At the end of my last post I raised the question of whether gaps between wanting an liking - craving things that bring little or no happiness once we have them - provides grounds for government paternalism. I have previously referred to an article in which Glen Whitman discusses various ways in which people deal with self-control problems without paternalistic interventions (here). In an article discussing government paternalism, Edward Glaeser provides some good reasons why flaws in decision-making should make us more, not less, wary about trusting governments (‘Paternalism and psychology’, Regulation, Summer 2006). For example: “If incentives to make good decisions increase the quality of decision-making, then ... private decisions should be better than public decisions: government decision-makers do not care as much about the individual’s well-being as the individual himself does” (34).
As well as suggesting that gaps between wanting and liking could possibly justify paternalistic interventions by government , Colin Camerer has suggested (here) that the existence of such gaps might help to explain paternalistic interventions that are already in place. An obvious example is prohibition of addictive drugs. Sin taxes on tobacco and alcohol could have similar motivations, but these taxes have also been promoted on other grounds e.g. correcting externalities and raising revenue. The provision of “cooling off” periods for consumer purchases can be explained in terms of allowing time for consumers to re-consider purchases they have made in a “hot” emotional state. When restrictions are imposed on people who are considered to be mentally incompetent, one of the reasons may have to do with impairment of the brain circuitry that restrains impulsive actions. Regulations to protect children and young adults may also be motivated partly by beliefs about the development of the brain circuitry that controls impulsive actions.
Defenders of liberty have conventionally argued, along with J.S. Mill, that children should be protected: “Those who are still in a state to require being taken care of by others, must be protected against their own actions as well as against external injury” (“On Liberty”, 1859). There is a “slippery slope” in this argument, however, as is evident in the fact that Mill goes on to argue that despotism is a legitimate mode of government “in dealing with barbarians” provided the objective is “their improvement”.
I find it easier to understand how Mill could justify extension of paternalism to protect “barbarians” than to explain why adults in democracies would vote in favour of paternalistic policies to restrict their own freedom. Paternalism, by definition, is about treating people like children. Do a majority of adults in democratic countries really want to be treated like children?
My guess that if adults were asked that question there would not be many who would say that they do want to be treated as children. But a lot of adults seem to lack sufficient confidence in their own capacity to make the right decisions and stick by them. This applies in a wide range of areas from personal safety e.g. wearing seat belts to financial security e.g. investing in superannuation. Rather than asking family and friends to help them learn how to cope with their emotional impulses, or to seek professional help, a lot of people have come to want governments to regulate everyone’s behavior.
Thursday, August 28, 2008
Tuesday, August 26, 2008
What are the implications of the gap between wanting and liking?
Neurological research by Kent Berridge suggests that separate brain mechanisms control wanting and liking (described here). In Daniel Nettle’s words, we can crave for something very much but take little or no pleasure in it once we have it (“Happiness”, 2005: 126).
As a former smoker I think I already understood this before I had heard that separate brain mechanisms control wanting and liking. After a while the main pleasure in smoking was the temporary release from craving.
Nettle argues that the evolutionary purpose of the wanting system is to trick us into seeking things like status and resources even though such things may not make us happier. In his view we tend to want such things because they were important to the reproductive success of our ancestors: “The things we want in life are the things the evolved mind tells us to want, and it doesn’t give a fig about our happiness”.
Nettle suggests that the wanting system “draws us to compete for promotion or a higher salary; a larger house or more material goods; an attractive partner or 2.4 children” (152). It seems to me that a lot of people might feel that such goals were worth pursuing even if they knew that they were not likely to be much happier if they managed to achieve them.
Colin Camerer has given several examples of wanting-liking gaps that more clearly challenge the conventional economic view that people make rational choices (‘Wanting, liking and learning: neuroscience and paternalism’, here). In the case of drug addiction, wanting can be created by a desire to avoid the pain of withdrawal even though drug use is not actually pleasurable. People suffering from obsessive compulsive disorders feel a strong desire to perform particular acts even though they obtain little pleasure from them. Shopaholics want to buy goods that they don’t use. People who make excessive use of their credit cards may be too strongly influenced by the wanting system, instead of weighing up the pleasure of having the goods against the cost of paying for them.
Camerer introduces the learning system into the analysis: “Learning is a process by which the wanting system comes to know what the liking system likes”. He suggests that the conventional economic view that what people like can be inferred from the choices that they make only holds in “the special case where learning has taught wanting what is liked” (109). This is the case where people have learned from past mistakes.
Camerer suggests that some gaps between wanting and liking may justify government paternalism of various kinds. However, such proposals raise many questions. Is there any reason to believe that gaps between wanting and liking are of less importance in making political decisions (voting) than in making market choices? If we vote for paternalistic government, what are the chances that we will like the kind of government that we get? Would we actually like living under a paternalistic government that relieved us of the personal challenge of dealing with gaps between what we want and what we like? Would this help us to become the kinds of people we would like to become?
As a former smoker I think I already understood this before I had heard that separate brain mechanisms control wanting and liking. After a while the main pleasure in smoking was the temporary release from craving.
Nettle argues that the evolutionary purpose of the wanting system is to trick us into seeking things like status and resources even though such things may not make us happier. In his view we tend to want such things because they were important to the reproductive success of our ancestors: “The things we want in life are the things the evolved mind tells us to want, and it doesn’t give a fig about our happiness”.
Nettle suggests that the wanting system “draws us to compete for promotion or a higher salary; a larger house or more material goods; an attractive partner or 2.4 children” (152). It seems to me that a lot of people might feel that such goals were worth pursuing even if they knew that they were not likely to be much happier if they managed to achieve them.
Colin Camerer has given several examples of wanting-liking gaps that more clearly challenge the conventional economic view that people make rational choices (‘Wanting, liking and learning: neuroscience and paternalism’, here). In the case of drug addiction, wanting can be created by a desire to avoid the pain of withdrawal even though drug use is not actually pleasurable. People suffering from obsessive compulsive disorders feel a strong desire to perform particular acts even though they obtain little pleasure from them. Shopaholics want to buy goods that they don’t use. People who make excessive use of their credit cards may be too strongly influenced by the wanting system, instead of weighing up the pleasure of having the goods against the cost of paying for them.
Camerer introduces the learning system into the analysis: “Learning is a process by which the wanting system comes to know what the liking system likes”. He suggests that the conventional economic view that what people like can be inferred from the choices that they make only holds in “the special case where learning has taught wanting what is liked” (109). This is the case where people have learned from past mistakes.
Camerer suggests that some gaps between wanting and liking may justify government paternalism of various kinds. However, such proposals raise many questions. Is there any reason to believe that gaps between wanting and liking are of less importance in making political decisions (voting) than in making market choices? If we vote for paternalistic government, what are the chances that we will like the kind of government that we get? Would we actually like living under a paternalistic government that relieved us of the personal challenge of dealing with gaps between what we want and what we like? Would this help us to become the kinds of people we would like to become?
Saturday, August 16, 2008
What is happening to Whitlam's legacy of fair play in industry assistance?
The Australian government has just released a report into the car industry commissioned from a committee led by Steve Bracks, the former premier of Victoria. The committee has recommended an extra $2 billion in budgetary assistance to the industry on top of an amount of similar magnitude to be paid under existing programs.
Few people would be surprised that Steve Bracks has recommended additional assistance to the car industry. After all, this industry is concentrated in Victoria, while the taxpayers who will bear the cost of the recommended assistance are spread around the whole of Australia.
It is reasonable to presume that the government set up this ad hoc review precisely in order to obtain a recommendation of additional assistance. If it had approached the issue with an open mind it would have sent a reference to the Productivity Commission – the organisation that normally conducts such industry assistance reviews.
In reading the Bracks report I was particularly interested to find out how it would reconcile claims that the Australian car industry needs further assistance in order to become internationally competitive with often heard assertions that the Button car plan, introduced in the 1980s, had been a big success in helping the industry to become internationally competitive.
The Bracks report argues that the competitiveness of the industry has declined because the Australian dollar has appreciated against the currencies of the major automotive producing countries. That explanation doesn’t hold water. Other industries are having to cope with exchange rate appreciation without additional assistance. If the car industry needs a special round of additional assistance this suggests that it is still fundamentally uncompetitive in the Australian environment.
One of the good things about the Bracks report is its recognition that assistance to the car industry “comes at a cost to other industries and consumers” (92). So, what is so special about the car industry to warrant this additional assistance at the expense of other industries?
I could not find a satisfactory answer to this question in the report. There is some discussion of spillovers but nothing definitive to suggest that they are more important than in other industries that have been adversely affected by exchange rate movements. The report does not consider why this industry should be given preferential treatment. The people undertaking the review lacked the economy-wide perspective required to balance the claims of this industry against those of other industries.
If the government accepts the recommendations of this dodgy review it will be seen to have trampled on what has possibly been Gough Whitlam’s most positive legacy – a system of fair play in industry assistance. The government needs to be reminded of what Whitlam said in setting up the IAC (predecessor of the Productivity Commission) in 1973. I quote from his second reading speech:
“It will be apparent that the reference to the Commission of questions relating to assistance for individual industries cannot be optional. If some industries, particularly those which stand to lose most from public exposure of their claims, can avoid the process of public inquiry the fundamental purpose of the Commission will be frustrated”.
Those words seem to me to be just as relevant today as in 1973 – and this picture sums up the direction in which the Rudd government's industry policy is heading.
Few people would be surprised that Steve Bracks has recommended additional assistance to the car industry. After all, this industry is concentrated in Victoria, while the taxpayers who will bear the cost of the recommended assistance are spread around the whole of Australia.
It is reasonable to presume that the government set up this ad hoc review precisely in order to obtain a recommendation of additional assistance. If it had approached the issue with an open mind it would have sent a reference to the Productivity Commission – the organisation that normally conducts such industry assistance reviews.
In reading the Bracks report I was particularly interested to find out how it would reconcile claims that the Australian car industry needs further assistance in order to become internationally competitive with often heard assertions that the Button car plan, introduced in the 1980s, had been a big success in helping the industry to become internationally competitive.
The Bracks report argues that the competitiveness of the industry has declined because the Australian dollar has appreciated against the currencies of the major automotive producing countries. That explanation doesn’t hold water. Other industries are having to cope with exchange rate appreciation without additional assistance. If the car industry needs a special round of additional assistance this suggests that it is still fundamentally uncompetitive in the Australian environment.
One of the good things about the Bracks report is its recognition that assistance to the car industry “comes at a cost to other industries and consumers” (92). So, what is so special about the car industry to warrant this additional assistance at the expense of other industries?
I could not find a satisfactory answer to this question in the report. There is some discussion of spillovers but nothing definitive to suggest that they are more important than in other industries that have been adversely affected by exchange rate movements. The report does not consider why this industry should be given preferential treatment. The people undertaking the review lacked the economy-wide perspective required to balance the claims of this industry against those of other industries.
If the government accepts the recommendations of this dodgy review it will be seen to have trampled on what has possibly been Gough Whitlam’s most positive legacy – a system of fair play in industry assistance. The government needs to be reminded of what Whitlam said in setting up the IAC (predecessor of the Productivity Commission) in 1973. I quote from his second reading speech:
“It will be apparent that the reference to the Commission of questions relating to assistance for individual industries cannot be optional. If some industries, particularly those which stand to lose most from public exposure of their claims, can avoid the process of public inquiry the fundamental purpose of the Commission will be frustrated”.
Those words seem to me to be just as relevant today as in 1973 – and this picture sums up the direction in which the Rudd government's industry policy is heading.
Tuesday, August 12, 2008
Does a positive-sum attitude promote happiness?
I finished a recent post wondering whether there is any evidence that people who view life as a positive-sum game are generally happier that those who view it as a zero-sum game. I have not been able to find any direct survey evidence relating to this question. However, there are two different avenues of research that seem to me to be relevant.
The first is a study by Bruce Headey using German panel data which assesses the effects of different life goals on happiness (“Life goals matter to happiness”, Discussion paper 639, DIW, 2006). Headey suggests that goals relating to personal success can be viewed as zero-sum, whereas altruistic goals and goals relating to family life are positive-sum goals. The rationale for this classification is the view that a lot of success goals involve competition to acquire positional goods – as in the game of “monopoly”, success comes at the expense of other players. However, Headey’s success goals do not seem to me to be all about competing for positional goods. He includes “fulfilling your potential” as a success goal even though this does not necessarily involve competition with others.
Nevertheless, Headey’s results are interesting. He finds that “success goals” have little effect on happiness at a point in time, but persistence in pursuing such goals has a negative effect on happiness. Altruistic goals have positive effects on happiness, but the results for family goals were somewhat ambiguous.
The second avenue of research relates to neuroeconomics experiments in which participants play games relating to cooperation and trust. It seems reasonable to suppose that people who believe that others can generally be trusted would tend to have a positive-sum attitude to life. The results of this research tend to confirm that this is so.
Participants in games in which players are rewarded if they cooperate will often reject offers that they consider to be unfair, even when this means that they suffer a pecuniary loss. Unfair offers activate parts of the brain involved in negative emotional states such as disgust. This suggests one reason why people should be less happy in countries with high levels of corruption, insecure property rights and low levels of trust. Unfair processes and systems invoke feelings of disgust. A further reason is the effect of low levels of trust on transactions costs and hence on economic outcomes (as discussed by Paul Zak and Stephen Knack in ‘Trust and Growth’, “The Economic Journal”, 2001).
Research by Paul Zak (described here) suggests yet another reason to expect people to be more happy in countries with low levels of corruption and high levels of trust – the pleasure that people obtain from being trusted and the positive effect this has on their behaviour.
In the trust game, player A has the option of giving some of her attendance money player to player B whom they do not know. The amount given to B is tripled, and then B is given the option of giving some money back to player A. If A can trust B to reciprocate there is potential for mutual benefit, but B has no economic incentive to reciprocate. The experimenters found that oxytocin – a hormone that rises during social bonding – increased in B when A showed trust by investing a lot. When trust is shown only a small proportion of players (sociopaths) fail to reciprocate by sharing their gains.
Summing up, it would seem that there are a variety of reasons why people who view life as a positive-sum game should be happier than those who view it is a zero-sum game. They do not perceive their happiness as depending on acquisition of positional goods which are beyond the reach of most people. They do not perceive themselves to be living in an unfair society in which they need to be very careful to guard against the opportunism of others. They perceive themselves to be living among people who trust them and frequently feel the satisfaction which comes from being trusted.
Postscript:
Martin Seligman's consideration of the evolutionary purpose of postive feelings is also relevant. He writes: "Just as negative feelings are a "here-be-dragons" system that alarms you, telling you unmistakably that you are in a win-lose encounter, the feeling of positive emotion is also sensory. Positive feeling is a neon "here-be-growth" marquee that tells you that a potential win-win encounter is at hand. By activating an expansive, tolerant, and creative mindset, postive feelings maximize the social, intellectual, and physical benefits that will accrue" ("Authentic Happiness", 2002: 44). This view turns my question inside out. It implies that happiness is a positive-sum (or win-win) attitude.
The first is a study by Bruce Headey using German panel data which assesses the effects of different life goals on happiness (“Life goals matter to happiness”, Discussion paper 639, DIW, 2006). Headey suggests that goals relating to personal success can be viewed as zero-sum, whereas altruistic goals and goals relating to family life are positive-sum goals. The rationale for this classification is the view that a lot of success goals involve competition to acquire positional goods – as in the game of “monopoly”, success comes at the expense of other players. However, Headey’s success goals do not seem to me to be all about competing for positional goods. He includes “fulfilling your potential” as a success goal even though this does not necessarily involve competition with others.
Nevertheless, Headey’s results are interesting. He finds that “success goals” have little effect on happiness at a point in time, but persistence in pursuing such goals has a negative effect on happiness. Altruistic goals have positive effects on happiness, but the results for family goals were somewhat ambiguous.
The second avenue of research relates to neuroeconomics experiments in which participants play games relating to cooperation and trust. It seems reasonable to suppose that people who believe that others can generally be trusted would tend to have a positive-sum attitude to life. The results of this research tend to confirm that this is so.
Participants in games in which players are rewarded if they cooperate will often reject offers that they consider to be unfair, even when this means that they suffer a pecuniary loss. Unfair offers activate parts of the brain involved in negative emotional states such as disgust. This suggests one reason why people should be less happy in countries with high levels of corruption, insecure property rights and low levels of trust. Unfair processes and systems invoke feelings of disgust. A further reason is the effect of low levels of trust on transactions costs and hence on economic outcomes (as discussed by Paul Zak and Stephen Knack in ‘Trust and Growth’, “The Economic Journal”, 2001).
Research by Paul Zak (described here) suggests yet another reason to expect people to be more happy in countries with low levels of corruption and high levels of trust – the pleasure that people obtain from being trusted and the positive effect this has on their behaviour.
In the trust game, player A has the option of giving some of her attendance money player to player B whom they do not know. The amount given to B is tripled, and then B is given the option of giving some money back to player A. If A can trust B to reciprocate there is potential for mutual benefit, but B has no economic incentive to reciprocate. The experimenters found that oxytocin – a hormone that rises during social bonding – increased in B when A showed trust by investing a lot. When trust is shown only a small proportion of players (sociopaths) fail to reciprocate by sharing their gains.
Summing up, it would seem that there are a variety of reasons why people who view life as a positive-sum game should be happier than those who view it is a zero-sum game. They do not perceive their happiness as depending on acquisition of positional goods which are beyond the reach of most people. They do not perceive themselves to be living in an unfair society in which they need to be very careful to guard against the opportunism of others. They perceive themselves to be living among people who trust them and frequently feel the satisfaction which comes from being trusted.
Postscript:
Martin Seligman's consideration of the evolutionary purpose of postive feelings is also relevant. He writes: "Just as negative feelings are a "here-be-dragons" system that alarms you, telling you unmistakably that you are in a win-lose encounter, the feeling of positive emotion is also sensory. Positive feeling is a neon "here-be-growth" marquee that tells you that a potential win-win encounter is at hand. By activating an expansive, tolerant, and creative mindset, postive feelings maximize the social, intellectual, and physical benefits that will accrue" ("Authentic Happiness", 2002: 44). This view turns my question inside out. It implies that happiness is a positive-sum (or win-win) attitude.
Friday, August 8, 2008
Would a chain index provide a better guide to change in the quality of life?
A chain index is an index that is constructed from information about changes in a variable from year to year, rather than by measuring absolute levels of the variable. A chain index is likely to be more accurate if we can measure change from year to year more accurately than we can measure absolute levels.
I think there is reason to believe that survey information yields more accurate information on change in quality of life than on absolute quality of life. I have explained why in a previous post (here).
In the following chart I have used information published by the Pew Research Center to construct a chain index of the quality of life from survey data on respondents assessments of their current quality of life and their assessments of their quality of life five years earlier (here). This provided estimated of the change in quality of life over the previous five years. The data on change in quality of life was annualized and converted to percentage changes. After gaps in the data were filled in by interpolation the series was converted into the form of the chain index shown below.
The happiness index shown in the chart is constructed from the Pew Research Center’s survey data on current quality of life.
The quality of life index shown in the chart actually shows a larger increase than the increase in real GDP per capita over this period. I therefore find it difficult to accept that the increase in quality of life was actually as large as is shown. The main point of the exercise is to suggest that the quality of life in the U.S. probably increased over this period by a larger magnitude than indicated by the happiness index shown in the chart.
(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)
I think there is reason to believe that survey information yields more accurate information on change in quality of life than on absolute quality of life. I have explained why in a previous post (here).
In the following chart I have used information published by the Pew Research Center to construct a chain index of the quality of life from survey data on respondents assessments of their current quality of life and their assessments of their quality of life five years earlier (here). This provided estimated of the change in quality of life over the previous five years. The data on change in quality of life was annualized and converted to percentage changes. After gaps in the data were filled in by interpolation the series was converted into the form of the chain index shown below.
The happiness index shown in the chart is constructed from the Pew Research Center’s survey data on current quality of life.
The quality of life index shown in the chart actually shows a larger increase than the increase in real GDP per capita over this period. I therefore find it difficult to accept that the increase in quality of life was actually as large as is shown. The main point of the exercise is to suggest that the quality of life in the U.S. probably increased over this period by a larger magnitude than indicated by the happiness index shown in the chart.
(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)
Can our quality of life improve without us becoming happier?
Surveys undertaken by the Pew Research Centre enable comparisons to be made between ratings of quality of life at the present time and ratings of quality of life five years ago. The results for the U.S. (here) indicate that while respondent’s average ratings of current quality of life had moved up and down by small amounts when asked at various times over the last 40 years, they consistently reported that their quality of life was substantially worse five years ago - indicating that they perceived that they had experienced ongoing improvements in the quality of their lives.
These results suggest that people can perceive that the quality of their lives is improving even though their reports of quality of life at different points of time indicate that there has been no increase. Some people might suggest that this means that people have faulty memories of the quality of life they enjoyed in the past. I acknowledge that memories can be faulty, but I see no reason why people should systematically view the past as having been worse than the present. On the other hand, I can think of a good reason why current reports of quality of life may not show much change over time in the face of objective evidence of improvements in standard of living.
The use of survey information to measure the current quality of life involves the implicit assumption that when people rate their quality of life they do so relative to absolute standards. Respondents in the Pew survey are prompted to think in terms of a ladder of life in which the top step represents the best possible life and the bottom step represents the worst possible life. The use of successive surveys to measure change in the quality of life entails the assumption that perceptions about what constitutes the best possible life and the worst possible life remain fixed over time.
When you think about this, however, how can it be possible for anyone in a relatively high-income country to know what the best possible life, or the worst possible life, might be like throughout their own life-time? If you asked someone to rate how satisfied they were with life in the 1940s they would not have had much idea of the kind of life they might be able to live in 60 years time. They would not have known that many of the household appliances and communications devices that we now have would be within reach within their own life-time. They might have wished that such things could be invented and made affordable – just as I wished as a child in the 1950s that I could have a 2 way wrist radio like the one Dick Tracey had – but I don’t think such things would have been contemplated as actually attainable.
It is widely accepted among happiness researchers that in high income countries increases in standards of living may not translate to increases in happiness because aspirations tend to rise as incomes rise. I am not sure that many have realized, however, that if this process involves a change in perceptions about the best possible life it is changing the scale against which people are assessing their quality of life. Thus a person who felt that her quality of life had improved over time might report ratings of her quality of life at different points in time which indicated that she had stayed on the same rung of the ladder. The apparent conflict of perceptions has occurred because the ladder has shifted upwards.
If our aim is to use surveys to measure of happiness, as an emotion, it may be appropriate for the ladder (measurement scale) to move upward as perceptions change about the best possible life. If we are attempting to measure quality of life, however, we should recognise that an upward movement of the ladder - which occurs because of a change in perceptions of the best possible life - is itself evidence of improvement in the quality of life. In my view we should accept what people say when they report ongoing improvements in the quality of their lives and also to accept that this will not necessarily make them feel any happier than in the past.
In my next post I explore the possibility of using perceptions about changes in quality of life to construct a chain index showing how the perceived quality of life has changed over time.
These results suggest that people can perceive that the quality of their lives is improving even though their reports of quality of life at different points of time indicate that there has been no increase. Some people might suggest that this means that people have faulty memories of the quality of life they enjoyed in the past. I acknowledge that memories can be faulty, but I see no reason why people should systematically view the past as having been worse than the present. On the other hand, I can think of a good reason why current reports of quality of life may not show much change over time in the face of objective evidence of improvements in standard of living.
The use of survey information to measure the current quality of life involves the implicit assumption that when people rate their quality of life they do so relative to absolute standards. Respondents in the Pew survey are prompted to think in terms of a ladder of life in which the top step represents the best possible life and the bottom step represents the worst possible life. The use of successive surveys to measure change in the quality of life entails the assumption that perceptions about what constitutes the best possible life and the worst possible life remain fixed over time.
When you think about this, however, how can it be possible for anyone in a relatively high-income country to know what the best possible life, or the worst possible life, might be like throughout their own life-time? If you asked someone to rate how satisfied they were with life in the 1940s they would not have had much idea of the kind of life they might be able to live in 60 years time. They would not have known that many of the household appliances and communications devices that we now have would be within reach within their own life-time. They might have wished that such things could be invented and made affordable – just as I wished as a child in the 1950s that I could have a 2 way wrist radio like the one Dick Tracey had – but I don’t think such things would have been contemplated as actually attainable.
It is widely accepted among happiness researchers that in high income countries increases in standards of living may not translate to increases in happiness because aspirations tend to rise as incomes rise. I am not sure that many have realized, however, that if this process involves a change in perceptions about the best possible life it is changing the scale against which people are assessing their quality of life. Thus a person who felt that her quality of life had improved over time might report ratings of her quality of life at different points in time which indicated that she had stayed on the same rung of the ladder. The apparent conflict of perceptions has occurred because the ladder has shifted upwards.
If our aim is to use surveys to measure of happiness, as an emotion, it may be appropriate for the ladder (measurement scale) to move upward as perceptions change about the best possible life. If we are attempting to measure quality of life, however, we should recognise that an upward movement of the ladder - which occurs because of a change in perceptions of the best possible life - is itself evidence of improvement in the quality of life. In my view we should accept what people say when they report ongoing improvements in the quality of their lives and also to accept that this will not necessarily make them feel any happier than in the past.
In my next post I explore the possibility of using perceptions about changes in quality of life to construct a chain index showing how the perceived quality of life has changed over time.
Monday, August 4, 2008
Why does Rudd persist in misrepresenting Hayek?
In “The Australian” today (4 August 2008) Australia’s prime minister, Kevin Rudd again misrepresents the views of Friedrich Hayek. He also did it before becoming elected (here).
After stating that he believes in a compassionate society, Rudd writes:
“That is why we explicitly reject Hayek’s view that society has no obligation to others who are unknown to us and his preparedness to allow fundamental social institutions such as the family to fend entirely for themselves against unrestrained market forces”.
I have read enough of what Hayek wrote to know that he would never write anything like: “society has no obligation to others who are unknown to us”. That statement makes no sense. It seems to suggest that “society” exists apart from the people who comprise it. Rudd might believe this, but Hayek was certainly opposed to that view.
Hayek recognised explicitly that in “a highly mobile open society, an increasing number of people are no longer closely associated with particular groups whose help and support they can count on in the case of misfortune”. He states:
“The assurance of a certain minimum income for everyone ... appears not only to be a wholly legitimate protection against a common risk to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born” (Law, Legislation and Liberty, V 3, 55).
So, why does Rudd persist in misrepresenting Hayek? I don’t know. Perhaps he is suffering from a learning disability.
After stating that he believes in a compassionate society, Rudd writes:
“That is why we explicitly reject Hayek’s view that society has no obligation to others who are unknown to us and his preparedness to allow fundamental social institutions such as the family to fend entirely for themselves against unrestrained market forces”.
I have read enough of what Hayek wrote to know that he would never write anything like: “society has no obligation to others who are unknown to us”. That statement makes no sense. It seems to suggest that “society” exists apart from the people who comprise it. Rudd might believe this, but Hayek was certainly opposed to that view.
Hayek recognised explicitly that in “a highly mobile open society, an increasing number of people are no longer closely associated with particular groups whose help and support they can count on in the case of misfortune”. He states:
“The assurance of a certain minimum income for everyone ... appears not only to be a wholly legitimate protection against a common risk to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born” (Law, Legislation and Liberty, V 3, 55).
So, why does Rudd persist in misrepresenting Hayek? I don’t know. Perhaps he is suffering from a learning disability.
Wednesday, July 30, 2008
How did changes in attitudes to inequality affect happiness in Poland?
This post continues my ruminations about the effect that beliefs about income inequality may have on the happiness of people who hold those beliefs. Previous posts can be found here.
In order to study this it would be nice to have a natural experiment in which the population of a country began with fairly positive beliefs about inequality and then changed those beliefs radically over a couple of years. In order to draw conclusions we would need survey information to document the change in beliefs that occurred, together with information on happiness levels, income inequality and per capita income levels.
It just so happens that such information is available for Poland. A study by Irena Grosfeld and Claudia Senik shows that a change in attitudes toward inequality, which occurred around 1997, was associated with a sharp decline in satisfaction with the current economic situation and some decline in satisfaction with personal living standards despite continued economic growth (‘The emerging aversion to inequality: evidence from Poland 1992-2005’, Discussion Paper 3484, IZA, 2008, here).
Around 1997 there was a sharp drop in the proportion of people agreeing with the statement that inequalities of income are necessary for economic progress and a rise in the proportion agreeing that inequalities of income are too large in Poland.
The statistical analysis actually suggests that income inequality (as measured by the Gini coefficient) had a positive effect on satisfaction with the economic situation and satisfaction with personal living standards in the period from 1992 to 1996. The authors argue that inequality was initially interpreted as “an opening of new opportunities” following the fall of communism. It is somewhat easier to understand how this might occur in the light of the results of other research by Claudia Senik (discussed here) which suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals tends to rise, rather than fall, when the income of their reference group -people with the same skills and occupation - increases. 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.
Why did the change in attitudes toward inequality occur? Grosfeld and Senik suggest that “the turning point in tolerance for income inequality seems to come with the increasingly wide perception that the process that generates income distribution is itself unfair” (p17).
That suggests to me that a change occurred from a situation where the economic system was commonly viewed as a positive-sum game – potentially providing benefits to all participants - to one in which it was viewed as a zero-sum game – where the enrichment of some was perceived as being at the expense of others. Interestingly, the perception of an economy as a zero sum game can be an accurate perception when the distribution of income is influenced to a large extent by political favouritism.
All this leads me to wonder whether there is any survey evidence that people who perceive life as a positive sum game are generally happier that those who view it as a zero-sum game.
In order to study this it would be nice to have a natural experiment in which the population of a country began with fairly positive beliefs about inequality and then changed those beliefs radically over a couple of years. In order to draw conclusions we would need survey information to document the change in beliefs that occurred, together with information on happiness levels, income inequality and per capita income levels.
It just so happens that such information is available for Poland. A study by Irena Grosfeld and Claudia Senik shows that a change in attitudes toward inequality, which occurred around 1997, was associated with a sharp decline in satisfaction with the current economic situation and some decline in satisfaction with personal living standards despite continued economic growth (‘The emerging aversion to inequality: evidence from Poland 1992-2005’, Discussion Paper 3484, IZA, 2008, here).
Around 1997 there was a sharp drop in the proportion of people agreeing with the statement that inequalities of income are necessary for economic progress and a rise in the proportion agreeing that inequalities of income are too large in Poland.
The statistical analysis actually suggests that income inequality (as measured by the Gini coefficient) had a positive effect on satisfaction with the economic situation and satisfaction with personal living standards in the period from 1992 to 1996. The authors argue that inequality was initially interpreted as “an opening of new opportunities” following the fall of communism. It is somewhat easier to understand how this might occur in the light of the results of other research by Claudia Senik (discussed here) which suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals tends to rise, rather than fall, when the income of their reference group -people with the same skills and occupation - increases. 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.
Why did the change in attitudes toward inequality occur? Grosfeld and Senik suggest that “the turning point in tolerance for income inequality seems to come with the increasingly wide perception that the process that generates income distribution is itself unfair” (p17).
That suggests to me that a change occurred from a situation where the economic system was commonly viewed as a positive-sum game – potentially providing benefits to all participants - to one in which it was viewed as a zero-sum game – where the enrichment of some was perceived as being at the expense of others. Interestingly, the perception of an economy as a zero sum game can be an accurate perception when the distribution of income is influenced to a large extent by political favouritism.
All this leads me to wonder whether there is any survey evidence that people who perceive life as a positive sum game are generally happier that those who view it as a zero-sum game.
Monday, July 28, 2008
Do good decisions always make us happy?
This may seem like an odd question. Many people would say that it must be true by definition that when we make good decisions we are happier. It seems to me, however, that this view is too simplistic.
In order to bring the discussion down to earth consider the case of a person who decides to devote more of her time to earning income and less to leisure. If you ask an economist whether she has made a good decision there is a fairly high probability that his response would be that along the lines of that suggested by Irving Fisher (1892) namely that individuals reveal their utility through their actions. He might say: “It is reasonable to presume that the combination of work and leisure that she has chosen makes her happier than the available alternatives”.
An alternative approach, favoured by psychologists and an increasing number of economists, would be to actually ask the person how happy (or how satisfied with life) she was both before and after she had made the decision to increase her hours of work. If her responses implied she was less happy – after the researcher had made allowances for other changes in her life in the intervening period – this approach would suggest that she had made a bad decision. In this instance this approach seems to suggest that the economist’s presumption of rational choice is wrong.
However, before rushing to judgement, consider a slightly different situation. In this case, rather than deciding to take on more paid work, the person concerned decides to have a child. Our conventional economist’s response would be the same – her decision to have a child implies that she is happier with this option than with the alternatives available. Our psychologist’s survey is likely to show that she is less happy (or less satisfied with life) than she was before giving birth. (There is evidence from many surveys that people who have children living at home are usually less happy than those in similar circumstances who do not have children.)
So, does this mean that our decision-maker made a bad decision by deciding to have the child? It could mean that, but I think that interpretation would usually make no sense at all. When women choose to have children they rarely regret their choices even though the sacrifices they make in looking after their “little bundles of joy” are sufficient to cause them to report lower happiness. By commonly accepted standards these are usually good decisions – they are sensible and rational.
Other examples can be cited of sensible and rational decisions that do not add to happiness, or only add to happiness for a short time. In the case of marriage, there is typically an increase in happiness for only a year or two before and after the event and then happiness returns to its previous level. Apparently cohabitation usually results in a smaller temporary increase in happiness than does marriage. Since separation and divorce have negative effects on happiness the whole idea of entering into relationships would seem problematic if viewed purely in terms of the happiness that people can reasonably expect based on the experiences of others.
My point is that there is more to life than self-reported happiness or life satisfaction. In his little book, “Happiness” (2005), Daniel Nettle identifies three levels of happiness: momentary feelings; judgements about feelings; and quality of life (flourishing or fulfilling one’s potential). Surveys of happiness and life satisfaction reflect the first two elements, but they usually fail to take account of the third element.
We seem to have been bombarded over the last year or so by arguments that the decisions people make cannot necessarily be presumed to make them happy. See here, here, and here for my discussion of books pushing such arguments. I think it is about time there was more recognition that good decisions do not always make people happy.
This point can be illustrated by returning to my first example of the person who was less happy after deciding to increase her hours of work. Isn’t it possible that this decision might have been a good one? How do we know that the person concerned had not decided to make some sacrifices in the short term in order to promote some longer term goal such as being able to afford to have children or to being able to give her children a better education? Happiness and life satisfaction indicators do not tell us the extent to which people are fulfilling the goals that are important to them.
In order to bring the discussion down to earth consider the case of a person who decides to devote more of her time to earning income and less to leisure. If you ask an economist whether she has made a good decision there is a fairly high probability that his response would be that along the lines of that suggested by Irving Fisher (1892) namely that individuals reveal their utility through their actions. He might say: “It is reasonable to presume that the combination of work and leisure that she has chosen makes her happier than the available alternatives”.
An alternative approach, favoured by psychologists and an increasing number of economists, would be to actually ask the person how happy (or how satisfied with life) she was both before and after she had made the decision to increase her hours of work. If her responses implied she was less happy – after the researcher had made allowances for other changes in her life in the intervening period – this approach would suggest that she had made a bad decision. In this instance this approach seems to suggest that the economist’s presumption of rational choice is wrong.
However, before rushing to judgement, consider a slightly different situation. In this case, rather than deciding to take on more paid work, the person concerned decides to have a child. Our conventional economist’s response would be the same – her decision to have a child implies that she is happier with this option than with the alternatives available. Our psychologist’s survey is likely to show that she is less happy (or less satisfied with life) than she was before giving birth. (There is evidence from many surveys that people who have children living at home are usually less happy than those in similar circumstances who do not have children.)
So, does this mean that our decision-maker made a bad decision by deciding to have the child? It could mean that, but I think that interpretation would usually make no sense at all. When women choose to have children they rarely regret their choices even though the sacrifices they make in looking after their “little bundles of joy” are sufficient to cause them to report lower happiness. By commonly accepted standards these are usually good decisions – they are sensible and rational.
Other examples can be cited of sensible and rational decisions that do not add to happiness, or only add to happiness for a short time. In the case of marriage, there is typically an increase in happiness for only a year or two before and after the event and then happiness returns to its previous level. Apparently cohabitation usually results in a smaller temporary increase in happiness than does marriage. Since separation and divorce have negative effects on happiness the whole idea of entering into relationships would seem problematic if viewed purely in terms of the happiness that people can reasonably expect based on the experiences of others.
My point is that there is more to life than self-reported happiness or life satisfaction. In his little book, “Happiness” (2005), Daniel Nettle identifies three levels of happiness: momentary feelings; judgements about feelings; and quality of life (flourishing or fulfilling one’s potential). Surveys of happiness and life satisfaction reflect the first two elements, but they usually fail to take account of the third element.
We seem to have been bombarded over the last year or so by arguments that the decisions people make cannot necessarily be presumed to make them happy. See here, here, and here for my discussion of books pushing such arguments. I think it is about time there was more recognition that good decisions do not always make people happy.
This point can be illustrated by returning to my first example of the person who was less happy after deciding to increase her hours of work. Isn’t it possible that this decision might have been a good one? How do we know that the person concerned had not decided to make some sacrifices in the short term in order to promote some longer term goal such as being able to afford to have children or to being able to give her children a better education? Happiness and life satisfaction indicators do not tell us the extent to which people are fulfilling the goals that are important to them.
Wednesday, July 23, 2008
Why is happiness related to political attitudes?
This post provides some further thoughts on the question of why people who label themselves as being on the right of the political spectrum tend to be happier than those who label themselves as on the left.
In my last post on this subject (here) I discussed some research by Jaime Napier and John Jost which suggests that some of the association between political orientation and subjective well-being is accounted for by beliefs about inequality. The authors conclude that liberals tend to be less happy than conservatives because “they lack ideological rationalizations that would help them frame inequality in a positive (or at least neutral) light”.
Andrew Norton commented on his blog: “I think there is a better theory, one that is more consistent with the subjective well-being literature, which explains this result: that both lower average happiness and leftism have a common link to a weaker sense of personal control and optimism. Both these attributes are strongly correlated with happiness; and one of the tasks of the ‘positive psychology’ movement (the clinical side of subjective well-being research) is to try to enhance these senses” (here).
I responded:
“My first thought was that a weak sense of personal control is likely to be more of a problem for low-income earners and the non-religious. Beliefs about inequality seem to be shown up as significant even in studies that control for both income levels and church attendance.
However, I am attracted to James Buchanan’s argument that the strongest motivation for big government these days is that people are afraid to be free (references here). It seems to me that may be just another way of saying that a lot of people lack a sense of personal control.It is possible that beliefs about inequality and a sense of lack of personal control could both be relevant in explaining why those who self-identify as left are less happy. Arthur Brooks seems to combine both factors (see ‘Gross National Happiness’, pp 30-33). It would be interesting to see research which seeks to identify their relative importance.”
Having thought about this further I now doubt whether it would be possible to disentangle the effects of the relative importance of beliefs about inequality and feelings of lack of personal control to assess their relative importance as determinants of happiness. It might be more appropriate to view these factors as components of a syndrome – a combination of opinions, behaviour etc. .
I have come to this view after re-reading a section of “Gross National Happiness” in which Arthur Brooks discusses links between beliefs about upward mobility, feelings about inequality and happiness (pp 140-151). There is strong evidence that people on the left do tend to be pessimistic about upward mobility. In the case of people on below average incomes it makes sense that such beliefs would tend to result in feelings of lack of personal control (e.g. that nothing that they do makes any difference) and relatively low satisfaction with life, combined with leftish political views.
It is more difficult to see why pessimism about mobility should affect the happiness of people on above-average incomes. They might see lack of mobility as a social problem but they are not personally affected. Arthur Brooks suggests that these people tend to make themselves unhappy by repeating depressing messages about the perceived unfairness of income inequality. I suppose that is possible, but I have some difficulty in accepting that concerns about income inequality would, by themselves, have significant adverse effects on the happiness of people who have above-average incomes.
One possible explanation is that pessimism about income mobility might be just representative of a collection of beliefs (including for example beliefs about the environment) that would tend to reduce the happiness of people with above average incomes who have leftish views. When asked how happy they are these people might be inclined to think about the problems of the world and their perceived inability to do anything about those problems.
In my last post on this subject (here) I discussed some research by Jaime Napier and John Jost which suggests that some of the association between political orientation and subjective well-being is accounted for by beliefs about inequality. The authors conclude that liberals tend to be less happy than conservatives because “they lack ideological rationalizations that would help them frame inequality in a positive (or at least neutral) light”.
Andrew Norton commented on his blog: “I think there is a better theory, one that is more consistent with the subjective well-being literature, which explains this result: that both lower average happiness and leftism have a common link to a weaker sense of personal control and optimism. Both these attributes are strongly correlated with happiness; and one of the tasks of the ‘positive psychology’ movement (the clinical side of subjective well-being research) is to try to enhance these senses” (here).
I responded:
“My first thought was that a weak sense of personal control is likely to be more of a problem for low-income earners and the non-religious. Beliefs about inequality seem to be shown up as significant even in studies that control for both income levels and church attendance.
However, I am attracted to James Buchanan’s argument that the strongest motivation for big government these days is that people are afraid to be free (references here). It seems to me that may be just another way of saying that a lot of people lack a sense of personal control.It is possible that beliefs about inequality and a sense of lack of personal control could both be relevant in explaining why those who self-identify as left are less happy. Arthur Brooks seems to combine both factors (see ‘Gross National Happiness’, pp 30-33). It would be interesting to see research which seeks to identify their relative importance.”
Having thought about this further I now doubt whether it would be possible to disentangle the effects of the relative importance of beliefs about inequality and feelings of lack of personal control to assess their relative importance as determinants of happiness. It might be more appropriate to view these factors as components of a syndrome – a combination of opinions, behaviour etc. .
I have come to this view after re-reading a section of “Gross National Happiness” in which Arthur Brooks discusses links between beliefs about upward mobility, feelings about inequality and happiness (pp 140-151). There is strong evidence that people on the left do tend to be pessimistic about upward mobility. In the case of people on below average incomes it makes sense that such beliefs would tend to result in feelings of lack of personal control (e.g. that nothing that they do makes any difference) and relatively low satisfaction with life, combined with leftish political views.
It is more difficult to see why pessimism about mobility should affect the happiness of people on above-average incomes. They might see lack of mobility as a social problem but they are not personally affected. Arthur Brooks suggests that these people tend to make themselves unhappy by repeating depressing messages about the perceived unfairness of income inequality. I suppose that is possible, but I have some difficulty in accepting that concerns about income inequality would, by themselves, have significant adverse effects on the happiness of people who have above-average incomes.
One possible explanation is that pessimism about income mobility might be just representative of a collection of beliefs (including for example beliefs about the environment) that would tend to reduce the happiness of people with above average incomes who have leftish views. When asked how happy they are these people might be inclined to think about the problems of the world and their perceived inability to do anything about those problems.
Monday, July 21, 2008
Why are conservatives happier than liberals?
I have written on this subject before in comments on the book “Gross National Happiness” by Arthur Brooks (here) and in relation to some quick-and-dirty research I have undertaken myself.
To recap briefly, survey data show that Americans who label themselves as conservatives are nearly twice as likely to say they are very happy as are those who label themselves as liberals. This gap has persisted for 35 years and apparently cannot be explained in terms of income differences. Religion and marriage account for some but not all of this happiness gap. My research suggests that the finding that conservatives are happier than liberals also applies to other countries: a higher proportion of the population are satisfied with life in countries where people tend to position themselves toward the right of the political scale (here). It also suggests that differences between the happiness of high and low income people is influenced by differences in their political beliefs and in their beliefs about the importance of money and material things (here).
An article by Jaime Napier and John Jost (kindly brought to my attention by Andrew Norton) seems to me to shed light on the reasons why political beliefs influence happiness (‘Why are conservatives happier than liberals?’, Psychological Science, 19 (6), 2008). The study suggests that some of the association between political orientation and subjective well-being is accounted for by beliefs about inequality. The authors examined the effect of introducing ideological variables - relating to beliefs about inequality and meritocracy- in regression analyses explaining life satisfaction in the U.S. and nine other countries. They found that when the ideological variable was introduced into the analysis it took some of the explanatory power away from the political variable. The authors also report on a study which suggests that the gap in happiness between conservatives and liberals in the U.S. tends to become wider when the degree of income inequality rises.
The authors conclude that “inequality takes a greater psychological toll on liberals than on conservatives, apparently because liberals lack ideological rationalizations that would help them frame inequality in a positive (or at least neutral) light”. What they presumably mean is that people who label themselves as conservatives are less likely to worry about income inequality and this partly explains why they are happier than those who label themselves as liberals.
What are the implications of the finding that beliefs about income inequality influence happiness levels? It seems to me that when concerns about inequality are apparently having an adverse effect on happiness of large numbers of people we need more research to know more precisely what these people are concerned about and whether their concerns have a factual basis.
To recap briefly, survey data show that Americans who label themselves as conservatives are nearly twice as likely to say they are very happy as are those who label themselves as liberals. This gap has persisted for 35 years and apparently cannot be explained in terms of income differences. Religion and marriage account for some but not all of this happiness gap. My research suggests that the finding that conservatives are happier than liberals also applies to other countries: a higher proportion of the population are satisfied with life in countries where people tend to position themselves toward the right of the political scale (here). It also suggests that differences between the happiness of high and low income people is influenced by differences in their political beliefs and in their beliefs about the importance of money and material things (here).
An article by Jaime Napier and John Jost (kindly brought to my attention by Andrew Norton) seems to me to shed light on the reasons why political beliefs influence happiness (‘Why are conservatives happier than liberals?’, Psychological Science, 19 (6), 2008). The study suggests that some of the association between political orientation and subjective well-being is accounted for by beliefs about inequality. The authors examined the effect of introducing ideological variables - relating to beliefs about inequality and meritocracy- in regression analyses explaining life satisfaction in the U.S. and nine other countries. They found that when the ideological variable was introduced into the analysis it took some of the explanatory power away from the political variable. The authors also report on a study which suggests that the gap in happiness between conservatives and liberals in the U.S. tends to become wider when the degree of income inequality rises.
The authors conclude that “inequality takes a greater psychological toll on liberals than on conservatives, apparently because liberals lack ideological rationalizations that would help them frame inequality in a positive (or at least neutral) light”. What they presumably mean is that people who label themselves as conservatives are less likely to worry about income inequality and this partly explains why they are happier than those who label themselves as liberals.
What are the implications of the finding that beliefs about income inequality influence happiness levels? It seems to me that when concerns about inequality are apparently having an adverse effect on happiness of large numbers of people we need more research to know more precisely what these people are concerned about and whether their concerns have a factual basis.
Thursday, July 17, 2008
Do you want the government to give you a nudge?
This post continues my comments on “Nudge”, by Richard Thaler and Cass Sunstein. For earlier comments, see here.
In his comments on “Nudge”, Julian Sanchez, refers (here) to James Buchanan’s concept of ‘parentalism’. Whereas paternalism refers to the attitudes of elitists that sometimes people - other people - need to be restrained for their own protection from making poor choices, parentalism refers to the attitudes “of persons who seek to have values imposed on them by other persons, by the state or by transcendental forces” (James Buchanan, ‘Afraid to be free ...’, “Public Choice”, 2005, p 23).
Buchanan suggests that “many persons do not want to shoulder the final responsibility for their own actions. Many persons are, indeed, afraid to be free”. He argues that parentalism will be a more important “motivation for maintenance and extension of control over the activities of persons through collective institutions” during the first half of this century than other, more familiar, sources of socialism – managerial socialism, paternalistic socialism and distributionalist socialism.
If Buchanan is correct the classical liberal vision is likely to remain no more than a vision in the foreseeable future. In that context it becomes relevant to consider whether libertarian varieties of paternalism (or parentalism) are preferable to more coercive varieties. It seems to me that provisions enabling people to opt out of the nanny state are particularly important for people who do not want to have nanny’s values imposed upon them. Those who are at present content to accept the default options provided by the government’s choice architects may also benefit from being able to observe how other people fare when they opt to choose for themselves.
The question remains, however, of how libertarians could persuade other people to think twice before voting in favour of the use of choice architecture by governments to help them make better decisions in areas currently relatively free of government regulation. In this context it seems to me that Will Wilkinson makes a good point when he suggests that although Sunstein and Thaler may wish to design the presentation of choices to bias decisions in favor of, say, happiness, “other choice architects may be more interested in biasing our choices toward virtue or toward participation in great collective projects”. Wilkinson suggests that “political choice architecture may do a great deal to shape us, even if, in its libertarian paternalist incarnation, it makes a show of leaving the ultimate choice open to individuals” (here).
It seems to me that it is just as important for people to be vigilant in dealing with choice architects in government - who are attempting to serve many masters with differing objectives - as it is to be vigilant in dealing with choice architects in the private sector who have a clear responsibility to serve the interests of the shareholders of the firms they work for.
In his comments on “Nudge”, Julian Sanchez, refers (here) to James Buchanan’s concept of ‘parentalism’. Whereas paternalism refers to the attitudes of elitists that sometimes people - other people - need to be restrained for their own protection from making poor choices, parentalism refers to the attitudes “of persons who seek to have values imposed on them by other persons, by the state or by transcendental forces” (James Buchanan, ‘Afraid to be free ...’, “Public Choice”, 2005, p 23).
Buchanan suggests that “many persons do not want to shoulder the final responsibility for their own actions. Many persons are, indeed, afraid to be free”. He argues that parentalism will be a more important “motivation for maintenance and extension of control over the activities of persons through collective institutions” during the first half of this century than other, more familiar, sources of socialism – managerial socialism, paternalistic socialism and distributionalist socialism.
If Buchanan is correct the classical liberal vision is likely to remain no more than a vision in the foreseeable future. In that context it becomes relevant to consider whether libertarian varieties of paternalism (or parentalism) are preferable to more coercive varieties. It seems to me that provisions enabling people to opt out of the nanny state are particularly important for people who do not want to have nanny’s values imposed upon them. Those who are at present content to accept the default options provided by the government’s choice architects may also benefit from being able to observe how other people fare when they opt to choose for themselves.
The question remains, however, of how libertarians could persuade other people to think twice before voting in favour of the use of choice architecture by governments to help them make better decisions in areas currently relatively free of government regulation. In this context it seems to me that Will Wilkinson makes a good point when he suggests that although Sunstein and Thaler may wish to design the presentation of choices to bias decisions in favor of, say, happiness, “other choice architects may be more interested in biasing our choices toward virtue or toward participation in great collective projects”. Wilkinson suggests that “political choice architecture may do a great deal to shape us, even if, in its libertarian paternalist incarnation, it makes a show of leaving the ultimate choice open to individuals” (here).
It seems to me that it is just as important for people to be vigilant in dealing with choice architects in government - who are attempting to serve many masters with differing objectives - as it is to be vigilant in dealing with choice architects in the private sector who have a clear responsibility to serve the interests of the shareholders of the firms they work for.
Should the government nudge people to improve their decisions?
What is a nudge? In their book, “Nudge”, Richard Thaler and Cass Sunstein define a nudge as “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing economic incentives” (p 6).
Thaler and Sunstein claim that nudges are consistent with libertarianism because they don’t involve coercion but they readily acknowledge that nudges are paternalistic. They advocate "libertarian paternalism".
An example might help to clarify what a nudge involves. If the government were to invest a certain proportion of your income in a superannuation fund on your behalf this would amount to a nudge (rather than a push or a shove) if you were allowed to withdraw the funds at any time to use as you wished. There is evidence that as a result of a tendency for people to avoid choices (or to choose the default options) such an arrangement would result in much more investment in superannuation than one that relied solely on tax incentives. It would do this without the interference in personal choice that is involved in compulsory superannuation, such as exists in Australia.
After reading “Nudge” I decided to read some reviews by other people to help clarify my own views. The basic idea that people’s behaviour can be influenced by so called “choice architects” seems to be widely accepted by reviewers. This does not surprise me because there is no real conflict between the conventional view of economists (as argued, for example by Tim Harford in “The Logic of Life”) that people respond to incentives and the view of psychologists and behavioral economists (for example, Dan Ariely) that people are “predictably irrational”. For elaboration, see here.
Some reviewers taking what seems to me to be a predictably irrational approach, attack Thaler and Sunstein for rejecting coercion. For example, in the New York Review of Books. John Cassidy argues: “Once you concentrate on the reality that people often make poor choices, and that their actions can harm others as well as themselves, the obvious thing to do is restrict their set of choices and prohibit destructive behavior” (see here). The fallacy in this argument was aptly described by Harold Demsetz as “the grass is always greener” fallacy (‘Information and efficiency: another viewpoint’, Journal of Law and Economics, 1969) . Cassidy seems to be claiming that if outcomes are imperfect when choices are not restricted they must necessarily be better when choices are restricted. Social experiments with prohibition of alcohol early last century and Keynesianism from World War II until the stagflation of the1970s should have taught everyone that government interventions do not always result in better outcomes.
Some other reviewers attack Thaler and Sunstein for being paternalistic. For example David Gordon of the Mises Institute argues: “Those who wish to preserve liberty must take people's actions as they find them, not substitute for them "better" or more "rational" actions, based on an assessment of what people "really" want.” He suggests that: “Those who find convincing the explanations of bad choices put forward by Thaler and Sunstein are free to make arrangements with others that will alleviate these problems. If you think that sudden impulses when confronted with tempting food will lead you to fall off your diet, you may contract with a friend to forfeit money should you fail to meet certain weight requirements. But, in a free society, doing so is up to you; the state may not nudge you into this sort of contract” (see here).
Although I have a great deal of sympathy for Gordon’s line of argument, I don’t think it settles the question. Even though I vote to preserve my liberty - and am prepared to accept the consequences - that doesn’t stop the majority of people from voting in favour of government action to nudge their decisions (and mine) in particular directions. I will consider the implications of this in my next post.
Thaler and Sunstein claim that nudges are consistent with libertarianism because they don’t involve coercion but they readily acknowledge that nudges are paternalistic. They advocate "libertarian paternalism".
An example might help to clarify what a nudge involves. If the government were to invest a certain proportion of your income in a superannuation fund on your behalf this would amount to a nudge (rather than a push or a shove) if you were allowed to withdraw the funds at any time to use as you wished. There is evidence that as a result of a tendency for people to avoid choices (or to choose the default options) such an arrangement would result in much more investment in superannuation than one that relied solely on tax incentives. It would do this without the interference in personal choice that is involved in compulsory superannuation, such as exists in Australia.
After reading “Nudge” I decided to read some reviews by other people to help clarify my own views. The basic idea that people’s behaviour can be influenced by so called “choice architects” seems to be widely accepted by reviewers. This does not surprise me because there is no real conflict between the conventional view of economists (as argued, for example by Tim Harford in “The Logic of Life”) that people respond to incentives and the view of psychologists and behavioral economists (for example, Dan Ariely) that people are “predictably irrational”. For elaboration, see here.
Some reviewers taking what seems to me to be a predictably irrational approach, attack Thaler and Sunstein for rejecting coercion. For example, in the New York Review of Books. John Cassidy argues: “Once you concentrate on the reality that people often make poor choices, and that their actions can harm others as well as themselves, the obvious thing to do is restrict their set of choices and prohibit destructive behavior” (see here). The fallacy in this argument was aptly described by Harold Demsetz as “the grass is always greener” fallacy (‘Information and efficiency: another viewpoint’, Journal of Law and Economics, 1969) . Cassidy seems to be claiming that if outcomes are imperfect when choices are not restricted they must necessarily be better when choices are restricted. Social experiments with prohibition of alcohol early last century and Keynesianism from World War II until the stagflation of the1970s should have taught everyone that government interventions do not always result in better outcomes.
Some other reviewers attack Thaler and Sunstein for being paternalistic. For example David Gordon of the Mises Institute argues: “Those who wish to preserve liberty must take people's actions as they find them, not substitute for them "better" or more "rational" actions, based on an assessment of what people "really" want.” He suggests that: “Those who find convincing the explanations of bad choices put forward by Thaler and Sunstein are free to make arrangements with others that will alleviate these problems. If you think that sudden impulses when confronted with tempting food will lead you to fall off your diet, you may contract with a friend to forfeit money should you fail to meet certain weight requirements. But, in a free society, doing so is up to you; the state may not nudge you into this sort of contract” (see here).
Although I have a great deal of sympathy for Gordon’s line of argument, I don’t think it settles the question. Even though I vote to preserve my liberty - and am prepared to accept the consequences - that doesn’t stop the majority of people from voting in favour of government action to nudge their decisions (and mine) in particular directions. I will consider the implications of this in my next post.
Wednesday, July 9, 2008
Are the top 100 taxpayers particularly virtuous?
When I decided to write this a couple of days ago I had the impression that the Australian tax commissioner had sent a letter to Dick Smith, a successful Australian businessman and aerial adventurer, threatening him with dire consequences if he did not refrain from use of legal tax avoidance measures. As I gathered information together, however, a rather different story emerged.
The best place to begin is with the late Kerry Packer, who was the wealthiest person in Australia. When asked by a government member about his company's tax minimisation schemes (during a public inquiry in 1991) Packer famously replied:
"Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
A couple of weeks ago it seemed that Dick Smith had finally decided to follow Kerry Packer’s lead. Smith wrote, in a letter to the tax commissioner, that he didn’t agree with Packer’s statement at the time it was made “but I certainly do now”.
Smith’s letter to the tax commissioner was in response to a brochure sent to 1200 wealthy Australians. Having just looked at the brochure, merely out of curiosity, it seems to me that there is nothing particularly objectionable in it. The main message seems to be that it is important for wealthy people to get good advice about tax matters.
However, in his letter Smith made clear that what had led him to change his mind was a particular instance of waste and mismanagement in relation to defence procurement. It seems that the tax commissioner was just a convenient target for Smith’s letter.
When I first read the newspaper articles suggesting that Dick Smith had become a convert to Kerry Packer’s views on government spending and tax minimisation I thought this meant that he was about to put his considerable skills in capturing public attention to use in making the case for smaller government and lower taxes. I was wrong.
An article in “The Australian” on Monday indicates that Smith has now told the tax commissioner that he will not be “entering into any scheme to legally minimize my tax”. What did the commissioner do to get Smith to change his mind? It seems that he just appealed to Smith not to do anything that could reduce community confidence in the tax system.
So, how did Smith respond? Well, it seems to me that Smith’s response was the human equivalent of a puppy that whines until it gets attention and then rolls over onto its back and asks to have its tummy tickled. Smith asked the tax commissioner to publish a list of Australia’s 100 top taxpayers in order to give them recognition for their efforts. His reasoning seems to be that anyone in the list of Australia’s 100 top taxpayers must be a particularly virtuous person who deserves recognition for, in effect, volunteering to pay more tax than he/she is legally obliged to pay.
What nonsense. Some wealthy people who take advantage of opportunities legally available to avoid tax, in their efforts to maximise post-tax income, might still be included among the top 100 taxpayers. Moreover, it is possible for wealthy people to minimize their tax as a consequence of altruism rather than selfishness – people pay no income tax if they donate all their income to registered charities.
The best place to begin is with the late Kerry Packer, who was the wealthiest person in Australia. When asked by a government member about his company's tax minimisation schemes (during a public inquiry in 1991) Packer famously replied:
"Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
A couple of weeks ago it seemed that Dick Smith had finally decided to follow Kerry Packer’s lead. Smith wrote, in a letter to the tax commissioner, that he didn’t agree with Packer’s statement at the time it was made “but I certainly do now”.
Smith’s letter to the tax commissioner was in response to a brochure sent to 1200 wealthy Australians. Having just looked at the brochure, merely out of curiosity, it seems to me that there is nothing particularly objectionable in it. The main message seems to be that it is important for wealthy people to get good advice about tax matters.
However, in his letter Smith made clear that what had led him to change his mind was a particular instance of waste and mismanagement in relation to defence procurement. It seems that the tax commissioner was just a convenient target for Smith’s letter.
When I first read the newspaper articles suggesting that Dick Smith had become a convert to Kerry Packer’s views on government spending and tax minimisation I thought this meant that he was about to put his considerable skills in capturing public attention to use in making the case for smaller government and lower taxes. I was wrong.
An article in “The Australian” on Monday indicates that Smith has now told the tax commissioner that he will not be “entering into any scheme to legally minimize my tax”. What did the commissioner do to get Smith to change his mind? It seems that he just appealed to Smith not to do anything that could reduce community confidence in the tax system.
So, how did Smith respond? Well, it seems to me that Smith’s response was the human equivalent of a puppy that whines until it gets attention and then rolls over onto its back and asks to have its tummy tickled. Smith asked the tax commissioner to publish a list of Australia’s 100 top taxpayers in order to give them recognition for their efforts. His reasoning seems to be that anyone in the list of Australia’s 100 top taxpayers must be a particularly virtuous person who deserves recognition for, in effect, volunteering to pay more tax than he/she is legally obliged to pay.
What nonsense. Some wealthy people who take advantage of opportunities legally available to avoid tax, in their efforts to maximise post-tax income, might still be included among the top 100 taxpayers. Moreover, it is possible for wealthy people to minimize their tax as a consequence of altruism rather than selfishness – people pay no income tax if they donate all their income to registered charities.
Wednesday, July 2, 2008
What was Alan Wood's final message as economics editor of "The Australian"?
At the end of his column in “The Australian” today, Alan Wood told readers that this was his final column as economics editor.
So, what message did Alan view as sufficiently important to be the subject of this column?
I quote what seems to be Alan’s main point:
“If Australia moves ahead of the rest of the world to curb carbon emissions, there will be no benefit to Australia or the world but a potentially very high cost to us, involving extensive restructuring and transfers of wealth within Australia and from Australia to emerging economies.”
I think that message is worth repeating. The rest of the column can be read here.
So, what message did Alan view as sufficiently important to be the subject of this column?
I quote what seems to be Alan’s main point:
“If Australia moves ahead of the rest of the world to curb carbon emissions, there will be no benefit to Australia or the world but a potentially very high cost to us, involving extensive restructuring and transfers of wealth within Australia and from Australia to emerging economies.”
I think that message is worth repeating. The rest of the column can be read here.
Tuesday, July 1, 2008
What does happiness research tell us about the trade-off between inflation and unemployment?
The best place to begin is with the misery index. What is the misery index? No, it isn’t a measure of the average happiness level of economists. The misery index is the sum of the inflation rate and the unemployment rate. The concept was apparently created by Arthur Okun in the 1960s (see here) but it wasn’t the best idea he ever had. (Arguably, Okun’s best idea was the ‘leaky bucket’ metaphor. Redistribution of income from the rich to the poor is like carrying water in a leaky bucket. Some of the contents of the bucket is lost in transit. More information can be found here.)
The problem with the misery index is that it assumes that a percentage point increase in inflation creates just as much misery as a percentage point increase in unemployment. That assumption might make some sense if we had no information about the relative amounts of misery caused by inflation and unemployment, but that is not the case.
The results of happiness research suggest that unemployment has large negative effects on satisfaction with life. Research suggests that an increase in annual income of over $40,000 (over and above unemployment benefits) would be required to give Australian males who are unemployed the same probability of experiencing high life satisfaction as someone who is employed. The corresponding income increase for women was estimated to be about twice as large (for reasons unknown). Larger required income differences have also been estimated for other countries (see Nick Carroll, ‘Unemployment and psychological well-being’, Economic Record, Sept. 2007).
Happiness research suggests that although inflation has significant negative effects on satisfaction with life these effects are smaller than the effects on unemployment. Using a large European data base, Justin Wolfers has estimated that a percentage point of unemployment causes about 5 times more unhappiness than a percentage point of inflation (‘Is business cycle volatility costly’, International Finance, 2003, here).
If we can assume that a similar ratio applies in Australia, would this mean that the Reserve Bank would have to be crazy to contemplate policy action that would reduce inflation by a percentage point if this was likely to result in an increase in unemployment of 2 percentage points? No. In order to do this calculation properly it is necessary to take into account the duration of these expected effects of policy actions. If the reduction in inflation is expected to be permanent and the increase in unemployment is expected to last for only one year, the policy action would make sense. A clever politician might even be able to sell such an outcome to the public as “the recession we had to have”.
The obvious point is that if the Reserve Bank is able to demonstrate its resolve to prevent inflationary expectations from taking hold it will be able to avoid resorting to the unpalatable option of inducing a recession in order to reduce inflation. Unfortunately, the Bank is under pressure from some economists to view recent increases in inflation as having been “imported” and hence to take no action against them. I don’t know how anyone can argue that inflation can be imported in a country that has a floating exchange rate - but that may not mean much because I still count myself among those who think that “inflation is always and everywhere a monetary phenomenon”.
The problem with the misery index is that it assumes that a percentage point increase in inflation creates just as much misery as a percentage point increase in unemployment. That assumption might make some sense if we had no information about the relative amounts of misery caused by inflation and unemployment, but that is not the case.
The results of happiness research suggest that unemployment has large negative effects on satisfaction with life. Research suggests that an increase in annual income of over $40,000 (over and above unemployment benefits) would be required to give Australian males who are unemployed the same probability of experiencing high life satisfaction as someone who is employed. The corresponding income increase for women was estimated to be about twice as large (for reasons unknown). Larger required income differences have also been estimated for other countries (see Nick Carroll, ‘Unemployment and psychological well-being’, Economic Record, Sept. 2007).
Happiness research suggests that although inflation has significant negative effects on satisfaction with life these effects are smaller than the effects on unemployment. Using a large European data base, Justin Wolfers has estimated that a percentage point of unemployment causes about 5 times more unhappiness than a percentage point of inflation (‘Is business cycle volatility costly’, International Finance, 2003, here).
If we can assume that a similar ratio applies in Australia, would this mean that the Reserve Bank would have to be crazy to contemplate policy action that would reduce inflation by a percentage point if this was likely to result in an increase in unemployment of 2 percentage points? No. In order to do this calculation properly it is necessary to take into account the duration of these expected effects of policy actions. If the reduction in inflation is expected to be permanent and the increase in unemployment is expected to last for only one year, the policy action would make sense. A clever politician might even be able to sell such an outcome to the public as “the recession we had to have”.
The obvious point is that if the Reserve Bank is able to demonstrate its resolve to prevent inflationary expectations from taking hold it will be able to avoid resorting to the unpalatable option of inducing a recession in order to reduce inflation. Unfortunately, the Bank is under pressure from some economists to view recent increases in inflation as having been “imported” and hence to take no action against them. I don’t know how anyone can argue that inflation can be imported in a country that has a floating exchange rate - but that may not mean much because I still count myself among those who think that “inflation is always and everywhere a monetary phenomenon”.
Thursday, June 26, 2008
How important is the right to choose?
This is a story about Mathew and Mark, identical twins, who were separated at birth and still do not know of each other’s existence. My story begins when both felt a little unhappy most of the time – not depressed, just not happy. In terms of the objective circumstances of their lives there was no obvious reason why they should be unhappy. Jill, who happened to meet Mathew and Mark by chance and figured out that they must be identical twins, felt that their unhappiness was largely genetic. Jill actually had the expertise to make such a judgement because she was a neurologist who conducted research on happiness.
Jill decided that rather than arrange a meeting between Mathew and Mark she would keep them ignorant of each other and use them as subjects in her research on the electrical stimulation of certain parts of the brain to induce feelings of pleasure. So, she befriended both men and arranged to have apparatus for electrical stimulation of their brains installed in their favourite chairs without their knowledge. (Don’t ask me how this might work. I don’t know.) Without asking their permission Jill stimulated the brains of both men while they were relaxing in their favourite chairs.
After this, both men spontaneously reported to Jill that something wonderful had happened to them. From out of nowhere, they said, they had begun to experience pleasurable feelings that were better than any feelings that they had ever felt before – better than the pleasure of fine food or wine, better than the esteem of friends and even better than the pleasure of sex.
As she had planned all along, Jill told Mathew that she had caused his pleasurable feelings through brain stimulation, while suggesting to Mark that what had happened to him must be “just one of those things”.
When Jill told Mathew that her experiment was the source of his pleasure, he was not amused. He said that he felt that he had been manipulated and that his trust had been betrayed. Even though he would have readily participated in the experiment if asked to volunteer, he viewed Jill’s failure to ask an inexcusable breach of his autonomy. He told Jill to leave and not return, and she did as she was asked. After a week or two Mathew’s life returned to normal and he became his old unhappy self once again.
By contrast, Mark continued to receive the brain stimulation and never learned about the source of the pleasure he experienced. You could say he lived happily ever after – because he remained in ignorance that the pleasure he continued to experience was the result of Jill’s surreptitious intervention.
It seems to me that this story, which I have just made up, demonstrates that freedom to choose is more important than happiness. Mark is unquestionably happier than Mathew, but it is reasonable to predict that if he knew that his happiness was the result of Jill’s manipulation he, like Mathew, would make an informed choice to be unhappy rather than to continue to be manipulated by a person who does not respect his autonomy.
I made up the story after reading an article by Yew-Kwang Ng, who taught me just about everything I know about welfare economics in 1971. Yew-Kwang suggests that the technology of electrical brain stimulation to increase happiness is well known and that its widespread use would increase happiness enormously. He wonders why this technology has not already been developed for common use. Yew-Kwang also contemplates the use of genetic engineering to increase happiness. (‘Happiness studies’, Economic Record, June 2008).
It seems to me that the crucial point is that people should be free to choose whether to use such technologies. It is not clear, however, that those who put happiness ahead of everything see the right to choose as having a great deal of importance. Yew-Kwang Ng writes: “The satisfaction of my (even if informed) preferences as such has no normative significance for me; it is important only because, in most cases, it makes me (and/or others) happier, directly or indirectly” (“Efficiency, Equality and Public Policy”, 2000, p 53). This makes me wonder whether Yew-Kwang would consider that Mathew in my story acted irrationally by foregoing his chance of greater happiness in order to get the manipulative Jill out of his life.
Jill decided that rather than arrange a meeting between Mathew and Mark she would keep them ignorant of each other and use them as subjects in her research on the electrical stimulation of certain parts of the brain to induce feelings of pleasure. So, she befriended both men and arranged to have apparatus for electrical stimulation of their brains installed in their favourite chairs without their knowledge. (Don’t ask me how this might work. I don’t know.) Without asking their permission Jill stimulated the brains of both men while they were relaxing in their favourite chairs.
After this, both men spontaneously reported to Jill that something wonderful had happened to them. From out of nowhere, they said, they had begun to experience pleasurable feelings that were better than any feelings that they had ever felt before – better than the pleasure of fine food or wine, better than the esteem of friends and even better than the pleasure of sex.
As she had planned all along, Jill told Mathew that she had caused his pleasurable feelings through brain stimulation, while suggesting to Mark that what had happened to him must be “just one of those things”.
When Jill told Mathew that her experiment was the source of his pleasure, he was not amused. He said that he felt that he had been manipulated and that his trust had been betrayed. Even though he would have readily participated in the experiment if asked to volunteer, he viewed Jill’s failure to ask an inexcusable breach of his autonomy. He told Jill to leave and not return, and she did as she was asked. After a week or two Mathew’s life returned to normal and he became his old unhappy self once again.
By contrast, Mark continued to receive the brain stimulation and never learned about the source of the pleasure he experienced. You could say he lived happily ever after – because he remained in ignorance that the pleasure he continued to experience was the result of Jill’s surreptitious intervention.
It seems to me that this story, which I have just made up, demonstrates that freedom to choose is more important than happiness. Mark is unquestionably happier than Mathew, but it is reasonable to predict that if he knew that his happiness was the result of Jill’s manipulation he, like Mathew, would make an informed choice to be unhappy rather than to continue to be manipulated by a person who does not respect his autonomy.
I made up the story after reading an article by Yew-Kwang Ng, who taught me just about everything I know about welfare economics in 1971. Yew-Kwang suggests that the technology of electrical brain stimulation to increase happiness is well known and that its widespread use would increase happiness enormously. He wonders why this technology has not already been developed for common use. Yew-Kwang also contemplates the use of genetic engineering to increase happiness. (‘Happiness studies’, Economic Record, June 2008).
It seems to me that the crucial point is that people should be free to choose whether to use such technologies. It is not clear, however, that those who put happiness ahead of everything see the right to choose as having a great deal of importance. Yew-Kwang Ng writes: “The satisfaction of my (even if informed) preferences as such has no normative significance for me; it is important only because, in most cases, it makes me (and/or others) happier, directly or indirectly” (“Efficiency, Equality and Public Policy”, 2000, p 53). This makes me wonder whether Yew-Kwang would consider that Mathew in my story acted irrationally by foregoing his chance of greater happiness in order to get the manipulative Jill out of his life.
Sunday, June 22, 2008
Why doesn't the World Bank's growth commission admit that experts don't have all the answers?
Bill Easterly suggests (here) that the recently published report of the World Bank growth commission (here) answers the question of how to promote high growth rates by saying something like: “we do not know, but trust the experts to figure it out”.
Does the report really say or imply that? The report identifies some of the distinctive characteristics of high growth economies and asks how other developing countries can emulate them. It talks of the importance of: bringing in ideas, technologies and knowhow from the rest of the world; international trade and specialization; structural transformation through microeconomic processes of creation and destruction; and high national savings rates. The report also notes that an important characteristic of high growth economies is “an increasingly capable, credible and committed government”. It discusses the need to rely on markets to allocate resources efficiently, the role of market and regulatory institutions that underpin mature market economies, the need for investment in infrastructure, education and health, the need for social safety nets to protect the losers from economic change and the need for a commitment to equality of opportunity to give everyone a fair chance to enjoy the fruits of growth.
It would seem from this brief summary that the World Bank growth commission - with its 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops and a budget of $4 m - has actually come to some conclusions about how to promote economic growth. Arguably, there is not much advance here on what the World Bank was writing in the 1990s about “the east Asian miracle” or, for that matter, on what Adam Smith wrote in “Wealth of Nations” in 1776 - but findings about the characteristics of more successful economies are probably worth re-stating from time to time.
So, is Bill Easterly mistaken? Not at all. He makes the point that only two of the 13 high growth episodes the commission studied were ongoing. Yesterday’s growth failures are today’s successes (e.g. India) and yesterday’s successes (e.g. Brazil) are today’s failures. And he points out that much of this volatility is inexplicable and unpredictable.
The World Bank growth commission comes close to acknowledging their own ignorance of the art of policy making when they note that some countries have sustained high growth for quite long periods without the deep institutional underpinnings that define property rights and enforce contracts in mature market economies. Consider the following odd sequence of sentences: “Indeed, an important part of development is precisely the creation of these institutionalized capabilities. Even without them, growth can occur, and these institutions can co-evolve with the economy as it expands. However, we do not know in detail how these institutions can be engineered, and policy makers cannot always know how a market will function without them” (p 4).
All the authors of the report needed to add, before putting “the art of policy making” in the too hard basket, was some comment to the effect that the best advice an economist can give policy makers is to consider the incentives that their policies are likely to create.
However, the commission could not acknowledge that it does not have any expertise in advising the governments of developing countries about “the art of policy making”. It couldn’t resist making inane comments like: “Bad policies are often good policies applied for too long” (p 6).
Rather than trying to imagine what might have been going on in the minds of the experts who signed off on that particular pretence of knowledge, readers would be better served by pondering the following quote from Friedrich Hayek:
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. ... The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals. (Nobel prize lecture given in 1974, available here).
Does the report really say or imply that? The report identifies some of the distinctive characteristics of high growth economies and asks how other developing countries can emulate them. It talks of the importance of: bringing in ideas, technologies and knowhow from the rest of the world; international trade and specialization; structural transformation through microeconomic processes of creation and destruction; and high national savings rates. The report also notes that an important characteristic of high growth economies is “an increasingly capable, credible and committed government”. It discusses the need to rely on markets to allocate resources efficiently, the role of market and regulatory institutions that underpin mature market economies, the need for investment in infrastructure, education and health, the need for social safety nets to protect the losers from economic change and the need for a commitment to equality of opportunity to give everyone a fair chance to enjoy the fruits of growth.
It would seem from this brief summary that the World Bank growth commission - with its 21 world leaders and experts, an 11-member working group, 300 academic experts, 12 workshops and a budget of $4 m - has actually come to some conclusions about how to promote economic growth. Arguably, there is not much advance here on what the World Bank was writing in the 1990s about “the east Asian miracle” or, for that matter, on what Adam Smith wrote in “Wealth of Nations” in 1776 - but findings about the characteristics of more successful economies are probably worth re-stating from time to time.
So, is Bill Easterly mistaken? Not at all. He makes the point that only two of the 13 high growth episodes the commission studied were ongoing. Yesterday’s growth failures are today’s successes (e.g. India) and yesterday’s successes (e.g. Brazil) are today’s failures. And he points out that much of this volatility is inexplicable and unpredictable.
The World Bank growth commission comes close to acknowledging their own ignorance of the art of policy making when they note that some countries have sustained high growth for quite long periods without the deep institutional underpinnings that define property rights and enforce contracts in mature market economies. Consider the following odd sequence of sentences: “Indeed, an important part of development is precisely the creation of these institutionalized capabilities. Even without them, growth can occur, and these institutions can co-evolve with the economy as it expands. However, we do not know in detail how these institutions can be engineered, and policy makers cannot always know how a market will function without them” (p 4).
All the authors of the report needed to add, before putting “the art of policy making” in the too hard basket, was some comment to the effect that the best advice an economist can give policy makers is to consider the incentives that their policies are likely to create.
However, the commission could not acknowledge that it does not have any expertise in advising the governments of developing countries about “the art of policy making”. It couldn’t resist making inane comments like: “Bad policies are often good policies applied for too long” (p 6).
Rather than trying to imagine what might have been going on in the minds of the experts who signed off on that particular pretence of knowledge, readers would be better served by pondering the following quote from Friedrich Hayek:
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. ... The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals. (Nobel prize lecture given in 1974, available here).
Friday, June 20, 2008
Can beliefs about inequality make people unhappy?
In recent posts I have been considering whether some of the findings by Arthur Brooks in “Gross National Happiness” apply to countries other than the United States (see: here, here and here). In this post I continue that theme and focus particularly on the effect of political beliefs on the extent to which people are made unhappy by income inequality.
Brooks observes that levels of happiness, beliefs about inequality and income mobility, and political allegiance tend to go together. Americans who think that income differences are too large (about half the population) are a lot less likely to believe that there is a great deal of upward mobility in the United States. Political liberals are a lot less likely than conservatives to believe that there is a lot of upward income mobility in America. Surveys also show that pessimists about income mobility are a lot less likely to be very happy than are optimists.
There is some evidence from published research relating to other countries that political views tend to influence the extent that inequality of income makes people unhappy. Research by Alberto Alesina, Rafael Di Tella and Robert MacCulloch suggests that in Europe the poor and those on the left of the political spectrum tick down their happiness scores when inequality is high, but in the United States the happiness of the poor and those on the left is largely uncorrelated with inequality. Rafael Di Tella and Robert MacCulloch also report the results of a 36 country study based on the World Values Survey which suggests that low income has less of an adverse effects the happiness of low-income people if it is accompanied by a belief that poor people have a chance of escaping from poverty in the country in which they live. (See: Di Tella and MacCulloch in ‘Some uses of happiness data in economics’, Journal of Economic Perspectives, Winter 2006, p 42).
In earlier posts I have noted that in most countries the happiness of lower income people tends to be closely related to the happiness of middle and upper income people in the same countries (here) and that the gap in happiness between upper and lower income people is not related in any clear and obvious way to differences in the extent of income inequality among different countries (here). I now want to report on some research in which I have attempted to assess whether political views influence the proportion of lower income people who are satisfied with life.
The research involved use of multiple regression to explain the proportion of lower income people who are satisfied with life in terms of: the proportion of upper income people who are satisfied with life, self-positioning on the political spectrum; differences in self-positioning on the political spectrum between upper and lower income people; the proportion of the population who believe that it would be a good thing if there was less emphasis on money; differences between upper and lower income people in the proportions who believe that it would be a good thing if there was less emphasis on money; an indicator of religious service attendance and a measure of income inequality (gini index). (Data used in the study were for 66 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The results suggest that the most significant variables explaining the proportion of lower income people who are satisfied with life are:
Brooks observes that levels of happiness, beliefs about inequality and income mobility, and political allegiance tend to go together. Americans who think that income differences are too large (about half the population) are a lot less likely to believe that there is a great deal of upward mobility in the United States. Political liberals are a lot less likely than conservatives to believe that there is a lot of upward income mobility in America. Surveys also show that pessimists about income mobility are a lot less likely to be very happy than are optimists.
There is some evidence from published research relating to other countries that political views tend to influence the extent that inequality of income makes people unhappy. Research by Alberto Alesina, Rafael Di Tella and Robert MacCulloch suggests that in Europe the poor and those on the left of the political spectrum tick down their happiness scores when inequality is high, but in the United States the happiness of the poor and those on the left is largely uncorrelated with inequality. Rafael Di Tella and Robert MacCulloch also report the results of a 36 country study based on the World Values Survey which suggests that low income has less of an adverse effects the happiness of low-income people if it is accompanied by a belief that poor people have a chance of escaping from poverty in the country in which they live. (See: Di Tella and MacCulloch in ‘Some uses of happiness data in economics’, Journal of Economic Perspectives, Winter 2006, p 42).
In earlier posts I have noted that in most countries the happiness of lower income people tends to be closely related to the happiness of middle and upper income people in the same countries (here) and that the gap in happiness between upper and lower income people is not related in any clear and obvious way to differences in the extent of income inequality among different countries (here). I now want to report on some research in which I have attempted to assess whether political views influence the proportion of lower income people who are satisfied with life.
The research involved use of multiple regression to explain the proportion of lower income people who are satisfied with life in terms of: the proportion of upper income people who are satisfied with life, self-positioning on the political spectrum; differences in self-positioning on the political spectrum between upper and lower income people; the proportion of the population who believe that it would be a good thing if there was less emphasis on money; differences between upper and lower income people in the proportions who believe that it would be a good thing if there was less emphasis on money; an indicator of religious service attendance and a measure of income inequality (gini index). (Data used in the study were for 66 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The results suggest that the most significant variables explaining the proportion of lower income people who are satisfied with life are:
- the proportion of upper income people who are satisfied with life (by far the most important);
- differences in self-positioning on the political spectrum between upper and lower income people;
- the proportion of the population who believe that it would be a good thing if there was less emphasis on money; and
- differences between upper and lower income people in the proportions who believe that it would be a good thing if there was less emphasis on money.
These results support the view that the impact that inequality has on the happiness of low income people is influenced by their political beliefs and their beliefs about the importance of money and material things.
(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)
What is the best predictor of the happiness of low-income earners?
The most obvious answer would be average income level. However, the probability of happiness can vary markedly among countries with similar income levels. This is apparent when we look at the extent to which average income levels in different countries influence the chances of happiness of those on lower, middle or upper incomes. For example, although lower income Australians have about the same probability of reporting that they are satisfied with life as might be expected on the basis of their income levels (70 percent), the probability of lower income Mexicans reporting that they are satisfied with life is about 34 percent greater than expected (75 rather than 41 percent) and the probability of lower income Japanese reporting that they are satisfied with life is about 21 percent lower than expected (46 rather than 67 percent). (These results were obtained by use of regression to fit an equation relating the probability of people on lower incomes being satisfied with life to per capita income level. Life satisfaction data was for 66 countries for 2000 and obtained from: : Ronald Inglehart et al, Human Beliefs and Values, Siglo XXI Editores, Mexico, 2004, A 170).
Some might suggest that measures of income inequality could be used to predict the happiness of low-income people. However, there is no clear evidence that happiness inequality is related to the extent of income inequality (see here).
It turns out that the happiness of those on higher incomes in individual countries is a good predictor or the happiness of low-income people in those countries. Lower income people tend to be less happy than those on higher incomes but the margin is fairly consistent across countries – if those on upper incomes are happy, those on lower incomes also tend to be happy. There are some exceptions. For example, data for 2000 indicates that lower-income Armenians were much more satisfied with life and low-income South Africans were much less satisfied with life than would be predicted on the basis of the happiness of those with higher incomes.
In general, however, a very large proportion of the variation in the probability of people on lower incomes claiming to be satisfied with life can be explained simply in terms of the proportions on middle incomes who claim that they are satisfied with life.
Some might suggest that measures of income inequality could be used to predict the happiness of low-income people. However, there is no clear evidence that happiness inequality is related to the extent of income inequality (see here).
It turns out that the happiness of those on higher incomes in individual countries is a good predictor or the happiness of low-income people in those countries. Lower income people tend to be less happy than those on higher incomes but the margin is fairly consistent across countries – if those on upper incomes are happy, those on lower incomes also tend to be happy. There are some exceptions. For example, data for 2000 indicates that lower-income Armenians were much more satisfied with life and low-income South Africans were much less satisfied with life than would be predicted on the basis of the happiness of those with higher incomes.
In general, however, a very large proportion of the variation in the probability of people on lower incomes claiming to be satisfied with life can be explained simply in terms of the proportions on middle incomes who claim that they are satisfied with life.
Thursday, June 19, 2008
Do your political views make you unhappy?
In his book, “Gross National Happiness”, Arthur Brooks cites compelling evidence that Americans who label themselves as conservatives are nearly twice as likely to say they are very happy as those who label themselves as liberals. This gap which has persisted for 35 years cannot be explained by income differences and apparently can only be explained in part by demographic factors such as religion and marriage.
As indicated previously (here) I am interested in the question of whether this finding also applies to other countries.
The gap between the happiness of those on the left and right of the political spectrum does not seem to be as large in Australia as in the United States. Data from the World Values Survey for 1995 (obtained by using the excellent facility available here to obtain cross-tabs online) suggest that those who self-positioned themselves on the left of the political spectrum in Australia (codes 1 to 4 on a 10 point scale) in that year were about 4 percentage points less likely to report being satisfied with life than the rest of the population (75 percent rather than 79 percent).
However, there is some evidence that political views are associated with substantial impacts on the probability of happiness in many countries. A study that I have undertaken covering 69 countries involved calculating a political index and assessing to what extent this index was capable of explaining differences in the proportions of the populations were are satisfied with life. The political index was calculated for each country from published data on percentages who self-position themselves on the left (assigned a value of 1) centre (assigned a value of 2) and right (assigned a value of 3). The index values range from 1.5 to 2.6 with an average of 2.1. Multiple regression was used to explain the percentage who were satisfied with life in terms of this political index and two control variables (per capita income level and percentage who attend religious services once a month or more). (Data were for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The results suggest that an increase of 0.1 in this political index ( e.g. from the level in Britain of 1.9 to 2.0 – the same as for Australia) would be associated with an increase in percentage of people satisfied with life of about 2 percentage points (i.e. an increase from 73 to 75 percent of people being satisfied with life - sufficient to halve the gap between Britain and Australia in the percentage of people who are satisfied with life).
What are the implications of the finding that people who self-position themselves on the left of politics tend to be less satisfied with life than other people. In one sense it is hardly surprising that lefties should profess to be less satisfied with life than others. After all, their dissatisfaction may provide a motive for them to propose radical change. At the same time, however, it seems likely that those who self-position themselves on the left may have beliefs and frames of mind that cause them to have different feelings about objective circumstances. In my next post I will look at some evidence about the effect of self-positioning on the political scale on responses to income inequality.
(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)
As indicated previously (here) I am interested in the question of whether this finding also applies to other countries.
The gap between the happiness of those on the left and right of the political spectrum does not seem to be as large in Australia as in the United States. Data from the World Values Survey for 1995 (obtained by using the excellent facility available here to obtain cross-tabs online) suggest that those who self-positioned themselves on the left of the political spectrum in Australia (codes 1 to 4 on a 10 point scale) in that year were about 4 percentage points less likely to report being satisfied with life than the rest of the population (75 percent rather than 79 percent).
However, there is some evidence that political views are associated with substantial impacts on the probability of happiness in many countries. A study that I have undertaken covering 69 countries involved calculating a political index and assessing to what extent this index was capable of explaining differences in the proportions of the populations were are satisfied with life. The political index was calculated for each country from published data on percentages who self-position themselves on the left (assigned a value of 1) centre (assigned a value of 2) and right (assigned a value of 3). The index values range from 1.5 to 2.6 with an average of 2.1. Multiple regression was used to explain the percentage who were satisfied with life in terms of this political index and two control variables (per capita income level and percentage who attend religious services once a month or more). (Data were for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The results suggest that an increase of 0.1 in this political index ( e.g. from the level in Britain of 1.9 to 2.0 – the same as for Australia) would be associated with an increase in percentage of people satisfied with life of about 2 percentage points (i.e. an increase from 73 to 75 percent of people being satisfied with life - sufficient to halve the gap between Britain and Australia in the percentage of people who are satisfied with life).
What are the implications of the finding that people who self-position themselves on the left of politics tend to be less satisfied with life than other people. In one sense it is hardly surprising that lefties should profess to be less satisfied with life than others. After all, their dissatisfaction may provide a motive for them to propose radical change. At the same time, however, it seems likely that those who self-position themselves on the left may have beliefs and frames of mind that cause them to have different feelings about objective circumstances. In my next post I will look at some evidence about the effect of self-positioning on the political scale on responses to income inequality.
(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)
Tuesday, June 17, 2008
Are people happier in countries where religious practice is stronger?
I have been wondering whether Arthur Brooks’ observation that Americans who regularly attend religious services tend to be substantially happier than those who don’t (see here) also applies to people in other countries.
Some Australian research supports the proposition that those who attend church regularly are happier than those who don't (see here). A search for other studies didn't reveal much, so I have done a little research myself.
If religious observance makes people happy we would expect there to be a higher percentage of happy people in countries with higher religious observance, other things equal. I think the most important “other thing” to control for here is income level. The question I want to consider is whether people in countries with comparable income levels have a higher probability of happiness if they have a higher level of religious observance.
In order to address this question I have used multiple regression to explain the percentage of people who are satisfied with life as a whole in terms of per capita income level and three measures of religious observance: % who attend religious services once a month or more frequently; % who say God is important in their lives; and % who derive comfort and support from religion. As might be expected, these three variables are highly correlated. (Data are for 72 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The regression analysis using each of these measures of religious observance in separate equations suggests that they all have a positive effect on the proportion of people who are satisfied with life in different countries. The results suggest, for example, that an increase in church attendance in Australia of 10 percentage points (from 25% to 35% attending once a month or more) would increase the percentage of people who are satisfied with life by 2 to 3 points, from 77 percent to 79 or 80 percent. (This is not peer-reviewed research , but I will make the detailed regression result available to anyone who wants them and the data available to anyone who wants to replicate the study.)
What are the implications of these results? Should non-believers start going to church in search of happiness? I doubt whether they would find it. Should the government make church attendance compulsory? No Kevin, I don’t think that would be a good idea.
Perhaps the most important implication is that those of us who have developed a secular orientation could gain something useful by trying to understand the pleasure that many religious people obtain from church attendance. The best account of this that I have read so far is by Jonathan Haidt:
Some Australian research supports the proposition that those who attend church regularly are happier than those who don't (see here). A search for other studies didn't reveal much, so I have done a little research myself.
If religious observance makes people happy we would expect there to be a higher percentage of happy people in countries with higher religious observance, other things equal. I think the most important “other thing” to control for here is income level. The question I want to consider is whether people in countries with comparable income levels have a higher probability of happiness if they have a higher level of religious observance.
In order to address this question I have used multiple regression to explain the percentage of people who are satisfied with life as a whole in terms of per capita income level and three measures of religious observance: % who attend religious services once a month or more frequently; % who say God is important in their lives; and % who derive comfort and support from religion. As might be expected, these three variables are highly correlated. (Data are for 72 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The regression analysis using each of these measures of religious observance in separate equations suggests that they all have a positive effect on the proportion of people who are satisfied with life in different countries. The results suggest, for example, that an increase in church attendance in Australia of 10 percentage points (from 25% to 35% attending once a month or more) would increase the percentage of people who are satisfied with life by 2 to 3 points, from 77 percent to 79 or 80 percent. (This is not peer-reviewed research , but I will make the detailed regression result available to anyone who wants them and the data available to anyone who wants to replicate the study.)
What are the implications of these results? Should non-believers start going to church in search of happiness? I doubt whether they would find it. Should the government make church attendance compulsory? No Kevin, I don’t think that would be a good idea.
Perhaps the most important implication is that those of us who have developed a secular orientation could gain something useful by trying to understand the pleasure that many religious people obtain from church attendance. The best account of this that I have read so far is by Jonathan Haidt:
For many people, one of the pleasures of going to church is the experience of collective elevation. People step outside of their everyday profane existence ... and come together with a community of like-hearted people who are also hoping to feel a “lift” from stories about Christ, virtuous people in the Bible, saints, or exemplary members of their own community. When this happens people find themselves overflowing with love, but it is not exactly the love that grows out of attachment relationships. That love has a specific object and it turns to pain when the object is gone. This love has no specific object; it is agape. It feels like a love of all humankind, and because humans find it hard to believe that something comes from nothing, it seems natural to attribute the love to Christ, or to the Holy Spirit moving within one’s own heart” (The Happiness Hypothesis, 2006, p 199).
That helps me to understand why about 60 percent of Americans go to church once a month or more.
Fortunately, regular attendance at a Christian church is not a necessary condition to experience this pleasure of elevation. Similar pleasures are offered by other religions. Non-believers can even obtain a similar feeling of elevation through the regular practice of meditation.
That helps me to understand why about 60 percent of Americans go to church once a month or more.
Fortunately, regular attendance at a Christian church is not a necessary condition to experience this pleasure of elevation. Similar pleasures are offered by other religions. Non-believers can even obtain a similar feeling of elevation through the regular practice of meditation.
Monday, June 16, 2008
What is gross about happiness?
I like Arthur Brooks’ book, “Gross National Happiness” (Basic Books, 2008).
However, the old saying “you can’t judge a book by its cover” seems to me to be particularly apt in the case of this book. I found the title so unappealing that I had actually decided not to read the book until I stumbled across a series of articles based on it, which the author has written in the Freakonomics section of the New York Times (here).
Before I attempt to say something constructive about the book I want to state my objections the title. It seems to me that the concept of gross national happiness is just a gimmick. It is a useful gimmick for a politician to use to make the point that some of the important things in life are not measured in gross national product. I can understand why the king of Bhutan, for example, could be attracted to making gross national happiness a national goal as a way of making this point. But I cannot understand why any serious researcher would want to use “gross national happiness” as a title for a book.
In what sense is happiness gross? In terms of national income accounting, “gross” means that depreciation of capital stock has not been deducted from national product: net national product equals gross national product minus depreciation. “Gross” has no corresponding meaning in relation to happiness research.
It seems to me that the idea of governments setting out to raise aggregate (or average) happiness is indeed gross, or crass, when it involves interference in the lives of people in order to make them happier. Fortunately, Arthur Brooks manages to distinguish the focus of his book from this concept. Brooks’ focus is based on the idea in the American Declaration of Independence that individuals have the right to pursue happiness. The question he asks is: “Are we improving as a nation in protecting and exercising our right to pursue happiness?” (p3).
However, I don’t think the purpose of the book is to address that question. What the book does – and does well - is to present the results of survey information for the United States on the relationship between happiness and a variety of factors: political views, religion, family values, security, economic achievement, inequality, unemployment and charitable giving.
Many of the findings in this book would be familiar to readers of the happiness literature. However, the findings about the relationships between happiness and politics seem novel, and in combination with the findings about religion and family values, give a great deal of food for thought:
- Americans who label themselves as conservatives are nearly twice as likely to say they are very happy as those who label themselves as liberals. This gap has persisted for 35 years and apparently cannot be explained in terms of income differences. Religion and marriage account for some but not all of this happiness gap. The author suggests (quoting columnist, George Will) that conservatives tend to view happiness as a project whereas liberals tend to view it as an entitlement.
- Religious people (those attending church at least once a week) are about 20 percentage points more likely to say they are very happy than secular people (those who seldom or never attend church). The relationship between religion and happiness is common to all religions and has little to do with money, age, education, sex, family status or race.
- Having children can be part of a happy lifestyle even though it lowers the probability of happiness by 6 or 7 percentage points. The percentage of married, religious, conservative people with kids who are very happy is 38 percentage points higher than the percentage of single, secular, liberal people without kids who are very happy. While secular liberals have stepped off the baby train, religious people are breeding profusely. You could even say they are flourishing.
I do not fully understand these findings and I wonder to what extent they hold in countries other than the United States. I will give further thought to this in later posts.
Meanwhile, I commend Arthur Brooks for bringing these findings to public attention.
Saturday, June 14, 2008
How much happiness do we get from freedom to travel?
This post is really just an excuse to write something about what I have been doing over the last few weeks.
I have been touring in the Canadian Rockies and Alaska by bus, train and cruise ship - and loving every minute of the experience.
What is it that makes this kind of activity so pleasant? The first thing that comes to mind is the scenery. We saw some truly magnificent scenery. I suppose anyone could see the same kind of thing by watching a TV program or doing an internet search. They might even get to see more of the wildlife than we saw without leaving the comfort of home. But the virtual experience is never as good as the real experience.
I will give you an example. As we were travelling between Lake Louise and Jasper our bus driver noticed a car stopped beside the road. He thought there might be something worth seeing and stopped the bus to let us have a look. That gave us the opportunity to see a couple of grizzlies in their natural environment and to take photos of them. It was just a matter of chance that these bears happened to be there when we passed by. I think all members of our tour group felt that we were privileged to have had that experience.
I have been touring in the Canadian Rockies and Alaska by bus, train and cruise ship - and loving every minute of the experience.
What is it that makes this kind of activity so pleasant? The first thing that comes to mind is the scenery. We saw some truly magnificent scenery. I suppose anyone could see the same kind of thing by watching a TV program or doing an internet search. They might even get to see more of the wildlife than we saw without leaving the comfort of home. But the virtual experience is never as good as the real experience.
I will give you an example. As we were travelling between Lake Louise and Jasper our bus driver noticed a car stopped beside the road. He thought there might be something worth seeing and stopped the bus to let us have a look. That gave us the opportunity to see a couple of grizzlies in their natural environment and to take photos of them. It was just a matter of chance that these bears happened to be there when we passed by. I think all members of our tour group felt that we were privileged to have had that experience.
The second thing that comes to mind is travelling companions. It was great to have been able to share this touring experience with my wife and other people we knew, and to have had the opportunity to travel with a good bunch of people. Some other things that made the holiday pleasant included an excellent tour guide, the opportunity to stay in very comfortable hotels, fine food and professional organisation (by APT).
However, the most important thing that makes touring enjoyable has to be the novelty of the experience. As much as we enjoyed visiting the Canadian Rockies and Alaska, it is not likely that we will return. If we can afford to travel again, we will no doubt be looking for a new experience.
Tuesday, May 13, 2008
How does inner freedom vary with per capita income level?
In earlier posts about inner freedom - the feeling of choice or control over the way life turns out - I have discussed some implications of the observation that humans have a passion for control of their lives (here), the correlation at a country level between inner freedom and life satisfaction (here) and the extent to which inner freedom varies with economic freedom (here).
In this post I present a chart showing how the probability of feeling in control of life varies with average income levels of countries. Data sources are the same as those used in posts referred to above.
In this post I present a chart showing how the probability of feeling in control of life varies with average income levels of countries. Data sources are the same as those used in posts referred to above.
The graph presents a similar picture to that shown in the post on inner freedom and economic freedom. The probability of inner freedom tends to rise more gradually with per capita income levels than does the probability of being satisfied with life.
Monday, May 12, 2008
Is there evidence that institutionalised transparency reduces the political power of narrow interest groups?
Recent posts by Richard Posner and Gary Becker on their blog (May 4 ) discuss US farm subsidies that apparently amount, on average, to of the order of $50,000 per farmer. Posner suggests that these subsidies are outlandish and that “their firm entrenchment in American public policy illustrates the limitations of the American democratic system”. Becker points out that the subsidies are a consequence of interest group competition that tends to favour small groups of producers (who gain substantial benefits per person) at the expense of large groups of taxpayers and consumers (whose losses are relatively small in per capita terms).
I left a couple of comments on Becker’s post, the second of which was as follows:
I must confess that the question of whether transparency institutions have the capacity to reduce rational ignorance problems is something that I have thought about quite frequently over the last 35 years, having worked in such a transparency organisation for a considerable part of that time.
The latest WTO Trade Policy Review of Australia makes the following observation:
The TPRM report emphasised that the transparency function had become
institutionalised in Australia, notably through the role of the Productivity
Commission (and its predecessor organisations) as an independent review and
advisory body on microeconomic policy and regulation.
The role of the Productivity Commission and its predecessor organisations has been discussed in a recent paper by Gary Banks and Bill Carmichael, available here.
In discussing the possible relevance of the Productivity Commission as a model for other countries, Banks and Carmichael suggest that Australia’s experience demonstrates that institutionalised transparency can help promote reforms. They do not suggest, however, that institutionalised transparency is a magic wand.
Banks and Carmichael conclude as follows:
I left a couple of comments on Becker’s post, the second of which was as follows:
“... it seems to me that some political outcomes are outlandish even though they can be explained in terms of democratic politics e.g. in terms of the relative power of different pressure groups associated with differential rational ignorance and free-rider problems.
The interesting question is whether better outcomes could be achieved through institutional changes e.g. through procedures to promote greater transparency and thus reduce rational ignorance problems.”
I must confess that the question of whether transparency institutions have the capacity to reduce rational ignorance problems is something that I have thought about quite frequently over the last 35 years, having worked in such a transparency organisation for a considerable part of that time.
The latest WTO Trade Policy Review of Australia makes the following observation:
The high degree of transparency in the formulation and evaluation of Australia’s economic policies in relation to their rationale, nature, and economic effects, enhances government accountability and public debate over the merits of these policies. Hence, transparency has contributed greatly to the continued process of reform, which began in the 1980s, and in which trade liberalization, much of it unilateral, has played an important part. (WTO 2007, p. vii)
The TPRM report emphasised that the transparency function had become
institutionalised in Australia, notably through the role of the Productivity
Commission (and its predecessor organisations) as an independent review and
advisory body on microeconomic policy and regulation.
The role of the Productivity Commission and its predecessor organisations has been discussed in a recent paper by Gary Banks and Bill Carmichael, available here.
In discussing the possible relevance of the Productivity Commission as a model for other countries, Banks and Carmichael suggest that Australia’s experience demonstrates that institutionalised transparency can help promote reforms. They do not suggest, however, that institutionalised transparency is a magic wand.
“Expectations need to be tempered: transparency is unlikely to transform the policy environment overnight. Building a pro-reform constituency in government and the wider community is a gradual process. It took Australia four decades to get tariffs down and more than a decade tackling sources of underperformance in economic infrastructure services. And neither reform program is yet complete.
That said, reforms once made in Australia have tended to stick, having stronger foundations of support or acceptance within the community precisely because the basis for reform was transparent. The programs of tariff liberalisation and regulatory reform initiated under one government have generally been maintained by new governments of different political complexions”.
Banks and Carmichael conclude as follows:
“We recognise that Australia’s transparency arrangements may not suit other countries. There can be no ‘one size fits all’ approach. Arrangements in other countries must necessarily reflect their cultural and political systems, and ensure domestic ownership of national trade policy. However, finding ways of achieving the broad principles of domestic transparency in other countries’ institutional settings is an objective to which Australia’s experience lends considerable support”.
Saturday, May 10, 2008
Is inner freedom related to economic freedom?
In earlier posts about inner freedom - the feeling of choice or control over the way life turns out - I have discussed some implications of the observation that humans have a passion for control of their lives (here) and the correlation at a country level between inner freedom and life satisfaction (here).
In this post I want to consider the extent to which inner freedom varies with economic freedom i.e. the extent to which people are free to undertake economic activities without excessive government regulation or taxation.
What reasons do we have to expect that inner freedom and economic freedom might be correlated? First, it is possible that people might feel that they have greater control over their lives when they have greater freedom to engage in economic activities without government interference. Second, economic freedom provides incentives for wealth creation; and greater wealth may give people a feeling of greater control over their lives. Third, it is possible that causation may run in the other direction. When people feel in control of their lives they may feel less threatened by competition and hence less supportive of restrictions on economic freedom.
Economic freedom data used in compiling the chart below has been derived from the Fraser Institute’s Economic Freedom of the World project (here). After matching with inner freedom data (sourced from “Human Beliefs and Values” by Ronald Inglehart et al) data were available for 66 countries for the year 2000. After ranking by level of economic freedom, averages were calculated for each quintile of the percentage of people in the countries concerned who feel in control of their lives and who feel satisfied with their lives.
The chart shows that, on average, the percentages who feel in control of their lives are substantially higher in countries with high levels of economic freedom than in countries with lower levels of economic freedom. The chart suggests, however, that life satisfaction tends to rise more steeply with higher economic freedom.
In this post I want to consider the extent to which inner freedom varies with economic freedom i.e. the extent to which people are free to undertake economic activities without excessive government regulation or taxation.
What reasons do we have to expect that inner freedom and economic freedom might be correlated? First, it is possible that people might feel that they have greater control over their lives when they have greater freedom to engage in economic activities without government interference. Second, economic freedom provides incentives for wealth creation; and greater wealth may give people a feeling of greater control over their lives. Third, it is possible that causation may run in the other direction. When people feel in control of their lives they may feel less threatened by competition and hence less supportive of restrictions on economic freedom.
Economic freedom data used in compiling the chart below has been derived from the Fraser Institute’s Economic Freedom of the World project (here). After matching with inner freedom data (sourced from “Human Beliefs and Values” by Ronald Inglehart et al) data were available for 66 countries for the year 2000. After ranking by level of economic freedom, averages were calculated for each quintile of the percentage of people in the countries concerned who feel in control of their lives and who feel satisfied with their lives.
The chart shows that, on average, the percentages who feel in control of their lives are substantially higher in countries with high levels of economic freedom than in countries with lower levels of economic freedom. The chart suggests, however, that life satisfaction tends to rise more steeply with higher economic freedom.
Friday, May 9, 2008
Is there much difference between feeling in control of your destiny and feeling satisfied with life?
In an earlier post about inner freedom (here) I mentioned that I would look further at how closely inner freedom is correlated with life satisfaction.
One of the questions that people have been asked in the world values survey is “how much freedom of choice and control you feel you have over the way your life turns out”. They are asked to indicated this on a scale where 1 means “none at all” and 10 means “a great deal”.
In the following scatter diagram each point shows for an individual country the proportion of the population who feel they have a great deal of this inner freedom and the proportion of the population who feel satisfied with life as a whole. (Data are for 72 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The chart shows that there is correlation at a country level between life satisfaction and inner freedom. Countries in which a high proportion of the population feel satisfied with life as a whole tend to be the same as those in which a high proportion of the population feel a great deal of inner freedom. The correlation is obviously far from perfect, however. The percentages feeling a great deal of inner freedom in Italy, Belgium and the Netherlands, for example, were lower than would be expected on the basis of percentages feeling satisfied with life. On the other hand, the percentages feeling a great deal of inner freedom in Venezuela and Taiwan, for example, were higher than would be expected on the basis of percentages feeling satisfied with life.
I have conducted a regression analysis in order to see whether the difference between inner freedom and life satisfaction is related to various values or beliefs. The dependent variable was the percentage who feel a great deal of inner freedom and the explanatory variables were: the percentage who feel satisfied with life; the percentage who say competition is good (it stimulates people to work hard and develop new ideas); the percentage who place high importance on leisure; the percentage who say it would be good if less importance is placed on money; and the percentage who say that people should take more responsibility to provide for themselves.
Apart from life satisfaction the only variable for which the estimated coefficient was significantly different from zero was the competition variable. That result seems to me to make sense. If a high proportion of a population feel that they have a great deal of choice and control over the way their lives turn out then it stands to reason that they are more likely to feel that competition is a good thing.
One of the questions that people have been asked in the world values survey is “how much freedom of choice and control you feel you have over the way your life turns out”. They are asked to indicated this on a scale where 1 means “none at all” and 10 means “a great deal”.
In the following scatter diagram each point shows for an individual country the proportion of the population who feel they have a great deal of this inner freedom and the proportion of the population who feel satisfied with life as a whole. (Data are for 72 countries for the year 2000 and have been sourced from “Human Beliefs and Values” by Ronald Inglehart et al.)
The chart shows that there is correlation at a country level between life satisfaction and inner freedom. Countries in which a high proportion of the population feel satisfied with life as a whole tend to be the same as those in which a high proportion of the population feel a great deal of inner freedom. The correlation is obviously far from perfect, however. The percentages feeling a great deal of inner freedom in Italy, Belgium and the Netherlands, for example, were lower than would be expected on the basis of percentages feeling satisfied with life. On the other hand, the percentages feeling a great deal of inner freedom in Venezuela and Taiwan, for example, were higher than would be expected on the basis of percentages feeling satisfied with life.
I have conducted a regression analysis in order to see whether the difference between inner freedom and life satisfaction is related to various values or beliefs. The dependent variable was the percentage who feel a great deal of inner freedom and the explanatory variables were: the percentage who feel satisfied with life; the percentage who say competition is good (it stimulates people to work hard and develop new ideas); the percentage who place high importance on leisure; the percentage who say it would be good if less importance is placed on money; and the percentage who say that people should take more responsibility to provide for themselves.
Apart from life satisfaction the only variable for which the estimated coefficient was significantly different from zero was the competition variable. That result seems to me to make sense. If a high proportion of a population feel that they have a great deal of choice and control over the way their lives turn out then it stands to reason that they are more likely to feel that competition is a good thing.
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