Should people seek contentment or accomplishment?

This is a tricky question, for reasons that will become apparent as you read on.

I have been thinking that one of the problems in using life satisfaction as a measure of human flourishing is that satisfaction implies contentment, and contentment may kill motivation to do things that are worthwhile. That has made me wonder whether or not it is possible for people to become too satisfied with their lives.

When I considered this issue in writing Free to Flourish, I concluded that despite such problems, life satisfaction might still be an adequate measure of human flourishing. I reached that conclusion on the basis of a comparison of different measures of subjective well-being by the British Office of National Statistics (ONS). The results showed a fairly high level of correlation (0.66) between responses when people were asked ‘How satisfied are you with your life nowadays?’ and ‘Overall, to what extent do you think the things you do in your life are worthwhile?’.

However, that doesn’t really answer the question of whether it is better for people to seek contentment or accomplishment. It may be possible that people obtain greater satisfaction from life when they seek worthwhile accomplishment than when they seek contentment. It may also be possible that contentment helps people to devote their lives to doing things that they consider to be worthwhile. Such ideas are neither new, nor necessarily inconsistent.

People may not actually need to choose between contentment and accomplishment. Perhaps we only think a choice has to be made because we tend to equate contentment with sloth and accomplishment with frenzied effort. It is not obvious that a choice has to be made if contentment means equanimity and accomplishment means achievement of a worthwhile goal.

My intuitions suggest to me that the important requirement for both contentment and accomplishment is for people to make conscious choices about their goals in life, rather than just drifting without purpose. As children, we are strongly influenced by parents, peers teachers etc. but as we grow to adulthood, we cannot fully flourish unless we make good use of our emotional and intellectual resources to manage our own lives.

So, where is the evidence that goal setting works?  When I went looking for such evidence, the first thing I found was a post by Ray Williams entitled ‘Why goal setting doesn’t work’ on the ‘Psychology Today’ blog. Williams presents several different arguments to cast doubt on goal-setting, but his most powerful point seems to be the following:

‘The inherent problem with goal setting is related to how the brain works. Recent neuroscience research shows the brain works in a protective way, resistant to change. Therefore, any goals that require substantial behavioral change or thinking-pattern change will automatically be resisted. The brain is wired to seek rewards and avoid pain or discomfort, including fear. When fear of failure creeps into the mind of the goal setter it commences a de-motivator with a desire to return to known, comfortable behavior and thought patterns’.

That left me somewhat confused, so I took advantage of the fact that Jim Belshaw was conducting a discussion about goal setting on his blog, to ask participants what they thought about Ray Williams’ contribution. One of the participants, Evan Hadkins, who has a particular interest in personal development issues, made the following comments (slightly edited):

‘The goal setting literature does emphasise being realistic (the usual acronym being SMART). This of course is a bit of a cop out - if the goal isn't achieved then it wasn't realistic for one reason or another.

His reductionist pleasure-pain/fear psychology is wrong. (He is not alone in this error.)

I think he is a bit unfair to the goal setters. Lots of them talk about goals serving your wider values and choosing carefully what goals you aim for.

As to being in the now: Our longings, regrets, memories, fantasies, visions, plans and everything else all occur now. He doesn't understand this. He is not alone in this misunderstanding.

Overall I think it is pretty sloppy and confused. Lots of the goal setting literature emphasises worthwhile aims and being careful what you wish for. And his advice about intentions has all the problems of change that he levelled against goal setting. But I do agree with what I think is his basic point: goals should be realistic and serve worthwhile ends’.

I agree with Evan’s comments. Evan’s point about reductionist pleasure-pain/fear psychology brought to mind the ‘no failure just feedback’ idea that I picked up from NLP practitioners a few decades ago. The point is that our responses to evidence of failure to attain goals depend on our attitudes. We are unlikely to be devastated if we value the feedback we obtain as providing opportunities to consider how we can improve our future performance.

Evan’s point about choosing carefully what goals you aim for brought to mind the NLP concept of a ‘well-formed outcome’, with its emphasis on specifying the goal in a way you find compelling and running quality control checks to make sure that the desired goal is right for you in all circumstances of your life.

My answer to the question I raised initially is that people should be seeking contentment and accomplishment, making conscious choices about the kind of life they want to lead, by pursuing goals they consider worthwhile and feel passionate about. In my view it is not possible for individuals to be fully flourishing if they just drift aimlessly – unless, of course, drifting aimlessly is a goal they choose to pursue with a great deal of passion.  

Do I agree with Steve Keen's views about the causes of the GFC and the NAR?

Who is Steve Keen? What is the NAR? And why am I wondering whether or not I agree with Steve Keen?

Steve Keen is an Australian economics professor, author of a book entitled ‘Debunking Economics’. His blog, ‘Steve Keen’s Debtwatch’, is dedicated to analysing ‘the collapse of the global debt bubble’. The NAR refers to the North Atlantic Recession, sometimes referred to as the Great Recession, that followed the GFC. I am wondering whether or not I agree with Steve Keen because of a comment on Jim Belshaw’s blog last Sunday. Jim wrote:

‘The second part of Winton's post focused on Irving Fisher's views is, if I interpret the argument correctly, very similar to views expressed by Professor Keen. Essentially, a key part of the problem was the combination of levels of private debt with income and price variations.’

Jim was referring to a post on this blog a couple of weeks ago: ‘Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?’

My immediate response was to question whether it might be possible that I could express views similar to those of Professor Keen. While my views on economics have strayed somewhat from neoclassical orthodoxy in recent years, I still consider that the concept of equilibrium provides a useful starting point for economic analysis. Steve rejects all conventional neoclassical economics.

If my understanding is correct, there are two main elements involved in Steve’s views about the causes of the GFC and the following recession: Minsky’s financial instability hypothesis; and the concept of endogenous money creation.

Minsky’s financial instability hypothesis involves the idea that a growing economy is inherently unstable. Investments are initially conservatively financed, but it gradually becomes evident to managers and bankers that greater profits can be made by increasing leverage. Investors and bankers come to regard the previously accepted risk premium as excessive and to evaluate projects using less conservative estimates of prospective cash flows. The decline in risk aversion sets off growth in debt, growth in investment and growth in the price of assets. The euphoria is eventually brought to an end as rising interest rates and increasing debt to asset ratios affect the viability of many business activities. Holders of illiquid assets attempt to sell them in return for liquidity. The asset market becomes flooded, panic ensues, the boom becomes a slump and the cycle starts all over again. (That is an abridged version, excluding Ponzi elements, of a summary which Steve provides in his paper: ‘A monetary Minsky model of the Great Moderation and the Great Recession’).

The concept of endogenous monetary creation involves the idea that banks create credit in response to demand. If a bank lends me money, my spending power goes up without reducing anybody else’s. So, bank lending creates new money, and adds to demand when it is spent. From this perspective, ‘aggregate demand is income plus the change in debt’. (My training in economics and national income accounting makes it difficult for me to understand why or how that can be so. Nevertheless, let us proceed.) If my understanding is correct, Steve is arguing that quantitative easing does not increase the money supply, because banks don’t increase lending when central banks purchase bonds from them. (See Steve’s article: ‘Is QE quantitatively irrelevant?’).

My objection to the first element arises because I don’t understand why a growing economy should necessarily be unstable.  In my view, it is necessary to introduce into the analysis a ‘too big to fail’ policy, or something similar, to explain why banks have a tendency to take excessive risks. I have attempted to outline the regulatory issues involved in a previous post:

‘Governments seem to have managed somehow to get us into a vicious cycle where fears of contagion have led them to encourage major financial institutions in the believe that they were too big to fail, while the belief that governments would bail them out has led major financial institutions to take excessive risks. If we can't let big financial institutions fail when they become insolvent, perhaps the next best option is to find the least cost way of regulating them to make it less likely that they will become insolvent’.

My objection to the concept of endogenous monetary creation is that it flies in the face of the reality that monetary policy can increase and reduce the rate of growth in nominal GDP (aggregate demand). It would make more sense to explain the fact that money creation through quantitative easing did not result in an immediate increase in bank lending in terms of funds being used to meet demands for liquidity (or repair balance sheets) than to redefine the concept of money in order to claim that the money was not created.

   

In my view Scott Sumner is on the right track in arguing that nominal GDP level targeting (along a 5% growth rate) in the United States before 2008 would have helped greatly reduce the severity of the Great Recession:

‘One reason asset prices crashed in late 2008 is market participants (correctly) saw that the Fed had no plan to bring the US economy back to the old nominal GDP trend line’ (See: ‘A New View of the Great Recession’, Policy, Winter 2013. The article is gated, but Scott has expressed similar views on his blog.)

The idea of targeting nominal GDP, to bring it back to the old trend line seems to me to be similar to Irving Fisher’s advocacy of reflation, as discussed in my post about balance sheet recessions.

So, coming back to the original question, I agree with Steve Keen that debt is important in explaining the GFC and the NAR, even though I have a very different view about the way economic systems work.

Why was Tipperary 'prime in crime' in the early 1800s?

This question arose from my reading of ‘The Two Tipperarys’, by Donal Murphy. The book is primarily about the division of Tipperary into north and south counties in 1838. It was recommended to me as background reading on the life and times of people living in Tipperary in the 19^th Century. (I have some ancestors who came from that part of the world.)

Tipperary was apparently relatively peaceful during the Butler palatinate from c. 1200 to the early 1700s. By the mid 1830s, however, the county had established an unrivalled reputation for lawlessness. In 1836, the number of people committed for trial in Tipperary amounted to about 1.4 per cent of the population of that county, whereas the corresponding percentage for Ireland as a whole was 0.3 per cent.

After comparing the data of numbers of people committed for trial with data on the numbers of crimes reported, the author comments:

‘A crude comparison between the two sets of ratios seems to suggest that a higher number of persons per crime was also a Tipperary phenomenon – perhaps an early indication of a co-operative spirit in the county’.

There is also some evidence suggesting that a greater amount of crime went unprosecuted and unpunished in Tipperary than other counties. At the time, one judge described ‘a system of terror’ creating greater difficulties in administration of justice in Tipperary than in other counties. Another reason for many victims to be reluctant to report crimes would have been their limited faith in the administration of justice.

Donal Murphy does not devote much space to discussion of the causes of the high crime rate in Tipperary because it isn’t relevant to the main theme of his book. He suggests distress and famine as a contributing factor, with a crop failure in 1834 being described as a preview of the Great Famine which occurred a decade later. He also mentions ‘the flourishing state of faction fighting, violence for the sake of violence’. This involved personal and community vendettas erupting in gang warfare at town fairs. A variety of groups are mentioned, including the Caravats and Shanavests.

My search for more information about the Shanavests and Caravats led me to Paul Roberts’ contribution entitled ‘Caravats and Shanavests: Whiteboyism and Faction Fighting in East Munster, 1802-11’, published in ‘Irish Peasants, Violence and Political Unrest 1780 – 1914’, edited by Samuel Clark and James Donnelly. Whiteboyism is a generic term referring to outbreaks of agrarian terrorism between 1760 and 1845, primarily aimed at redressing economic grievances of poor farmers and rural labourers. This action was mainly directed against the rural middle class who were their immediate landlords, as a result of various forms of subletting.

The Caravats have their origins as primarily a Whiteboy movement and the Shanavests as primarily a middle-class anti-Whiteboy movement. Both groups were known by different names in different areas.

Paul Roberts suggests that Caravatism was the product of the wartime agricultural boom of 1793-1813, which increased demand for food and resulted in higher rents. This benefited the middle classes, who had long leases, and disadvantaged the poor, who were not protected by leases. The Caravats used terror against better-off farmers and other middle-class elements in an attempt to guarantee the poor access to land and food. Some of their gangs were also involved in other criminal activities such as highway robbery.

The Shanavest movement had links to nationalist political organizations, but it arose in direct response to Caravatism. Its activities included murders and assaults directed against prominent Caravats. Apparently, the political and religious alienation of the middle class from the state inclined them to look to their own resources, rather than to rely on the state for protection.

The activities of the Caravats and Shanavests began in the south of Tipperary, but by 1809-10 had moved to the north of the county and to other counties. The authorities intervened by increasing troop numbers, holding a special commission and arresting forty men involved in the disturbances. This brought the Caravat-Shanavest outbreak under control, but the two movements seem to have lived on with open feuding being pursued under a series of regional names.

Paul Roberts suggests that the economic basis of the feud would have weakened over time as nationalism gained ground among the poor between 1815 and 1845, and the worsening economic situation of the rural middle class after 1813 created fertile soil for cooperation across class divisions. That would explain why Donal Murphy describes the faction fighting in the 1830s as ‘violence for the sake of violence’.

In writing about ‘the good society’ on this blog and elsewhere, I have put a great deal of emphasis on the need for people to be able to live in peace with one another in order to enjoy the benefits of economic and social progress. The history of Ireland in the early part of the 19^th Century shows just how difficult it can be for people to live in peace when different groups perceive that others are treating them unfairly.

Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?

I have been feeling a strong urge to write about the economic policies of the former government of our resurrected prime minister, Kevin Rudd. Whenever I begin to write on this topic, however, what comes to mind is my grandmother’s advice that if you haven’t got anything nice to say, perhaps you shouldn’t say anything. It might be churlish of me to attempt to remind people that Kevin – whom so many people seem to revere as much now as in 2007 – has a record of achievement that is somewhat less than perfect.

Fortunately, not everyone has such qualms and some excellent articles about the economic policies of the Rudd government have appeared in the media over the last week or so. The best newspaper article I have read so far is one by Henry Ergas, entitled ‘Rudd’s Real Record’, published in The Australian last Saturday (July 13, 2013). Ergas reminds us, among other things, that in 2009 Rudd mounted a massive scare campaign about the severity of the GFC in an attempt to justify a splurge of poor quality government spending.

I recall how Janet Albrechtsen suggested in The Australian at the time that the GFC provided Rudd and his treasurer, Wayne Swan, with an opportunity that they were only too eager to grasp:

‘The Rudd Government finds itself at a very fortunate juncture. As Rudd’s treatise in the present edition of The Monthly reveals, he can blame capitalism for the coming government extravagance funded by taxpayers. Prepare for Rudd’s hubris-filled pitch on how he “saved” capitalism and why you had to pay for it.’

Whether we are prepared or not, we are now hearing Rudd’s hubris-filled pitch:

‘As you know, here in Australia, we deployed a national economic stimulus strategy, timely targeted and temporary, which helped keep Australia out of recession, kept the economy growing, and kept unemployment with a five in front of it – one of the lowest levels in the world.’

The hollowness of the claim by Rudd and Swan that the fiscal stimulus pulled Australia though the GFC has been demonstrated many times. For example, in an article entitled ‘Wayne Swan’s legacy of unrivalled incompetence’ in yesterday’s Financial Review (July 16, 2013), John Stone, former secretary to the Treasury, points out that the hubris of Rudd and Swan overlooks the strength of Australia’s fiscal position prior to the GFC, the role played by monetary policy, the underlying strength of Australia’s banks and the growth in China’s demand for our minerals.

John Stone’s article also raised the question I am intending to address here about balance sheet recessions. Stone suggests that the Australian Treasury had erred in seeing 2008-09 as another cyclical recession like that of 1991-92, rather than as a ‘balance sheet recession’ of the kind that Irving Fisher wrote about in an Econometrica article in 1933.

In my efforts to overcome my ignorance about the characteristics of a balance sheet recession I have managed to find an ungated copy of Irving Fisher’s article. Fisher suggested that in ‘great booms and depressions’ … ‘the big bad actors are debt disturbances and price level disturbances’, with other factors playing a subordinate role.

   

Fisher argued that it is the combination of over-indebtedness and price deflation that causes the depression:

‘When over-indebtedness stands alone, that is, does not lead to a fall of prices, in other words, when its tendency to do so is counteracted by inflationary forces (whether by accident or design), the resulting "cycle" will be far milder and far more regular.

Likewise, when a deflation occurs from other than debt causes and without any great volume of debt, the resulting evils are much less. It is the combination of both—the debt disease coming first, then precipitating the dollar disease—which works the greatest havoc.’

Fisher suggested:

 ‘it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged’.

That seems to me to be similar to the rationale for the quantitative easing policies adopted by central banks in recent years, following the failure of fiscal stimulus efforts. Lars Christensen, a market monetarist, has written more extensively about this similarity on his blog.

John Greenwood’s analysis, conducted in the spirit of Irving Fisher, suggests that some balance sheet repair has occurred in recent years in the countries most affected by the GFC, with greater progress having been made in the US than in the UK and least progress having occurred in the eurozone. 

Postscript:

An article by Max Walsh in today’s Financial Review (July 18, 2013), entitled ‘Rudd’s demands could exceed all expectations’, is another excellent article about the implications of the economic policies of the first Rudd government. Walsh refers to Rudd’s essay in The Monthly (February 2009) in which he sought to differentiate the economic ideology of the two major political parties in Australia. As might be expected, Rudd sought to portray his political opponents as extreme proponents of free market ideology, but he also portrayed the Labor party as being wedded to interventionism.

Kevin Rudd wrote: ‘Labor, in the international tradition of social democracy, consistently argues for a central role for government in the regulation of markets and the provision of public goods’. Max Walsh comments: ‘That’s a view that looks to be at odds with the deregulation and privatisation initiatives of the Hawke-Keating years’.

Viewed in that context, it seems to me that the most likely outcome of Kevin Rudd’s recent promise to pursue microeconomic reform ‘with new urgency’ will be further restriction of economic freedom and lower productivity growth.