Tuesday, August 13, 2013

Is the wellbeing of New Zealanders startlingly low?

A headline that appeared in the media a few weeks ago suggested that the wellbeing of New Zealanders is startlingly low by comparison with many other countries. The report was based on the inaugural ‘Sovereign Wellbeing index’ developed by the Human Potential Centre (HPC) of Auckland University of Technology (AUT). It suggested that when compared with surveys of 22 European countries using the same set of measurements, New Zealand ranked near the bottom. New Zealand ranked ahead of only Hungary, Bulgaria and the Ukraine and far behind Norway, Switzerland and Denmark, the top ranked countries.

The project leader, Grant Schofield, professor of public health at AUT, was reported as saying:
‘I hadn’t expected New Zealand to be best, but I hadn’t expected we’d do as badly as we did. I think it comes down to our comparative lack of social connectedness and the fact that the gap is growing between the haves and have-nots. We’re not even the fair society we once thought we were’.

I am also surprised by these findings. In fact, they seem to me to be anomalous. Previous studies have shown that subjective well-being measures tend to provide a more favourable view of the well-being of New Zealanders than is provided by comparison of average incomes levels.

The study uses the methodology of the European Social Survey (ESS) which views wellbeing in terms of how people feel (pleasure, sadness, enjoyment and satisfaction), and how they function (sense of autonomy, competence, interest and meaning or purpose in life). I support such measurement of wellbeing as long as it isn’t used to imply that improving wellbeing ought to be an over-riding objective of public policy. My view, as argued on this blog and in Free to Flourish, is that pursuit of happiness is primarily a matter for individuals (and their families and friends) rather than a public policy issue.

There are some aspects of the ESS approach to measurement of wellbeing that seem to me to be less than ideal. For example, it seems to me that in considering social support that is available to individuals it is important to know whether there are people whom they can count on to help them in times of need. Instead of asking about that, the ESS asks whether people in the local area help each other or feel close to each other. In modern societies, the people whom individuals rely on for social support – including family and friends – do not necessarily live in the local area.

However, I don’t think shortcomings of the ESS methodology can explain why the HPC/Sovereign index shows the wellbeing of NZers to be startlingly low. The responses of New Zealanders in this survey imply much lower wellbeing than in other surveys that have asked similar questions. For example, the following chart shows that the HPC data for New Zealand is an outlier when compared with the general relationship between responses to the ‘Satisfying life’ question of the ESS and the Gallup World Poll question that asks respondents to rate their ‘life today’ against the best possible life.

Another example is provided by comparing responses to the question of whether respondents consider themselves to be treated with respect in the ESS and the Gallup World Poll. Similarly, in that context the HPC data is an outlier in that context.

I don’t know why the Sovereign/HPC survey is showing the wellbeing of New Zealanders to be lower than other surveys of subjective wellbeing. Perhaps their survey is more accurate than previous surveys. However, until we know why the results of different surveys differ so much, we should, perhaps, not give much credence to claims that the wellbeing of New Zealanders is startlingly low.

Tuesday, August 6, 2013

Should people seek contentment or accomplishment?

This is a tricky question, for reasons that will become apparent as you read on.

I have been thinking that one of the problems in using life satisfaction as a measure of human flourishing is that satisfaction implies contentment, and contentment may kill motivation to do things that are worthwhile. That has made me wonder whether or not it is possible for people to become too satisfied with their lives.

When I considered this issue in writing Free to Flourish, I concluded that despite such problems, life satisfaction might still be an adequate measure of human flourishing. I reached that conclusion on the basis of a comparison of different measures of subjective well-being by the British Office of National Statistics (ONS). The results showed a fairly high level of correlation (0.66) between responses when people were asked ‘How satisfied are you with your life nowadays?’ and ‘Overall, to what extent do you think the things you do in your life are worthwhile?’.

However, that doesn’t really answer the question of whether it is better for people to seek contentment or accomplishment. It may be possible that people obtain greater satisfaction from life when they seek worthwhile accomplishment than when they seek contentment. It may also be possible that contentment helps people to devote their lives to doing things that they consider to be worthwhile. Such ideas are neither new, nor necessarily inconsistent.

People may not actually need to choose between contentment and accomplishment. Perhaps we only think a choice has to be made because we tend to equate contentment with sloth and accomplishment with frenzied effort. It is not obvious that a choice has to be made if contentment means equanimity and accomplishment means achievement of a worthwhile goal.

My intuitions suggest to me that the important requirement for both contentment and accomplishment is for people to make conscious choices about their goals in life, rather than just drifting without purpose. As children, we are strongly influenced by parents, peers teachers etc. but as we grow to adulthood, we cannot fully flourish unless we make good use of our emotional and intellectual resources to manage our own lives.

So, where is the evidence that goal setting works?  When I went looking for such evidence, the first thing I found was a post by Ray Williams entitled ‘Why goal setting doesn’t work’ on the ‘Psychology Today’ blog. Williams presents several different arguments to cast doubt on goal-setting, but his most powerful point seems to be the following:
‘The inherent problem with goal setting is related to how the brain works. Recent neuroscience research shows the brain works in a protective way, resistant to change. Therefore, any goals that require substantial behavioral change or thinking-pattern change will automatically be resisted. The brain is wired to seek rewards and avoid pain or discomfort, including fear. When fear of failure creeps into the mind of the goal setter it commences a de-motivator with a desire to return to known, comfortable behavior and thought patterns’.

That left me somewhat confused, so I took advantage of the fact that Jim Belshaw was conducting a discussion about goal setting on his blog, to ask participants what they thought about Ray Williams’ contribution. One of the participants, Evan Hadkins, who has a particular interest in personal development issues, made the following comments (slightly edited):
‘The goal setting literature does emphasise being realistic (the usual acronym being SMART). This of course is a bit of a cop out - if the goal isn't achieved then it wasn't realistic for one reason or another.
His reductionist pleasure-pain/fear psychology is wrong. (He is not alone in this error.)
I think he is a bit unfair to the goal setters. Lots of them talk about goals serving your wider values and choosing carefully what goals you aim for.
As to being in the now: Our longings, regrets, memories, fantasies, visions, plans and everything else all occur now. He doesn't understand this. He is not alone in this misunderstanding.

Overall I think it is pretty sloppy and confused. Lots of the goal setting literature emphasises worthwhile aims and being careful what you wish for. And his advice about intentions has all the problems of change that he levelled against goal setting. But I do agree with what I think is his basic point: goals should be realistic and serve worthwhile ends’.

I agree with Evan’s comments. Evan’s point about reductionist pleasure-pain/fear psychology brought to mind the ‘no failure just feedback’ idea that I picked up from NLP practitioners a few decades ago. The point is that our responses to evidence of failure to attain goals depend on our attitudes. We are unlikely to be devastated if we value the feedback we obtain as providing opportunities to consider how we can improve our future performance.

Evan’s point about choosing carefully what goals you aim for brought to mind the NLP concept of a ‘well-formed outcome’, with its emphasis on specifying the goal in a way you find compelling and running quality control checks to make sure that the desired goal is right for you in all circumstances of your life.

My answer to the question I raised initially is that people should be seeking contentment and accomplishment, making conscious choices about the kind of life they want to lead, by pursuing goals they consider worthwhile and feel passionate about. In my view it is not possible for individuals to be fully flourishing if they just drift aimlessly – unless, of course, drifting aimlessly is a goal they choose to pursue with a great deal of passion.  

Tuesday, July 30, 2013

Do I agree with Steve Keen's views about the causes of the GFC and the NAR?

Who is Steve Keen? What is the NAR? And why am I wondering whether or not I agree with Steve Keen?

Steve Keen is an Australian economics professor, author of a book entitled ‘Debunking Economics’. His blog, ‘Steve Keen’s Debtwatch’, is dedicated to analysing ‘the collapse of the global debt bubble’. The NAR refers to the North Atlantic Recession, sometimes referred to as the Great Recession, that followed the GFC. I am wondering whether or not I agree with Steve Keen because of a comment on Jim Belshaw’s blog last Sunday. Jim wrote:
‘The second part of Winton's post focused on Irving Fisher's views is, if I interpret the argument correctly, very similar to views expressed by Professor Keen. Essentially, a key part of the problem was the combination of levels of private debt with income and price variations.’

My immediate response was to question whether it might be possible that I could express views similar to those of Professor Keen. While my views on economics have strayed somewhat from neoclassical orthodoxy in recent years, I still consider that the concept of equilibrium provides a useful starting point for economic analysis. Steve rejects all conventional neoclassical economics.

If my understanding is correct, there are two main elements involved in Steve’s views about the causes of the GFC and the following recession: Minsky’s financial instability hypothesis; and the concept of endogenous money creation.

Minsky’s financial instability hypothesis involves the idea that a growing economy is inherently unstable. Investments are initially conservatively financed, but it gradually becomes evident to managers and bankers that greater profits can be made by increasing leverage. Investors and bankers come to regard the previously accepted risk premium as excessive and to evaluate projects using less conservative estimates of prospective cash flows. The decline in risk aversion sets off growth in debt, growth in investment and growth in the price of assets. The euphoria is eventually brought to an end as rising interest rates and increasing debt to asset ratios affect the viability of many business activities. Holders of illiquid assets attempt to sell them in return for liquidity. The asset market becomes flooded, panic ensues, the boom becomes a slump and the cycle starts all over again. (That is an abridged version, excluding Ponzi elements, of a summary which Steve provides in his paper: ‘A monetary Minsky model of the Great Moderation and the Great Recession’).

The concept of endogenous monetary creation involves the idea that banks create credit in response to demand. If a bank lends me money, my spending power goes up without reducing anybody else’s. So, bank lending creates new money, and adds to demand when it is spent. From this perspective, ‘aggregate demand is income plus the change in debt’. (My training in economics and national income accounting makes it difficult for me to understand why or how that can be so. Nevertheless, let us proceed.) If my understanding is correct, Steve is arguing that quantitative easing does not increase the money supply, because banks don’t increase lending when central banks purchase bonds from them. (See Steve’s article: ‘Is QE quantitatively irrelevant?’).

My objection to the first element arises because I don’t understand why a growing economy should necessarily be unstable.  In my view, it is necessary to introduce into the analysis a ‘too big to fail’ policy, or something similar, to explain why banks have a tendency to take excessive risks. I have attempted to outline the regulatory issues involved in a previous post:
‘Governments seem to have managed somehow to get us into a vicious cycle where fears of contagion have led them to encourage major financial institutions in the believe that they were too big to fail, while the belief that governments would bail them out has led major financial institutions to take excessive risks. If we can't let big financial institutions fail when they become insolvent, perhaps the next best option is to find the least cost way of regulating them to make it less likely that they will become insolvent’.

My objection to the concept of endogenous monetary creation is that it flies in the face of the reality that monetary policy can increase and reduce the rate of growth in nominal GDP (aggregate demand). It would make more sense to explain the fact that money creation through quantitative easing did not result in an immediate increase in bank lending in terms of funds being used to meet demands for liquidity (or repair balance sheets) than to redefine the concept of money in order to claim that the money was not created.
In my view Scott Sumner is on the right track in arguing that nominal GDP level targeting (along a 5% growth rate) in the United States before 2008 would have helped greatly reduce the severity of the Great Recession:
‘One reason asset prices crashed in late 2008 is market participants (correctly) saw that the Fed had no plan to bring the US economy back to the old nominal GDP trend line’ (See: ‘A New View of the Great Recession’, Policy, Winter 2013. The article is gated, but Scott has expressed similar views on his blog.)

The idea of targeting nominal GDP, to bring it back to the old trend line seems to me to be similar to Irving Fisher’s advocacy of reflation, as discussed in my post about balance sheet recessions.

So, coming back to the original question, I agree with Steve Keen that debt is important in explaining the GFC and the NAR, even though I have a very different view about the way economic systems work.

Tuesday, July 23, 2013

Why was Tipperary 'prime in crime' in the early 1800s?

This question arose from my reading of ‘The Two Tipperarys’, by Donal Murphy. The book is primarily about the division of Tipperary into north and south counties in 1838. It was recommended to me as background reading on the life and times of people living in Tipperary in the 19th Century. (I have some ancestors who came from that part of the world.)

Tipperary was apparently relatively peaceful during the Butler palatinate from c. 1200 to the early 1700s. By the mid 1830s, however, the county had established an unrivalled reputation for lawlessness. In 1836, the number of people committed for trial in Tipperary amounted to about 1.4 per cent of the population of that county, whereas the corresponding percentage for Ireland as a whole was 0.3 per cent.

After comparing the data of numbers of people committed for trial with data on the numbers of crimes reported, the author comments:
A crude comparison between the two sets of ratios seems to suggest that a higher number of persons per crime was also a Tipperary phenomenon – perhaps an early indication of a co-operative spirit in the county’.

There is also some evidence suggesting that a greater amount of crime went unprosecuted and unpunished in Tipperary than other counties. At the time, one judge described ‘a system of terror’ creating greater difficulties in administration of justice in Tipperary than in other counties. Another reason for many victims to be reluctant to report crimes would have been their limited faith in the administration of justice.

Donal Murphy does not devote much space to discussion of the causes of the high crime rate in Tipperary because it isn’t relevant to the main theme of his book. He suggests distress and famine as a contributing factor, with a crop failure in 1834 being described as a preview of the Great Famine which occurred a decade later. He also mentions ‘the flourishing state of faction fighting, violence for the sake of violence’. This involved personal and community vendettas erupting in gang warfare at town fairs. A variety of groups are mentioned, including the Caravats and Shanavests.

Front CoverMy search for more information about the Shanavests and Caravats led me to Paul Roberts’ contribution entitled ‘Caravats and Shanavests: Whiteboyism and Faction Fighting in East Munster, 1802-11’, published in ‘Irish Peasants, Violence and Political Unrest 1780 – 1914’, edited by Samuel Clark and James Donnelly. Whiteboyism is a generic term referring to outbreaks of agrarian terrorism between 1760 and 1845, primarily aimed at redressing economic grievances of poor farmers and rural labourers. This action was mainly directed against the rural middle class who were their immediate landlords, as a result of various forms of subletting.

The Caravats have their origins as primarily a Whiteboy movement and the Shanavests as primarily a middle-class anti-Whiteboy movement. Both groups were known by different names in different areas.
Paul Roberts suggests that Caravatism was the product of the wartime agricultural boom of 1793-1813, which increased demand for food and resulted in higher rents. This benefited the middle classes, who had long leases, and disadvantaged the poor, who were not protected by leases. The Caravats used terror against better-off farmers and other middle-class elements in an attempt to guarantee the poor access to land and food. Some of their gangs were also involved in other criminal activities such as highway robbery.

The Shanavest movement had links to nationalist political organizations, but it arose in direct response to Caravatism. Its activities included murders and assaults directed against prominent Caravats. Apparently, the political and religious alienation of the middle class from the state inclined them to look to their own resources, rather than to rely on the state for protection.

The activities of the Caravats and Shanavests began in the south of Tipperary, but by 1809-10 had moved to the north of the county and to other counties. The authorities intervened by increasing troop numbers, holding a special commission and arresting forty men involved in the disturbances. This brought the Caravat-Shanavest outbreak under control, but the two movements seem to have lived on with open feuding being pursued under a series of regional names.

Paul Roberts suggests that the economic basis of the feud would have weakened over time as nationalism gained ground among the poor between 1815 and 1845, and the worsening economic situation of the rural middle class after 1813 created fertile soil for cooperation across class divisions. That would explain why Donal Murphy describes the faction fighting in the 1830s as ‘violence for the sake of violence’.

In writing about ‘the good society’ on this blog and elsewhere, I have put a great deal of emphasis on the need for people to be able to live in peace with one another in order to enjoy the benefits of economic and social progress. The history of Ireland in the early part of the 19th Century shows just how difficult it can be for people to live in peace when different groups perceive that others are treating them unfairly.