There seems to be increasing scepticism these days about the worth of democracy. The following quote from a post by John Humphreys on the “Thoughts on Freedom” blog provides a good example of what I mean:
“Democracy has become a new faith. Simply saying the word supposedly makes an argument stronger, as though there is some inherent morality in two wolves and a sheep voting on what to have for dinner. Democracy has it’s uses — it allows you to change government without any killing and it puts downward pressure on corruption. But I doubt that it leads to better policy, and indeed I think it has a built-in bias towards ever more totalitarian policy controlled by special interest groups ...”
In my view Humphreys is wrong. There is an inherent morality in democracy when it is perceived appropriately as a system in which all members of the polity have equal potential to influence the construction and operation of the political order. The problem is that it is often seen to be legitimate for some groups to use democratic politics as a means to obtain benefits at the expense of others. Such attitudes should be denounced as immoral for the same reason that the attitude that the market economy exists to enable some people to benefit through opportunistic exploitation of others is widely denounced as immoral. As James Buchanan has emphasised, the viability of a market economy and a democratic political system both depend on norms of mutual respect and reciprocity.
The political system in most democratic countries does not have huge problems in dealing with blatant attempts by some people to benefit at the expense of others. Democratic politics can be effective in dealing with corruption (as John Humphreys acknowledges). It is worth noting, however, that corruption often goes undetected for long periods where dedicated institutional arrangements do not exist to detect it.
I think that democratic politics are also reasonably effective in dealing with unsubtle attempts at vote buying, for example where a governing party promises additional benefits to residents of marginal seats in a desperate attempt to hold onto or win office. Parties initiating such tactics risk being perceived by voters as acting unfairly - and hence unworthy of being elected to government.
It is much more difficult for voters to deal appropriately with complex issues such as those involved in trade protectionism. A recent policy brief prepared for the Lowy Institute by Bill Carmichael, Saul Eslake and Mark Thirlwell describes the nature of the problem as follows:
“Most of us have a limited understanding of what is at issue in decisions about protection. Our response to the prospect of opening domestic markets is influenced by the information available to us about the domestic consequences. In the absence of public information about the economy-wide gains at issue for the community as a whole, and in view of the more visible costs to prospective losers, the latter have naturally found support at home. As a result, governments have had difficulty mobilising a domestic commitment to open domestic markets to international competition” (“Message to the G20: defeating protectionism begins at home” p 7-8).
The solution advocated by the authors is “a domestic discipline on national decision-making that promotes wide domestic awareness of its economy-wide costs.” Rather than attempt to summarise the proposals here I recommend that people should read them in the context in which they are presented in the paper.
The thought that I would like to leave you with here is that there is scope for policy outcomes in democracies to be improved if more intellectual effort is put into constructive efforts of the kind presented in the Lowy paper.
Addendum by Bill Carmichael:
It should not surprise us that those responsible for articulating the theoretical basis for market economics and democracy--people like John Stuart Mill, David Hume and Adam Smith--placed a condition on the relevance of each in enhancing the quality of governance and community welfare. The condition was, and remains, the existence of a well informed community in the case of democracy and well informed consumers as the basis for market economics. The message from these theoretical founders is that the value (in each case) is not in the theory, but its practise. That is the rationale for the domestic transparency arrangements established in Australia in the early 1970's, structured to operate outside government and independent of private interest groups. Those arrangements were put in place for a specific purpose--to make our democratic system and market economics relevant in decision-making on protection issues, by providing the information governments, communities and consumers need to promote decisions that enhance community welfare. I believe such arrangements have a wider application than decision-making on protection In their absence, our expectations about what the community gains from market economics and democratic governance are likely to lack substance.
Friday, September 4, 2009
Sunday, August 30, 2009
Is economic growth causing the Chinese to become discontented or more optimistic?
In my last post I suggested that the reasons why rapid economic growth has not resulted in increased average life satisfaction in China over the last couple of decades have more to do with rising aspirations than with increased income inequality. In this post I want to consider those issues further.
My first point is that in recent years the Chinese have been about as satisfied with life as people in most other countries with comparable income levels. This shows up clearly in charts in Angus Deaton’s article, ‘Income, health and well-being around the world’ (“Journal of Economic Perspectives”, 22 (2)).
Second, survey evidence is not consistent with growing discontent caused by rising inequality - or by anything else. According to recent Gallup data about 66 percent of Chinese are satisfied with their standard of living and 83 percent say that their standard of living is getting better. A paper by Nicole Naurath show that in 2008 over 80 percent of Chinese claimed that economic conditions were getting better in the city or area where they live and that it was also getting better as a place to live.
Third, there is evidence that life satisfaction in China is more strongly influenced by satisfaction with income growth (i.e. satisfaction with income now compared with income in the past) than with either absolute or relative incomes. The results of a study by Lina Song and Simon Appleton do not support the view that dissatisfaction with relative income is a major cause of social discontent in China (“Life Satisfaction in Urban China”, IZA DP: 3443, 2008).
Fourth, Andrew Deaton found in his cross-country study, cited above, that while level of per capita income has a positive effect on life satisfaction, economic growth has a negative effect. His results suggest that it would be normal for the negative effect of economic growth to outweigh the positive effects of increases in income levels in countries that are experiencing rapid economic growth (see Table 2 in his article). Deaton argues that his results are consistent with life satisfaction responding to the long-term average income, as in a permanent income model of life satisfaction.
Fifth, the ratings that the Chinese give to the quality of their lives five years ago and five years into the future suggest that large upward revisions are occurring in their aspirations. The Gallup data for 2008 indicates that the Chinese rated their lives five years ago less highly than just about every country in the world outside Africa. The rating they give to their lives five years ahead is higher than that in some western European countries. When they appraise their current quality of life in five years time they will realize that they still have somewhat further to go before attaining “the best possible life”. But they are not likely to become discontented while they continue to experience the economic growth they have come to expect.
I think the lesson to be learned from consideration of the relationship between average life satisfaction and rising per capita incomes in China is that the failure of life satisfaction to rise with income does not necessarily imply discontent with the consequences of economic growth. Those who suggest that economic growth has led to widespread discontent in China are mistaken. Economic growth has merely cursed the Chinese with great expectations.
My first point is that in recent years the Chinese have been about as satisfied with life as people in most other countries with comparable income levels. This shows up clearly in charts in Angus Deaton’s article, ‘Income, health and well-being around the world’ (“Journal of Economic Perspectives”, 22 (2)).
Second, survey evidence is not consistent with growing discontent caused by rising inequality - or by anything else. According to recent Gallup data about 66 percent of Chinese are satisfied with their standard of living and 83 percent say that their standard of living is getting better. A paper by Nicole Naurath show that in 2008 over 80 percent of Chinese claimed that economic conditions were getting better in the city or area where they live and that it was also getting better as a place to live.
Third, there is evidence that life satisfaction in China is more strongly influenced by satisfaction with income growth (i.e. satisfaction with income now compared with income in the past) than with either absolute or relative incomes. The results of a study by Lina Song and Simon Appleton do not support the view that dissatisfaction with relative income is a major cause of social discontent in China (“Life Satisfaction in Urban China”, IZA DP: 3443, 2008).
Fourth, Andrew Deaton found in his cross-country study, cited above, that while level of per capita income has a positive effect on life satisfaction, economic growth has a negative effect. His results suggest that it would be normal for the negative effect of economic growth to outweigh the positive effects of increases in income levels in countries that are experiencing rapid economic growth (see Table 2 in his article). Deaton argues that his results are consistent with life satisfaction responding to the long-term average income, as in a permanent income model of life satisfaction.
Fifth, the ratings that the Chinese give to the quality of their lives five years ago and five years into the future suggest that large upward revisions are occurring in their aspirations. The Gallup data for 2008 indicates that the Chinese rated their lives five years ago less highly than just about every country in the world outside Africa. The rating they give to their lives five years ahead is higher than that in some western European countries. When they appraise their current quality of life in five years time they will realize that they still have somewhat further to go before attaining “the best possible life”. But they are not likely to become discontented while they continue to experience the economic growth they have come to expect.
I think the lesson to be learned from consideration of the relationship between average life satisfaction and rising per capita incomes in China is that the failure of life satisfaction to rise with income does not necessarily imply discontent with the consequences of economic growth. Those who suggest that economic growth has led to widespread discontent in China are mistaken. Economic growth has merely cursed the Chinese with great expectations.
Wednesday, August 26, 2009
The Chinese are becoming wealthier, so why aren't they happier?
This is the question raised in a recent article in the Journal of Happiness Studies: “The China puzzle: falling happiness in a rising economy”, by Hilke Brockman, Jan Delhey, Christian Weizel and Hao Yuan (V10, 4, 2009).
The focus of the study is the decade from 1990 to 2000. Even though real per capita GDP in China was 2.8 times higher in 2000 than in 1990, the percentage of Chinese describing themselves as very happy declined from 28 percent to 12 percent and the average life satisfaction rating fell from 7.3 to 6.5 (on the WVS 10 point scale).
The authors consider three possible explanations: anomie (powerlessness), political disaffection (declining trust in government) and relative deprivation (frustration because increased income inequality resulted in a higher proportion of the population with below average incomes). Anomie is measured by survey data on the lack of a feeling of free choice and control over the way you live your life. Political disaffection is measured by survey data on lack of trust in the government and parliament. Survey data on financial dissatisfaction (dissatisfaction with the financial situation of your household) is used as a proxy for relative deprivation.
To cut a long story short, the authors conclude that relative deprivation provides the best explanation because the decline in life satisfaction is strongly associated with a decline in financial satisfaction. (A fuller summary of the article is available on Psyblog )
The main problem I have with this conclusion is that data presented in the article suggests that average life satisfaction of high income earners declined along with the life satisfaction of those on lower incomes. There was no reason for the high income earners to feel relative deprivation.
When I look closely at the data it seems to me that the main puzzle is not why average life satisfaction in China was lower in 2000 than in 1990, but why such a high proportion of Chinese were recorded as satisfied with life in 1990. This figure, 68 percent, was higher than in such high income countries as Austria, France, Germany and Japan.
When you look at average life satisfaction of people in different age groups (Fig. 1) older people seem to have been much happier than young people in 1990 and the situation has been partially reversed since then. A comparison of Figure 1 and Figure 2 shows similar patterns for life satisfaction and financial satisfaction. This suggests to me that the apparent decline in average life satisfaction between 1990 and 2000 might possibly be attributable to perceptions by older people that their financial security had declined for some reason e.g. concerns that as a result of social changes young people might be less likely to support them in their old age.
The focus of the study is the decade from 1990 to 2000. Even though real per capita GDP in China was 2.8 times higher in 2000 than in 1990, the percentage of Chinese describing themselves as very happy declined from 28 percent to 12 percent and the average life satisfaction rating fell from 7.3 to 6.5 (on the WVS 10 point scale).
The authors consider three possible explanations: anomie (powerlessness), political disaffection (declining trust in government) and relative deprivation (frustration because increased income inequality resulted in a higher proportion of the population with below average incomes). Anomie is measured by survey data on the lack of a feeling of free choice and control over the way you live your life. Political disaffection is measured by survey data on lack of trust in the government and parliament. Survey data on financial dissatisfaction (dissatisfaction with the financial situation of your household) is used as a proxy for relative deprivation.
To cut a long story short, the authors conclude that relative deprivation provides the best explanation because the decline in life satisfaction is strongly associated with a decline in financial satisfaction. (A fuller summary of the article is available on Psyblog )
The main problem I have with this conclusion is that data presented in the article suggests that average life satisfaction of high income earners declined along with the life satisfaction of those on lower incomes. There was no reason for the high income earners to feel relative deprivation.
When I look closely at the data it seems to me that the main puzzle is not why average life satisfaction in China was lower in 2000 than in 1990, but why such a high proportion of Chinese were recorded as satisfied with life in 1990. This figure, 68 percent, was higher than in such high income countries as Austria, France, Germany and Japan.
When you look at average life satisfaction of people in different age groups (Fig. 1) older people seem to have been much happier than young people in 1990 and the situation has been partially reversed since then. A comparison of Figure 1 and Figure 2 shows similar patterns for life satisfaction and financial satisfaction. This suggests to me that the apparent decline in average life satisfaction between 1990 and 2000 might possibly be attributable to perceptions by older people that their financial security had declined for some reason e.g. concerns that as a result of social changes young people might be less likely to support them in their old age.
Even if we disregard the 1990 data, however, it is apparent from the Figures that we are still left with the problem of explaining why average life satisfaction and financial satisfaction has not increased since the mid 1990s. The decline in consumption as a percentage of GDP from about 50 percent around 1980 to about 32 percent in recent years cannot provide a complete explanation, because this has not prevented real per capita consumption from increasing substantially.
My guess is that the failure of average life satisfaction to rise in China is associated with a change in the benchmarks that people use to assess their current well-being. In 1990 many people in China may have been using past living standards as the benchmark in assessing their current satisfaction with life. Since then, however, their aspirations have probably risen as they have come to view the living standards enjoyed in high income countries as attainable in the foreseeable future. If I am right most Chinese people would probably agree that “they have never had it so good”, to borrow an unsuccessful political slogan. But those old enough to remember what life was like 30 years ago would probably rather forget about that.
Note: A follow-up post on this topic is here.
Sunday, August 23, 2009
Is it possible to make an appropriate emotive appeal by just telling a story?
A post by Peter Boettke on The Austrian Economists blog has got me thinking about emotive appeals in politics. I think the point that Boettke is making is that rhetorical experts are offering poor advice when they suggest that writers try to get their message across by telling stories that appeal to the emotions, in the manner of Dickens and Steinbeck, rather than using stories to illuminate systemic forces, as Ayn Rand did in “Atlas Shrugged”.
I think it might be worth noting that it is sometimes possible to make effective emotive appeals without telling stories and that some stories are capable of speaking for themselves in illuminating systemic forces.
My example of an effective emotional appeal that does not involve a story comes from “John Stuart Mill, Victorian Firebrand”, by Richard Reeves, which I have just finished reading. When Mill was a member of the House of Commons, arguing for women to be given the right to vote, he used an accounting framework to urge rejection of the view that the political interests of women were safe in the hands of their fathers, husbands. and brothers. Mill said:
“I should like to have a return laid before this House of the number of women who are annually beaten to death, kicked to death, or trampled to death by their male protectors: and, in an opposite column, the amount of the sentences passed, in those cases in which the dastardly criminals did not get off altogether. I should also like to have, in a third column, the amount of property, the unlawful taking of which was, at the same sessions or assizes, by the same judge, thought worthy of the same amount of punishment. We should then have an arithmetical estimate of the value set by a male legislature and male tribunals on the murder of a woman, often by torture continued through years, which, if there is any shame in us, would make us hang our heads” (Available at: Online Library of Liberty).
Richard Reeves comments that this passage “vividly captures the combination of sinewy logic and controlled anger employed by Mill’s best pieces of oratory” (p 423).
It can also be possible in some circumstances for a simple story to evoke an appropriate emotive response without any interpretation. For example, last night I read a story in a news magazine about a respected business man who is co-owner and general manager of a travel agency in the country in which he lives. A few months ago this man moved in with his parents while his own house was being renovated. Four days after he left the house his next door neighbours decided to take advantage of his absence by forcing open the front door and changing the locks. They are now occupying the house and refusing to leave. As soon as he found out what had happened the man contacted the police expecting that they would evict the squatters, but the police took them food and supplies. The man has taken the matter to court but the case has still not been resolved.
I have left out some details of this story such as the country where this is alleged to be happening, and the man’s name and ethnicity because I don’t think such details should be relevant to one’s emotive response. (If anyone is interested in following up the story it is in The Weekend Australian Magazine for August 22-23, 2009.)
How do you respond to this story? My initial reaction was anger at the way property rights were apparently being disregarded and dismay that the rule of law seemed to be breaking down in the country concerned.
I hope there is another side to this story that will make my initial reaction inappropriate. For present purposes, however, the only point I want to make is that the story speaks for itself. I don’t think many people would need to be told explicitly that the story illustrates that there may be something wrong with the justice system of a country in which such things can occur.
I think it might be worth noting that it is sometimes possible to make effective emotive appeals without telling stories and that some stories are capable of speaking for themselves in illuminating systemic forces.
My example of an effective emotional appeal that does not involve a story comes from “John Stuart Mill, Victorian Firebrand”, by Richard Reeves, which I have just finished reading. When Mill was a member of the House of Commons, arguing for women to be given the right to vote, he used an accounting framework to urge rejection of the view that the political interests of women were safe in the hands of their fathers, husbands. and brothers. Mill said:
“I should like to have a return laid before this House of the number of women who are annually beaten to death, kicked to death, or trampled to death by their male protectors: and, in an opposite column, the amount of the sentences passed, in those cases in which the dastardly criminals did not get off altogether. I should also like to have, in a third column, the amount of property, the unlawful taking of which was, at the same sessions or assizes, by the same judge, thought worthy of the same amount of punishment. We should then have an arithmetical estimate of the value set by a male legislature and male tribunals on the murder of a woman, often by torture continued through years, which, if there is any shame in us, would make us hang our heads” (Available at: Online Library of Liberty).
Richard Reeves comments that this passage “vividly captures the combination of sinewy logic and controlled anger employed by Mill’s best pieces of oratory” (p 423).
It can also be possible in some circumstances for a simple story to evoke an appropriate emotive response without any interpretation. For example, last night I read a story in a news magazine about a respected business man who is co-owner and general manager of a travel agency in the country in which he lives. A few months ago this man moved in with his parents while his own house was being renovated. Four days after he left the house his next door neighbours decided to take advantage of his absence by forcing open the front door and changing the locks. They are now occupying the house and refusing to leave. As soon as he found out what had happened the man contacted the police expecting that they would evict the squatters, but the police took them food and supplies. The man has taken the matter to court but the case has still not been resolved.
I have left out some details of this story such as the country where this is alleged to be happening, and the man’s name and ethnicity because I don’t think such details should be relevant to one’s emotive response. (If anyone is interested in following up the story it is in The Weekend Australian Magazine for August 22-23, 2009.)
How do you respond to this story? My initial reaction was anger at the way property rights were apparently being disregarded and dismay that the rule of law seemed to be breaking down in the country concerned.
I hope there is another side to this story that will make my initial reaction inappropriate. For present purposes, however, the only point I want to make is that the story speaks for itself. I don’t think many people would need to be told explicitly that the story illustrates that there may be something wrong with the justice system of a country in which such things can occur.
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