Comparison and Growth

Magisterial is not a word to be thrown around lightly, but I suspect it applies to Benjamin Friedman's The Moral Consequences of Economic Growth. (I've only been through the first 100 pages, but I don't imagine it's going to get any less impressive.) Friedman includes an important discussion of the relation between the comparative character of the effect of income on well-being and economic growth. It was, for me, the source of a satisfying “Aha!” moment.

Friedman notes that the effect of income on well-being depends mainly on two different kinds of comparisons. First, we compare our present circumstances to our past circumstances. If we're better off economically than we used to be, we feel better off. Second, we compare our circumstances to those of other people. If we're doing better than our imagined peer group, we feel better; if worse, then worse.

Friedman's insight is that these two forms of comparison in some ways substitute for one another. If almost everyone is continuously doing better than they were before, due to a steady rate of growth, the satisfaction from intra-personal comparison mitigates the tendency to compare ourselves to others. However, if economy stagnates, and most are no better off economically than they used to be, the tendency to compare ourselves to others is heightened. And this, Friedman argues, has deleterious political and social consequences.

Here is what he says:

By continually giving people a sense of living better than they or their families have in the not very distant past, sustained economic growth reduces the intensity of their desire to live better than one another. Economic growth satisfies the form of people's aspirations for “more” that is possible for everyone to fulfill. . .

When an economy stagnates, however, the importance people attach to living better than others against whom they naturally compare themselves is more intense. The fact they cannot do so, or at least on average cannot, then takes on heightened importance in their eyes. The resulting frustration generates intolerance, ungenerosity, and resistance to greater openness to individual opportunity. . .

Mobility, either economic or social, is inherently threatening because it means the possibility of movement either up, or, more to the point, down, compared to the prevailing norms of the society as a whole. But when the average income for an economy is stagnant, people who allow others to get ahead of them are not only falling behind in relative terms but also losing ground compared to their own past living standard. They lose out from the perspective of both benchmarks. When an economy is growing, however, and per capita income is rising, those who fall behind compared to others can still be moving ahead–and if growth is sufficient, moving ahead solidly–by the standard of their own experience.

If Friedman is right about this, and I suspect he is, then this is an exceedingly important argument. A number of happiness-centric economists argue that because increasing wealth has little positive effect on happiness, due to adaptation and comparison, we shouldn't worry about implementing policies that would reduce, or even stall, economic growth just as long those policies are increasing happiness. But if slowing or stalling growth itself heightens the negative effects of social comparison, we have a powerful argument against such policies on the very grounds that they are supposed to be justified.

I highly recommend this book.

[Cross-posted to Happiness and Public Policy. Please leave comments there.]

Glaeser on Paternalism

Tyler instructs all good men to shout Ed Glaeser's new NBER working paper on “Paternalism and Psychology” from the rooftops. I am more than happy to oblige. At a glance, it is clear that this is an important paper. Glaeser stresses a point that Vernon Smith often makes. Sure, folks ain't hyper-rational homo economicus. We make systematic errors in reasoning. But in very many cases, if the price of error goes up, the incidence of error goes down. (We should be less obsessed with the fact that people do make errors and more obsessed with designing market institutions that generate the best kinds of error-reducing feedback.) Because consumers face the costs of their decisions in a way government regulators never do, we should not expect goverment officials, who are subject to the same errors in reasoning, to do an especially good job of guiding our behavior through paternalistic policy.

Additionally, and very importantly, Glaeser notes that expertise in soft paternalistic regulation just is skill at manipulating the beliefs and behaviors of the citizens they are supposed to serve. But the purely altruistic regulator is a chimera. As I emphasize at length in my paper on Social Security as a “noble lie”, the US government has in fact used techniques of manipulation precisely to achieve ideological objectives that could not be achieved through free and open democratic deliberation. There is no reason to believe that nouveau paternalists, armed with the latest behaviorialist research, will resist the temptation to manipulate the public for their own ideological purposes. That may be dangerous. But even if it is not, such programs of manipulation amount to an abandonment of republican ideals of self-government, and undercut precisely those aspects of liberal democracy that are thought to confer legitimacy on government action.

Here is what Glaeser says:

Assume that soft paternalism involved a public education campaign to induce people to think more about the future and make people aware that their own rosy scenarios will not necessarily occur. As Benjamin and Laibson suggest, from the point of view of fighting self-control problems, such a campaign might indeed have beneficial results.

But this public education campaign also offers many degrees of freedom that can be used in other, less benign ways. Perhaps the soft paternalism campaign would warn of inflation, and might suggest that other, less careful political leaders (that is, the opposition party) might print money and devalue nominal dollars. Perhaps the soft paternalism campaign might suggest that the stock market might fall, especially if non-business friendly leaders were elected. Perhaps the government might suggest that investing abroad is particularly perilous, given the unreliability of other countries (especially, say, France). All of these messages might be justifiable, but would also be pernicious.

. . . The commotion surrounding this expenditure [paying Armstrong Williams for pro-NCLB columns] should remind us that the ability of incumbents to ensure victory through the powers of office, which include the bully pulpit, is a constant risk in democracy. Advocating soft paternalism is akin to advocating an increased role of the incumbent government as an agent of persuasion. Given how attractive it is to use persuasion for political advantage, an increased investment in soft paternalism seems to carry great risks.

It is increasingly clear to me that paternalism just can't be squared with a cosmopolitan liberalism. The kind of soft-paternalism Glaeser discusses depends on the assumption that there is a conception of value that is so widely shared that government manipulation meant to make people better off according to that standard would not be suspect, even if government manipulation was OK. But there is no such standard. So, in practice, soft paternalism requires the imposition of a substantive conception of value that some reasonable citizens reject. Additionally, it assumes that there is some way by which government agents could be legitimately authorized to manipulate their fellow citizens.

I think paternalist often have the Fed in the back of their minds–an “independent” bureaucracy manned by “experts.” Public health folks would like to see an “independent” public health bureacracy manned by experts that is authorized to set health policy. The difficulty comes in identifying “experts” according to any kind of neutral metric. The crazy “true cost economics” people, I'm sure, don't think Ben Bernanke's really an expert in economic truth. Public health is deeply moralized domain, turning on substantive questions about the value of health relative to competing values. I think we'd all see the problem if someone proposed to establish an “independent” panel of moral experts to set policy for all of us on matters of moral hygiene. (“Experts on an independent government agency today reported that a 'culture of life' is necessary for any sustainable moral order . . .”)

I think you can detect in some (surely not all or even most) behavioralist work a drive to establish that there is a need for manipulation, that there is a science that tells us how to do it, and that there are experts who are available to do it for us. Glaeser does us an important service by showing us why, on their own intellectual grounds, we should not trust them to manage our lives for us.

If There’s a Growing Epidemic in Depression, How Come the Happiness Data Don’t Show It?

[Cross-posted to Happiness and Public Policy]

An email exchange with Virginia Postrel prompted me to note for the first time that there's a real problem in trying to use the happiness data and the depression data at the same time. Almost all the “paradox of prosperity” books cite happiness data that is supposed to show that we're not getting much, if any, happier as we grow wealthier as a society. Alongside, they cite data purporting to show that depression is approaching epidemic proportions. But the happiness and the depression data contradict each other. You can't in good conscience appeal to both.

The “paradox” books generally show a graph illustrating the stability of the percentage of people reporting that they are “very happy.” But they could also show a similar graph of the stability of people reporting that they are “not too happy” or “not at all happy” (depending on the survey). For example, Branchflower and Oswald, “Well-Being Over Time in Britain and the USA,” show that, in the US, the number of folks reporting that they are “not too happy” (on the three option surveu) dropped from 14% in the 1972-1976 period to 12% in the 1994-1998 period (which is up from the 1988-1993 low of 10%). Similarly, in Britain, the number reporting “not at all” and “not very” (on the four option survey) was 4% and 11% respectively in the 1972-1976 period, and 3% and 10% in the 1994-1998 period.

If depression rates have been rising stratospherically, how come the happiness surveys don't track this fact at all, but instead show a small decline in the number of dissastified people? On its face, it looks like the happiness data contradicts the depression data. Indeed, the happiness data would seem to support the Horwitz-Wakefield hypothesis that the apparent increase in depression is almost entirely a function of the flaccidity of the diagnostic category.

One way of addressing the apparent contradiction, suggested by Virginia in her review of Gregg Easterbrook's The Progress Paradox, is to point out that depression and unhappiness are very different things. Virginia points to Julian Simon as an example of a happy person who stuggled with depression. It is indeed plausible that some genuinely depressed people, for whom life is otherwise going very well, will experience their depression as an external malady–an alien force unprompted by events–and so will nevertheless report that they are happy.

However, it seems at least as likely that the depression will cast a shadow over life, and negatively effect one's assessment of how well things are going. Indeed, it is not at all uncommon for depression to cause major problems in precisely those areas most important for the sense that one's life is going well, such as work and love. So, if there was in fact a huge increase in depression, we should expect at least a significant fraction of those people to show up in the lowest category of self-reported happiness, even if many others are reporting that they are happy despite their depression.

Additionally, if an increasing number of people are simply functionally sad, as opposed to pathologically depressed, due to a death in the family, a bad break-up, or a lost job, you'd think that they'd show up in the happiness data. This is preciesly the sort of thing the happiness data is supposed to be measuring. It does, in fact, pick up the negative hedonic effects of higher unemployment rates, for example. There simply is no increase in subjective ill-being, as measured by the surveys.

Therefore, if you're going to use the happiness data to show that we're not getting happier as incomes rise, you can't turn around and use dramatic depression data that, if accurate, ought to show up pretty dramatically in happiness data that, on the contrary, suggests a mild decline in the percentage of the depressed and sad. At the very least, you need some explanation of why this profound epidemic of depressive mental illness has, amazingly, absolutely no effect on the data from which you are drawing most of your conclusions.

I'm sort of amazed that this didn't occur to me earlier. And I'm really amazed by the fact that the apparent inconsistency just doesn't come up (I don't think) in the “paradox” books. When you think about it, if there was really a widening plague of depression AND average happiness was stable, then you'd need need a growing cadre of really happy people to offset the growing legions of the depressed. But all the books make a show out of the fact that there isn't a growing cadre of really happy people, and they all admit the average is stable. So you'd think the “rising depression” idea would raise a red flag or two.

I think it's pretty clear that the depression data is junk. And that's trouble for the “paradox” genre. If you're unable to honestly say that we're getting more miserable, you're left with data that show that we're slightly better off and no worse off than we've ever been, since we've been measuring this sort of thing, at least. And here's a pretty hard argument to sell: We're happy as ever. Therefore, radical interventions are required!

[Cross-posted to Happiness and Public Policy. Please leave comments there.]

Mises & The Yogi

This one's for my homies over at The Austrian Economists.

As Julian just pointed out to me the other day, Mises says that praxeology, the logic of human action, may not actually apply to all humans. Buddhists, for example, our Schopenhaurian pessimists.

Some philosophies advise men to seek as the ultimate end of conduct the complete renunciation of any action. They look upon life as an absolute evil full of pain, suffering, and anguish, and apodictically deny that any purposeful human effort can render it tolerable. Happiness can be attained only by complete extinction of consciousness, volition, and life. The only way toward bliss and salvation is to become perfectly passive, indifferent, and inert like the plants. The sovereign good is the abandonment of thinking and acting.

Such is the essence of the teachings of various Indian philosophies, especially of Buddhism, and of Schopenhauer. Praxeology does not comment upon them. It is neutral with regard to all judgments of value and the choice of ultimate ends. Its task is not to approve or to disapprove, but to describe what is.

The subject matter of praxeology is human action. It deals with acting man, not with man transformed into a plant and reduced to a merely vegetative existence.

Now, this is a really delightful passage. It reminds me of some of Rand's passages in “The Objectivist Ethics” about the impossibility of living as a parasite, despite the gobsmackingingly obvious fact (for Washingtonians especially) that millions upon millions successfully, and happily, live as parasites. Here we have Mises telling us that praxeology is purely descriptive, and then writing billions of people (you know, all those Hindus and Buddhists) out of the human race with a definition of “man” so dense with normative weight that it's about to collapse in on itself.

The passage is really ripe in light of the preceding paragraphs. There Mises writes:

For praxeology it is enough to establish the fact that there is only one logic that is intelligible to the human mind, and that there is only one mode of action which is human and comprehensible to the human mind. Whether there are or can be somewhere other beings–superhuman or subhuman–who think and act in a different way, is beyond the reach of the human mind. We must restrict our endeavors to the study of human action.

But wait! Buddhists apparently think and act in a different way, right?! Oh no they don't, Mises says. Unless a being's behavior accords with the a priori logic of praxeological law, determined by the transcendental structure of the human mind, then it's not really action, it's just, what? Motion? And if it's not really acting, but just moving–a face flapping its lips and making noises, but not really speaking–then it's not really human. And so . . . a distinctively human life in accord with the teachings of the great world religions of mindfulness is LOGICALLY IMPOSSIBLE!

So here's a joke:

Q: What does Mises call beheading a room full of meditating yogis?

A: Gardening!

I have to admit, I've never made it past the first chapter of Human Action, because the badly undermotivated a priorism drives this naturalist up a wall. Boettke has some story about how alll this is really consistent with a Quinean, fallibist, naturalist “web of belief” view of things, but not only don't I see it, I see the opposite of that. Anyway, because I don't think Reason (theoretical or practical) is a basic function of the human mind, but is instead a culturally evolved assemblage of other basic functions, the idea that we could transcendentally deduce it's structure, or posit its structure as the essence of humanity, seems silly.

What say you, Miseans? Is it really value neutral to say that if I pick Nirvava as my ultimate end, then I've opted out of human life? Economic principles only apply to Buddhists insofar as they aren't acting like Buddhists?

Is Childbirth National Service?

In their recent Weekly Standard future of conservatism piece, Ross Douthat and Reihan Salam offer a few natalist policy suggestions to encourage more breeding here in the USA. For example:

Republicans might consider offering tuition credits for years spent rearing children, which could be exchanged for post-graduate or vocational education. These would be modeled on veterans' benefits–and that would be entirely appropriate. Both military service and parenthood are crucial to the country's long-term survival. It's about time we recognize that fact.

Now, I think Ross & Reihan overlook just how creepy this comparison is. Naturally, our country could not survive in the long run if everyone concluded that it is cruel to bring an innocent human being into this dark, cruel world. Neither would our country survive if everyone shot him or herself through the temple tomorrow at noon. It doesn't follow that suicide must be made illegal as a matter of national interest, or that people who step back from the ledge ought to get a continued-existence subsidy.

More importantly, the ways in which military service and parturition advance the continued existence of the nation-state are, well, different. Members of the military, ideally, preserve our right to life and self-government by protecting us from agressive interlopers who would kill or rule us on terms not are own. Furthermore, being a state is about having a monopoly on force over a region. A defense force is in some sense constitutive of having a state. Now, no babies, eventually no state. True. But the real worry here is not no babies, but too few babies to support our our massive middle class entitlement programs. That is, babies-as-public good is predicated on the idea of babies-as-tax-base.

Now, I believe that people are the ultimate resource. And I think we'd be better off with more folks about. I for one want children, and think libertarians would be smarter to have five kids per pair than try to take over New Hampshire. But talk about commodifying people! Ross and Reihan make the the anti-capitalist caricature of people as a mere cash nexus look appealing. If I credibly threaten to kill myself, would a rational state offer me the entire value of my projected future tax payments minus one cent? If I'm projected to be a lifetime net tax consumer, should the state subsidize me to expatriate, or swallow a bottle of valium? Do we sterilize mothers most likely to have net tax-consuming children? No, of course not. But that's how the world looks from the point of view of the state when people are understood as a nexus of inlays and outlays. We should discourage the state from looking at us this way by not supporting policies meant specifically to create people for the purposes of later taxing them.

I like the idea of pro-family policy (as long as that includes a non-bigoted notion of the family). I truly believe that families are a foundational social institution, and that we would all be a bit better off if families were stronger, and even bigger. But the family is the private institution par excellence, and you cannot protect or advance the integrity of the family by eroding the distinction between the public and the private. I worry, and I think many others would worry, that when the state starts rewarding us for childbearing, that effaces the public/private distinction, and opens up a crack into the private sphere that the state is bound to try to squeeze through. The agents of the state will see themselves as having a legitimate interest not only in the quanitity of children, but in their quality, and start shaping policy meant to tell us HOW we should raise our children, and, worse, start shaping policy meant to tell us WHO should have them. Let's stay away from that.

Libertarian Paternalism Redux

I just looked at Sunstein & Thaler's paper again, and, again, it strikes me as amazingly empty of content. The entire rhetorical effect of the paper comes from its abuse of language.

The pivot of the paper is to call any instance of institutional choice based on concern for the welfare of the people who will live within the institution “paternalism.” So, if you prefer institutions or sets of rules that would tend to make everyone involved better off than they would be under the alternatives, you're in favor of “paternalism.” Which is, of course, a position that everyone has agreed with pretty much forever. Because “paternalism” is a term that actually has content narrower than “in favor of a good set of rules,” that can't be what paternalism is.

Usually, paternalism is thought of as essentially involving interference with someone's liberty or autonomy for their own good. As Dan Klein notes in his totally dispositive reply to Sunstein & Thaler, a restaurant manager's putting the dessert bar at the back isn't intereference with autonomy. Nor is eliminating the dessert bar. A guy who wants to order a burger at a sushi place isn't having his autonomy meddled with, even if sushi is better for him.

We call the Founding Fathers “fathers” because the republic is their progeny, not because the separation of powers is good for us. Vernon Smith, to take another example, has studied experimentally how different forms of market institutions result in different outcomes (even if formally identical), because of the way actual people actually interact with the set of rules. Is Smith's program “paternalistic” for promoting the use of market designs that are actually as opposed to notionally efficient? Is an improvement in the floor rules of the Chicago Mercantile Exhchange “paternalistic” because it makes the trader and his principals better off? Of course not.

And, of course, when somebody exercises their liberty, the action isn't therefore “libertarian.” Libertarianism is a poltiical philosophy that is about the minimization of state coercion. When I choose vanilla over chocolate, that's not “libertarian ice cream flavor selection.” And when a restaurant manager, or human relations director, excercises the legitimate powers of her role in an organization, and decides where to put the salad bar, or decides how to structure the benefits package, there's nothing specifically “libertarian” about that, either. None of S&T's example of libertarian paternalism are examples of libertarianism or paternalism. And otherwise, the paper is more or less empty. (“If you're picking rules, pick good ones!”) So you'd think that would be a problem.

I'm not saying anything Klein doesn't. So, if you haven't read his paper, do. And read his rejoinder to Sunstein's evasively glib reply. As Klein points out, it's part of Sunstein's long-term project is to abuse the meanings of words so that his opponents' positions come to appear conceptually impossible.

So, don't let people get away with calling an employer's choice to set their benefit or investment defaults one way rather than another “libertarian paternalism,” since such choices are neither libertarian nor paternalistic. Accuse them instead of making a category error and speaking nonsense. And why not? There is no better way to win friends.

Freedom in the Meaningful Sense

Here Yglesias argues that too much “economic security” talk sounds persnickety and that the left ought to emphasize a positive notion of freedom. OK. But, huh?

In another sense, more relevant in many contexts, you can't be especially free if you don't have any resources. People without cars, living paycheck-to-paycheck, without bank accounts or credit cards, weren't free to evacuate New Orleans before the hurricane hit in any meaningful sense.

I agree that you can't be especially free to do lots of different kinds of things if you don't have any resources. Which is why you want to try to get resources by working for a living, etc. And which is why the state and its apologists ought not to engender learned helplessness by making the urban poor into wards. It is flatly false that people in New Orleans without cars, bank balances, and credit cards “weren't free to evacuate” in a “meaningful sense.” The infirm were definitely stuck. But if you just picked up and started walking, you'd have been out of the flood zone in just a couple hours, even with kids in tow. If you had a bike, you could have made it to Baton Rouge in a day. That's a perfectly meaningful sense of free to evacuate. (Did you know that this great nation was settled by lots of poor people who more or less WALKED across the continent?) The fact that so few poor people did this is in no small part due to the fact that they got psychologically tangled in the safety net meant to keep them from falling too far, but which, in reality, keeps many from going anywhere. And that's neither freedom nor security.

Also, about “pro-growth progressives”. . . It's simply amazing that people don't take this to be a silly redundancy. Almost every bit of progress–socially, morally, in terms of happiness and longevity, aesthetically, WHATEVER YOU LIKE–is a direct or indirect product of economic growth. To be pro-growth simply is to be progressive, and there is no other way. It's nice that the left has apparently sort of given up on “liberal.” But using “progressive” to denote welfare state conservatism is just funny.

More Pro-Growth Progessivism

Here is a World Bank paper by Aart Kraay and David Dollar, called, bluntly enough “Growth Is Good for the Poor,” [pdf] which finds that “Average incomes of the poorest fifth of society rise proportionately with average incomes.”

As the world grows increasingly globally interconnected, you have to squarely face the fact that slowing growth in the big economies really, really hurts poor people elsewhere. This is not dogma. It's what you might call “reality based,” or the truth. And that's one of the main reasons I find it despicable when comfortable western intellectuals argume to the effect that England, say, ought to impose policies meant to get their citizens to work less and enjoy more leisure time, since the added wealth created by their economic production isn't doing THEM as much good as longer vacations would. But policies that effect the productivity of the English economy don't just effect the English. Lower growth in England means more hungry, sick and dying babies in China. That's why growth-slowing “quality of life” reforms in advanced economies can be construed as “progressive” only relative to a repugnant nationalist, anti-cosmopolitan standard.