If you’re interested, you can watch or listen to the Cato Forum on Cass Sunstein and Richard Thaler’s Nudge here. My comments are last, after Sunstein and Chorvat’s.

If you’ll be in DC on November 15th, come to Cato to catch Tyler Cowen talk about Discover Your Inner Economist with comments from Emily Yoffe, author of Slate’s “Dear Prudence” column. Here’s the setup:

In Discover Your Inner Economist, the economist and blogger Tyler Cowen provides quirky and insightful advice for life based on his signature urbane style of economic reasoning. On his blog, MarginalRevolution.com, Cowen offers economic advice in his periodic “Dear Trudie” posts. Presumably Cowen offers good economics. But dare one take an economist’s advice? Emily Yoffe, author of Slate’s popular “Dear Prudence” advice column, will advise. Please join us for an advice-off, as Trudie meets Prudie to discuss the practical benefits of economic reasoning (or lack thereof) in everyday life.

I’ll be moderating. Register here.

I found James “Flynn Effect” Flynn’s essay in this month’s Cato Unbound really fascinating. I especially liked this part:

The first implication of the new perspective is the benefit of persisting in cognitive exercise throughout life. There is the dramatic case of Richard Wetherill. He played chess in retirement and could think eight moves ahead. In 2001, he was alarmed because he could only think four moves ahead but he continued an active mental life until his death in 2003. Autopsy showed that his brain was riddled with the plaques and tangles that are characteristic of Alzheimer’s. Most people would have been reduced to a state of total confusion. This does not mean that cognitive abilities fail to decline with age. After all, at any given age, an athlete is better off for training. But however hard you train, your times will get slower as you age.

The brain is much more like our muscles than we had thought, even in the sense that specialized exercise affects different parts of the brain. Autopsies show that the brains of London taxi-drivers are peculiar. They have an enlarged hippocampus, which is the brain area used for navigating three-dimensional space. Here we see spatial abilities being developed without comparable development of other cognitive skills. To develop a wide variety of cognitive skills you need a wide variety of cognitive exercises.

I wonder what blogging is doing to my brain. More importantly, I think pretty persuaded by the Dickens/Flynn account of the brain-environment-brain-environment, etc. reciprocal causation feedback loop. But I look forward to seeing what Linda Gottfredson, who is more of a genetic determinist, has to say. Anyway,  check it out.

That’s the name of my long-awaited (by me, at least) Cato Policy Analysis, published today. Here’s the abstract:

“Happiness research” studies the correlates of subjective well-being, generally through survey methods. A number of psychologists and social scientists have drawn upon this work recently to argue that the American model of relatively limited government and a dynamic market economy corrodes happiness, whereas Western European and Scandinavian-style social democracies promote it. This paper argues that happiness research in fact poses no threat to the relatively libertarian ideals embodied in the U.S. socioeconomic system. Happiness research is seriously hampered by confusion and disagreement about the definition of its subject as well as the limitations inherent in current measurement techniques. In its present state happiness research cannot be relied on as an authoritative source for empirical information about happiness, which, in any case, is not a simple empirical phenomenon but a cultural and historical moving target. Yet, even if we accept the data of happiness research at face value, few of the alleged redistributive policy implications actually follow from the evidence. The data show that neither higher rates of government redistribution nor lower levels of income inequality make us happier, whereas high levels of economic freedom and high average incomes are among the strongest correlates of subjective well-being. Even if we table the damning charges of questionable science and bad moral philosophy, the American model still comes off a glowing success in terms of happiness.

It is not a short paper, nor is it written at a USA Today level of difficulty. So reserve a cool hour for some serious intellectual contemplation. It’s worth it, I hope.

Despite my digs at Jacob Hacker’s new book, I don’t find it implausible that middle-class Americans do feel that their lives are economically precarious, even when they are, in objective terms, immensely economically secure. The question is whether attempting to ameliorate that feeling is a worthwhile aim for liberal policy. Let’s start with a comment Hacker made two weeks ago:

If you have trouble figuring out why risk makes people anxious and unhappy, consider this simple thought experiment: How much of your income would you be willing to put at risk to get a chance at twice your current income? If you’re like most Americans, the answer is “not much”—and for a simple reason: While you’d love to have more money, your life would be thrown into turmoil if your income dropped by, say, half.

Social psychologists have a name for this phenomenon: “loss aversion,” which means simply that we dislike losing things we have far more than we like gaining things we don’t have. No wonder: If your family income fell by half, you would risk losing your home, your health insurance, your retirement savings—in a word, your safety net. And with these vital assets would go your dreams for the future. Maybe it’s no surprise, then, that a recent poll found that even opportunity-loving Americans prefer, by a two-to-one margin, the security of having their current income protected to the chance to make more money.

Hacker’s right that loss aversion is a very real, very well-documented phenomenon. But he’s wrong to imply that the representation of turmoil upon which loss aversion is based accurately predicts the real turmoil that would be experienced in a personal economic downturn. The main point of psychologist Daniel Gilbert’s bestselling book Stumbling on Happiness is that we make systematic errors in forecasting our future feelings conditional on the occurrence of big (or even little) events, such as how we will feel upon losing half our income, to take Hacker’s example. We think it’s going to be a lot worse than it really will be. Famously, people predict that they would be deeply depressed or even suicidal if they lost a leg. Yet real amputees quickly readjust to their new reality, and recover most of their sense of well-being. (And some even report a boost in well-being, their tragedy awakening them to the importance of what they have not lost.) There is certainly a sense of turmoil before one adapts to new circumstances. Indeed, the sense of turmoil is part of the process of adaptation and the recalibration of expectations.

Obviously, whether losing half your family income will dash “your dreams for the future” depends on how big your income was, and what your dreams were. If I had a job that paid 100K, and now I’ve got a job that pays 50K, then I still have my 501K, my health insurance, and probably a lot more safety net than I need. If I can’t now afford the payments on the Mercedes, well, bummer. If the kids are going to have to go to State U, fine. It’s not the job of my taxpaying neighbors to ensure that I can indeed afford Yale once I set my heart on it.

Sure, loss-averse Americans might like the idea of a constantly rising safety net that ensures a short fall, no matter how far we rise. But it’s not what we need, or even ultimately want. The best explanation for human loss aversion is its utility under conditions of scarcity in our environment of evolutionary adaptedness, tens of thousands of years ago. If you’re on the edge, a loss can mean death. But when you’re further from the edge than people have ever been, like well-to-do Americans are now, anxiety about risk and loss can lock us into bad situations, like unsatisfying jobs or loveless relationships. Our overinflated anxieties about the downside of big changes can be one of our biggest enemies. Middle- and upper-class Americans with college degrees have built-in safety nets in the form of their education and skills, and in virtue of being already enmeshed in the most successful wealth-producing institutions in history. The net is already only two inches from our feet. Losses suck, and we hate them. But I find it hard to believe that this is seriously considered a liberal proposal, or a sufficient basis for massive government intervention into our economy and fantastically comfortable and secure lives.

As I said in the last Hacker post, the main bout in the intramural liberal fight is about which set of institutions will provide what we need to exercise our autonomy and realize our ends. I don’t think a lavish social insurance state is the ticket for the poor, and certainly not for the middle. Americans from the middle on up are a class of extremely privileged people whose satisfaction with life ultimately requires moving beyond a complacent sense of safety and facing and taking more risk. Hacker would argue that people will take more risks if the downside is softer. That’s may be true, though it is also possible that people will just readjust their sense of entitlement, finding ever-smaller objective risks equally subjectively intolerable. But we would very probably take more rational, life-enhancing risks if we realized, with the help of a little self-administered cognitive-behavioral therapy, that the downside is already softer than we think. Hacker’s attempt to goad the American middle class into becoming ever more freaked out by their Pleistocene fear of loss is like telling a spoiled child she should definitely wail with a sense of entitled injustice unless she is given yet another pretty pretty pony. It’s perverse, and it’s not helping anyone.

If you haven’t had enough Hacker, here’s Matt Yglesias criticizing Hacker from the left . Let me say something about one point Matt makes about a point he attributes to Hacker:

If the broader economy is getting riskier, this is something public policy should aim to mitigate, rather than exacerbate. The point was simple, useful, and utterly correct.

I don’t think this point is simple, correct, or useful for much other than confusion. Again, if the risk we’re talking about is just the risk of your income fluctuating a bit, a liberal concerned about economic security has little reason to care as long as the fluctuations occur above the threshold of economic suffciency. Furthermore, if those fluctuations don’t generally cause much real harm, but are a symptom of an increasingly dynamic economy that will tend to give people greater opportunity to express their autonomy and realize their ends over the course of their entire lifetimes, then this kind of “risk” may well be something public policy should aim to exacerbate. Progress is not generally something you want to mitigate.

[Cross-posted from Cato@Liberty]

Just in case you unaccountably fail to check Cato@Liberty daily, I had a post yesterday about Monday’s dreadful NYT piece on wages growth.

My recent blogging efforts have been directed to Cato@Liberty. Here’s one from yesterday on the right of exit versus political predation, and here’s one from Tuesday on pluralism and school choice.

And keep eye an out for the new Cato Unbound next Monday. Essayist Richard Rodriguez will kick things off with a meditation on “Mexicans in America,” our topic for August. Victor Davis Hanson is first in line to reply. Should be good.

I’ve got a big post up at Cato@Liberty on the New Economics Foundation’s silly study claiming Vanuatu to be the happiest place on Earth.

I’ve got a new post up at Cato@Liberty about charity-bashing statists.

Cato Chairman Bill Niskanen has forgotten more economics than Ezra Klein and I together will ever know, but I come to his defense anyway against Ezra’s curious argument against the law of demand.

I’ve got a new post up at Cato@Liberty.

I’m failing to shill for myself!

My review of Benjamin Friedman’s The Moral Consequences of Economic Growth [pdf] is in the latest Cato Journal. Regular readers will notice that a lot of my criticisms of the book discussed on this here blog didn’t make it into the review. Had to keep it short. And there is a sentence toward the middle that no longer makes much sense to me. It’s amazing how that can happen.
I also have a Cato podcast about “libertarian paternalism” [mp3] online. All the points I make are, I’m sure, points I’ve made here before. But if you want to hear me trying hard not to hem and haw, check it out. We had to cut out the discussion of hyperbolic discounting due to time constraints, which is just as well.

Sorry posting have has been so light. But I do have a new post up at Cato@Liberty for your reading pleasure.

If you haven’t heard tell, Cato has a new blog, Cato@Liberty, featuring the entire Cato policy staff commenting on news, recent events, and pressing issues that concern us all! We’re just getting started, but I don’t think you’ll regret adding @Liberty to your feedreader. Once we all get up to speed on this blogging thing, we’re going to be hard to beat as a policy and politics blog. If you have a blog, run, don’t walk to your keyboard (hey! you made it already!) and spread the happy news.

And don’t forget Cato Unbound! Our new issue, “The GOP and Limited Government: Do They Have a Future Together?” is hot off the virtual presses with a rather depressingly convincing lead essay by bestselling political author and former Bush speechwriter David Frum. This month’s commentators are the left’s favorite Goldwater Republican, Bruce Bartlett, Cato’s own executive VP, David Boaz, and pointyheaded wonderboys Ross Douthat and Reihan Salam.

Cato offers all this top quality content to you for free! What a deal! Thanks Cato!