Do humans have an inbuilt potential for realistic optimism?

In order to think clearly about this question it is helpful to remember that the opposite of optimism is pessimism. Realism is not the opposite of optimism.

  

My understanding is that realists seek to base their estimates of the probability of future events on evidence of one kind or another. Optimists tend to over-estimate the probability of positive future events. Realistic optimists are aware of their optimistic tendencies when they make predictions and important decisions.

The idea that humans have an inbuilt tendency to be optimistic is supported by neurological research discussed by Tali Sharot, a neuroscientist, in her book The Optimism Bias. Brain imaging studies show that the brain structures that are engaged when people recollect the past are also called upon when they think about the future. The author’s research suggests that when people think about their futures there is normally also a tendency for activation of neural pathways associated with optimism (the rACC and the amygdala). Healthy people expect the future to be slightly better than it ends up, and thus tend to be less accurate when predicting future events than are people with mild depression. (The line of argument in the book is summarised in an extract published in The Guardian.)

Tali Sharot suggests that the optimism bias has evolved because it encourages people to try to transform their predictions into reality:

“The brain is organized in a way that enables optimistic beliefs to change the way we view and interact with the world around us, making optimism a self-fulfilling prophecy”.

Sharot recognizes that optimism can be a health and wealth hazard when it causes people to make risky choices. She suggests:

“if we are aware of the bias, we would should be able to remain optimistic – while at the same time being able to promote action that will guard us from the pitfalls of unrealistic optimism”.

One point that occurred to me while reading The Optimism Bias is that this bias may often compensate for other common biases such as risk aversion and loss aversion, which tend to pull in the opposite direction. (I doubt whether I am the first person to think of this. It occurred to me that the logical place to look for a discussion would be Daniel Kahneman’s Thinking, Fast and Slow, but I couldn’t find it even though his chapters discussing the optimism bias and loss aversion are in close proximity.) The research by Robb Rutledge, which I discussed in “What is the secret of happiness?” seems relevant. If we have chosen a particular strategy because of its potential to yield high average returns over the longer term, it is often better to stick with it even if outcomes are disappointing in the short term. Under those circumstances, realistic optimism would help us to reject the temptation to avoid further disappointment by lowering our expectations and adopting a low-risk/low-return strategy.

A point that should be emphasised is that optimistic expectations can only become self-fulfilling if they induce people to change their behaviour in ways that make them self-fulfilling. There is support for that view in recent research by Elizabeth Tenny, Jennifer Logg and Don Moore. This research suggests that the benefits of optimism lie mainly in encouraging people to increase their effort in order to improve performance.

Similar findings were obtained in research by Gigi Foster and Paul Frijters (abstract here) comparing the expectations of Australian students about the grades they were likely to achieve with the grades they actually achieved. Individuals with high self-esteem were found to over-predict their outcomes and to put in more effort than fellow-students with otherwise similar characteristics.

Humans do seem to have an inbuilt potential for realistic optimism that enables them to set goals that are not far beyond their reach and then inspires them to work hard to attain those goals. However, potential is like a glass half full. The processes that function autonomously within us do not necessarily ensure that we remain optimistic or that our optimism is tempered by realism. In order to attain and maintain realistic optimism we need to become sufficiently self-aware and equanimous to avoid the pitfalls of pessimism and unrealistic optimism.

Postscript
I am having second thoughts about the extent to which an optimism bias should be considered normal. The short allele variant of the 5-HTTLPR, which is associated with stronger attentional bias toward negative stimuli, is apparently present in almost half of the population of countries for which data is available. Most of us view optimism as desirable, but many of us have to exert some effort in order to maintain an optimistic outlook.

Why should we expect a close association between autonomy, realism and happiness in a worthwhile life?

Winton's amateurish artwork

Neera Badhwar writes:

“The main argument of my book can be stated in the following five propositions:

(i)    Well-being as the HPG (highest prudential good) consists of happiness in an objectively worthwhile life;

(ii)   Someone who leads such a life must be characteristically autonomous and reality-orientated, that is, disposed to think for herself and seek truth or understanding about important aspects of her own life and human life in general, and disposed to act on her understanding when circumstances permit;

(iii)   To the extent that someone with these traits succeeds in achieving understanding and acting on it when circumstances permit, she is realistic.

(iv)   To the extent that she is realistic, she is virtuous.

(v)     Hence, well-being as the HPG requires virtue”. 

"Wellbeing:Happiness in a Worthwhile Life", 2014.

I don’t have many problems with the first three propositions. Those propositions have been briefly discussed in my last two posts: “Is human well-being subjective or objective?” and “Is there a close relationship between autonomy and realism?” It is important to be clear that a realistic orientation is consistent with optimistic (hopeful) appraisals of future opportunities. Indeed, healthy human functioning seems to be characterized by realistic optimism. I will write something about that in my next post.

Coming back to the line of argument in Neera Badhwar's book, it was not immediately obvious to me why a person who is autonomous and realistic should be expected to be virtuous (point iv). Examples readily come to mind of situations where ‘being realistic’ appears to involve compromises in which virtue is sacrificed for pragmatic reasons. I will try to explain, briefly, how the author reaches the conclusion that virtue is positively related to realism.

The author accepts Aristotle’s view of virtue as an integrated intellectual-emotional disposition to think, feel, and act “at the right times, about the right things, towards the right people, for the right end, and in the right way”, and to take pleasure in so doing. Her focus is on the cardinal virtues of justice, honesty, courage, integrity, kindness, and the virtues that are partly constitutive of these virtues: practical wisdom, and regard for self and others.

In Chapter 4 she suggests:

“To the extent that an autonomous/ reality-oriented person achieves understanding of the true and the good, and acquires the disposition to deliberate, feel, and act accordingly, he is realistic and morally virtuous” (p. 108).

After reading that chapter I was left feeling sceptical about the line of argument developed. That surprised me because I have previously responded positively to other attempts to link well-being with virtues. (For example, see my previous comments on the views of Martin Seligman about cultivation of signature virtues.) As I see it the problem is that it is necessary to have or acquire a disposition to cultivate the virtues - as well as a somewhat optimistic disposition - before it is possible for the chemistry of autonomy and reality-orientation to produce happiness in a worthwhile life.

The problem is resolved in a later chapter. In Chapter 6 Neera Badhwar observes that nature has endowed humans with positive self- and other-regarding natural virtues and that in their early moral development people tend to acquire emotional dispositions to tell the truth, risk danger, help and empathize. She notes that the idea that well-tempered emotions are necessary for characteristically making the right choices is now widely recognized in philosophical literature and supported by psychological and neurological research.

The author argues that virtue and well-being both involve emotional, deliberative and evaluative dispositions. She notes that the cultivations of those dispositions is “to a significant extent up to us”. She adds:

“Furthermore, the integration of emotional dispositions with intellectual (especially deliberative) dispositions that is required by virtue, makes virtue highly conducive to happiness, since a common source of unhappiness is conflict between our emotions and evaluations. Indeed, since the virtuous agent necessarily takes pleasure or joy in acting virtuously, virtuous activity is inherently productive of some happiness. It also promotes happiness insofar as the achievement of worthwhile goals is a source of happiness, and virtuous activity enables the virtuous agent to achieve them” (p 152-3).

The way the author summarised her argument at the beginning of the book seems to me to have been unnecessarily provocative. After reading the book as a whole, however, I doubt whether many people would have fundamental objections to the idea that an objectively worthwhile life requires virtue and that cultivation of virtue requires autonomy and reality orientation. Indeed, if we accept that widespread regard for the traditional virtues must have evolved because practice of those moral intuitions served the individual and collective interests of humans, it would be strange if individuals who endorse and cultivate those virtues in their own lives did not obtain happiness from seeking to make their lives worthwhile.

In my view Neera Badhwar has presented strong reasons in support of the view that the chances for an individual to achieve happiness in an objectively worthwhile life depend heavily on the extent to which her/his life is characterized by autonomy and reality-orientation. 

Is there a close relationship between autonomy and realism?

Is this an empirical question or a conceptual question?

If it is viewed as an empirical question the obvious way to answer it would be to define autonomy, define realism and then test for an empirical relationship. I have made a quick attempt to do that in the chart below, using the excellent data analysis facility of the World Values Survey. The autonomy index used is the sub-index constructed by Christian Welzel for his emancipative values index.  Welzel’s approach is based on survey respondents’ views of desirable child qualities: an emphasis on independence and imagination is considered to be positive in terms of the value placed on autonomy whereas an emphasis on obedience is considered to be negative. The realism indicator I used is based on responses to the statement: “We depend too much on science and not enough on faith”. The data shown are from an Australian survey conducted in 2012.

The chart seems to show that people who place high value on autonomy tend to be more realistic. However, this is a fairly frivolous piece of research. Questions can be raised about the relevance of an Australian survey to people in other countries, the small size of the sample etc. More importantly, for present purposes, the plausibility of the depicted relationship depends on the validity of the indicators of autonomy and realism used in the chart.

The empirical approach to answering the question cannot avoid conceptual issues relating to selection of appropriate indicators. Perhaps the question should be viewed as entirely conceptual.

In Well-being: Happiness in a worthwhile life, Neera Badhwar presents a philosophical argument that autonomy and reality-orientation are two facets of the same character trait. (In my last post I discussed another issue arising from this book, the question of whether human well-being should be viewed as objective or subjective.)

In brief, the argument is as follows. An autonomous person is self-governing. When we live autonomously, we “play an active role in shaping our individual selves, instead of slavishly following others, or surrendering direction of our lives to our fantasies, illusions, momentary urges or inertia”. Autonomous individuals have minds of their own – they rely on their own epistemic powers to form judgements about important issues, including the issue of how far they can rely on their own judgement. They are goal-directed and have a reliable self in charge - they not so self-confident as to be self-deluded. In order to have a reliable self in charge a person has to be reality-oriented. Autonomous individuals also accept responsibility for their actions, and in order to do that they must be reality oriented.

The difference between autonomy and reality-orientation lies only in their focus:

“The focus of reality-orientation is gaining the truth about, or understanding of, important things and responding accordingly, while that of autonomy is living by one’s own judgements and decisions”.

Much of Neera Badhwar’s discussion of the relationship between autonomy and realism is taken up with defence of her view against various possible criticisms. I found her discussion of claims that realism is bad for people to be particularly interesting. (The relevant chapter is based on a previously published article.)

The author concedes that when facts are devastating we might be better off remaining ignorant of them – some happiness based on ignorance is better than total misery based on knowledge. However, she is critical of empirical research which purports to show that holding positive illusions about oneself tends to promote happiness. She points to many problems with the research leading to these claims. She also implies that it is not possible to draw useful conclusions from the research findings, even if they are accepted at face value.  People who have positive illusions about their abilities could also be expected to have positive illusions about their happiness:

“the emotions and evaluations that express or constitute their illusions about their abilities, achievements, and future prospects … together entail a sense of meaning and enjoyment of life. … It follows then that insofar as happiness consists of these unwarranted evaluations and emotions, the connection between happiness and illusions is a conceptual, and not a causal, one”.

I have to think more about what means in relation to neural research findings which suggest that it is normal for humans to have an inbuilt optimistic bias. When I look around me most of the people I see seem to have both a realistic orientation and tendency to look on the bright side of life. 

The author makes clear that she is not opposed to optimism. She recognizes that self-fulfilling attitudes, whether positive or negative, are a pervasive aspect of human psychology. The point she is making is that realistic optimism about oneself and one’s future beats unrealistic optimism – and thus recognizes that it is possible to have a realistic basis for optimism (as I have previously argued on this blog).

Neera Badhwar notes that Abraham Maslow and Carl Rogers, leaders of the human potential movement, viewed realism as central to mental health and well-being. She notes that in Rogers' view the fully functioning individual is open to experience, distorting neither his perceptions of the world to fit his conception of himself, nor his conception of himself to fit his perceptions of the world. I find this particularly interesting in the light of Rogers’ use of Alfred Korzybski’s notion that “the map is not the territory”. Carl Rogers recognized that our maps do not serve us well if they are not realistic.

Is human well-being subjective or objective?

I usually try to begin the discussion of topics on my blog by explaining why the question and my answer might be of interest to potential readers. That is difficult this time because I am attempting to answer the question in the hope that doing so will help me to become less confused about the topic. However, confusion about subjectivity and objectivity seems fairly common - particularly so among economists - so hopefully what I am about to write will have a potential audience of more than one person.

In Free to Flourish I wrote:

“Observers can clearly make judgements about the extent that individual humans are flourishing or languishing in much the same way as they can make such judgements about plants and animals. In the case of humans, however, the subjects are capable of telling an observer how they feel about their own lives and their opinions usually deserve more respect than those observing. For example, it may appear obvious that people with poor physical health or very low income have a low quality of life, but if the individuals concerned feel content, what right has any observer to imply that they do not know how they feel?

As noted previously, individual flourishing involves a variety of factors including emotional wellbeing and life satisfaction, as well as more objective factors such as physical health, education and wealth. The relative weights any individual gives to these factors reflect personal preferences. …

If we were to substitute community values for personal preferences we would be at risk of attempting to measure the extent that an adult is flourishing according to values that he or she does not agree with. That would certainly be inappropriate.” (Chapter 5).

I stand by what I wrote. (At least I did earlier in the day when I wrote the preceding sentence.) 

Does that mean that I believe human well-being is objective or subjective? The first sentence in the quote implies that well-being is objective. Are the sentiments in the final paragraph of the quote consistent with those in the first sentence?

Before reading the first part of Well-Being: Happiness in a worthwhile life, by Neera Badhwar, a philosopher, I believed that well-being is subjective. Now I am fairly sure that there are objective standards of well-being.  (Many of the relevant issues are also discussed by Neera Badhwar in an article published last year.)

The problem is conceptual. My previous view that well-being is subjective was based on the view that it must be because it contains important subjective elements. That seems to have been the view of the welfare economists who declared interpersonal comparisons of utility to be impossible. It is also the view of the philosopher, Wayne Sumner, who suggested that the term ‘objective’ be reserved for the view that well-being is simply a matter of meeting certain objective standards, regardless of the individual’s emotional condition and her evaluation of her life.

At this point I recall a discussion a long time ago with an economist who pointed out to me that people often make interpersonal comparisons of utility - so we can hardly claim that such comparisons are impossible. In our everyday lives we often make judgements about whether other people are happy or sad, satisfied or unsatisfied with their lives, whether they feel that they are achieving anything worthwhile and so forth. Those judgements are based on what people say and do. They are often ill-informed, but that does not necessarily mean they are not objective. 

I suspect that it is only in their professional lives that economists have ever refrained from making interpersonal comparisons of utility. These days, many economists (self included) view the subjective ratings that individuals place on their happiness, satisfaction with life etc. as objective evidence pertaining to important aspects of their well-being relative to other people.

Neera Badhwar suggests that we should view theories of well-being as objective if they make objective worth essential to well-being. She argues that for individuals to be flourishing their lives must be supremely desirable and worthwhile, and therefore eminently worth living. They must not only meet the individual’s own standards of worth but be able to pass muster according to objective standards of worth.

The author argues that objective well-being requires self-direction:

“the idea of objective well-being is perfectly compatible with the idea that objectively worthy lives can take many different shapes depending on the interests, opportunities and abilities of the individual and, in fact, must take a shape that both suits the individual’s own psychological nature and meets her standards to count as a life of well-being”. (p 8)

Neera Badhwar answers those who argue that objective theories of well-being are paternalistic by pointing out that theories of well-being in themselves do not tell us to promote other people’s well-being, let alone to promote our conception of their well-being.

That is consistent with the position that I have previously taken that “the case for individuals to be responsible for their own lives does not necessarily rest on each individual being the best judge of what is good for himself or herself”. In my view it rests on the proposition that adult humans cannot fully flourish unless they accept responsibility for their own lives. (Free to Flourish, Chapter 3.)

Coming back now to the last paragraph of the quote at the beginning of this post, if I now accept that a flourishing life must pass muster in terms of objective standards of worth, can I still maintain that it is inappropriate to measure the extent that an adult is flourishing according to values that he or she does not agree with? 

I don’t think so. I can acknowledge that objective standards of worth are relevant, whilst also urging researchers to accept the implications of the fact that “community standards” can be controversial. But that does not mean that it is never appropriate "to measure the extent that an adult is flourishing according to values that he or she does not agree with". For example, it is appropriate to assert that it is not possible for slaves to flourish, even though it is possible that an individual slave might claim that freedom has no value to her.

Is work-life balance a big problem in Australia?

There was a time, not long ago, that I avoided using the term “work-life balance” on the grounds that work is a normal part of life. Writing about work-life balance makes about as much sense as writing about sleep-life balance. But here I am now, writing about work-life balance! Never mind, everyone knows that what I am actually writing about is the balance between work and other aspects of life, including leisure, spending time with family members, and sleeping.

According to the OECD’s Better Life index, work-life balance in Australia is among the worst in the OECD. Australia’s ranking on this criterion is even below that of the United States. The indicators used by the OECD to assess work-life balance are the percentage of employees working very long hours, and time devoted to leisure and personal care. Australia’s ranking is 30/36 on both those indicators.

Do those indicators accurately reflect the impact of hours of work on the well-being of individuals? In order to answer that question it makes sense to look at the way hours of work impact on life satisfaction and other measures of emotional health. The fact that people are working long hours does not necessarily mean that they are irrational, or even that they are choosing to sacrifice some life satisfaction in order to achieve other objectives that are more important to them. They might just like working.

A few years ago, in an update of one of my more popular posts - entitled “How much does over-work affect happiness?” -  I ended up suggesting (not surprisingly) that life satisfaction data might help to answer that question. Since then I have wondered from time to time why I had not seen any studies using Australian survey data to shed light on the issue. I obviously hadn’t looked!

An article by Mark Wooden, Diana Warren and Robert Drago entitled “Working time mismatch and subjective well-being”, published in 2009, uses HILDA panel survey data to examine the relationship between working hours and levels of work and job satisfaction in Australia. The authors found that neither job satisfaction nor life satisfaction varied much with number of hours worked when the number of hours worked was consistent with the preferences of individual workers. That suggests the OECDs work-life balance indicators are not particularly relevant to the well-being of Australian workers.

Wooden et. al. found that the mismatch between the preferred working hours of individuals and their actual working hours has a significant impact on job satisfaction and life satisfaction. Both underemployment and overemployment have similar negative impacts on job satisfaction, but overemployment has larger negative impacts on life satisfaction than does underemployment. The authors suggest that although the absolute impacts on subjective well-being appear small, “the measured impact of overemployment should be viewed as important”, relative to “quite serious events, such as the onset of severe illness or injury”.

More recent research by Natalie Skinner and Barbara Pocock published in the latest Australian Work and Life Index (AWALI 2014) makes use of a flourishing index (the Huppert and So index discussed in my last post) encompassing characteristics of positive mental health such as optimism, resilience and competence. The survey results suggest that the rate of flourishing among Australian workers is higher than that for European workers. The difference is particularly marked for women workers, with 41% estimated to be flourishing in Australia, compared with only 33% in EU countries. I wonder how that can be explained.

The authors also found that rates of flourishing do not vary with length of work hours, but do vary according to whether working hours fit with the preferences of individual workers. The results are depicted in the chart below.

The rates of flourishing are much lower among women who would prefer more work than among the other categories. (The authors also found that working unsocial hours (weekends, evenings/nights) was associated with lower rates of flourishing for men.)

In order to show that mismatch between actual and preferred hours of work is a big problem in Australia it would be necessary to show that working hour mismatches tend to persist over time. In fact, research by Robert Breunig, Xiaodong Gong and Gordon Leslie using the HILDA data base suggests that most working hour mismatch problems are resolved within one year. Full-time workers who prefer to work less are the only group for which this is not true – the persistence of mismatches is just over 50 percent for this group, but declines in a predictable way over longer time periods. The evidence suggests that workers often resolve mismatches when they change employers.

My conclusion is that people who argue that work-life balance is a big problem for the well-being of Australians have been talking through their hats.

How good is life satisfaction as a measure of psychological flourishing?

In recent years psychologists have adopted a number of somewhat different approaches to measuring psychological flourishing. This is not an area in which I can claim much expertise, but that will not stop me from writing about it. The question of what it means for a human to flourish is one that everyone should be encouraged to consider for themselves.

The definition of flourishing adopted by Felicia Huppert and Timothy So in their article ‘Flourishing Across Europe’ (published in Soc.Indic.Res. in 2013) viewed it as lying at the opposite end of a spectrum to depression and anxiety. The authors identified 10 features of positive well-being by examining internationally agreed criteria for depression and anxiety (DSM and ICD) and defining the opposite of each symptom. The 10 symptoms of flourishing identified were: competence, emotional stability, engagement, meaning, optimism, positive emotion, positive relationships, resilience, self-esteem, and vitality.

A measure of flourishing was developed from responses to questions included in the European Social Survey. Indicators used were as follows:

• Competence: Most days I feel a sense of accomplishment from what I do;
• Emotional stability: (In the past week) I felt calm and peaceful;
• Engagement: I love learning new things;
• Meaning: I generally feel that what I do in my life is valuable and worthwhile;
• Optimism: I am always optimistic about my future;
• Positive emotion: Taking all things together, how happy would you say you are?
• Positive relationships: There are people in my life who really care about me;
• Resilience: When things go wrong in my life it generally takes me a long time to get back to normal (reverse score);
• Self-esteem: In general, I feel very positive about myself;
• Vitality: (In the past week) I had a lot of energy.

I would have liked to see autonomy included in this list. Adult humans can hardly be said to be flourishing if they do not exercise their potential to organize their own lives. The authors argue against including autonomy on the grounds that its opposite is not specified in the DSM and ICD. It is difficult to accept that mental health professionals do not view failure to become or remain an autonomous individual as a mental disorder. Various problems in self-direction seem to be recognized as associated with personality disorders in DSM-5.

Leaving as aside my views about their failure to incorporate autonomy in their measure of flourishing, one of the attractive features of the approach adopted by Huppert and So is that it does not pretend to provide a comprehensive measure of human flourishing. It relates specifically to the psychological aspects of individual human flourishing and doesn’t pretend to encompass physical health, wealth, practical wisdom etc.

One interesting feature of the results of the study using data from a sample of 43,000 Europeans was that the individuals identified as flourishing did not correspond very closely to those identified as having high life satisfaction. For Europe as a whole, the percentage who were both flourishing and had high life satisfaction was 7.3%. Among people who met the criterion for flourishing, 46.0% had high life satisfaction, and among people who had high life satisfaction, 38.7% were flourishing. (The correlation between life satisfaction and flourishing was only 0.34.) The authors conclude:

“Clearly, flourishing and life satisfaction are overlapping but distinct concepts, and a great deal would be lost by measuring life satisfaction alone, although there is frequently pressure in large scale surveys to do so.”

However, the ranking of European countries according to the estimated percentage of the population who are flourishing seems fairly consistent with the rankings obtained using life satisfaction. In in order to compare the ratings with a similar measure based on life satisfaction, I have used the Gallup organisation's data on “thriving” covering a similar time period. Gallup uses the Cantril Self-Anchoring Striving Scale to measure life satisfaction by asking respondents to place the status of their lives on a "ladder" scale with steps numbered from 0 to 10, where 0 indicates the worst possible life and 10 the best possible life. Individuals are classified as thriving if they rate their current lives a "7" or higher and their future lives at "8" or higher. The relationship between the estimated percentages “flourishing” and “thriving” is shown in the graph below.

It seems clear from the graph that it doesn’t matter a great deal whether you use indicators of psychological health or life satisfaction to compare the psychological well-being of people in different countries. (At a national level the correlation between flourishing and thriving is 0.87.) The errors in using life satisfaction as an indicator of flourishing that are evident at an individual level tend to cancel out in aggregating to a national level.

What this means, I think, is that if you want to know about an individual’s psychological well-being, measures of life satisfaction are a poor indicator. However, if you are looking for a summary indicator of psychological well-being at a national or regional level, life satisfaction might be good enough.

Do major cities create unhappy Australians?

Sydney's eastern suburbs

“Major cities create unhappy Australians”. That headline jumped out at me when I was doing an internet search recently. The source was The Melbourne Newsroom – a media unit at the University of Melbourne. The news release tells us that Australians who live in rural locations or towns of less than 1,000 residents “have significantly higher life satisfaction than those living in major cities”. (Major cities have more than 100,000 residents.)

The news release is linked to a recent publication based on the highly regarded HILDA survey undertaken by Melbourne University. The survey results suggest a boost to average life satisfaction (on the 11 point scale from 0 to 10) of 0.127 points for females and 0.108 points for males from living in a rural location or town rather than a major city. That might seem small, but it appears to imply that living in a major city has an adverse impact on life satisfaction of similar magnitude to being unemployed or divorced.

The authors of the HILDA publication conclude:

“other things being equal, the major cities are the least desirable places to live”.

The qualification in that statement is important. The authors go on to point out that the undesirability of living in cities is somewhat counteracted by the fact that the major cities contain areas of greatest socio-economic advantage.  Life satisfaction is influenced by the effects of the relative socio-economic advantage or disadvantage of the area in which an individual lives.

The main reason I was sceptical when I read the headline “Major cities create unhappy Australians” was because earlier in the day I had read a paper by Arthur Grimes and Marc Reinhardt which found that the differences between life satisfaction in rural and urban areas in other high-income OECD countries disappeared in a model controlling for other variables. The other variables controlled for were own income and reference income (mean income within a country of individuals of the same gender, age and employment status).

A study examining differences between life satisfaction of rural and urban residents of Victoria, undertaken a decade ago by Dianne Vella-Brodrick et al, also found that the significance of rurality disappeared when other variables were controlled for. The other variables in the model included satisfaction with community and perceived level of satisfaction with distance from services.

In a post I wrote on this blog a few years ago I considered the differences at a regional level between the stories told by a range of wellbeing indicators in Victoria. The (rural) local government areas (LGAs) with higher average subjective well-being (SWB) also tended to have higher ratings in terms of satisfaction with being part of the community, social support (ability to get help from friends), citizen engagement (e.g. attending town meetings, writing to politicians), safety (e.g. feeling safe walking in the local area at night) and volunteering. However, those LGAs tended to have lower household income, lower satisfaction with work-life balance and less acceptance of diverse cultures. The latter variables tended to have higher values in Melbourne and in LGAs close to Melbourne.

Do those results suggest major cities create unhappy Australians? I don’t think so. As discussed in a more recent post, major cities in Australia are ranked among the most liveable in the world. People who choose to live in major cities may well do so for good reasons, in full knowledge that they are making choices that are likely to reduce their life satisfaction. Life satisfaction is important, but it is not the only argument in individuals’ utility functions. For example, it can be rational for people to sacrifice some life satisfaction now to obtain more life satisfaction later (e.g. by accumulating wealth to fund their retirement in a more pleasant location). There is also some evidence that many people are prepared to sacrifice their own happiness in making location choices in order to provide better opportunities for their children.

How close is the relationship between freedom and life satisfaction?

I would be happy to declare myself a fan of the OECD’s Better Life index if it included an appropriate indicator of freedom. Perhaps the authors might argue that freedom is adequately covered by “civic engagement”. However, that seems like arguing that it is not possible for people to suffer persecution from government when they have the right to vote. I don’t think J S Mill would have been impressed:

“The limitation … of the power of government over individuals, loses none of its importance when the holders of power are regularly accountable to the community, that is, to the strongest party therein” (On Liberty, Chapter I).

Perhaps the authors of the index see freedom as a characteristic of the social environment that people desire because it enables them to have greater life satisfaction, rather than as one that contributes directly to the quality of life. I don’t buy that argument. Humans have a passion to control their own lives (even though many have no qualms in voting to have governments restrict the freedom of others). I predict that many users of the Better Life index would give a higher weight to individual freedom than to many of the other items included in the index, if they were given the opportunity to do so. (One of the features of the Better Life index is the ability of users to assign whatever weights they choose to the variables that are included in the index.)

It is possible, however, that freedom makes little difference to country rankings. That might happen if freedom indexes are highly correlated with life satisfaction. I am focusing attention here on the relationship between freedom and life satisfaction because most of the 11 components of the OECD’s Better Life Index are correlated with life satisfaction. Civic engagement is one of the exceptions. The others are education, safety and work-life balance.

The freedom indexes I have chosen to consider are the Fraser Institute’s economic freedom and personal freedom indexes. Both of those indexes are highly correlated with life satisfaction (r = 0.73 for personal freedom and r = 0.61) in OECD countries. A regression analysis shows both variables to have a positive (significantly greater than zero) influence on life satisfaction, together explaining 68% of the variation in life satisfaction among OECD countries. (The data and results are available from the author.)

The relationships between life satisfaction and the two freedom indexes are shown in the charts below.

There seems to have been a fairly strong tendency for people who argue that government policies should be directed toward raising average life satisfaction to advocate policies involving restrictions on freedom. Such people have been barking up the wrong tree. The countries with highest average life satisfaction are those with the least restrictions on economic and personal freedom.

Postscript: 
 I neglected to refer to a recent article by Boris Nikolaev entitled "Economic Freedom and the Quality of Life". This article provides a fairly extensive discussion of the relationship between economic freedom and the quality of life at a national level. 

  

Which countries have the greatest personal and economic freedom these days?

The results of the latest Human Freedom Index by Ian Vásquez and Tanja Porčnik (published by the Fraser Institute and several other policy think tanks) have surprised some people.

Among the social media comments was one from a person who had lived in several different parts of the world who was surprised that Scandinavian countries ranked so highly in terms of personal freedom. (Sorry, I can’t find the link.) I wasn’t surprised to see Hong Kong in first place in the overall freedom ranking, since the methodology gives equal weight to economic freedom and personal freedom and does not include voting rights as a component of personal freedom. It was a surprise, however, to see the United States ranked so lowly, in 20^th place overall and in 31st place in terms of personal freedom.

In order to better comprehend the rankings of particular countries I have used conditional formatting  to prepare the table below showing the components of personal freedom and economic freedom ratings for the 50 countries assessed to have the highest overall freedom ratings. For each component index green denotes a relatively high rating, yellow a moderate rating and red a relatively low rating.

It seems that the US has a relatively low rating on rule of law and freedom of movement.  The US ratings on the three components of the rule of law index - procedural justice, civil justice and criminal justice – are all rated as more than 20% below the world’s best practice. (Data are from the World Justice Project, an independent non-profit organization, originally founded in 2006 as a presidential initiative of the American Bar Association.) The US’s low rating on freedom of movement is attributable to restrictions on foreign movement i.e. freedom of citizens to leave and return to their country. (Data are from the CIRI Human Rights Data Project.)

Another surprising item highlighted in the table is the relatively low rating of New Zealand on freedom of religion. This low rating apparently reflects some kind of restriction on freedom to establish religious organisations.

The relationship between economic freedom and personal freedom is interesting. The chart shown below suggests a fairly strong correlation, but there are some interesting outliers.  

It seems to me that economic freedom and personal freedom are so strongly linked that it is inherently difficult to maintain high economic freedom without high personal freedom and vice versa. It is reasonable to predict that Singapore’s high level of economic freedom will continue to support relatively high economic growth, which in turn will support the development of emancipative values and greater personal freedom in the decades ahead. In the case of Slovenia and Italy I am not sure whether we are more likely to see a rise in economic freedom or a decline in personal freedom.  

Will future technological advances provide widespread opportunities for human flourishing?

A range of issues related to this question have been discussed in a recent series of posts on this blog. My conclusions are summarised below.

Recent trends in productivity growth do not provide persuasive evidence that the rate of technological advancement is slowing.

On the one hand, we have techno-pessimists such as Robert Gordon who argues that technological progress is slowing down.  On the other hand, we have techno-optimists such as Erik Brynjolfsson and Andrew McAfee who argue that the global economy is on the cusp of a dramatic growth spurt driven by smart machines taking advantage of advances in computer processing, artificial intelligence, networked communication etc.

My post discussing these issues notes that the evidence does not support the view that there was a general slow-down in productivity growth in high-income countries prior to the global financial crisis and great recession. In only about half of the countries covered by the OECD data was the rate of multifactor productivity (MFP) growth during the 2001 to 2007 lower than that in 1995 to 2001.

It seems likely that the slow-down in measured productivity growth in the US and some other countries may be attributable, in part, to difficulty in measuring the outputs of the information and communications technologies (ICT) industries - particularly free content provided on the internet.  As means are found to require users to pay for more internet content it seems likely that will, of itself, make the productivity numbers for ICT industries look better even though underlying productivity will not have improved.

A post discussing recent OECD research on technological diffusion gaps at firm level suggests that there is a technological diffusion problem rather than a slow-down in technological advances. Productivity growth of global frontier firms has remained relatively robust, despite the slowdown in productivity growth in many OECD countries during the 2000s. A widening technological diffusion gap is particularly evident for service sector firms.

Technological innovation is likely to destroy a substantial proportion of current jobs, but it will not necessarily be more disruptive than it has been in the past.

As discussed in my post ‘Is average over?’ there is strong evidence of job polarization in the US. Research by David Autor shows that the occupations experiencing loss in employment are in the middle of the distribution, with the locus of displacement of middle-skill employment moving over time into higher skilled categories.  The pace of employment gains in low wage, manual task-intensive jobs has been increasing since the 1980s. The growth of high-skill, high wage occupations decelerated markedly in the 2000s, with only a modest recovery between 2007 and 2012. Autor suggests that the deceleration of growth of high pay jobs was associated with macroeconomic events which led to a sharp deceleration in computer investment (the bursting of the dot-com bubble, followed by the collapse of the housing market and the ensuing financial crisis).

Australian research, published in a recent report by CEDA (discussed here) shows a similar pattern of job displacement. The jobs that are disappearing involve routine tasks, not just low-skilled tasks. Researchers estimate that over the next 10 to 15 years about 40% of jobs have a high probability of being susceptible to technological change in Australia.

Growth in labour demand will occur in occupations that tend to involve perception and manipulation, creative intelligence and/or social intelligence. Many jobs will be concerned with the creative application of technology to solving problems.

In recent years enough new jobs have been created in Australia at a rate sufficient to replace those that have disappeared.

Some authors have suggested that the world faces a period of extraordinary economic disruption over the next few decades. My reflection on economic events over the last 40 years (in this post) suggest to me that perceptions of extraordinary disruption are a product of the economic stagnation in many high-income countries during the last decade.

During the 1970s I was under the impression that the pace of change was quickening, but that was an illusion. The economic disruption occurring in the wake of the first oil price shock and the emergence of stagflation certainly involved a quickening in the rate of change relative to the abnormal stability of the 1950s and 60s. Looking back now, however, economic change over the last 40 years seems to have been less about quickening than about fits and starts.

I suspect that when people look back in 40 years’ time they are they are not likely to perceive that the first half of the 21^st century was extraordinarily disruptive. They are more likely to perceive this to have been a period of fairly normal disruption, with the pace of change being similar to that occurring on average since the beginning of the industrial revolution.

There is potential for future technological advances to lift average real wage levels in high-income countries.

At an aggregate level, innovations that raise labour productivity tend to increase the demand for labour because they make labour more productive. International comparisons show that real wage levels are more or less proportional to average productivity levels.

Real wage growth has not been quite proportional to labour productivity growth in high-income countries where labour’s share of national income has fallen over recent decades. As discussed in this post, average real wages in high-income countries have typically been growing at a rate around 0.35% per annum less than the median labour productivity growth of 1.64% per annum.

In most countries the most plausible reason for the failure of real wages to keep pace with the growth of labour productivity is that capital deepening (the growth of capital per unit of labour) has not been sufficient to offset the labour augmenting (or labour saving) bias of technological progress. (See my post discussing the elasticity of substitution between capital and labour.) In other words, investment levels have been too low.

A slowdown in the contribution of investment to GDP growth was evident the United States, Europe and Japan in the period 2000-07 and was accentuated after the global financial crisis.  Investment levels in Australia remained strong until recently, mainly reflecting investment in mining to supply inputs to the construction boom in China.

Investment in natural resource development has had a modest direct impact on demand for labour in Australia, but the impetus it has provided to overall economic growth in Australia had a more profound indirect impact. The impacts on labour demand of the growth of urban centres as hubs of highly innovative activity are similar in some respects.  As discussed in my post on the competitiveness of cities, when cities become attractive places for location of technology-intensive activities that tends to increase demand for many categories of labour including teachers, nurses and building workers.

Technological advances offer the potential for ongoing improvements in the quality of life.

It is sometimes suggested that because most people in high income countries are already highly satisfied with their lives, the additional opportunities provided by technological advances are not worth having. However, the benchmarks that people use when asked to evaluate the quality of their lives tend to change with changes in their perceptions of what might be possible. As noted in an earlier post, survey data indicates that a substantial proportion of people who claim to be completely satisfied with their lives (above 40% in some countries) are in complete agreement with the proposition that “because of science and technology there will be more opportunities for the next generation”.

In my last post I considered whether the disruptions associated with technological innovations cause a great deal of anxiety and unhappiness. There is a great deal of evidence many people who lose their jobs or feel that their jobs are threatened do suffer anxiety and unhappiness. However, these feelings are strongly associated with the state of the economy and the prospects of obtaining alternative employment.

Discussions of technological unemployment tend to focus unduly on potential job losses and to overlook the impact of new technology on economic growth and the associated expansion of employment opportunities. Many people will lose jobs as a result of technological change at some point in their lives. Most will readily find alternative employment, but some people are likely to have their lives severely disrupted by the high levels of unemployment that may persist in some regions where declining industries have been major employers.

If governments want to ensure that technological advances provide widespread opportunities they should stop protecting narrow interests.

Recent OECD research on technology diffusion gaps (discussed here) suggests that the ability of firms to learn from the global frontier is stronger in economies where there is less protection of domestic interests through international trade barriers, product market regulation, employment regulation and bankruptcy laws that that leave people with valuable skills employed in zombie firms. The research also suggests that skill mismatches can be exacerbated by high transactions costs in housing markets (e.g. stamp duties on transfers).

The competitiveness of cities as locations for technology-intensive activities is likely to be adversely affected by powerful interest groups opposed to increases in population density and innovations that have potential to reduce the cost of transport, including congestion costs. (See post on competitiveness of cities.)

There is increasing recognition that excessive regulation to protect intellectual property rights is discouraging the diffusion of new technology and limiting the opportunities created by technological progress. As discussed in a post on this topic, the economic benefits of copyright and patent laws derive from the incentive they provide to authors and inventors to engage in creative activity. If granted appropriately such monopoly rights could therefore be expected to result in more technological progress and higher productivity growth than would otherwise occur. However, in recent decades these regulations have been used to provide monopoly rents to holders of rights far beyond those required to provide incentives for creative activity.

* * *

My general conclusion is that if governments were to do no harm we could be much more confident that future technological advances would provide widespread opportunities. That is probably too much to ask, but it might be reasonable to expect governments to do less harm than at present. For example, if governments want to help unemployed people who live in regions of persistently high unemployment, they should consider welfare measures designed specifically to assist those most affected (including relocation and early retirement). This is likely to be a less costly approach than the alternatives of supporting uncompetitive firms and industries through subsidies, tariffs, anti-dumping measures, government procurement policies etc. or funding uneconomic infrastructure projects. 

This series of posts has focused on likely trends over the next few decades and has not addressed longer term issues that may emerge as robots come to play more important roles in our lives. I might have something to say about those issues after reading and thinking more. One day I might even feel able to write sensibly about the implications of the 'singularity' for individual human flourishing.


Postscript:
I think William Nordhaus may be writing sensibly about the timing of the 'singularity' and its implications for real wages in his paper: "Are We Approaching an Economic Singularity?" 

How will future technological advances impact on the quality of life of people in high-income countries?

As discussed in earlier posts, I am fairly optimistic about the potential for technological progress to continue to provide widespread economic opportunities for people in high-income countries. In this post I want to consider two arguments advanced by people who are pessimistic about the potential for technological advances to continue to improve the quality of lives of people in high income countries. 

The first argument of the pessimists is that because most people in high income countries are already highly satisfied with their lives, the additional opportunities provided by technological advances are not worth having. As I see it, this fails to recognize that the benchmarks that people use when asked to evaluate the quality of their lives tend to change with changes in their perceptions of what might be possible. It would be unreasonable to expect that peoples’ perceptions of what it means to be living the best possible life will remain unchanged over the next 50 years.

Introspection is probably sufficient to persuade most readers that it is possible to be highly satisfied with life and nevertheless perceive that there is potential for the lives of future generations to become even better in some respects. Some formal evidence that this happens was provided in an article on this blog last year. Using World Values Survey data for a range of high-income countries the article demonstrates that a substantial proportion of those people who claim to be completely satisfied with their lives (above 40% in some countries) are in complete agreement with the proposition that “because of science and technology there will be more opportunities for the next generation”. The corresponding percentages who completely disagree with that proposition are tiny.

The second argument of the pessimists is that the disruptions associated with technological innovations cause a great deal of anxiety and unhappiness. 

It is obvious that many people who lose their jobs or feel that their jobs are threatened do suffer anxiety and unhappiness. As previously discussed here, rising unemployment has been associated with declines in life satisfaction in countries of southern Europe following the global financial crisis.

A recent article by Rainer Winkelmann has drawn several important conclusions about the relationship between unemployment and life satisfaction from German panel data:

• Over the last three decades, average life satisfaction of unemployed people – around 5.5 to 6.0 on a ten point scale - has always been at least one point below that of employed people.
• Life satisfaction tends to decline prior to unemployment and does not fully rebound to pre-unemployment levels four years after an episode of unemployment.
• About half the people who became unemployed experienced no reduction in life satisfaction. Unemployed people experience a substantial reduction in life satisfaction (and find a job more quickly) when they have a strong work ethic.
• Duration of unemployment seems to have no impact on the life satisfaction of people who are unemployed.
• There is a strong association between the aggregate unemployment rate and average life satisfaction levels even for employed workers, reflecting the negative impact of perceived job insecurity.

 Australian data also suggests that the level of job insecurity is strongly related to the state of the economy. The Household Financial Comfort Survey (conducted by Me Bank) shows marked fluctuations from quarter to quarter in perceptions of how easy it would be for workers to obtain another job if they become unemployed. In June 2015, casual workers were most pessimistic about finding another job (85% said it would be difficult), followed by self-employed workers (63%) part-time workers (63%) and full-time workers (51%). However, NAB’s Quarterly Australian Consumer Anxiety Index suggests that job security is a much less important source of anxiety for Australians than government policy, cost of living, ability to fund retirement, and health.

Discussions of technological unemployment tend to focus unduly on potential job losses and to overlook the impact of new technology on economic growth. It is far from obvious that technological innovation reduces employment opportunities at an economy-wide level. The chart below shows the annual rates of growth in employment and multi-factor productivity (probably the best measure available of technological innovation) for the period 1995 to 2013 for those high-income countries for which comparable OECD data is available.

 The chart certainly does not show a general pattern of low employment growth in countries with relatively high levels of technological innovation. If anything, it suggests the opposite. The modest growth in employment in Korea may reflect limits on growth in available labour since the unemployment rate in that country has been relatively low (less than 4% of the civilian labour force in each year of the last decade) and a rising percentage of the age 15 to 64 population is in employment.

High rates of growth in employment at a national level will not necessarily prevent the emergence of persistently high levels of unemployment in regions where declining industries have been major employers. This poses a policy problem in helping older workers to cope with the changes in their circumstances. The current policy framework in Australia seems to provide incentives for many such people to migrate from long term unemployment to disability pensions. The problem is likely to be exacerbated by increases in the age at which people become entitled to aged pensions. Past experience suggests that regional development policies do not provide a panacea for regions that have little to offer investors other than an aging unskilled workforce. It is difficult to see the problems being resolved by adopting an NZ style investment approach to removing people from unemployment benefits as proposed in the McClure report (discussed here) but, hopefully, I am wrong about that.

In a chapter in the CEDA report Australia’s Future Workforce? Andrew Scott suggests that one of the lessons learned from the decline of employment in manufacturing locations since the 1970s “is that you cannot just take middle-aged workers out of factory environments, put them into classrooms and then expect them to immediately learn new skills for new jobs in that unfamiliar setting”. He suggests that the approach to active labour market policies adopted in Denmark has much to commend it. I will remain unpersuaded until I see a good cost benefit study of the policies adopted in Denmark, comparing the approach adopted there to a range of alternatives including offering early access to aged pensions (at say, age 60) at a lower than normal rate of benefit, to unemployed people in regions of high unemployment.

To sum up, I don’t think there are strong grounds for pessimism about the ability of technological progress to provide widespread opportunities for people in high-income countries to improve the quality of their lives. It is important to recognize, however, that many people will lose jobs as a result of this process at some point in their lives. Most will readily find alternative employment, but in regions that are adversely affected by technological unemployment some people are likely to have their lives severely disrupted.