Is life satisfaction mainly about comfort?

‘Contrary to both those who say money is not associated with happiness and those who say that it is extremely important, we found that money is much more related to some forms of well-being than it is to others. Income is most strongly associated with the life evaluation form of well-being, which is a reflective judgment on people’s lives compared with what they want them to be. Although statistically significant, the association of income with positive and negative feelings was modest’ (Ed Diener, Weiting Ng, James Harta and Raksha Arora, ‘Wealth and happiness across the world ...’, Journal of Personality and Social Psychology, (99:1), 2010, p. 60. Media reports: here and here.)

In my view this recent article makes an important contribution to understanding of the relationship between wealth and emotional well-being by attempting to disentangle the determinants of life satisfaction and positive feelings. The article, based on data from the Gallup World Poll, suggests that while satisfaction with standard of living has a substantial impact on satisfaction with life as a whole it has little impact on positive or negative feelings (emotions experienced ‘yesterday’).

The study uses satisfaction with standard of living and a measure of whether people own luxury conveniences (TV, computers etc) as proxy measures of fulfillment of material desires. The basic idea is that people learn to desire material goods because of their social situation (including the influence of advertising) and the fulfillment of these desires leads to feelings of well-being. Some groups (e.g. the Amish) seem to be reasonably happy without much income because they have relatively low aspirations for material goods.

The authors link their findings to the distinction that Tibor Scitovsky made between comfort and pleasure (‘The Joyless Economy’, 1978). They suggest that ‘it may be that’ comforts increase life evaluations whereas pleasures increase reports of positive feelings:

‘Comfort comes from having one’s needs and desires continuously fulfilled, whereas pleasures come from fulfilling unmet needs and from stimulating and challenging activities. One source of pleasure according to Scitovsky is social stimulation, which he suggested lies largely outside the realm of economics. Novelty and learning can be sources of pleasure too. Thus, Scitovsky’s reasoning is in accord with our findings that wealth predicts life satisfaction, and social relationships and learning new things predict positive feelings’ p.59 .

I found that passage fairly challenging, but reading it didn’t give me positive feelings. I don’t have too many problems with the idea that being satisfied with your standard of living is closely related to comfort, but there are other factors related to economic activity - such as a sense of achievement - that may also make an important contribution to life satisfaction.

A couple of years ago I attempted to identify how necessary various domains of quality of life are to high satisfaction with life as a whole using data compiled by the Australian Centre on Quality of Life (reported here). The criterion used was the percentage of respondents with high satisfaction with life as a whole among those with low ratings on particular domains of quality of life. The percentages were follows (ranked in order of importance of each domain): personal relationships 10.8%, achieving in life 11.8%, standard of living 12.8%, future security 15.6%, health 15.9%, community connectedness 19.0% and safety 20.3%. The results suggest that ‘achieving in life’ at least as necessary to high life satisfaction for Australians as is ‘standard of living’.

I do not claim that working for money is the only way that people can obtain a strong sense of achievement, but it would be very surprising if this feeling is unrelated to economic activity.

Postscript:
I could also have mentioned the neurological evidence that humans (and rats and presumably other animals as well) get more satisfaction from actively working for a reward than from getting it without doing anything to earn it. (See: Gregory Burns, 'Satisfaction', 2005, pp. 43-45.)

How large a role does luck play in our lives?

‘Let’s return to our touchstone: identical twins growing up together. They share their genes, they share their family environments, and they share their peer groups, at least on average. But the correlations between them are only around 50 percent. Ergo, neither genes nor families nor peer groups can explain what makes them different’ Steven Pinker, ‘The Blank Slate’, 2002, p.396.

The correlations that Pinker is referring to relate to intelligence, personality and life outcomes.

I read that passage for the second time a week ago and I have thought about it a few times since. The first time I thought about it was not long after I put my last post, Does parenting make a difference?, on my blog. In that post I neglected to mention that Pinker ended his discussion of parenting by talking about the important role that luck plays in our lives.

The next time was when I stumbled across a post I wrote last year, What determines whether we have successful lives? , in which I discussed Malcolm Gladwell’s book, ‘Outliers’. Gladwell seems to be arguing that exceptional performance can always be attributed to something other than good luck. I think he is probably wrong about that, but his book is a good read in any case.

The most recent time I thought about Pinker’s paragraph about identical twins was when I read Bill Easterly’s post, ‘How skill beats luck in the world cup of development’. Easterly’s point is that the World Cup uses a tournament of five matches to make skill beat luck. He calculates that the probability that a weak team that only wins 15 percent of the time will win the tournament is only 0.0076 percent. By contrast, a strong team that wins 85 percent of the time has a 46 percent probability of winning the tournament. I find it reassuring that despite the large random element in outcomes of low-scoring games (at least that’s how it appears to me as a fan of Aussie rules football) there is a high probability that one of the stronger teams will win the tournament.

Easterly translates his observation to economic policy as follows:

‘As this blog likes to frequently point out, economic growth has a lot of random variation. Over a short period of time (metaphorically equivalent to one game), a country with bad policies and bad institutions still might have a good growth rate. But over a long period of time (equivalent to playing many successive games), the consistent winners are very likely to be countries with good policies and good institutions. So in deciding whether a particular set of policies and institutions are good or bad, you need to look at long periods (tournaments) and not at short ones (single games). How long the long periods have to be will depend on how important luck is in the short term; the evidence we have on economic growth is that short term luck is very important, and the periods have to be pretty darn long for proper analysis.’

I thought that was well worth quoting, but patient readers who have got this far might wonder how it relates to the finding that luck plays a large part in determining outcomes at an individual level. The link that occurred to me is that whereas the ancients saw everything as being in the lap of the gods, these days there is a tendency to say that just about everything that happens at both individual and society levels is a result of human action.

When I hear people say, "You make your own luck", I tend to nod in agreement. But what does this mean? A glance at some of the things personal development professionals write about this on the internet suggests that it involves adopting strategies that tend, on average, to produce better outcomes. When countries make their own luck they adopt economic strategies that tend, on average, to produce better outcomes. In neither case does this eliminate the strong influence of luck on short-term outcomes. Making our own luck just moves the odds in our favour.

Does parenting make a difference?

Bryan Caplan wrote a provocative article in The Wall Street Journal a few days ago (‘The Breeders’ Cup’, June 19, 1010) in which he presented some selfish reasons for people to have more children. In brief:

• While happiness research suggests that modern parents are less happy than their childless counterparts, ‘happiness researchers rarely emphasize how small the happiness gap is’. Beyond the first child, ‘additional children are almost a happiness free lunch’.
• The costs of having kids are front-loaded and the benefits are back-loaded. The more kids you have the more grandchildren you can expect.
• There is some evidence that few people who have children regret that decision. Gallup poll data suggests that most childless adults over the age of 40 say they would have children if they had to make the same decision over again.
• Parenting can be less work and more fun than many people think. The long-run effects of parenting on children’s outcomes are small. Once you realize that your kids’ future largely rests in their own hands you can give yourself a guilt-free break.

Most of Bryan’s article is about the last point. Before discussing this, however, I want to comment briefly on the relevance of happiness research to the decision to have children. Bryan seems to be implying that happiness researchers argue that if having kids doesn’t make people happier, then they shouldn’t have kids. I have read a fair amount of the happiness research literature but I haven’t ever actually seen any researcher put that view. Researchers seem to be almost silent on this issue. I hope this is an embarrassed silence in the case of those happiness researchers who have been quick to suggest that people are making poor decisions when they do other things that do not make them much happier such as working longer hours to earn more income. The point that needs to be remembered, as I have discussed in previous posts (e.g. Do well-being surveys measure utility? and Do good decisions always make us happy?), is that happiness surveys measure current emotional well-being (or something similar) and people often sacrifice some happiness in the short term in order to have greater happiness in future, or to pursue other objectives.

I think that Bryan is probably right that in the modern world there may be a tendency for people to limit the size of their families because they believe that the quality of parenting has a huge impact on children’s futures and they assume that there is no way that parenting could be less work and more fun. He points to fairly strong evidence from research on twins and adoption that supports the view that parenting makes little difference to the way kids turn out.

However, I think Bryan may be at risk of under-stating the importance of good parenting. It seems to me that there are a lot of people whose parenting is so poor that it does damage the future prospects of their children. I don’t claim to know much about this topic, but it is hard to accept that there are no important links between child neglect and antisocial and criminal behaviour.

Steven Pinker discusses some relevant research by Judith Rich Harris in ‘The Blank Slate’ (2002). Harris argues that the main environmental shaper of personality is the child’s peer group. In Pinker’s words:

‘Children do not spend their waking hours trying to become better and better approximations of adults. They strive to become better and better children, ones that function well in their own society. It is in this crucible that our personalities are formed’ (p. 390).

I imagine that would appear as a blinding insight to very few parents. Most people would know already that it is important for their children to choose their friends wisely, but they would also know that they can’t choose their friends for them. Perhaps the most important way that parents can make a difference is through decisions about where they live and what schools their children attend.

Is there a crisis of capitalist democracy?

Richard Posner’s recent book, ‘The Crisis of Capitalist Democracy’, is mainly about the global financial crisis, how it came about in the US, the lessons that the author thinks we should have learned from it and what governments should do to prevent similar crises in future. According to this distinguished author the crisis came about because of lax regulation; we have learned from it that the financial system is inherently fragile and that Keynes is still relevant; and the way to avoid similar crises in future is to introduce regulatory reform in the financial sector.


To be fair, Posner condemns some of the knee jerk responses of governments introducing tighter financial regulation and acknowledges that he is not entirely happy with his own suggestions for regulatory reform. He views the only ambitious proposal that he discussed sympathetically – the separation of commercial banking from other forms of financial intermediation – as ‘fraught with problems’ (p.362).

It is arguable that the global financial crisis was a crisis of capitalism. A milder financial crisis might still have occurred if central banks had not previously acted in ways that led major financial institutions to expect that they would be bailed out if their excessive risk-taking resulted in major losses. It is even possible to entertain the idea (as I did here) that the financial crisis has highlighted a fundamental problem in that laws governing the financial system currently permit financial intermediaries to make promises that they can’t always keep. But why view this economic crisis as a crisis of democracy?

The title of the book arises from Posner’s view that while the American political system can react promptly and effectively to an emergency, it ‘tends to be ineffectual’ in dealing with longer term challenges:

‘The financial collapse and the ensuing depression (as I insist we must call it) have both underscored and amplified grave problems of American public finance that will not yield to the populist solutions that command political and public support. The problems include the enormous public debt created by the decline of tax revenues in the depression, the enormous expenses incurred by government in fighting the depression, and the boost the depression has given to expanding the government’s role in the economy. These developments, interacting with a seeming inability of government to cut existing spending programs (however foolish), to insist that costly new programs be funded, to limit the growth of entitlement programs, or to raise taxes, constitute the crisis of American-style capitalist democracy’ (p.387-8).

Unfortunately, the quoted passage appears in the final paragraph in the book rather than the introduction. There is not much discussion in this book about this supposed weakness of the US democratic system. The author implies that it is largely a problem of political culture. Republicans favour low taxes but they have been reluctant to reduce government spending. Democrats favour high levels of government spending but they have been reluctant to raise taxes. As a result:

‘From the standpoint of economic policy we have only one party, and it is the party of profligacy’ (p.384).

As a person living in a democratic country in which a large part of the electorate has come to equate responsible economic management with budget surpluses and minimal public debt (to the dismay of some left wing economists who would like to see more public sector investment) I find it difficult to take seriously the idea that the current political culture in the United States involves a crisis of capitalist democracy. I am confident that before too long Americans will insist that their governments balance their books in order to avoid the problems currently being experienced in Greece and other European countries.

However, the picture might look a lot different from within the US. Before a change in political culture can occur in the US it will be necessary for a lot more Americans to become concerned about the future implications of current fiscal policies. Richard Posner claims that he has no idea how to solve the problem of America’s political culture (p.385) but I think he is contributing to the solution by merely raising awareness of the problem.

Does history give undue prominence to scribblers?

I imagine that history does tend to give excessive prominence to writers because historians have to rely heavily on written material. Historians probably spend a lot of time discussing this subject but, not being an historian, I don’t claim to know much about it. What this post is actually about is a minor historical incident in which I think undue prominence has been given to my role because I was editor of a student newspaper. I’m not objecting to the way I have been portrayed. I just think that other people deserve more credit for the contributions they made.


‘A Spirit of True Learning, the Jubilee History of the University of New England’ by Matthew Jordan, was published by UNSW Press in 2004. I confess that I have only just now read the book at the urging of Jim Belshaw, a fellow student at UNE in the 1960s, and now a fellow blogger. Jim referred me, in particular, to a few pages about the history of the room visiting issue (pp 187-191).

At the beginning of the 1960s nearly all students at UNE lived in single-sex residential colleges on the university campus. As Matthew Jordan records, in 1963 the University Council decided to cut back room-visiting between the sexes and then to abolish it altogether from the beginning of 1964. The decision to ban room visiting was taken against the advice of the heads of colleges (which were supposed to be largely self-governing) and was, of course, strongly opposed by students.

My recollection is that before I became editor of ‘Neucleus’, the student paper, the stage had been set for the first issue of 1964 to protest against Council’s decision on the room visiting issue. I was more than happy to go along with that idea and to accept editing responsibility, but at the time (November 1963) I was just completing my first year at UNE and would not have been viewed by other students as a leader of the protest movement. (I can’t recall why the editorship of Neucleus became vacant at the end of 1963. I agreed to edit just one issue to be published at the beginning of 1964 with help from the previous editor and other students who had more experience working on the paper. As it happened, early in 1964, I became joint editor with Jim Belshaw, but that is another story.)

Matthew Jordan writes:
‘Winston Bates led the way. On the one hand, he said, Council talked of moulding students into responsible adults, while on the other, by “imposing blanket restrictions on everyone”, it issued “an insult to the maturity of students and an utter denial of personal freedom”.

The quoted words are (almost) correctly attributed to me but in suggesting that I ‘led the way’ I think Matthew is under the impression that I was also the ‘special correspondent’ responsible for the page one article. Since I was defending the anonymity of the ‘special correspondent’ it isn’t surprising that people might think I was responsible, but the special correspondent knew a lot more than me about Council deliberations. Among other things, the special correspondent wrote:

‘It would seem that the real reason for Council’s action was the fear that certain rumours circulating in North-Eastern N.S.W. about the immorality supposedly rife in the university would lead to a decline in student enrolments’.

My recollection is that the special correspondent was only using the words ‘it would seem’ to further hide his identity.

While I think Matthew’s history gives me undue prominence, 47 years later I am still rather proud of one of the passages in my editorial:

‘Perhaps the concept of freedom in a university needs further explanation. It is not a freedom to do what you want to, full stop; nor is it a relentless search after personal happiness. The college regulations in the “free” university would be framed by members of college with a view to restricting violation of the rights of others.

Surely this is an ideal worth working for. ...’

That could have done with some further editing, but it wasn’t too bad. I hope regulations applying in residential colleges at UNE today have been framed with a view to restricting individual freedom only to the extent necessary to protect the rights of other residents.

How bounded is rationality?

Herbert Simon’s concept of ‘bounded rationality’ captures the idea that although individuals intend to behave rationally, they are constrained by limited cognitive abilities. The concept was put forward as an alternative to the assumption of neoclassical economics that individuals make decisions by maximizing utility functions.


It seems to me that maximizing utility is best viewed as a metaphor, akin to the charioteer, elephant and plane metaphors discussed in a previous post, rather than a description of actual human behaviour. It can be a useful metaphor. (I have used it on this blog to suggest that some seemingly irrational behaviours may in fact be rational.) Nevertheless, as James Buchanan has argued:

‘The modern economist who models the individual as choosing among feasible alternative bundles of goods to maximize a utility function that does exist independently of choice itself presents no evidence that such functions actually exist, and if pushed, the economist would agree that “utility” is little more than a rhetorical artifice that is introduced as an aid in explaining choice behavior within an imposed rational choice reconstruction’ (‘The Economics and the Ethics of Constitutional Order’, 1991).

It is possible to argue that all human action is rational in the sense of being purposeful, but once we acknowledge that humans have limited cognitive abilities then we have to acknowledge that they make mistakes. Economists have often recognized that people make systematic cognitive errors by incorporating arbitrary behavioral assumptions reflecting such errors (e.g. money illusion) in some of their models. This raises the question of whether efforts by economists to obtain a better knowledge of the bounds of rationality will enable them to build better models.

Jonah Lehrer’s book ‘How we Decide’, provides a highly readable discussion of the ways in which limited cognitive abilities can affect decision-making in different contexts. I decided to read the book after reading some comments by Peter Boettke on the Coordination Problem blog.

Lehrer’s main message seems to be: ‘The mind is full of flaws, but they can be outsmarted’ (p.250). He implies that a major source of error is failure to think about the kind of decision being made and the kind of thought process it requires. Insufficient reasoning can obviously result in poor decisions when the mind is strongly influenced by emotional urges and impulses. But it is also possible for the mind to choke on excessive reasoning.

It is common to hear of instances when sporting champions choke at a crucial point in a game because they suddenly become self-conscious and interfere with their performance by consciously trying to avoid mistakes. It is also possible, however, for too much analysis to lead to poor decisions in relation to choices that might be thought likely to benefit from analysis. For example, in considering a trade-off between size of home and time required to commute to work some research has suggested that there may be a tendency for people to give to give greater weight to the size of the house the more time they spend deliberating, even if the additional space is superfluous (p.144). People may often make better choices when they use their conscious minds to gather information and then trust their emotions.

Everyone knows that inexperience is a common source of error but many of us fear the unpleasant symptoms of making mistakes. One of the crucial ingredients of successful education is encouragement of children to learn from their mistakes by praising them for their efforts rather than their cleverness (p. 51-3).

The book contains a chapter on our tendencies to be fooled by feelings – loss aversion, the perception of patterns that don’t exist, the tendency to over-value immediate gains relative to longer term costs etc. Attention has previously been drawn to such problems by Dan Ariely in ‘Predictably Irrational’ (discussed here) and Richard Thaler and Cass Sunstein in ‘Nudge’ (discussed here). Lehrer suggests that the best way to avoid such errors is to be aware of them and to check feelings with a little arithmetic (p.244).

It seems to me that one of the most important contributions of ‘How we Decide’ is to draw attention to the errors that result from our tendency to surrender to ‘shoddy top-down thinking’ because self-delusion feels better than uncertainty. This is reflected, for example, in the influence of party affiliations when voters consider complex political issues. Even expert advice can be biased by adherence to frameworks that are at variance with reality. Lehrer’s suggested remedy is to embrace uncertainty, entertain competing hypotheses and to remind yourself what you don’t know.

Different readers may see different implications for economics coming out of this book. The book has reinforced my support for Oliver Williamson’s view that modes of contracting that make large demands against cognitive competence should be disfavoured (‘The Economic Institutions of Capitalism’, 1985, p.46). Governance structures will fail if they require managers to have unlimited cognitive capacities. Humans tend to be strongly influenced by moral instincts and conventions, but they are also susceptible to temptations. Another implication is that decision-making skills are likely to vary greatly among different individuals. Modellers should be wary of assuming that everyone is equally susceptible to cognitive distortions or that they have equal abilities to learn from experience. Finally, while the book provides plenty of support for the view that the rational voter is a myth rather than a useful metaphor, it suggests to me that the worm – reflecting immediate emotional responses to what politicians are saying – is unlikely to be a good predictor of voter behavior. Focus groups initially gave the thumbs down to some of the most successful shows on television.

Is state sovereignty relevant to resource rent taxation?

The Henry tax review into Australia’s future tax system recommends:

‘Subject to transitional arrangements, the new rent-based tax should apply to existing projects, replacing existing charging arrangements. The allocation of revenue and risks from the new tax should be negotiated between the Australian and State governments’.

The federal government seems to be attempting to ignore this advice in imposing the new tax. It is proposing to reimburse mining companies for existing royalty payments rather than to replace existing charging arrangements. It has decided unilaterally how it proposes to use the additional revenue from the new tax. In selling the tax to the Australian public it is asserting that mineral resources are owned by all Australians, contrary to the legal position of ownership by the Crown, with state governments having constitutional authority for resource management.

The government of Western Australia is threatening a constitutional challenge to the new tax, but the federal government doesn’t seem to be particularly concerned about this. I’m no lawyer, but I imagine the federal government think they are on safe ground in calling the tax a profits tax rather than a resource rent tax.

However, even if the new tax is legal, I think the federal government should be concerned about the viability of their proposal not to reimburse mining companies for any new or additional royalties that might be charged by state governments. Whatever the High Court might decide about the validity of the new federal tax, it is not likely to rule that the imposition of a new tax by the federal government has extinguished the rights of state governments to raise royalty rates.

Are state governments likely to impose additional royalties? Some proposals for higher royalties were already in the pipeline in Western Australia prior to announcement of the new federal tax and it is possible that these charges will be accommodated in transitional arrangements. The state governments review their royalty charges from time to time and I imagine that they will continue to do so. It is quite possible that having read and digested the Henry report a state government could decide to change the basis of their charging arrangements to a resource rent tax and to increase revenues from the resources sector. In considering such a change the state government might note that there is nothing particularly magical about the 40 percent tax rate proposed by the federal government. They might even read in the Henry report that Norway imposes a total tax rate on petroleum rents of 78 percent.

The point I am leading to is that the new federal tax has not extinguished the potential for state governments to raise royalty rates. This remains a potential source of sovereign risk for mining investment in Australia. This consideration is additional to the argument in my earlier post (Does a resource rent tax solve the problem of sovereign risk?) that the proposed application of the new tax to existing mines would lead investors to perceive that they have under-estimated sovereign risks in Australia. Even if the federal government comes up with satisfactory transitional arrangements for the new tax, miners will still need to factor into their calculations an allowance for possible future increases in state government royalties.

In my view the federal government should take another look at the recommendations of the Henry report and seek negotiations with state governments about the allocation of revenue and risks from their proposed resources rent tax.

What metaphors help us to understand the functions of reason and emotion?

Plato argued that we can only be masters of ourselves if reason, the ‘human charioteer’ is able to control the dumb beasts of passion:

‘Now the winged horses and the charioteers of the gods are all of them noble and of noble descent, but those of other races are mixed; the human charioteer drives his in a pair; and one of them is noble and of noble breed, and the other is ignoble and of ignoble breed; and the driving of them of necessity gives a great deal of trouble to him. ... The right-hand horse is upright and cleanly made; he has a lofty neck and an aquiline nose; his colour is white, and his eyes dark; he is a lover of honour and modesty and temperance, and the follower of true glory; he needs no touch of the whip, but is guided by word and admonition only. The other is a crooked lumbering animal, put together anyhow; he has a short thick neck; he is flat-faced and of a dark colour, with grey eyes and blood-red complexion; the mate of insolence and pride, shag-eared and deaf, hardly yielding to whip and spur’ (‘Phaedrus’).

Plato’s metaphor seems to have provided the basis for an influential model of human flourishing which puts reason (or rationality) on a pedestal and views the emotions as crude and primitive. In his book, ‘How We Decide’(2010), Jonah Lehrer links Plato’s metaphor to Cartesian philosophy and notes that Freud used a similar metaphor in which the horse (id) provides the locomotive energy and the rider (ego) determines the goal and guides his powerful mount towards it (p.10-12).

However, Lehrer points out that this classical theory is ‘founded on a crucial mistake’: ‘What we have discovered when we look at the brain is that the horses and the charioteer depend on each other’ (p. 13). ‘When we are cut off from our feelings, the most banal decisions become impossible. A brain that can’t feel can’t make up its mind’ (p.15). We might like to think that reason plays a large role in our decisions, but if our feelings didn’t tell us what we like and dislike we would not be able to make decisions.

Jonathan Haidt has argued similarly that Plato’s metaphor ‘may overstate not only the wisdom but also the power of the charioteer. ... Reason and emotion must work together to create intelligent behavior, but emotion ... does most of the work’ (‘The Happiness Hypothesis’, 2006, p.13).

Haidt has his own metaphor, an elephant and its rider, to explain the relationship between the controlled and automatic systems that determine human behaviour:
‘The controlled system ... is better seen as an advisor. It’s a rider placed on the elephant’s back to help the elephant make better choices. The rider can see further into the future, and the rider can learn valuable information by talking to other riders or by reading maps, but the rider cannot order the elephant around against its will. ... The elephant and the rider each have their own intelligence, and when they work together well they enable the unique brilliance of human beings’ (p.17).

Jonah Lehrer uses a modern aeroplane in his metaphor to explain the functions of the emotional brain and the pre-frontal cortex:

‘To sit in a modern airplane cockpit is to be surrounded by computers. ... These computers are like the emotional brain of the plane. They process a vast amount of information and translate that information into a form that can be quickly grasped by the pilot. ... These computers are so reliable that they perform many of their tasks without any pilot input. ... Pilots are like the plane’s prefrontal cortex. Their job is to monitor these onboard computers, to pay close attention to the data on the cockpit screens. If something goes wrong, or if there’s a disagreement among the various computers, then it’s the responsibility of the flight crew to resolve the problem. ... When the onboard computers and pilot properly interact, it’s an ideal model for decision-making. The rational brain (the pilot) and the emotional brain (the cockpit computers) exist in perfect equilibrium, each system focusing on those areas in which it has a comparative advantage’ (p.256-8).

Which metaphor is best? I doubt whether one metaphor is the best aid to understanding of all aspects of human behaviour, but I think the elephant metaphor is better than the plane metaphor from a personal development perspective. It is possible to think of the rider and elephant as being responsible for their future performance as well as for their current performance. As Jonathan Haidt puts it, ‘virtue resides in a well-trained elephant’ (p.160). I don’t pretend know much about training elephants or their riders but it seems reasonable to suppose that they would have a stronger incentive to learn to work together and to improve their performance if they were held jointly responsible for their behaviour.

How can we ensure that parliaments are representative and governments are accountable?

An update of my views on the topic has now been published by "On Line Opinion":



‘In a really equal democracy, every or any section would be represented, not disproportionately, but proportionately. A majority of the electors would always have a majority of the representatives; but a minority of the electors would always have a minority of the representatives. Man for man they would be as fully represented as the majority. Unless they are, there is not equal government, but a government of inequality and privilege: one part of the people rule over the rest: there is a part whose fair and equal share of influence in the representation is withheld from them; contrary to all just government, but, above all, contrary to the principle of democracy, which professes equality as its very root and foundation’ (J S Mill, Representative Government, Chapter 7, 1861).

Some famous person has probably written in support of strong executive government which dominates parliament and is held in check only by periodical elections (as well as an independent judiciary etc) but I don’t know where to find an appropriate quote. Those who have commented on such a system have tended to refer to it disparagingly as an elective dictatorship. However, I think it is possible to defend a system that tends to deliver the governing party a substantial majority of seats on the grounds that it results in more accountable government than a proportional system in which no party has a clear majority. A government that dominates parliament cannot claim that it has not implemented its promises to the electorate because of obstruction by other parties. It has to wear the electoral consequences of its own actions.

The point I am trying to make is that while proportional representation might be a desirable characteristic of a parliament, it is undesirable to have a system of government in which parties go to the polls to seek endorsement of their policies and then, after the election, enter into negotiations to decide what policies the temporary coalition of parties forming the government will actually seek to implement. Parties forming such temporary coalitions tend to blame each other for poor outcomes and electors find it hard to tell who is responsible for what.

Various compromises between proportional representation and elective dictatorship are possible. One possibility is the reinforced proportional representation system used in Greece under which the party which wins the largest number of seats in parliament is allocated additional seats so that it more likely to be able to form a majority in its own right. Leaving aside the obvious point that it is difficult to envisage that Greece’s recent economic performance could have been much worse without this reinforcement of proportional representation, an arbitrary adjustment to numbers of seats seems somewhat inelegant (if not undemocratic).

Another possibility is to have a bi-cameral system with the government being formed in the lower house, elected on the basis of a system that usually produces workable majorities for a governing party or stable coalition (e.g. single member electorates) and an upper house, acting as a house of review, elected using proportional representation. As recent events in the UK show, single member electorates cannot always ensure that the party winning the largest number of votes is able to govern by itself (or even to form part of the government for that matter). But single member electorates have a reasonable track record in producing stable and accountable governments. This system has the added advantage of allowing voters to vote for a person to represent their locality rather than for a party (or party list).

Luke Malpass and Oliver Marc Hartwich have recently advocated a bi-cameral system, such as I have just described, to replace the single chamber proportional representation system in New Zealand (CIS Policy Monograph 109). This is also the system that we have in Australia.

So, does the Australian system provide the best possible compromise between a representative parliament and an accountable government? I don’t think so, because it gives too much power to the upper house. The Australian Constitution contains a sensible procedure to resolve a deadlock between the upper and lower houses of parliament – a joint meeting of both houses – but joint sittings can occur only after a double-dissolution election.

I think the requirement for an election to resolve deadlocks between the two houses of parliament tends to work against accountable government because it enables governments to blame obstruction in the Senate for failure to implement policies. Before going down the double-dissolution path governments have to consider the possibility that they will lose such elections or be returned to power with more obstructive upper houses than they had before. Although there are half a dozen occasions in Australian history when governments have brought on double-dissolution elections, they have been defeated on about half those occasions. A joint sitting of both houses of parliament has occurred on only one occasion.

Given the difficulty of amending the Australian Constitution it seems that we will have to continue to live with the adverse consequences for government accountability of the requirement for elections to resolve deadlocks. We can, however, take some solace from the fact that the election requirement has the virtue of providing a test of the extent to which governments have the courage of their convictions. The value of such a test has recently been highlighted by the current government’s decision not to trigger a double-dissolution election on the bill to establish a carbon emissions trading system in Australia.

Postscript 1:
After reading a post by Tim Harford I have been reminded of Kenneth Arrow's impossibility theorem. Rather than wondering where to find a quote from some famous person supporting elective dictatorship I could have quoted Kenneth Arrow to the effect that whatever electoral system you use you will always end up with some form of dictatorship (although some forms of dictatorship are worse than others). The inference that I think should be drawn from Arrow's impossibility theorem is that markets are usually better than politics in producing outcomes that are beneficial for everyone.

Postscript 2:
Joseph Schumpeter qualifies as a famous person who emphasized the value of strong executive government. In Capitalism, Socialism and Democracy (1942) he wrote: 

"It is in fact obvious not only that proportional representation will offer opportunities for all sorts of idiosyncrasies to assert themselves but also that it may prevent democracy from producing efficient governments and thus prove a danger in times of stress. But before concluding that democracy becomes unworkable if its principle is carried out consistently, it is just as well to ask ourselves whether this principle really implies proportional representation. As a matter of fact it does not. If acceptance of leadership is the true function of the electorate's vote, the case for proportional representation collapses because its premises are no longer binding. The principle of democracy then merely means that the reins of government should be handed to those who command more support than do any of the competing individuals or teams".

I wrote more about Schumpeter's views of democracy here.

Which books should I recommend?

I am in the process of becoming an Amazon associate. This is unlikely to make me rich, but it is still worth doing to highlight some books relating to freedom and flourishing that I would like to recommend to readers.


Which books? When I started making a list I quickly noted around 30 titles, but the carousal widget that I had decided to use has room for only 10 books. So I have focussed on the books I would recommend to a person somewhat like myself – a person with a background in economic policy or business who is becoming increasingly interested in broad issues relating to human flourishing, including the role of liberty, the nature of happiness and the ethics of well-being.

My recommendations are not listed in any particular order. See the carousal (at right) for links to Amazon.

1. ‘Happiness: A History’, by Darrin McMahon.
This book traces the way ideas about happiness have changed through history. I particularly enjoyed his discussion of the inclusion of ‘pursuit of happiness’ in the US Declaration of Independence. There is a quote from the book in my post: Does the evolution of ideas about happiness intersect with the evolution of ideas about markets?

2. ‘Norms of Liberty’, by Douglas Rasmussen and Douglas Den Uyl.
Is liberty compatible with human flourishing? This book argues that not only is liberty compatible with human flourishing, it is also necessary because individual flourishing is an inherently self-directed activity. The book is not an easy read, but well worth the effort for anyone with any interest in political philosophy. The book is discussed briefly in my posts: Is freedom a necessary condition for human flourishing? and Why should we view individual rights as metanormative principles?

3. ‘Happiness: The science behind your smile’, by Daniel Nettle.
This little book provides an excellent introduction to the science of happiness. I particularly like Nettle’s discussion of different kinds of happiness and of the distinction between wanting and liking. Some comments relating to the book are included in posts here, here and here.

4. ‘The Logic of Life’, by Tim Harford.
This is my favourite among the spate of books that have been written over the last few years about the economics of everything. The basic idea is that if you want to understand how the world works keep in mind that people tend to respond to incentives. I have discussed the book here.

5. ‘Predictably Irrational’, by Dan Ariely.
This book is a good introduction to behavioural economics. Ariely describes experiments which show that we are often not as rational as we might think we are. I have discussed the book here.

6. ‘Well-being for Public Policy’, by Ed Diener, Richard Lucas, Ulrich Schimmack and John Helliwell.
This book probably has the best account currently available about the relevance of subjective well-being measures to consideration of public policy issues. I have some comments on the book here and here and in a review essay for ‘Policy’, Summer 2009-10.

7. ‘In Pursuit of Happiness and Good Government’, by Charles Murray.
This book was first published in 1988, but the views it presents are still highly relevant today. Anyone considering the potential relevance of happiness research to public policy should read this book. I have commented on the book here and here.

8. ‘The Pursuit of Unhappiness’, by Daniel Haybron.
This book is a philosophical exercise in clear thinking about the nature of happiness. It is fairly difficult to read, but provides plenty of food for thought about the directions of well-being research. It also provides some grounds for concern about the direction in which western society may be heading. I discussed the book here, here, here and here.

9. ‘The Happiness Hypothesis’, by Jonathan Haidt.
Martin Seligman, author of ‘Authentic Happiness’ is quoted on the cover of the book as saying: ‘For the reader who seeks to understand happiness, my advice is: Begin with Haidt’. That is high praise from the author of another very good book. I particularly like Haidt’s view that some of the conditions for happiness come from within us and others require relationships with other people, our work and 'something larger' than ourselves. There are some references to Haidt’s book in my posts here and here.

10. ‘What is Good and Why, by Richard Kraut.
This is a highly readable book about ethics. The main purpose of the book is to establish that we should specify ‘for whom’ or ‘for what’ when we talk about what is good. Kraut presents a developmental view of human well-being. I discussed the book in posts here , here and here.

Should we ever play the man rather than the ball?

I don’t think there is any situation on the sporting field where players are justified in playing the man rather than the ball. Immediately after writing that I have begun to think of exceptions. An exception should obviously be made for technical infringements of the rules that that have become an accepted part of the way some games are played. Should an exception also be made for giving a particularly dirty player in the other team an elbow in the ribs? It might be possible to convince an impartial observer that this could not have happened to a nicer person, but that doesn’t mean that the behaviour should be condoned. If we allow that violations of the code of behaviour can justify retaliation we are likely to end up with an all-in brawl rather than a ball game.


In case anyone is wondering why I am writing about sport, I am just using an analogy to introduce a discussion of the ethics of ‘playing the man’ in discussions of public policy. The post has been prompted by the comment of another blogger, Jim Belshaw, that I made a ‘cruel’ remark about Australia’s prime minister, Kevin Rudd, in a recent post on my blog. I implied that Mr Rudd's argument that the proposed resource rent tax will be paid mainly by foreign investors is similar to the nationalistic rhetoric that Hugo Chavez, president of Venezuela, has used to justify nationalization policies. To add insult to injury I suggested that Hugo, who is famed for long-winded speeches, was less verbose than Kevin.

I regret that comment because my intention on this blog is to raise the tone of policy discussion rather than to lower it. I don’t feel apologetic towards Mr Rudd, however, because I acted in retaliation for his past behaviour. I think Mr Rudd has done more than most other contemporary Australian politicians to lower the tone of public policy discussion in this country.

In trying to explain myself I have made an assertion that I now have to justify. The way politics is played in Australia it is fairly common for politicians to mis-represent the views of other politicians and to attempt to demonize them. But most politicians tend to treat academics with some respect unless they involve themselves directly in politics. Apart from Mr Rudd I don’t think many other politicians in this country who have sought to mis-represent the views of a Nobel-prize winning economist or to demonize him or her. I am referring in particular to Mr Rudd’s misrepresentation of the views of Friedrich Hayek, which I have discussed in an earlier post: Why does Rudd persist in misrepresenting Hayek? (On reflection, I also regret the sarcasm in the last sentence of that post.) In my view the real reason Rudd misrepresents Hayek is so that he can falsely claim that political opponents who respect Hayek’s views are adopting an extreme position.

As I noted in the introduction, I don’t think violations of codes of behaviour justify retaliation in kind. This applies just as much to policy discussions as to sport. The most appropriate response to bad behaviour by political leaders is to make other people aware of it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

Should schools and universities teach students how to be happy?

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


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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

Does identity economics predict happiness in different societies?

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

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

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

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

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

The authors comment as follows:

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

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