability of this research, philosophical issues relating to its use by policy-makers, and implications of findings for economic growth and equality as policy objectives. There is little discussion of the findings of happiness research in the chapters that follow - relating to the threat of financial hardship, relieving suffering, marriages and families, education and the quality of government. The focus in the second half of the book seems to be more on the policy implications of adopting the objective of raising happiness in the U.S. than on the relevance of happiness research to consideration of particular policy issues.

The main tenets of the politics of happiness as set out by Derek Bok are as follows:
• Americans have not become much happier over the past 60 years despite the dominant place of economic growth on the domestic political agenda and the vast increases in GDP that have occurred.
• The idea of growth ‘has shifted from a means to desired ends to an end in itself, an end with no foreseeable end in sight’ (p.66).
• There is no way that policy-makers could stop the economy from growing ‘without creating problems that would outweigh any hoped for benefits’.
• Policy-makers should re-focus their priorities away from economic growth toward efforts to raise happiness levels - for example through ‘programs to strengthen marriage and family; encourage active forms of leisure; cushion the shock of unemployment; guarantee universal health care and a more secure retirement; improve child care and pre-school education; treat mental illness, sleep disorders and chronic pain more effectively; and focus education policy on a broader set of goals’ (p.208).
• Law-makers should make efforts to build greater confidence in the political process ‘through measures to reduce the influence of money and special interests’ and to curb a range of ‘efforts by politicians to place their own reelection above the general welfare’ (p. 209).

The main problem with this account of the politics of happiness, from my perspective, is that it would substitute a narrower view of well-being than that which is currently used in policy discussions. Derek Bok adopts Ed Diener’s definition that a person is said to be happy who ‘experiences life satisfaction and frequent joy, and only infrequently experiences unpleasant emotions such as sadness or anger’ (p. 9). I accept that is an appropriate definition of happiness – as the term is most commonly used. But self-reports of emotional states cannot reflect the impact on well-being of an expansion of opportunities that cannot be anticipated.

To be more specific, it is unrealistic to expect the benefits of economic growth in high income countries – benefits that are mainly an outcome of technological progress – to be measured by changes in average happiness or life satisfaction. For example, does anyone seriously expect that people living in 1950 could have felt unhappy or dissatisfied - or sad, or angry even - because they did own personal computers or any of the numerous other amenities of modern life that had not then been invented? The fact that we do not feel dissatisfied that we do not yet possess the products of future technological progress does not mean that such products will not enhance our future well-being and that of our descendents. What it means is that our emotional systems fortunately enable us to be satisfied with what life offers us if we can attain a standard of living that is within the bounds of what it is currently possible for humans to attain.

It seems to me that attempting to compare the well-being of succeeding generations of people using happiness survey data is like trying to compare the prowess of succeeding generations of sporting teams by asking the members of the each team to rate their own performance on a scale of 1 to 10. The ratings would be uninformative because each person could be expected to judge his own performance relative to that of his contemporaries rather than to compare his performance with that of counterparts in the other team.

In the case of well-being comparisons, it is relevant to ask survey respondents to compare their own standard of living with that of their parents. Survey responses to that question over the period since 1994 show that between 60 and 70 percent of Americans assess their standard of living to be better than that of their parents at a similar age.

As an outside observer of the U.S. I am surprised by claims that economic growth has had a dominant place on the political agenda and that growth has become an end in itself in that country. As far as I am aware there is not much government intervention in the U.S. economy that is actually directed toward increasing economic growth. Most of the political rhetoric about the benefits of growth seems designed to reduce government interventions that hinder economic growth rather than to raise the growth rate beyond the levels that would otherwise emerge from decentralized decisions of individuals and firms about saving, investment, research, innovation etc.

Apart from its questioning of the contribution of economic growth to well-being, the politics of happiness does not seem to me to provide a particularly innovative agenda for paternalistic politics. The question that is largely overlooked, of course, is whether well-meaning paternalism is more likely to help individuals to flourish or to hinder their flourishing by making them increasingly dependent on governments.

Finally, it is worth noting that just about all politics in democratic countries is about happiness – using the term now in the broader sense to cover all aspects of well-being. Irrespective of the motives of participants who are presenting their particular views an appropriate consideration of just about every public policy issue must involve an assessment of claims about the potential effects of proposed policy changes on various aspect of human well-being. It seems likely that some of the findings of happiness research will add useful information to such assessments and will result in better policy decisions.
Winton Bates

Does identity economics predict happiness in different societies?

The key idea of 'identity economics' - as discussed in the recent book of that name by George Akerlof and Rachel Kranton - is that people gain utility when their actions conform to the norms and ideals of their identity (or social category e.g. gender, race, social class, age group) and lose utility when they do not. We should expect this to be so if we accept that individual behaviour is strongly influenced by socialization and that norms of behaviour can differ between people in different social categories.

This key idea of identity economics suggests that, other things being equal, people are likely to be happier when they live in societies where there are few economic or social pressures for them to act in ways that are contrary to the norms and ideals of their identity. It is important to define what we mean by happiness in this context. I think the appropriate concept in this instance is emotional well-being, as measured in happiness surveys, rather than an all-inclusive concept of well-being explicitly incorporating such factors as wealth, health and education. It seems reasonable to expect that, other things equal, people with high levels of identity utility would be more likely to say that they are happy or satisfied with life than would people with low levels of identity utility.

I get the impression from the methodology chapter of 'Identity Economics' that the authors are not particularly interested in econometric tests of the predictive power of their theory. They suggest that it is difficult to falsify any theory because ‘even the most straight forward test has literally millions of possible specifications’ (p. 115). I think they are exaggerating, but even accepting their point it seems to me that useful knowledge may be gained by considering what predictions might follow from a new theory and how well those predictions describe aspects of the real world.

It seems to me that one prediction we could make on the basis of identity theory is that people in homogeneous societies are likely to be happier than those in societies in which individuals have to interact with people who have different cultural backgrounds. We might expect that this effect would depend on the strength of ties to particular groups in multi-cultural societies, but we would expect homogeneity to be a plus for average happiness.

Is the evidence from happiness research consistent with this prediction? When I did a Google search using the words ‘happiness’ and ‘homogeneity’ the first results I saw seemed consistent with the prediction – people in countries that are homogeneous (as well as affluent) tend to be the happiest. However, delving deeper, I found a more careful study for 65 countries, using multiple regression to control for other variables, which suggests that ethnic homogeneity may actually have a negative effect on average life satisfaction (Douglas Barrett, Kristen Van Rensselaer and Bruce Gordon, ‘Possible effects of national population homogeneity on happiness’, Journal of International Business Research, 6 (1), 2007).

The authors comment as follows:

‘The results suggest that life satisfaction is significantly negatively related to ethnic homogeneity in the presence of our control variables. This is consistent with the “melting pot” concept, as multiple cultural influences create a richer living environment’ (p. 55).

I’m not sure what a richer living environment actually means. Perhaps one way of thinking about it is that a richer living environment enables us to get some of the benefits of foreign travel (e.g. sampling foreign food) without leaving the country. I think the result may also be consistent with identity economics if we view successful multicultural societies as providing learning experiences in which a substantial proportion of the population from all major ethnic groups have come to view themselves as tolerant of diversity. We should expect tolerant people to gain utility from acting in accordance with their ideals.
Winton Bates

Why should we be concerned that paternalism will foster dependency?

While reading the current discussion of ‘Slippery slopes and the new paternalism’ on Cato Unbound the thought occurred to me that the slippery slopes associated with libertarian paternalism could possibly take us in the direction of libertarianism rather than paternalism. If governments apply opt-out provisions to some existing paternalistic regulations it is possible that many of those who choose to opt out will be so successful in running their own lives that others will follow their example. This could result in political pressure for opt-out provisions to be applied to a wider range of regulation.

Has that train of thought filled me with optimism that citizens will tend to become more self-reliant and less dependent on government in the years ahead? Not exactly! I think widespread acceptance of the view of libertarian paternalists that it is possible for governments to act paternalistically without infringing individual rights is more likely to increase paternalistic regulation than to reduce it. That must follow if we can presume that protection of individual rights has had some influence in restraining the growth of regulation.

I think we should be concerned that increased paternalism will foster increased dependency on government. I see two particular areas of concern, the first of which is probably more manageable than the second.

My first area of concern is the development of cycles of dependency on welfare benefits in which several generations from one family become dependent on government hand-outs as the major source of their income from cradle to grave. This seemed to be a growing problem in the 1980s and 1990s, but increased paternalism in the manner of providing assistance may actually be reducing this problem and preventing it from spreading. Instead of income-support being provided as an unconditional entitlement it is now increasingly provided with conditions that require the beneficiaries to take action that will enable them to support themselves.

I have previously discussed (here) how attaching paternalistic conditions to welfare assistance can be consistent with both freedom and flourishing. If as much publicity is given to some of the ideas in ‘Identity Economics’, the recently published book by George Akerlof and Rachel Kranton, as is being given to the concept of libertarian paternalism, then I think we have grounds to hope that future welfare policies will be developed in the light of a better understanding of the role of identity in influencing behaviour. Policies that encourage people receiving welfare benefits to recognize their potential as productive members of the community are likely to help free them from cycles of dependency on government.

My second area of concern is an increasing tendency for people from all walks of life to look to government to provide protection against all kinds of risks. This has become so prevalent that it is difficult to choose an example to illustrate the point from the huge number available. When I was having breakfast this morning, however, a particularly appropriate example leapt out at me from the pages of ‘The Australian Financial Review’ (20 April). I think the example is particularly appropriate because it shows that even people who have a well-deserved reputation for rationality on public policy issues are now lending their support to proposals for government regulation to protect people who have hitherto been thought of as quite capable of looking after their own interests in the market place.

Tony Harris - a columnist whose views have hitherto generally deserved a great deal of respect – argues that the Australian government’s response to public concerns over executive remuneration has been ‘paltry’. Tony makes clear in his article that he wanted to see the government intervene in the executive pay market to address the problem of pay schemes that enable managers to earn substantial sums in good times, but lose little in bad times. He presents a logical argument that such pay schemes do not do a good job of aligning the interests of shareholders and executives.

The main problem with the article is that the author doesn’t even seem to think it is necessary to attempt to make a case for the government to intervene to protect shareholders in this instance. What is it that prevents major shareholders in public companies from insisting that executive pay packages provide appropriate incentives for executives? What prevents fund managers from taking the incentives provided to executives into account in making investment decisions?

The article doesn’t attempt to answer those questions. I think the answer to both questions is that nothing prevents the market for executive remuneration from working efficiently. The mistakes that have recently been made can be explained by the fact that this is an area where substantial innovation has occurred over the last couple of decades . Investors and fund managers have the strongest possible incentive to learn from this experience. It seems likely that as a result of recent events an increasing proportion of firms will pay executive bonuses in the form of shares that will be vested gradually, but some firms may consider a different approach to be preferable. No case has been made for governments to regulate how remuneration must be paid in all companies at all times.

When even sensible people argue that governments should protect people who are quite capable of looking after their own interests it is time for everyone to be concerned that government paternalism has fostered attitudes of dependency. We have already slid a long way down the slippery slope to dependency on government.

Author: Winton Bates.

What if people want governments to regulate them?

This post has arisen from a brief exchange with Scott Sumner about paternalism on his blog, The Money Illusion. Scott’s post expressed views relating to the current Cato Unbound seminar on libertarian paternalism.


In one of my comments I asserted: ‘Most people don’t like others interfering with their lives’. Scott responded:

‘I’ve seen polls that show most people think there should be a law requiring the wearing of seat belts. Indeed I find people I meet usually favor all sorts of restrictions on freedom. On the other hand most people do value a certain amount of freedom for non-utilitarian reasons. So this might help prevent excessive regulation from developing’.

When I read that my initial thought was that Scott was certainly right about seat belts. I have used seat belt regulation as an example when I had written previously (here) about people wanting governments to impose paternalistic regulations to help them cope with their self-control problems. My bottom line was that if people have self-control problems they should seek help from family and friends or professionals, rather than seeking government regulation. I still think that if people want a nanny to regulate their behaviour they should consider hiring one rather than expecting taxpayers to provide one for them.

However, I am having second thoughts about whether people support seat belt regulation because they think they need a nanny to help regulate their own behaviour. When I see roadside signs telling motorists that the police are currently targeting compliance with seat belt regulation I feel amazed that police apparently think that prevention of potential self-harm should have priority over offences that involve a threat to the lives and property of other people. How would supporters of the regulation react to those signs? According to the nanny theory they would see the signs as a reminder to wear their seat belts. But I don’t think many supporters of seat belt regulation would need reminding. Surveys suggest that these days a very high proportion of people in Australia wear a seat belt whenever they are in a car. I suspect that a lot of supporters of seat belt regulation might feel a warm inner glow as they drive past the signs threatening police enforcement because they hope that these signs will influence the behaviour of loved ones whom they consider to be more foolish than themselves.

Perhaps a significant proportion of supporters of seat belt regulation initially supported it to help them to develop the habit of wearing a seat belt. After they developed the habit, however, they probably joined the ranks of the paternalists who support the regulation to influence the behaviour of others. One way or another the regulation seems to have been widely viewed in Australia as a cost-effective way to help people to develop a good habit that might save their lives if they are involved in an accident.

What implications does this example have for the view (which I supported in a recent post) that individual rights are metanormative principles? One point that should be made is that even when there is widespread support for regulation such as this there are likely to be some people who have reason to see it as an interference with their lives. For example, a relative of mine sees the seat belt regulation as unwarranted interference because she has a strong conviction that God will protect her if she is involved in an accident, provided she demonstrates her faith by not wearing a seat belt. Some might scoff, but I can assure readers that this person is of sound mind and has thought deeply about the matter – she can provide examples of people who would have been more seriously injured or killed if they had put their faith in seat belts rather than in God. In my view her rights and those of others with reasoned objections to wearing seat belts should be respected, even if the vast majority of the population see the regulation as beneficial. If libertarian paternalism enables objectors to obtain exemption from such regulation then it is consistent with giving primacy to individual rights and is therefore consistent with the view that rights are metanormative principles.

This does not make me a strong supporter of libertarian paternalism. I think we should be wary of encouraging people to depend more heavily on choice architects within government to nudge them toward better decisions. I will probably write more about that later.

Should we welcome globalization or fear it?

Having just finished reading Gregg Easterbrook’s new book, ‘Sonic Boom’, I'm not sure how he would answer that question. He sees fantastic potential for social progress, but improved living standards are likely to be ‘wrapped with ribbons of stress, anxiety and dissatisfaction (p.34). His bottom line seems to be that globalization is inevitable and that we just have to learn to live with it.

Easterbrook expects the forces of globalization to grow stronger. That means that the insecurity that people often associate with globalization is likely to accentuate:

‘Job turmoil, the economic roller-coaster, financial bedlam, media superficiality, celebrity inanity, political blather, targeted advertising, scream-and-shout discourse, the paving over of nature – they’re all going to get worse. A lot worse in some cases. Most likely, global economics will be blamed for whatever about coming decades we don’t like.’

He also suggests, however, that much of what people tend to like about life will get better:

‘Prosperity will increase, especially in the less affluent nations where improvement is most needed. Democracy will flourish on five and perhaps six continents ... . Information and knowledge will proliferate as never before, while art and culture become available to everyone. Many aspects of this evolving sonic boom will be really terrific.’

Then comes the recommendation:

‘The terrific aspects and the anxiety inducing aspects will be intertwined and we’re just going to have to live with this’ (p. 209).

Why is globalization inevitable? I think Easterbrook discusses this in several places but I have noted one place in particular. (I’m glad I made notes as I read the book because there are few clues offered in the contents page about where to find stuff and the index doesn’t seem to be as helpful as it could be. But I digress!) Easterbrook suggests that we can’t stop global change because it is associated with the spread of freedom – ‘most of the world’s nations are acquiring the same core structures (democracy, free-market economics, emphasis on education) that makes the United States the current world leader ... . The more America-like the world becomes, the faster the pace of economic change will be’ (p. 192).

I think Easterbrook is basically right about this. It would probably take a world war to stop globalization and there doesn’t appear to be one of those on the horizon. Perhaps some people said similar things around 1900 - prior to a few decades of disruption in global trade and investment. Even so, the main point is that the forces shaping the future of the global economy are beyond the control of any individual, firm or government. At a national level it is possible to shield some groups from the forces of global change but only by reducing the opportunities available to others.

Easterbrook acknowledges that it is possible for governments to provide a safety net that will provide citizens with some degree of security, particularly in relation to health care. He argues that people in the U.S. suffer more stress than do people in western Europe because of problems associated with the U.S. health care system (pp. 200-202). I don’t know whether or not this is a valid point. Evidence from the Gallup World Poll suggest that people in the U.S. tend to experience more stress than do people in western European countries and Australia. But Mexicans report experiencing a lot less stress than Americans and less stress than Europeans and Australians - so there is probably more involved than health care.

My main reservation about this book, as with Easterbrook’s earlier book ‘The Progress Paradox’ (discussed here), is that I think he overstates the insecurity that people actually feel as a result of the forces of globalization. The book seems to be full of colourful phrases to describe this insecurity. For example, Easterbrook writes of ‘change-based anxiety’ (p.34), ‘Multiple Media Personality Disorder’ which he defines as a ‘a universal low grade nervous tension from which there may be no realistic escape’ (p.70), ‘the Super Bowl of stress’ (p. 72) and ‘collapse anxiety’ (p. 168).

I acknowledge that job insecurity has increased. Easterbrook makes a strong case that each year it gets easier for someone to come along with a superior idea and put an established firm out of business (p. 134). He could be right that in future there will be a greater risk that people who have risen to the middle classes will ‘fall back’ down the economic ladder and end up bitterly unhappy (p. 196). I also acknowledge that the insecurity of modern life is a popular topic of conversation, particularly in the media. But I don’t think insecurity is having a large impact on behaviour and the way people feel about their lives. If a lot of employed people were feeling a high degree of insecurity about their jobs I think they we would see more precautionary saving and less willingness to go into debt than we have seen in recent years. Survey evidence suggests that the vast majority of people in high-income countries feel that they have a great deal of control over their lives.

This leaves me thinking that there must be a huge gap between the fears that a lot of people express when they talk at a superficial level about the challenges and insecurity of modern life and the deeper feelings that they have about opportunities and threats in their own lives. By the way, returning to the original question, I think we should welcome globalization for the potential it offers for ongoing improvements in living standards.

Postscript:
Gallup poll data for the U.S. shows, not surprisingly, that people working in firms that are hiring more people are more likely to be thriving than are people working in firms that are letting people go. However, even in the firms that are letting people go the percentage who are thriving exceeds the percentage who are struggling. It seems that most people who have a job are optimistic about the future even if their job is insecure.

Why should we view individual rights as metanormative principles?

I first came across the concept of a metanormative principle when I read ‘Norms of Liberty’ (2005) by Douglas Rasmussen and Douglas Den Uyl. These authors argue that individual rights are metanormative principles that provide a solution to the problem of finding a political/legal order that will in principle not require that the flourishing of any person or group be given structural preference over others (p 78). They point out that individual rights are a unique ethical concept that differs from other ethical concepts – individual rights are not needed to know the nature of virtue or our obligations to others but are needed to enable people to flourish in different ways, according to their own values, without coming into conflict with each other. They suggest that an ethics that conceives of human flourishing as the ultimate standard should uphold a political legal order that sees protection of individual liberty as its chief aim (p.85). (There is an earlier post discussing these views here.)


It seems to me that Friedrich Hayek advanced a metanormative argument for individual rights similar to that advanced by Rasmussen and Den Uyl. Hayek argued that restriction of the use of the coercive powers of the state to enforcement of the negative rules of just conduct (prohibition of actions harming others) makes it possible for individuals and groups to live in peace without agreeing on common ends. He also presented a slightly different metanormative argument for liberty - that it makes possible a society in which mutually beneficial exchanges enable people to help each other to achieve their individual ends without agreeing on what those ends should be. This means that people ‘while following their own interests, whether wholly egotistical or highly altruistic, will further the aims of many others’ (Law, legislation and liberty, V2, 1982, p 110). I think Robert Sugden refers to that line of argument as ‘opportunity as mutual advantage’ (see below).

Robert Nozick’s view of the ethics of respect also seems to me to be a metanormative argument for recognition of individual rights. Nozick argues that the ethics of respect – mandating respect for the life and autonomy of others - is a foundation upon which higher layers of ethics may grow. For example, respect may grow into responsiveness to needs of others, which mandates acting in a way that is responsive to their value, enhancing and supporting it and enabling it to flourish (‘Invariances’, 2001, p 280).

J S Mill presented a metanormative argument in favour of individual rights when he suggested that the experimentation of different individuals and groups in living as seems best to themselves has value for society as a whole:

“It will not be denied by anybody, that originality is a valuable element in human affairs. There is always need of persons not only to discover new truths, and point out when what were once truths are true no longer, but also to commence new practices, and set the example of more enlightened conduct, and better taste and sense in human life” (“On Liberty”, Ch 3).

Mill also endorsed the argument that individuals are the best judges of their own interests. Viewed as an assertion about matters of fact this is not always correct. But it seems to me that Mill presents it as a metanormative argument for individual rights. He wrote:

‘... neither one person, nor any number of persons, is warranted in saying to another human creature of ripe years, that he shall not do with his life for his own benefit what he chooses to do with it. He is the person most interested in his own well-being, the interest which any other person, except in cases of strong personal attachment, can have in it, is trifling, compared with that which he himself has; the interest which society has in him individually (except as to his conduct to others) is fractional, and altogether indirect: while, with respect to his own feelings and circumstances, the most ordinary man or woman has means of knowledge immeasurably surpassing those that can be possessed by any one else’ (‘On Liberty, Ch 4).

A problem with this line of argument is that it is possible for any of us to claim that other people would benefit from being prevented from engaging in what we think is foolish behaviour because they do not seem to be sufficiently interested or knowledgeable about the effects of that behaviour on their well-being. Robert Sugden makes the point that when people make this argument they are imagining that ‘whoever designs the regulations will share their own sense of what is foolish, rather than belonging to the party of fools’.

Sugden suggests that from each person’s own perspective of what is good for herself she is much more likely to see herself as benefiting from opportunities to do as she likes (while accepting responsibility for her actions). From each person’s perspective on what is good for her she is also likely to see herself as benefiting from the opportunities that that other people have to do as they like - because that includes opportunities for actions that will benefit her. The opportunities available to each individual provides mutual advantages for themselves and others, including strangers with whom they trade on the basis of strict reciprocity. (See: Robert Sugden, ‘Opportunity as mutual advantage’, Economics and Philosophy, 26, 2010).

It seems to me that Sugden’s argument for opportunity to be viewed as mutual advantage is a strong metanormative argument in favour of individual rights and free trade. Since opportunity may also be viewed as potential for flourishing the concept of opportunity as mutual advantage also provides a link between freedom and individual flourishing.

How can policy advisors come to grips with complexity?

In this post I continue my discussion of the Australian Treasury’s wellbeing framework for policy advice. (The preceding discussion is here.)


The Treasury incorporates a range of considerations in its discussion of the complexity dimension of its wellbeing framework. The discussion is itself quite complex.

This section of the framework is headed: ‘Level of complexity that people are required to deal with’. This might be expected to lead to a discussion of the desirability of simple and transparent rules that are clearly defined (do not involve a large amount of administrative discretion) and which do not involve citizens and firms in incurring unnecessary legal fees and compliance costs to remain on the right side of the law. This aspect of complexity is covered, but much of the discussion involves somewhat deeper issues.

The discussion begins with a definition of complexity that does not actually clarify anything but does serve to make the point that policy decisions involve many interconnected considerations. The following paragraph discusses what the authors refer to as the conventional analysis of complexity that has focused on the economic impact of sets of rules. In that paragraph the authors suggest, among other things, that complexity ‘usually brings benefits both through a better targeting of rules and through the provision of greater certainty’. Benefits to whom? In my experience the complexity of government programs usually arises because of political pressure to make special provisions for particular groups. A paper by Ann Krueger and Roderick Duncan (NBER 4351), which is cited in the Treasury document, makes the important point that since a tendency for increasing complexity of controls is inherent in most efforts to regulate it should be taken into account in initial policy formulation.

The final paragraph of the section raises issues related to the ‘emergent properties’ of ‘complex adaptive systems’. The discussion takes place at such an abstract level, however, that I am not sure that anyone other than its author would know what it means. From my personal experience, when bureaucrats write like this they do so for a reason – for example, so that they can deny that they intended to convey a critical reader’s interpretation of their words, or so that they can claim to have covered points that they have actually chosen to omit. In view of this, rather than speculate about what the authors may have meant, I will present some points relating to the implications of complexity that I think the authors of the document should have incorporated explicitly (but more briefly than I have below).

First, in presenting policy advice it should not be presumed that political leaders will be capable of exerting top-down control to implement recommendations of their departmental advisors even if they, the political leaders, are not lacking in intestinal fortitude. When democratic political systems work well to promote ongoing policy improvements it is usually as a result of the development of widely-shared understandings that are often inherently fragile. One of the implications of this is that there may not be much point in proposing large scale reforms in a political environment that is receptive only to incremental change. Another implication is that there is an important role for public inquiries in providing forums in which the views of policy analysts may emerge as more widely-shared understandings - if those views can survive public scrutiny.

Second, it is important to understand the nature of problems before proposing solutions. This might be obvious to Treasury officers, but it is still worth emphasising in any public document discussing the implications of complexity for policy advice. Gary Banks, chairman of the Productivity Commission, has made the point as follows:

‘Half the battle is understanding the problem. Failure to do this properly is one of the most common causes of policy failure and poor regulation. Sometimes this is an understandable consequence of complex forces, but sometimes it seems to have more to do with a wish for government to take action regardless’ (‘Evidence-based policy making ...’ reprinted in ‘An Economy-wide view: speeches on structural reform’, 2010).

Elinor Ostrom has provided an excellent example of how poor understanding of problems can be a trap even for people who have some knowledge of economic theory:

‘Many textbooks on environmental policy present ... conventional theory of an open-access common-pool resource as the only theory needed for making effective policies ... . Massive deforestation in tropical countries and the collapse of multiple ocean fisheries are cited by many policy analysts and public officials as sufficient evidence to confirm the general validity of the theory. ... Policy analysts tend to distrust local citizens to create effective forms of governance. Consequently, they assume that multiplicities of self-organized regimes ... are by their very nature disorderly and ineffective. Order is presumed to result from central direction. ... These common-sense assumptions, however, lead to proposals to improve the operation of political systems that have the opposite effect. By removing decisions about the way to innovate, adapt, and coordinate efforts from those who are directly affected, these policy reforms have created institutions that are less able to respond to the problems for which they were created’ (‘Policy analysis in the future of good societies’, The Good Society, 11.1, 2002).

Elinor Ostrom observed that in many countries where governments have taken control of common-pool resources from local users the governments concerned have lacked the funds and personnel required to monitor these resources effectively. As a result many governments have exacerbated the resource management problems that they were trying to guard against.

Finally, in my view any discussion of the implications of complexity for policy advice that does not incorporate a reference to Friedrich Hayek’s insights about the dispersion of knowledge is deficient. Those insights seem to me to be just as relevant to explaining current problems in public provision of education and health services in Australia as to explaining the failure of economic planning in the former Soviet Union. Hayek’s insights about the implications of dispersed knowledge are particularly relevant to considering proposed public investments in infrastructure (such as the proposed broadband rollout). For all I know, the authors of Treasury’s wellbeing framework may have had good reasons to neglect mentioning Hayek’s insights. Nevertheless, I will attempt to compensate in a small way for their neglect by quoting a short passage from Hayek’s seminal article on the subject:

‘In ordinary language we describe by the word “planning” the complex of interrelated decisions about the allocation of our available resources. All economic activity is in this sense planning; and in any society in which many people collaborate, this planning, whoever does it, will have to be based on knowledge which, in the first instance, is not given to the planner but to someone else, which somehow will have to be conveyed to the planner. The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining the economic process. And the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy – or of designing an efficient economic system’ (‘The use of knowledge in society’, American Economic Review, 1945).

Summing up, I am obviously not quite as impressed with the Australian Treasury’s wellbeing framework for provision of policy advice as are senior Treasury officials. But I’m not well placed to judge the overall effect it has had on the quality of advice they offer. It is pleasing that the Treasury has been thinking broadly about the concept of wellbeing and has published a framework that it apparently finds useful for provision of policy advice.

How should wellbeing be considered in providing policy advice?

Every public policy analyst should know that the correct answer to this question is that wellbeing should be considered by comparing outcomes under existing institutions with likely outcomes under the alternative policies that are being contemplated. Bonus marks should be awarded to analysts who suggest that the risks associated with alternative policies should also be considered. Any analyst who suggests that comparisons should be made between the outcomes of existing policies and an unachievable perfect system should be recommended for a career change e.g. writing speeches for politicians.


What are the likely outcomes that are most relevant to consideration of wellbeing? Most economists would probably answer in terms of comparing the consumption possibilities over time associated with the alternative policies being considered. They might talk about potential Pareto improvements or about benefits and costs, including non-market benefits and costs. They might also talk about discount rates and distributional considerations. But I think the answer most economists would give could be fairly easily translated into a comparison of consumption possibilities over time.

The Australian Treasury provides a somewhat different answer in its wellbeing framework for provision of policy advice. Among the five dimensions of its wellbeing framework the Treasury does include consumption possibilities, the distribution of consumption possibilities and the level of risk that people are required to bear . The other two dimensions, however, are the level of opportunity and freedom that people enjoy – which is listed first – and the level of complexity that people are required to deal with.

When I first read the document containing Treasury’s wellbeing framework the first thing that struck me was the number of references to Amartya Sen. My first thought was somewhat cynical. I thought that the Treasury was feeling unloved and had decided to change its public image. It seemed to me that Treasury was sending out a signal that it was prepared to entertain broader concepts of wellbeing in order to counter the argument that it had a narrow economic focus. The Treasury had, of course, had a broad concept of well-being for a long time - at least since it issued a paper in the 1960s discussing limitations of GDP measurement - but it had also earned reputation over a long period for provision of hard-headed policy advice that was often unpalatable to governments. Since this had encouraged the development of competing, more political, sources of advice it seemed to me that the Treasury had decided that it needed to soften its image in order to stay in the game.

However, having looked more closely at the Treasury wellbeing framework, I now think it may be worth considering seriously as a move to consider broad issues relating to opportunity and flourishing, such as the issues that I am interested in on this blog. (See, for example, ‘Is the good society a useful concept?)

The Treasury document explains the relevance of Sen’s work as follows:

‘The recent work of Sen has sought to incorporate aspects of freedom from both the utilitarian and classical liberal approaches. He argues that freedom does have a special status for wellbeing, beyond its impact on happiness or pleasure. However, he expands the focus beyond simply the rights available to individuals, to include their effective opportunities to exercise those rights, given their personal and social circumstances’.

Sen’s concept of freedom is defined by ‘our capability to live the kinds of lives we have reason to value’. The main problem I have with this concept of freedom is Sen’s incorporation of a role for public debate and democratic decision-making in determining what kinds of lives we have reason to value. It seems to me that Sen’s capability concept doesn’t deserve the freedom label because it contains a strong element of paternalism.

This does not mean, however, that I think Treasury is on the wrong track in identifying opportunity and freedom in its wellbeing framework. As Robert Sugden has recently suggested, it is possible to conceive of opportunity as resting on ‘an understanding of persons as responsible rather than rational agents’. Each individual viewing the world from the standpoint of her own desires and beliefs, accepting her own entitlements as given and accepting responsibility for her own actions can value expanded opportunities for herself. (‘Opportunity as mutual advantage’, Economics and Philosophy (26)).

I don’t see any reason why Treasury should have any difficulty with the idea that in discussing opportunity and freedom it should view individuals as responsible for their own actions, even though they do not always act as rational agents. This does not preclude consideration of the consequences of paternalistic interventions – it just helps avoid confusing the meaning of freedom.

I had also intended to include discussion of the complexity dimension in this post, but I will leave that for another day. (Postscript: The discussion continues here.)

Is Buddhism opposed to individualism?

“Searching all directions with one’s awareness, one finds no one dearer than oneself. In the same way, others are fiercely dear to themselves. So one should not hurt others if one loves oneself.”

Who said that? Was it John Galt? No, it was the Buddha. The quote is from the Pali canon. Thanissaro Bhikkhu tells the delightful story behind the quote as follows in an article entitled ‘Hang on to your ego’, reproduced on the blog ‘Integral Options Cafe’:

‘King Pasenadi, in a tender moment with his favorite consort Queen Mallika, asks her, “Is there anyone you love more than yourself?” He’s anticipating, of course, that she’ll answer, “Yes, your majesty. You.” And it’s easy to see where a B-movie script would go from there. But this is the Pali canon, and Queen Mallika is no ordinary queen. She answers, “No, your majesty, there isn’t. And how about you? Is there anyone you love more than yourself?” The king, forced into an honest answer, has to admit, “No, there’s not.” Later he reports this conversation to the Buddha ... . the Buddha’s response is quoted above.

I was interested in Thanissaro Bhikkhu’s discussion of examples in the Buddha’s teachings of tips on healthy ego functioning because it seems relevant to a question I have been thinking about, namely the extent that Buddhist views of ethics differ from western views. In a review article I wrote about gross national happiness (GNH) I related a statement by Karma Ura, president of the Centre for Bhutan Studies, that governments should ‘create conditions for happiness in which individual strivings can succeed’ to Robert Nozick’s view of the ethics of social cooperation. I suggested that conditions that enable individual strivings to succeed would correspond to Nozick’s most fundamental level of ethics – the ethics of respect – mandating among other things respect for the rights of others. Nozick views the ethics of respect as the foundation upon which higher levels of ethics, including caring for the needs of others, may grow. (References to my article are given in my last post).

Before reading Thanissaro Bhikkhu’s article I was wondering how I would respond if someone suggested that I have placed an inappropriate western interpretation on what Karma Ura was writing about when he referred to individual strivings. What if he was talking about individual strivings to overcome self-love? I am now more confident that when a Buddhist refers to individual strivings there is a good chance that whatever they are talking about is consistent with what a westerner might refer to as healthy individual functioning.

If the Buddhist view of individual strivings was fundamentally different to the western view I would expect this to be evident in the psychological well-being section of the GNH questionnaire. However, the questions seem to cover similar ground to comparable western questionnaires, including recognition of the importance of self-worth, self confidence, overcoming difficulties, facing up to problems and enjoying life.

Delving further into Buddhist views about individualism I was reminded that the Dalai Lama is skeptical about the importance of cultural differences between easterners and westerners on issues relating to emotional management and ethics. He suggests that there is a very strong element of individualism in Buddhism:

‘One of the four laws of karma is, if you do not create the cause you will not experience the result. If you have created the cause, you will definitely experience the result. All this is individual, so the experiences you have are tied into your individuality’ (as reported by Daniel Goleman in ‘Destructive Emotions’, 2003, p. 254).

None of this implies that Buddhists, or anyone else for that matter, should be in favour of an atomistic individualism. I discussed why here last year.

Are Bhutanese people grossly happy?

Photo by Suzy Bates

Just about everyone who has heard of Bhutan would know that this tiny country – with population of about 800,000 in an area similar in size to Switzerland - has adopted Gross National Happiness as a national objective. The objective apparently has its origins in the 1970s in an assertion by the former king of Bhutan, Jigme Singye Wangchuck, that ‘Gross National Happiness is more important than Gross National Product’. Despite the origins of gross national happiness (GNH) in a play on words it is now recognized as an objective in Bhutan’s constitution.

I wrote a literature review article about GNH last year for Asian-Pacific Economic Literature (Vol 23 No 2). The article considers whether aggregate happiness is an appropriate policy objective and the advantages and disadvantages of various well-being indicators. (A policy brief summarising the article is available here; the final version of the article can be purchased here; and a draft is freely available here.) My conclusions, very briefly, were that it is possible to make sense of GNH as a policy objective if we think in terms of creating conditions in which individual strivings can succeed; that there are problems with happiness surveys and with composite measures of well-being (such as the human development index) as well as with GNP (and GDP). I acknowledged that the recently developed approach to GNH measurement in Bhutan is an impressive contribution, but my bottom line was that the best approach to well-being assessments is to gather together a suite of relevant indicators.

How is GNH measured in Bhutan? A few years ago the official answer was that happiness was measured by looking at the breadth of the smiles on the faces of the people. However a more quantitative and technical approach to measurement has recently been adopted. The underlying philosophy seems to be that a range of minimum conditions must be met before a person can be considered to be happy. The methodology involves attempting to measure the extent to which the attainments of members of the population approach a ‘sufficient level’ in nine dimensions: psychological well-being, time use, community vitality, diversity and resilience of cultural traditions, health, education, environment (perceptions and ecological knowledge), living standards and perceptions of governance. The methodology gives greater weight to large deficits in particular dimensions than to small deficits in several dimensions.

So, how happy are the people of Bhutan? Unfortunately, since Bhutan is the only country attempting to measure GNH, we can’t use the GNH methodology to compare the well-being of people in Bhutan and other countries. The initial survey results enable comparisons to be made between people in different regions in Bhutan – which may be useful for policy purposes within Bhutan – but is not helpful in making international comparisons.

In any case, I think the best way to assess the well-being of the Bhutanese people is to use a suite of indicators to look at how they are faring by comparison with India, their big neighbour. For example:

• GDP per capita in 2007 was $US 4,837, 75% higher than in India;

• the growth rate of real per capita GDP was 7.9% per annum over the decade to 2007; that for India was 4.9% per annum;

• average life expectancy is only slightly higher than in India - 65.7 versus 63.4;

• adult literacy is lower than in India - 53% versus 66%;

• poverty rates are much lower in Bhutan than in India – 26% with daily income below $1.25 versus 42% for India;

• average life satisfaction in Bhutan (according to nef estimates) is about 11 per cent higher than in India.

It seems to me that even though the people of Bhutan have plenty to smile about there is still room for improvement in some aspects of their well-being e.g. health and education.

Is there a progress paradox?

In his book, ‘The Progress Paradox’ (2004) Gregg Easterbrook suggested that if his readers’ great-great-grandparents materialized in the United States of the present day they might say that it is the realization of utopia, ‘except for the clamour and speed of society, and trends in modern music’ (p. xv). The supposed paradox is that people who live in the U.S. (and other countries with similar standards of living) ‘live in a favored age yet do not feel favored’ (p. xx).

The sub-title of Easterbrook’s book is ‘How life gets better while people feel worse’. His account of how practically everything in our lives has been getting better seems to me to be comprehensive and unassailable. However, I don’t think his suggestion that ‘people feel worse’ while life gets better stands up to scrutiny.

Easterbrook claims:

‘Today Americans tell pollsters that the country is going downhill; that their parents had it better ; that they feel unbearably stressed out; that their children face a declining future ...’ (p. xv).

Let us look at each of the claims made in the quoted passage, in turn:

• Have Americans been telling pollsters that the country has been going downhill while their own lives have been getting better? The latest Gallup poll appears to provide support for that proposition: only 19 percent of Americans are satisfied with ‘the way things are going in the United States at this time’. But this data is highly volatile. Since this poll started in 1979 there have been three other periods of sub-20 percent satisfaction ratings - all of which have coincided with difficult economic times. In 1999, after several years of strong economic growth, about 70 percent of Americans were satisfied with the way things were going. The evidence does not support the view that Americans have been telling pollsters that the country has been going downhill during periods when their own lives have been getting better.

• Have Americans been telling pollsters that ‘their parents had it better’? No. In surveys conducted by the Pew Research Centre nearly two-thirds of respondents say that their standard of living exceeds that of their parents at the age they are now. The proportions have been similar in all survey years since 1994. (Chart here.)

• Have Americans been telling pollsters that ‘they feel unbearably stressed out’? Not really. In a 2008 survey, conducted by the Pew Research Centre, 36 percent said they experience stress frequently, a similar proportion said they experience stress sometimes and the remainder claimed that they experienced it rarely or never.

• Have Americans been telling pollsters that ‘their children face a declining future’? No, at least not in the survey results I have seen. Research by the Pew Research Centre suggests that the number of Americans who consider that the future will be better than the present substantially exceeded those who consider it will be worse in all years surveyed from 1964 to 2006. It would not be surprising if these numbers have turned around since the global financial crisis – but that could hardly be attributed to people feeling worse while life gets better.

In my view Easterbrook’s progress paradox is a myth.

If there is a progress paradox in the U.S. it relates to the happiness of particular groups rather than to the whole population. For example, there is a puzzle as to the causes of declining female happiness, which is discussed in a recent article by Betsey Stevenson and Justin Wolfers.

There has also been a declining trend since the 1970s in the percentage of those who identify with the political left who are ‘very happy’. It might be possible to argue that this is a progress paradox if one could believe that self-styled progressives are actually in favour of progress.

Leaving that aside, Gregg Easterbrook’s thoughts about what he calls complaint proficiency might provide an explanation for the apparent decline in happiness of those who identify with the political left:

‘About many things, especially injustice, we should complain. But we practice complaining so much, and on so many minor issues, that we become too proficient: And then complain more, if only because we are confident we are good at it. Expressing gratitude or appreciation does not come easily to us because we practice it so little’ (p. 118).

Is democracy akin to a process of scientific experimentation?

In his book, ‘The Science of Liberty’ (2010), Timothy Ferris argues that liberal democracy and science are similar in important respects:

‘Both start with tentative ideas, go through agonies of experimentation, and arrive at merely probabilistic conclusions that remain vulnerable to disproof. Both are bottom-up systems, constructed more from individual actions ... than from a few allegedly impervious precepts. A liberal democracy in action is an endlessly changing mosaic of experiments, most of which partially or entirely fail’ (p 13).

Ferris acknowledges that these failed experiments make the democratic process frustratingly inefficient but he argues that the great strength of liberal democracy is its capacity to sustain the experimental process.

I think this view of liberal democracy as akin to a scientific process is a desirable ideal rather than a description of how democratic systems actually work. Before elaborating, however, I would like to praise this book for shedding light on the relationship between liberty and science. With the benefit of having read the book, I think it is valid to depict the relationships between liberty, economic progress and the advance of knowledge as shown below.

If I had drawn such a diagram before I read the book I doubt whether I would have thought to draw an arrow running directly from liberty to advance of knowledge. The author’s main achievement, to my mind, is in describing the historical relationship between liberty and the advance of knowledge. The book illustrates that, to use the authors words ‘science demanded liberty and demonstrated its social benefits, creating a symbiotic relationship in which the freer nations were better able to carry on the scientific enterprise, which in turn rewarded them with knowledge wealth and power’ (p 7).

Before reading the book I was aware of some of the relevant history, such as the Vatican’s attempts to suppress Galileo’s ideas and the negative influence of Lysenko and communist ideology on the biological sciences and agricultural production in the Soviet Union. At the same time, however, I tended to think of the advance of knowledge as something that occurs exogenously with the passage of time - as it is often modelled in the economic growth literature – rather than as a product of liberty.

One of the most interesting things I learned from the book is the extent to which scientifically-minded individuals have been at the forefront in promoting liberty. Isaac Newton was not only a scientist but also a strong proponent of liberty and a close friend of John Locke. Thomas Paine, Benjamin Franklin and Thomas Jefferson, who played large roles in inciting and carrying out the American revolution, were amateur scientists. Thomas Jefferson apparently ranked his service as first head of the U.S. Patent Office as comparable with having written the Declaration of Independence and been twice elected president.

In my view Ferris makes a strong case that the U.S. founding fathers deliberately adopted a structure of government that would sustain an ongoing series of policy experiments, rather than attempt to guide society towards a specific goal (p 102). By contrast, the French revolutionaries assumed that the point of the revolution was to implement a particular philosophy – stemming from Rousseau’s view that the power of the state should be used to impose equality (p 120). The American revolution resulted in an imperfect system of government but the French revolution resulted in a major disaster for the people of France.

As I see it the main problem in viewing liberal democracy as akin to a process of scientific experimentation is the weakness of democratic processes for ending policy experiments that partially fail. Elections seem to be a reasonably effective way for citizens to avoid being governed by despots, to get rid of politicians who are obviously corrupt and to experiment with new policies. However, even policy proposals that are viewed as radical reforms rarely involve more than a tweaking of the failing policy experiments that already exist.

The mosaic of policy experiments being conducted under liberal democracies at any time seems to me to be much more path dependent than scientific research. Unproductive avenues of research are replaced much more readily than government programs that are failing. The best we can hope for from policy reforms is that the tweaking of the existing policy experiment will set in train an evolutionary process that will eventually result in better outcomes.

The increasing involvement of the federal government in funding of hospitals in Australia illustrates the processes involved. The basic problem prior to federal intervention was ensuring appropriate access to hospital services for people who did not qualify for free access under the means tests applied by the hospitals and state governments. Some policy experimentation by the federal government was probably inevitable to attempt to solve the perceived problem – whenever the states experience a funding problem a substantial proportion of the Australian electorate expect the federal government to ‘do something’.

There were basically two kinds of policy experiment that might have been conducted. Under the first approach the federal government would offer to fund hospital care for those who claimed to be unable to pay for insurance, using the federal tax system to recover funds from those who were falsely claiming financial hardship. Under the second approach, the federal government would give funds to the states on condition that the state governments solved the means test and access problems. The second approach was adopted and we ended up with free access to basic hospital care for everyone who is still alive when they reach the top of the waiting list – as well as confusion of responsibility for service delivery, with state governments blaming inadequate federal funding for ongoing problems.

If the democratic process in Australia was akin to a process of scientific experimentation it seems reasonable to suppose that the current hospital funding experiment, that had its origins in the 1940s, would have long been abandoned in favour of a different kind of experiment more in tune with the market realities. Instead, what we have is a federal government proposal to tweak federal funding – to make it more closely related to services actually provided – being put forward as a major reform initiative. I think the most we can hope is that if it is implemented this proposal might possibly push the evolution of hospital funding in a more sensible direction.

Similar problems of path dependency are evident in the policy experiments in many different policy areas in Australia and in many policies adopted in other liberal democracies. The world would be a better place if democratic processes were more like the processes of scientific experimentation.