One of the findings of happiness research is that when people are asked how satisfied they are with life as a whole their answers often depend partly on comparisons of their income levels with those of other people. Thus, for example, some people whose income level has risen may report that their life satisfaction has gone down if their incomes have not kept pace with the growth in average incomes in the community in which they live.
Many of us tend to assume that those who allow interpersonal income comparisons to influence how they feel must be either be feeling envious or gaining pleasure from others being less fortunate than themselves. Either way, the most obvious solution is for them to get over comparing themselves to others.
However, there are some good reasons why people compare their incomes with those of others when considering how satisfied they are with their own lives. Consider an imaginary person who responds to the life satisfaction question by considering how her (his) life is unfolding compared with her expectations. She had clear expectations about some important aspects of what life might hold – for example, she knows what she expected married life would be like and whether it is turning out to be as she had expected. At the same time, although she had no idea what rate of increase in income she could expect to receive, she nevertheless has a strong view that her income has not increased in line with her expectations. She has come to this view because at an earlier stage of her career she had good reason to expect that her income would rise at about the same rate as the average incomes of the people she was working with at that time. The fact that her income has not kept pace with the average rate of increase in the incomes of her former work colleagues does not make her feel envious of them. She just feels disappointed that she has not been able to live up to her own expectations in this regard.
In this example the individual is using a comparison with incomes of a specific reference group merely as a source of information. There is research evidence that in some countries this information effect is positive and dominates any negative comparison effect. Research by Claudia Senik suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals rises when the income of their reference group -people with the same skills and occupation - increases (see here). Her explanation is that in these countries people consider that their own future prospects to be better when the income of their professional peers rises. By contrast, in EU countries increases in incomes of the reference group tend to reduce life satisfaction - people tend to assess how well they are doing relative to their reference group. The difference seems to stem from the greater income volatility and uncertainty of the transition countries.
The important point is that when people use income comparisons in assessing how satisfied they feel we should not assume that they perceive themselves to be involved in some kind of rat race. They may merely be using comparisons to consider their own expectations.
Wednesday, April 23, 2008
What does "living in peace" entail?
Friedrich 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 noted that mutually beneficial exchanges enable people to help each other to achieve their individual ends without agreeing on what those ends should be (Law, legislation and liberty, V2, 1982, p 110).
This line of reasoning implies that use of coercion by governments to advantage some people at the expense of others (for example, through government spending and taxation) is a threat to peaceful coexistence. Does this mean that we should expect to see a great deal of civil disorder in countries with high government spending?
Not necessarily. Peaceful coexistence can begin to disintegrate long before there is any evidence of civil disorder.
Consider the situation where people take action to avoid high taxes, for example by moving business activities to a country with lower tax rates. These avoidance actions may be legal and the people taking them may have a great deal of respect for democratic decision-making processes. It seems to me that these avoidance actions are just as much evidence of a breakdown in peaceful coexistence as they would be if they had been taken in response to threats of plunder by some group in the community who were taking the law into their own hands.
This line of reasoning implies that use of coercion by governments to advantage some people at the expense of others (for example, through government spending and taxation) is a threat to peaceful coexistence. Does this mean that we should expect to see a great deal of civil disorder in countries with high government spending?
Not necessarily. Peaceful coexistence can begin to disintegrate long before there is any evidence of civil disorder.
Consider the situation where people take action to avoid high taxes, for example by moving business activities to a country with lower tax rates. These avoidance actions may be legal and the people taking them may have a great deal of respect for democratic decision-making processes. It seems to me that these avoidance actions are just as much evidence of a breakdown in peaceful coexistence as they would be if they had been taken in response to threats of plunder by some group in the community who were taking the law into their own hands.
What are moral consequences?
In his book, “The moral consequences of economic growth”, Benjamin Friedman argues that economic growth has favourable moral consequences because it causes societies to move toward more tolerance, openness, mobility, fairness and democracy. In my view he makes a strong case, based on historical analysis, that periods of high economic growth have, in fact, been accompanied by greater tolerance etc in the United States and several other countries.
The question I want to consider here is whether it is appropriate to view the desirable social consequences of rising incomes as “moral consequences” and whether it is matters if the distinction between social consequences and moral consequences is blurred.
Friedman argues that during periods of economic growth people see that they are doing well compared with the benchmark of their own prior experience and thus place less importance on how well they are doing compared to other people. By contrast, during periods of economic stagnation people attach greater importance to living at least as well as others, and thus tend to be less tolerant and less generous in their attitudes and behaviours.
It is certainly desirable that we should be tolerant towards others, but it seems to me that this hardly qualifies as moral behaviour if we are only tolerant when we feel that our own living standards are rising. We do not view fair weather friendship as having moral virtue – even though fair weather friends can make fair weather more enjoyable - so why should we view the tolerance that others extend when their incomes are rising as moral behavior?
I think it is worth making a distinction between moral consequences and social consequences because some experiences can have lasting consequences for the values that people hold. For example, it is reasonable to suppose that participation in market transactions - mutually beneficial exchanges - tends to promote greater social interactions among people in different communities and hence to promote greater tolerance. It seems to me that the tolerance that develops from these favourable interactions could be viewed as both a social and moral consequence of markets. The relationships that develop through market interactions between relative strangers can enable the people involved to build the interpersonal trust that is integral to the more complex forms of cooperation (e.g. financing of investment and innovation) necessary for economic growth to be sustained.
In my view Benjamin Friedman should be applauded for his efforts in drawing attention to the desirable social consequences of economic growth. It seems to me, however, that the view that the morality of social cooperation depends on continually rising living standards involves too pessimistic a view of human nature. How could economic growth have ever got started if continually rising living standards were needed to generate the trust in others that was necessary for growth to begin to occur?
The question I want to consider here is whether it is appropriate to view the desirable social consequences of rising incomes as “moral consequences” and whether it is matters if the distinction between social consequences and moral consequences is blurred.
Friedman argues that during periods of economic growth people see that they are doing well compared with the benchmark of their own prior experience and thus place less importance on how well they are doing compared to other people. By contrast, during periods of economic stagnation people attach greater importance to living at least as well as others, and thus tend to be less tolerant and less generous in their attitudes and behaviours.
It is certainly desirable that we should be tolerant towards others, but it seems to me that this hardly qualifies as moral behaviour if we are only tolerant when we feel that our own living standards are rising. We do not view fair weather friendship as having moral virtue – even though fair weather friends can make fair weather more enjoyable - so why should we view the tolerance that others extend when their incomes are rising as moral behavior?
I think it is worth making a distinction between moral consequences and social consequences because some experiences can have lasting consequences for the values that people hold. For example, it is reasonable to suppose that participation in market transactions - mutually beneficial exchanges - tends to promote greater social interactions among people in different communities and hence to promote greater tolerance. It seems to me that the tolerance that develops from these favourable interactions could be viewed as both a social and moral consequence of markets. The relationships that develop through market interactions between relative strangers can enable the people involved to build the interpersonal trust that is integral to the more complex forms of cooperation (e.g. financing of investment and innovation) necessary for economic growth to be sustained.
In my view Benjamin Friedman should be applauded for his efforts in drawing attention to the desirable social consequences of economic growth. It seems to me, however, that the view that the morality of social cooperation depends on continually rising living standards involves too pessimistic a view of human nature. How could economic growth have ever got started if continually rising living standards were needed to generate the trust in others that was necessary for growth to begin to occur?
What is the difference between populism and popularity?
Like beauty, populism often seems to be in the eye of the beholder. Politicians often use the term to describe the policies of their opponents that have strong popular support. Is it possible to distinguish policy proposals that are populist from other policy proposals that have strong popular support? Given that political parties exist to compete for popular support, is the term populism ever more than just a term of abuse?
In reading the Benjamin Friedman’s book, The moral consequences of economic growth, I was reminded that politicians have not always shied away from the populist label. For example, in the U.S. in the late 1800s the People’s Party was unashamedly populist. Among other things this populist movement advocated an easier monetary policy, preservation of the way of life based on the small town economy, reduced immigration, and denial of voting rights to blacks. Friedman argues that this populist movement was in large part an expression of the anxieties and frustrations created by the hard economic times that persisted for nearly a generation leading up to the mid-1890s (p121).
At around that time there similar political sentiments were popular in Australia, for example opposition to Asian immigration and trade protectionism.
In my view the distinguishing characteristic of populist policies is their appeal to tribal instincts rather than to reason and cosmopolitan ethics (which provides the basis on which people who do not know each other can live in peace).
The first tribal instinct is that if something bad happens, blame some other tribe. So, for example, it appears obvious that the tribe should be suspicious of members of other tribes who are living in their territory, particularly when game is becoming scarce. Populists don’t seem to appreciate that immigration and international trade involve different issues than those involved in trespass and poaching.
The second instinct that comes into play when something bad happens is for leaders to take the most obvious action to ensure that members of the tribe share the pain. So, for example, if reserves of water are diminishing, the obvious solution to ensure fair distribution would be for tribal leaders to regulate how the available water could be used. Populists don’t seem to appreciate that the most obvious solution is not necessarily the best solution. They oppose the use of markets to allocate scarce resources to highest value uses.
The third instinct is that economic order has to be imposed by tribal leaders. Populists don’t understand the concept of spontaneous order emerging from the interactions of individuals, each pursuing their own interests.
The fourth instinct is to oppose any attempt to suggest that the workings of the modern world are more complex than the tribal model implies. Populists don’t like the idea of their objectives being questioned and their proposals being subjected to public scrutiny through independent analyses conducted by competent professionals.
In my view the best defence against populism is an electorate which expects policy proposals to be put through a lengthy process allowing independent public scrutiny prior to implementation. Recent events in Australia suggest to me that many voters tend to become uneasy when they see politicians avoiding established procedures to implement policies that will be popular with particular interest groups.
In reading the Benjamin Friedman’s book, The moral consequences of economic growth, I was reminded that politicians have not always shied away from the populist label. For example, in the U.S. in the late 1800s the People’s Party was unashamedly populist. Among other things this populist movement advocated an easier monetary policy, preservation of the way of life based on the small town economy, reduced immigration, and denial of voting rights to blacks. Friedman argues that this populist movement was in large part an expression of the anxieties and frustrations created by the hard economic times that persisted for nearly a generation leading up to the mid-1890s (p121).
At around that time there similar political sentiments were popular in Australia, for example opposition to Asian immigration and trade protectionism.
In my view the distinguishing characteristic of populist policies is their appeal to tribal instincts rather than to reason and cosmopolitan ethics (which provides the basis on which people who do not know each other can live in peace).
The first tribal instinct is that if something bad happens, blame some other tribe. So, for example, it appears obvious that the tribe should be suspicious of members of other tribes who are living in their territory, particularly when game is becoming scarce. Populists don’t seem to appreciate that immigration and international trade involve different issues than those involved in trespass and poaching.
The second instinct that comes into play when something bad happens is for leaders to take the most obvious action to ensure that members of the tribe share the pain. So, for example, if reserves of water are diminishing, the obvious solution to ensure fair distribution would be for tribal leaders to regulate how the available water could be used. Populists don’t seem to appreciate that the most obvious solution is not necessarily the best solution. They oppose the use of markets to allocate scarce resources to highest value uses.
The third instinct is that economic order has to be imposed by tribal leaders. Populists don’t understand the concept of spontaneous order emerging from the interactions of individuals, each pursuing their own interests.
The fourth instinct is to oppose any attempt to suggest that the workings of the modern world are more complex than the tribal model implies. Populists don’t like the idea of their objectives being questioned and their proposals being subjected to public scrutiny through independent analyses conducted by competent professionals.
In my view the best defence against populism is an electorate which expects policy proposals to be put through a lengthy process allowing independent public scrutiny prior to implementation. Recent events in Australia suggest to me that many voters tend to become uneasy when they see politicians avoiding established procedures to implement policies that will be popular with particular interest groups.
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