The Happiest Zombies

In the same vein as David's fascinating post below, here is a refreshingly accurate article on the relationship between wealth and self-reported happiness around the world from the New Scientist titled “Wealthy Nations Hold the Keys to Happiness.” The occasion of the article is the publication of a world map by Adrian White, a Ph.D. psychology student at the University of Leicester, that vividly pictures self-reported life satisfaction around the world. The relationship between wealth and the percentage of people who say they are happy leaps out pretty clearly.

According to the analysis, a country's happiness is closely related to its wealth, along with the health and education levels of its people. It is no surprise that people spending heavily on healthcare, such as US citizens, rank highly, says White, as this investment increases life expectancy and general wellbeing.

“There is a belief that capitalism leads to unhappy people,” he says. “However, when people are asked if they are happy with their lives, people in countries with good healthcare, a higher [earnings] per capita, and access to education were much more likely to report being happy.” Continue reading “The Happiest Zombies”

Chicago City Council to Low-wage Workers and Poor People: Eat Dirt!

The Chicago City Council has proved beyond doubt its aggressive hostility to the welfare of low-wage workers and low-income consumers by its approval of an ordinance that would forbid Chicagoans from legally entering into agreements to work for less than $10 an hour and $3 in benefits—even if they want to—with retailers with $1 billion in annual sales and stores of at least 90,000 square feet.

By prohibiting job-seekers from accepting terms of employment to the mutual benefit of aspiring workers and potential employers, the City Council has effectively requested that major employers like Wal-Mart and Target open fewer new stores in Chicago, and to make available fewer (and possibly no) new jobs. Additionally, the Council has asked Chicago's low-income consumers, who would benefit most from more discount retail outlets, to forgo significant increases in their quality of life.

As NYU economist Jason Furman wrote in Slate by way of crushing Barbara Ehrenreich in a debate about the effect of Wal-Mart on America's working class:

A range of studies has found that Wal-Mart's prices are 8 percent to 39 percent below the prices of its competitors. The single most careful economic study, co-authored by the well-respected MIT economist Jerry Hausman, found that grocery sales by Wal-Mart and other big-box stores made consumers better off to the tune of 25 percent of food consumption. That doesn't mean much for those of us in the top fifth of the income distribution—we spend only about 3.5 percent of our income on food at home and, at least in my case, most of that shopping is done at high-priced supermarkets like Whole Foods. But that's a huge savings for households in the bottom quintile, which, on average, spend 26 percent of their income on food. In fact, it is equivalent to a 6.5 percent boost in household income—unless the family lives in New York City or one of the other places that have successfully kept Wal-Mart and its ilk away.

Why does the Chicago City Council insist on harming workers by denying them their moral right to enter into work agreements on terms they find acceptable? Why does the Chicago City Council want to keep things from getting better for its city's poor?

[Cross-posted from Cato@Liberty]

Making Stuff Up

So, it turns out that I wasn't crazy when I couldn't find Vanuatu in the World Database of Happiness, because it's not there! Carl Bialik at the WSJ has the story. Apparently NEF just made up Vanuatu's life satisfaction number by extrapolation from other countries. But, truly, this competely defeats the purpose of self-reported life satisfaction. There are undoubtedly unique aspects of Vanuatu's culture, economy, climate, character, etc., that would enter into their pattern of self-reports. So it's pretty funny that Vanuatu “wins” in a much-touted index in part due to numbers the authors made up.

I'm Baffled by Taxes as Truces in Positional Races

I'm suddenly confused about the logic of imposing higher taxes as a way of calling a “truce” in positional races. Help me.

Suppose everyone has a strong preference for higher relative income. Arms race logic implies that people will increase their effort to move up position, but that, in order not to get passed, others will increase their effort to the same degree, and thus, there is a lot more expenditure of effort, but almost no one actually moves up. Since effort is expensive, everybody in the race would be better off if they could stay in position while spending less. A “truce” enforced by a credibly commited third part allows everyone to spend less, while losing nothing. That's Pareto-fantastic!

Here's where I'm getting stuck. How is a tax on income (or consumption) like a truce? I just don't get it. OK. Think it through, Will. Suppose there's a flat tax of 10 percent. You earn $10 and I earn $9. After tax, you earn $9 and I earn $8.1. Our relative positions have not changed, and neither have the ratio of our earnings. If we cared only about relative position, this would not be a brake on competition. Suppose the tax is progressive. You are taxed at 15 percent, and I'm taxed at 10 percent. Now you're at $8.5 after tax, and I'm at $8.1. Woo hoo! I'm catching up! If I'm not seeing your tax rate, just your level of consumption, it may seem that you are within my sights, and that the cost in terms of effort of passing you has gone down. And if you care as much as I do about relative position, you'll find this unnerving. In order keep the pretax gap between us at, you'd now need to make about $11. Where is our reduced incentive to work?

This stuff is confusing because the point is that there's no particular taste for the marginal dollar, except insofar as it plays into the positional race. In the position game, I'm no longer trading work for dollars, such that fewer dollars leads me to work less. I'm trading work for position in the race. But I think the tax-as-truce literature is equivocating. One the one hand, we are motivated to work by our taste for relative position, not absolute income. But on the other, if the state reduces the amount of income to be gained from work, we'll work less because we're motivated by absolute income?

It seems to me that a flat tax leaves the position game totally unchanged. If people don't care about absolute income, and you reduce income by the same proportion through the distribution, then, well, no one cares.

Suppose we each have some function that takes the subjective value to us of moving up (or not moving down), multiplies it by the perceived probability of moving up (or down) a position, gives the expected value of spending a unit of effort, and thereby determines the effort we put into the race. The claim of Frank, Layard, and others is that we are all built such that the value to us of moving up and not moving down is high. Anyway, when the probabilities of moving up or down go up, we put more effort into the race. Now, suppose we represent the probability of moving positions as partly a function of our representation about how much effort others are planning to spend, but also as a function of the size of the gap between us and the positions ahead and behind. If there is a huge gap between me and the next guy, my effective motivation to compete for that position may be next to nil, even if I like higher position very much. And if the guy behind me is way behind, I'll know he won't be very motivated to catch me, and so I won't be very motivated to speed up. In this case, a truce would amount to maximizing the size of the gaps in the income distribution. In which case, couldn't a progressive tax work something like the opposite of a truce. Wouldn't an increase in inequality, or something else that dispirited people about mobility, be what we are looking for?

At first blush, then, it seems a truce might require something like a caste system, with very large gaps in income between castes. But then, of course, people will start caring only about the within-caste race. The income distribution as it is is fairly continuous until the upper reaches, where it starts getting gappy. (There may be no one, for example, who earns anything between $18 and $20 million, for example, though you can be sure that someone earns between $180 and $200 thousand.) Would it be possible to have a optimally discountinuous system? Perhaps there could be a government-mandated payscale. You either earn $10K, 20K, 40K, 80K, 150K, $500k, $2mil, $10mil, or $100mil. I'm pretty sure that would work as an effective truce. In reality, of course, it would just move positional competition to margins other than income. And you'd lose a massive amount of productivity. (If your labor is worth 35K, tops, you'll probably produce only about 20K, because what would be the point.) But that's the point, right? We produce too much and it does us no damn good. Anyway, ugly, ugly, idea.

So, real economists, am I really screwed up? How exactly is it that Frank-style progressive consumption taxes, say, are supposed to amount to a truce in the positional race if it is the position signaled, rather than the number of dollars spent, that matters to us?

Well, OK. Let's see if I can think how a Frank tax works. A progressive consumption tax adds to the price of everything, and expensive things most. So people hit their budget limit faster. So the biggest house the richest guy can afford to buy is smaller than it would otherwise be. It's all about the “frames of reference” within which we evaluate the adequacy of our consumer goods. My 1500 sq ft house seems less inadequate when compared to a 3000 footer than with a 5000 footer. So smaller (and cheaper) objectively adequate houses are more likely to seem subjectively adequate by reducing the size of the biggest. More people will be happy with what they have got, and they will have spent less to get it. Sigh… I've spent too long on this… But aren't the best positional goods frame of reference busters? Won't some people, with the strongest taste for status, be willing to pay the tax to send the status signal? What if, ala Zahavi's handicap principle, the tax itself becomes a signal. (“Do you know how much tax that guy had to pay for that boat… He must be loaded!“) If we are primarily interested in signaling position, not money, then won't the demand for signaling be price insensitive? If I have to work longer hours to afford the house that sends the signal, then won't I just work longer hours? Again, it seems like what we need is a kind of gappiness that reduces peoples' perceived probability of successfully signaling a position higher than the next closest guy. Anyway, your turn…

A Declaration of Cognitive Independence?

Michael Shermer has a nice piece in Scientific American on confirmation bias, the process "whereby we seek and find confirmatory evidence in support of already existing beliefs and ignore or reinterpret disconfirmatory evidence." New neuroimaging studies are revealing exactly how it is that we avoid actually thinking about politics. Psychologist Drew Westin says:

Essentially, it appears as if partisans twirl the cognitive kaleidoscope until they get the conclusions they want, and then they get massively reinforced for it, with the elimination of negative emotional states and activation of positive ones.

I think this process is especially fascinating to libertarians like Shermer and me who stand on the sidelines of partisan political tribal warfare. Not that libertarians aren't guilty of confirmation bias—everyone is. It's just that less is at stake for libertarians; we don't have any power to lose. Reinforcing and encouraging this specific kind of unreason is one way political coalitions assure their integrity and survival. The day-in-day-out of work of partisan political magazines is to explain to its loyal readers why there is basically no reason to take the other side's so-called arguments seriously. All you need to know about the minimum wage, say, is that there is someone good at math at Princeton who thinks it's good, and that everyone who dislikes it secretly wants to send the poor to forced labor camps. Or all you need to know about people who oppose the war is that they are flag-burning America-haters whose pusillanimous "post-modern" sense of moral equivalence leads them to secretly crave the reign of jihadist overlords. Etc.

As the scientists show, when confronted with a position contrary to our own, we don't even think, we just feel our way to our dogmas, and we feel good about it. In a country, like ours, where there is actually a rather surprising broad consensus surrounding a great number of issues, survival as a distinct political coalition with a distinct identity may require getting the most polarizing mileage possible out of people's tendency toward confirmation bias. That may not be ideal for democracy.

But confirmation bias matters not only because rationality matters, but because autonomy matters. Last week I attended an Institute for Humane Studies seminar at Stanford, and philosopher David Schmidtz gave a talk about psychological freedom—freedom from internal contraints. He remarked that there is something pretty depressing about the fact that what we believe is largely a function of the order in which we encountered new ideas—that our commitments are highly path dependent. But the fact that we can know that holds out hope for a kind of liberation.

So, this Independence Day, why not pick up a political book you know you'll disagree with. Or write a short essay giving the best argument you can think of for a position you find abhorrent. Or really listen to what your annoying brother-in-law thinks about the war at the family picnic. We could all be a little more rational, and a little more free, if only we really wanted to be. Dogmatic, whole-hearted commitment does feel good. But there is more to life than feeling good. There is truth, for one thing. And there is freedom—self-command. We're all jerked around by our own minds. But we can be jerked around less.

Shermer concludes, "Skepticism is the antidote for the confirmation bias." Now, we don't all need to be like Socrates, claiming to know about nothing at all. But a little intellectual humility goes a long way.

[Cross-posted from Cato@Liberty.]

Happiness in the LA Times

I'm quoted in this morning's LA Times (I think the piece is front page) in an article on happiness research. Unfortunately, I am quoted rather exactly, and therefore come off somewhat lacking in gravitas:

"Most of the things that have been published about the policy implications of happiness research have definitely had a big-government slant to it. They're like, 'Here's another reason for the government to do something else,' " said Will Wilkinson, a policy analyst with the libertarian Cato Institute.

Now, I stand by the quote! They are in fact totally like "Here's another reason for the government to do something else." Ah! The vernacular. Anyway, I really enjoyed chatting with the author Stu Silverstein over the phone. And showing up in an article between Mihaly Csikszentmihalyi and Richard Easterlin is more than all right by me. 

Kahneman-Krueger Science Article

Haven't read it yet, but I'm seeing it all over. The useful thing about the new study is that it compares life-satisfaction survey answers with Kahneman's day reconstruction method (basically, writing down what you did and how it made you feel at the end of the day. Highlights:

"If people have high income, they think they should be satisfied and reflect that in their answers," Krueger said. "Income, however, matters very little for moment-to-moment experience."

And

"Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income," the study said. "In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day)."

My take: Not surprising. Life satisfaction judgments are going to reflect widely shared cultural assumptions about happiness. Wealth is part of a widely shared conception of the good life. Or maybe people think they ought to feel better about higher relative position, but this doesn't really enter much into experience. So the self-reported happiness gap between the wealthy and less wealthy will shrink the closer the self-report gets to actual events. By the way, funny how these things are reported. Why not "Good news! The least wealthy are only 12 percent less happy the wealthiest." Dueling political inferences: money doesn't make the rich happy, so it doesn't hurt them if we take their money vs. not having money doesn't make the poor unhappy, so it doesn't help them to give them any. Take your pick.

Kahneman's Benthamism prevents him from reading happiness-motivation splits as anything but "illusion." If you simply assume that people value only happiness intrinsically, and desire other things only for the happiness it brings, then working hard to make money, say, will seem like a kind of mistake if money doesn't maximize happiness. There are a couple alternative interpretations. One is that here we have a revealed preference for something other than happiness. Even if people say they're trying to be happy, talk is cheap. Action shows us what is genuinely valued—not happiness. Or it may be that there is a kind of "illusion" here, but a good illusion. Our system maybe does this: Identify something valuable. Conclude that it will make us happy, which motivates us to go after it. Go after it. Get it. It makes us happy or not. Whether it does is irrelevant to the system.

Now, if that's the way the system works, is it really an illusion, exactly? Compared to what? The way the system doesn't work? Can the fact that we are motivated really be a trick? Maybe. No doubt our Darwinian system "wants" things we don't. Do I really want pretty women? Do I really want the higher status that will help me get pretty women? If the prospect of happiness is a trick to get us to want stuff that Nature needs us to get, are we really sure we really want happiness after all. We find out that it's the basis of the motivating trick, and we still want it? Becuase that's what we're built to want, even if it jerks us around? What if I can't stop wanting misery-making pretty women and also can't stop wanting happiness? Screwed? That's life?

If the at-a-time gap in happiness between rich and poor is smaller than we thought, is the hedonic effect of relative position smaller than we thought?

By the way, this study involves women only. It will be interesting to see whether there are significant male-female differences with the day reconstruction method.