The Chinese are becoming wealthier, so why aren't they happier?

This is the question raised in a recent article in the Journal of Happiness Studies: “The China puzzle: falling happiness in a rising economy”, by Hilke Brockman, Jan Delhey, Christian Weizel and Hao Yuan (V10, 4, 2009).

The focus of the study is the decade from 1990 to 2000. Even though real per capita GDP in China was 2.8 times higher in 2000 than in 1990, the percentage of Chinese describing themselves as very happy declined from 28 percent to 12 percent and the average life satisfaction rating fell from 7.3 to 6.5 (on the WVS 10 point scale).

The authors consider three possible explanations: anomie (powerlessness), political disaffection (declining trust in government) and relative deprivation (frustration because increased income inequality resulted in a higher proportion of the population with below average incomes). Anomie is measured by survey data on the lack of a feeling of free choice and control over the way you live your life. Political disaffection is measured by survey data on lack of trust in the government and parliament. Survey data on financial dissatisfaction (dissatisfaction with the financial situation of your household) is used as a proxy for relative deprivation.

To cut a long story short, the authors conclude that relative deprivation provides the best explanation because the decline in life satisfaction is strongly associated with a decline in financial satisfaction. (A fuller summary of the article is available on Psyblog )

The main problem I have with this conclusion is that data presented in the article suggests that average life satisfaction of high income earners declined along with the life satisfaction of those on lower incomes. There was no reason for the high income earners to feel relative deprivation.

When I look closely at the data it seems to me that the main puzzle is not why average life satisfaction in China was lower in 2000 than in 1990, but why such a high proportion of Chinese were recorded as satisfied with life in 1990. This figure, 68 percent, was higher than in such high income countries as Austria, France, Germany and Japan.

When you look at average life satisfaction of people in different age groups (Fig. 1) older people seem to have been much happier than young people in 1990 and the situation has been partially reversed since then. A comparison of Figure 1 and Figure 2 shows similar patterns for life satisfaction and financial satisfaction. This suggests to me that the apparent decline in average life satisfaction between 1990 and 2000 might possibly be attributable to perceptions by older people that their financial security had declined for some reason e.g. concerns that as a result of social changes young people might be less likely to support them in their old age.

Even if we disregard the 1990 data, however, it is apparent from the Figures that we are still left with the problem of explaining why average life satisfaction and financial satisfaction has not increased since the mid 1990s. The decline in consumption as a percentage of GDP from about 50 percent around 1980 to about 32 percent in recent years cannot provide a complete explanation, because this has not prevented real per capita consumption from increasing substantially.

My guess is that the failure of average life satisfaction to rise in China is associated with a change in the benchmarks that people use to assess their current well-being. In 1990 many people in China may have been using past living standards as the benchmark in assessing their current satisfaction with life. Since then, however, their aspirations have probably risen as they have come to view the living standards enjoyed in high income countries as attainable in the foreseeable future. If I am right most Chinese people would probably agree that “they have never had it so good”, to borrow an unsuccessful political slogan. But those old enough to remember what life was like 30 years ago would probably rather forget about that.

Note: A follow-up post on this topic is here.

Is it possible to make an appropriate emotive appeal by just telling a story?

A post by Peter Boettke on The Austrian Economists blog has got me thinking about emotive appeals in politics. I think the point that Boettke is making is that rhetorical experts are offering poor advice when they suggest that writers try to get their message across by telling stories that appeal to the emotions, in the manner of Dickens and Steinbeck, rather than using stories to illuminate systemic forces, as Ayn Rand did in “Atlas Shrugged”.

I think it might be worth noting that it is sometimes possible to make effective emotive appeals without telling stories and that some stories are capable of speaking for themselves in illuminating systemic forces.

My example of an effective emotional appeal that does not involve a story comes from “John Stuart Mill, Victorian Firebrand”, by Richard Reeves, which I have just finished reading. When Mill was a member of the House of Commons, arguing for women to be given the right to vote, he used an accounting framework to urge rejection of the view that the political interests of women were safe in the hands of their fathers, husbands. and brothers. Mill said:
“I should like to have a return laid before this House of the number of women who are annually beaten to death, kicked to death, or trampled to death by their male protectors: and, in an opposite column, the amount of the sentences passed, in those cases in which the dastardly criminals did not get off altogether. I should also like to have, in a third column, the amount of property, the unlawful taking of which was, at the same sessions or assizes, by the same judge, thought worthy of the same amount of punishment. We should then have an arithmetical estimate of the value set by a male legislature and male tribunals on the murder of a woman, often by torture continued through years, which, if there is any shame in us, would make us hang our heads” (Available at: Online Library of Liberty).

Richard Reeves comments that this passage “vividly captures the combination of sinewy logic and controlled anger employed by Mill’s best pieces of oratory” (p 423).

It can also be possible in some circumstances for a simple story to evoke an appropriate emotive response without any interpretation. For example, last night I read a story in a news magazine about a respected business man who is co-owner and general manager of a travel agency in the country in which he lives. A few months ago this man moved in with his parents while his own house was being renovated. Four days after he left the house his next door neighbours decided to take advantage of his absence by forcing open the front door and changing the locks. They are now occupying the house and refusing to leave. As soon as he found out what had happened the man contacted the police expecting that they would evict the squatters, but the police took them food and supplies. The man has taken the matter to court but the case has still not been resolved.

I have left out some details of this story such as the country where this is alleged to be happening, and the man’s name and ethnicity because I don’t think such details should be relevant to one’s emotive response. (If anyone is interested in following up the story it is in The Weekend Australian Magazine for August 22-23, 2009.)

How do you respond to this story? My initial reaction was anger at the way property rights were apparently being disregarded and dismay that the rule of law seemed to be breaking down in the country concerned.

I hope there is another side to this story that will make my initial reaction inappropriate. For present purposes, however, the only point I want to make is that the story speaks for itself. I don’t think many people would need to be told explicitly that the story illustrates that there may be something wrong with the justice system of a country in which such things can occur.

How could J.S. Mill have reconciled his views on liberty and indoctrination of morals?

In “John Stuart Mill, Victorian Firebrand” Richard Reeves suggests that the question of whether Mill’s essay, “Utilitarianism”, can be reconciled with his more famous essay, “On Liberty”, is one that “will keep scholars engaged for the foreseeable future” (p. 330). That is probably correct, but I don’t think Mill would have had a huge problem in reconciling his views in the two essays if he had felt inclined to do so.

What is it that needs to be reconciled? In “On Liberty”, Mill argues that human flourishing requires the exercise of individual choice: “The human faculties of perception, judgment, discriminative feeling, mental activity, and even moral preference, are exercised only in making a choice. He who does anything because it is the custom, makes no choice. He gains no practice either in discerning or in desiring what is best. The mental and moral, like the muscular powers, are improved only by being used” (Ch. 3).

In “Utilitarianism”, written about the same time, Mill argues that people should be indoctrinated with a version of utilitarian morality: “To do as you would be done by, and to love your neighbour as yourself, constitute the ideal perfection of utilitarian morality. As the means of making the nearest approach to this ideal, utility would enjoin, first, that laws and social arrangements should place the happiness, or (as speaking practically it may be called) the interest, of every individual, as nearly as possible in harmony with the interest of the whole; and secondly, that education and opinion, which have so vast a power over human character, should so use that power as to establish in the mind of every individual an indissoluble association between his own happiness and the good of the whole; especially between his own happiness and the practice of such modes of conduct, negative and positive, as regard for the universal happiness prescribes; so that not only he may be unable to conceive the possibility of happiness to himself, consistently with conduct opposed to the general good, but also that a direct impulse to promote the general good may be in every individual one of the habitual motives of action, and the sentiments connected therewith may fill a large and prominent place in every human being's sentient existence (Ch 2).

Different people have different views about the tension between Mill’s emphasis on the importance of individual choice and his proposals for indoctrination of an indissoluble association between individual happiness and the good of the whole. For example, Linda Raeder writes: “A deep immersion in Mill’s thought leaves one with the decided impression that his aspirations for human beings were not for the flowering of their unique individuality but for their conformity to his personal ideal of value and service” (“John Stuart Mill and the Religion of Humanity”, 2002). Richard Reeves adopts a more conventional view of Mill’s aspirations: “The animating idea at the heart of Mill’s life and work is individual liberty. His image of a good society was one in which every man (and, he would add, every woman) can shape the course of their own life. ... Mill wanted our lives to be free, but he also wanted them to be good ” (p. 6).

Mill’s view on the importance of diversity in education seem to me to provide an example of the way in which it would have been possible for him to reconcile his desire for us to be free with his desire for us to be good. He wrote: “All that has been said of the importance of individuality of character, and diversity in opinions and modes of conduct, involves, as of the same unspeakable importance, diversity of education. A general State education is a mere contrivance for moulding people to be exactly like one another: and as the mould in which it casts them is that which pleases the predominant power in the government, whether this be a monarch, a priesthood, an aristocracy, or the majority of the existing generation, in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by natural tendency to one over the body. An education established and controlled by the State, should only exist, if it exist at all, as one among many competing experiments, carried on for the purpose of example and stimulus, to keep the others up to a certain standard of excellence” “On Liberty”, Ch 5.

Mill also emphasised the value of experimentation at a more general level:
“It will not be denied by anybody, that originality is a valuable element in human affairs. There is always need of persons not only to discover new truths, and point out when what were once truths are true no longer, but also to commence new practices, and set the example of more enlightened conduct, and better taste and sense in human life” (“On Liberty”, Ch 3).

In his “Autobiography” Mill noted that he viewed “On Liberty” as “a kind of philosophic text-book of a single truth, which the changes progressively taking place in modern society tend to bring out into ever stronger relief: the importance, to man and society of a large variety in types of character, and of giving full freedom to human nature to expand itself in innumerable and conflicting directions” (Ch 7).

It seems to me that it would have been possible for Mill to reconcile his views on liberty and ethics by making the case that recognition of the right of individuals to experiment in living as seems best to themselves is of over-riding importance to society. Not only does this open the possibility of discovering new truths, it also opens the possibility that people can learn from the mistakes of others. As Friedrich Hayek wrote: “It is whenever man reaches beyond his present self, where the new emerges and assessment lies in the future, that liberty ultimately shows its value” (“Constitution of Liberty”, p. 394).

If Mill had argued more explicitly that the right of individuals to live as seems best to themselves is of over-riding importance it would have been clearer that he did not intend that his personal values should be imposed on people who do not desire them.

Postscript:
I should have noted that Hayek explicitly made the point that "the existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of the more effective ones" ("Constitution of Liberty", p.63).

How silly were J.S. Mill's views about income distribution?

J S Mill wrote: “The laws and conditions of the Production of wealth partake of the character of physical truths. There is nothing optional or arbitrary in them. ... It is not so with the Distribution of wealth. That is a matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like. They can place them at the disposal of whomsoever they please, and on whatever terms” (Principles of Political Economy, 1848, II,1.1).

In 1983, Friedrich Hayek commented that this view of J S Mill “is really an incredible stupidity, showing a complete unawareness of the crucial guide function of prices ...” Hayek explains: “We must face the truth that it is not the magnitude of a given aggregate product which allows us to decide what to do with it, but rather the other way around: that a process which tells us how to reward the several contributions to this product is also the indispensable source of information for the individuals, telling them where they can make the aggregate product as large as possible” (Conference paper published in Nishiyama and Leube, “The Essence of Hayek”, p 323). This must have been one of the most intemperate remarks that Hayek ever made about anyone.

One of the things I have learned from Richard Reeves book, “John Stuart Mill, Victorian Firebrand” is that Karl Marx was also unimpressed by Mill’s attempt to separate the laws of production and distribution. Marx viewed this as “a shallow syncretism” (Reeves, p 210). He thought Mill was attempting to reconcile irreconcilables.

How silly were Mill’s views about distribution? In order to answer this question I think we need to understand Mill’s views about property and inheritance.

I see a lot of merit in much of what Mill wrote about property. For example: “The institution of property, when limited to its essential elements, consists in the recognition, in each person, of a right to the exclusive disposal of what he or she have produced by their own exertions, or received either by gift or by fair agreement, without force or fraud, from those who produced it” (“Principles of Political Economy”, II, 2.2).

It is when Mill writes about “landed property” that I begin to see problems: “When the "sacredness of property" is talked of, it should always be remembered, that any such sacredness does not belong in the same degree to landed property. No man made the land. It is the original inheritance of the whole species. Its appropriation is wholly a question of general expediency” (“Principles of Political Economy”, II,2.26). Given that land can be exchanged for other goods I don’t see how it is possible to argue that rights to ownership should not be recognized as the same for land as for other goods.

The problem that Mill had with “landed property” seems to be associated with the potential for a relatively small number of families to have a disproportionate amount of wealth and to exercise disproportionate political power. He was against the inheritance of “enormous fortunes which no one needs for any personal purpose but ostentation or improper power”. Richard Reeves points out that Mill was particularly concerned to distinguish between “earned” and “unearned” income. Mill viewed inheritances as “unearned” and argued that it would be socially beneficial to impose a limit on the amount any person could inherit.

Mill’s views about redistributive taxation were also influenced by his aversion to inherited wealth: “To tax the larger incomes at a higher percentage than the smaller is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours. It is not the fortunes which are earned, but those which are unearned, that it is for the public good to place under limitation. ...I conceive that inheritances and legacies, exceeding a certain amount, are highly proper subjects for taxation: and that the revenue from them should be as great as it can be made without giving rise to evasions ... such as it would be impossible adequately to check” (“Principles of Political Economy”, V, 2.14).

It seems to me that Mill’s claim that distribution of wealth should be viewed as entirely separate from production was silly – and contradicted by his own views about the adverse consequences of progressive taxation. Mill’s idea for an upper limit on the amount that anyone could inherit also seems extremely silly. I can see some wisdom in his views about taxation of inheritances, but even here it seems to me that he was fooling himself if he thought that inheritance taxes would impose no disincentives to working and saving. Despite all this silliness, however, Mill still had many sensible things to say about property rights and taxation.