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.
Saturday, May 15, 2010
Thursday, May 13, 2010
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.
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.
Wednesday, May 12, 2010
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
Sunday, May 9, 2010
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:
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.
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.
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