Could Larry Summers be half-right about secular stagnation?

When I read ‘The age of secular stagnation’ by Lawrence H Summers (published in Foreign Affairs (March/April 2016) I was pleasantly surprised to find that I agreed with part of his analysis.

I agree that economic growth has been relatively weak in most developed countries in recent years because levels of investment have been low, despite high levels of saving and low real interest rates. That is not quite how Summers puts it; he talks about “excess savings”. He might have reasons for that, but it makes his argument seem convoluted.

I tend to agree with Summers when he writes:

“Absent many good new investment opportunities, savings have tended to flow into existing assets, causing asset price inflation”.

My agreement is qualified because I think the absence of investment opportunities is more about perception than reality. Why I think that will become clearer later.

The solution Summers offers to the problem of low investment is an expansionary fiscal policy pursued through public investment. Writing about the United States he argues:

“A time of low real interest rates, low materials prices, and high construction unemployment is the ideal moment for a large public investment program. It is tragic … that net government investment is lower than at any time in nearly six decades”.

It is obviously problematic to be proposing an expansion in public investment at a time when rising government debt has been imposing a significant burden on later generations. But there may be ways around such concerns. In its article, ‘Fighting the next recession’ The Economist (Feb. 20) gave some prominence to the New South Wales Government model of privatising assets such as ports to fund public investment. I had not previously thought of the efforts of the NSW government to raise some cash for infrastructure spending as a model that might have wider application.

However, there are limits to the extent that additional public sector investment is likely to stimulate further private investment. Additional public investment in most economic sectors competes with private investment. If governments confine their investments to sectors where public investment might have a comparative advantage, they will, before long, end up investing in projects that have no hope of yielding even a modest return on investment. Such misallocations seem more likely to add to secular stagnation than to help overcome it. Japan’s efforts to stimulate economic growth by building roads to nowhere may be a good example of such counterproductive public investment.

Before proposing solutions to the problem of secular under-investment it would be a good idea to try to understand why it is occurring. In his recent article, ‘U.S. secular stagnation?’ Steve Hanke pointed to Robert Higgs’ concept of “regime uncertainty” as a possible explanation of the long term downward trend in net private domestic business investment as a percentage of GDP since the beginning of the 1970s. An index of economic policy uncertainty developed by Scott Baker, Nicholas Bloom and Steven Davis suggests that economic policy uncertainty is currently very high - at similar levels to the 1930s, and much higher than in the 50s and 60s.

An increase in policy uncertainty is also consistent with the observation by Kevin Lane and Tom Rosewall (RBA Bulletin 2015) that the hurdle rates of return that firms use to evaluate investment projects has not declined along with declines in interest rates that have occurred since the 1980s. This implies that profitable investment opportunities are being foregone because of greater uncertainty about future after-tax returns and costs. OECD researchers suggest that policy uncertainty (concerning regulation, macro policy and taxation policy) is one factor causing the hurdle rate that companies apply to capital spending to be higher than that applied by financial investors (Business and Financial Outlook 2015, p 60).

My conclusion is that Larry Summers might be about half right in his observations about secular stagnation. Investment has been too low, but the long-run solution can't lie in increased public investment. Governments should be thinking about how they can make businesses feel confident that regulatory and tax burdens are not likely to be further increased over the lifetime of new investments.

How did you react to the appointment of a Minister for Happiness in the UAE?

I chuckled. My initial reaction was that the appointment didn’t seem to be the kind of thing that should be taken seriously. But I wondered what the motives of the UAE government might be.

Some commentators have suggested that the appointment of a Minister for Happiness in the UAE was Orwellian. That sent me looking to see whether Orwell had a Ministry of Happiness in Nineteen Eighty-Four. He didn’t. He had ministries of love, peace, plenty and truth. The distinguishing characteristic of each those ministries was the pursuit of policies that were the opposite of what was implied by the label. For example, the Ministry of Love pursued enforced loyalty to Big Brother through policies of fear and repression.

If North Korea establishes a Minister for Happiness it would be reasonable to presume an Orwellian motive, but I doubt that applies to the UAE.

I am not sure that the Orwellian motive even applies to the establishment of a Ministry of Supreme Social Happiness by president Nicolas Maduro of Venezuela in 2013. His motive was probably to distract people from the decline in their economic well-being, occurring even then as a consequence of the government’s economic mismanagement. It is unlikely that the Ministry is helping people to feel any less miserable as the Venezuelan economy now collapses around them, with falling crude oil prices adding to their woes.

Given the fall in oil prices over the last year, the distraction motive might also help to explain the appointment of a happiness minister in the UAE. The IMF has reduced its growth forecasts for the UAE, even though it is more diversified than many other oil-producing countries in the Middle East. The fall in oil prices is causing fiscal deficits to rise and the government is responding by reigning in government spending. The flow-on effects of this might make life more difficult for the large expatriate community (83.5% of the population) most of whom are from South Asia.

In announcing the appointment of a minister for happiness, the UAE prime minister, Sheikh Mohammed bin Rashid al-Maktoum, claimed that the objective was to "align and drive government policy to create social good and satisfaction". The appointed minister, Ahood Al Roumi, was previously Director-General of the prime minister’s department and will apparently retain that position.

The appointment is part of a government shake-up involving appointment of more young ministers and more females. Women now make up more than one-third of all ministers in the government. The government of the UAE has previously announced the vision for their country to be among the best in the world in the Human Development Index HDI and to be “the happiest of all nations”. The UAE currently ranks 41st of the 188 countries included in the HDI.

It is tempting to dismiss all that as window dressing, but there is a chance that the government of the UAE is actually trying to find a way forward toward a better society. In terms of the “good society” indicators I used in Free to Flourish there is a lot of room for improvement in the UAE, even though it stacks up better than a lot of other countries. Of the 110 countries included in the analysis, the UAE ranks 39^th in terms of peacefulness, 24^th in terms of opportunity and 17^th in terms of economic security.

It will be interesting to observe whether Ahood Al Roumi attempts to use her new role to make the UAE a better society. 

Should foreigners be allowed to buy agricultural land in Australia?

Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

I am surprised by the frequency with which concerns about foreign ownership of land in Australia are being expressed to me by friends who have fairly sensible views on most other issues. It is almost as though rationality disappears whenever foreign ownership and agricultural land become linked in their minds.

My response has been along the lines that foreign ownership of land in Australia isn’t something we should be worried about because it has been occurring since the beginning of European settlement and, these days, accounts for a small proportion of total agricultural land. (ABS data indicate that about 99% of Australian farm businesses are fully Australian owned and about 90% of farmland is fully Australian owned.) 

That usually provokes the assertion that Chinese ownership is new and worrying. 

When I suggest that the new owners can’t take the land home with them, I am asked to justify why foreigners should be able to buy land in Australia, when Australians are not allowed to buy land in their countries. My reply has been that Australia should adopt economic policies that serve the interests of Australians rather than following the policies that other countries adopt. 

At that point I am asked to explain how foreign ownership of agricultural land in Australia serves Australian interests.

That might seem like a reasonable question to ask, but it is actually a debating trick that puts the onus of proof in the wrong place. The basis of a market economy is that economic transactions are undertaken because they are mutually beneficial to sellers and buyers. If some third party considers that a particular kind of transaction should not take place, the onus should be on that party to make the case. 

If an Australian wants to buy the property at a lower price, that is not a legitimate argument for preventing the property from being sold to a foreigner. If their sole objection to the transaction is that the purchaser is foreign, why is that relevant?

Unfortunately, the views I have presented above tend not to have been particularly persuasive. My friends seem to want me to explain how Australians can benefit from foreign ownership of agricultural land. Well, now I have now calmed down a little, I will try to do that.

The most obvious way Australians benefit from foreign land ownership is from associated investments which create increased employment opportunities, and generate additional wealth, some of which adds to government revenues and enables more services to be provided to Australians. 

So, what about the situation where the foreign owner does not undertake any new investment? In that situation it is quite likely that the former owner will invest the proceeds of the sale in ways that will generate additional income. It is also likely that the new owner will find ways to use the resources more productively, perhaps by using better management practices. The fact that a new owner is prepared to pay more than the former owner’s reserve price usually implies that the new owner can see potential to generate more income from the property than the former owner.

Is there any more reason to question the benefits to Australians of foreign investment in agricultural land than any other foreign investment, or of new investment in agricultural land by Australians? I don’t think so, but various arguments to the contrary are raised. It has been suggested that ownership that is encouraged by foreign governments to improve food security may endanger future food security of Australians. It has also been suggested that enclaves of foreign ownership could have a deleterious cultural impact on rural communities. The people who promote those views seem to overlook the fact that foreign ownership or agricultural land in Australia is a small proportion of the total.

The opponents of foreign ownership of agricultural land also raise such issues as whether foreign firms pay tax, whether they are able to import foreign labour more easily, and whether they can be trusted to comply with Australian labour and environmental regulations. Those arguments seem to me to be scraping the barrel. It is hard to see why Australian tax and regulatory authorities should have any greater difficulty in dealing with foreigners than with Australians.

As far as I can see there is no case for foreign ownership of agricultural land in Australia to be subjected to more stringent regulation than any other foreign investment in this country.

How should researchers combine different aspects of happiness into a single measure?

A recent paper by Gus O’Donnell and Andrew Oswald considers the question of how to combine measures of different aspects of subjective well-being into a single overall measure.

The authors focused specifically on the four aspects of well-being measured in annual surveys by the UK Office of National Statistics. These are:

• how satisfied you are with your life nowadays;
• to what extent you feel that the things you do in your life are worthwhile;
• how happy you felt yesterday; and
• how anxious you felt yesterday.

All aspects are measured on an 11 point scale from 0 to 10.

The approach taken by O’Donnell and Oswald in their exploratory study implies that all aspects of happiness should be weighted according to their “social importance” as determined by the average weight given to them by citizens in opinion surveys. The specific method they employ involves asking people to allocate 100 points across the four measures. For example, if all four measures were considered to be equally important, 25% would be allocated to each measure.

This method of developing weights seems to me to be much better suited to combining well-being indicators such as those included in the OECD’s Better Life index (e.g. income, education, health, environment) than to combining survey data relating to different aspects of subjective well-being.

I feel uneasy about the method adopted because I don’t think individual citizens are equipped to make judgments about the “social importance” of the feelings of others. For example, the majority view about the “social importance” of feelings of anxiety might understate the impact of anxiety on the well-being of people who suffer from anxiety.

The authors have reported results from the use of their method of obtaining weights from four different samples: economics students, MBA students, professional economists, and a wider group of citizens chosen using web-based methods. All groups gave anxiety the lowest average weight, but apart from that there is not much common ground in the views of the different groups. The wider group of citizens gave happiness the greatest weight, but the other groups all gave life satisfaction the greatest weight. The economics and MBA students gave “doing worthwhile things” a much higher weight than happiness, but professional economists gave it about the same weight as happiness.

It seems to me that a better way to proceed would be to attempt to estimate the well-being of individuals by using weighting systems that individuals consider to be relevant to their own lives. There are potentially several ways to do that.

First, there is the approach adopted by Daniel Benjamin et al in their paper, “Beyond Happiness and Satisfaction”, discussed on this blog, in which people were asked to choose between hypothetical situations using different measures of happiness and a range of different ratings.

Another possible approach would to ask survey respondents questions along the following lines: “If you were offered an opportunity that would add a 1 point improvement in your feeling that the things you do in life are worthwhile, how much life satisfaction would you be willing to forgo in order to obtain that benefit?” When I ask myself that question the answer I obtained seemed to make sense, but my mind went blank when I ask myself how much life satisfaction I would be willing to forgo in order to obtain a 1 point increase in happiness. The same happened when I asked myself how much happiness I would be willing to forgo in order to obtain a 1 point increase in life satisfaction. So I can hardly recommend that approach!

The third approach is to simply ask survey respondents to allocate 100 points across the four measures according to the weight that they consider should give to the different measures in assessing changes over time in their own personal well-being. That approach has the virtue of being simple and directly related to estimation of relevant weights.

In order to obtain an accurate overall impression of subjective well-being at a national level it is important to know to what extent the weights that individuals consider to be relevant to assessment of their own personal well-being vary according to the circumstances of their lives.

What would self-actualizing politics look like?

It is difficult to observe democratic politics without getting the impression that it brings out the worst in people. We frequently see politicians elbowing each other out of the way as they struggle to gain power and influence. We often see them make promises they are not likely to be able to keep. We see some of them endlessly repeating slogans whose only virtue is that they once appealed to our basest instincts. We see others stating the obvious with great gravitas. We see quite a few advancing their personal interests at the expense of the people they are meant to serve.

So, how come there has been so much economic and social progress in the western democracies over the last century or so? If democratic politics brings out the worst in people, wouldn’t you expect outcomes to have been are a lot worse than they have been?

The findings of Christian Welzel’s research - which I reviewed on this blog- suggests that as a consequence of economic development people in an increasing number of countries have been able to climb an emancipation ladder (Welzel refers to it as a utility ladder of freedoms) analogous to Abraham Maslow’s hierarchy of needs. As economic development has proceeded in an increasing number of societies, people in those societies have tended to adopt emancipative values reflecting concern about such matters as personal autonomy, respect for the choices people make in their personal lives, having a say in community decisions, and equality of opportunity.

In an article published in Policy in 2014 I considered whether emancipative values might be morphing into an ‘entitlement culture’ that could threaten economic freedom and material living standards. My research left me feeling optimistic that if such a tendency exists, there is a good chance that it will be remedied by democratic political processes.

If my optimism about the future outcomes of democratic politics in high-income countries is well grounded the impression that politics brings out the worst in people cannot be entirely accurate. Actually, that cynical impression doesn’t even stand up to scrutiny when I consider the behaviour of some politicians I have met.

Those thoughts came to mind when I was reading Michael Hall’s Political Coaching:Self-Actualizing Politics and Politicians, published last year. Michael is a psychologist who writes about and teaches an approach to personal development strongly related to Maslow’s hierarchy of needs. I have read many of his books and attended a couple of his seminars, so I thought it might be interesting to see how he applied his ideas to politics.

Michael describes the political ideal as follows:

“Politics is designed to cultivate the good life. We create politics so that people in our social group can live the kind and quality of lives that they wish to live – to satisfy the basic human needs and then to fulfil the highest of human dreams and potentials. The design of politics is to create a human system whereby people can develop their own powers and freely use those powers in appropriate ways that simultaneously facilitates their highest and best and that supports the same for all in the community” (p15).

Immediately afterwards he acknowledges that the ideal he has described is not what immediately comes to mind when most people think of politics.

Michael argues that politics is inevitable because humans are social beings. The problem is not with the existence of politics but with how we do our politics. That depends on the quality of our relationships with each other, which in turn depend on our understandings, beliefs, meanings and experiences. He implies that a change in political culture can only occur if more people engaged in politics become self-actualizing.

I think the book is at its best in discussing principles for positive political conversations (Chapter 11). These principles include: showing willingness to listen to opposing views; approaching issues in a spirit of respectful inquiry; trying to understanding where other people are coming from; and looking for positive intentions and values in opposing views.

Unfortunately, Michael Hall doesn’t discuss the potential role of social media in promoting more positive political conversations and a better political culture. In my view social media has potential to make a large contribution to lifting the quality of political debate. However, that will not happen until more participants who are capable of lifting the quality of discussions actually seek to do so. I should be making more of an effort to lift my own performance in that regard.

What does economics tell us about making New Year's resolutions?

Opportunity cost was the first thing that came to mind the other day after the thought occurred that I should perhaps consider making a New Year’s resolution. That was probably because I just happened to be paying attention on the day the concept of opportunity cost was explained when I was at university many years ago. 

Opportunity cost is just a label. If you haven’t had the benefit of studying economics you might still be aware that the time and effort you spend making resolutions and trying to keep them could possibly be spent doing something more enjoyable. You may also be aware that there are emotional costs associated with making resolutions and then failing to keep them.

On the other hand, by now some of you will be thinking that opportunity costs are just excuses for inaction. You might want to urge me to consider the potential satisfaction of making resolutions that might enable me to become a healthier or better person.

That is why my mind now turns to the law of diminishing marginal utility. That law says, more or less, that as you obtain more of any good, the additional happiness you obtain from each additional unit tends to diminish. Every wine drinker should know that a larger increment of happiness is likely to be obtained from the first glass of wine than from the second, and a larger increment of happiness from the second than from the third, and so on. If the truth of that observation is not obvious to you on New Year’s eve, it might well become very obvious on New Year’s day.

It seems to me that the law of diminishing marginal utility applies to New Year’s resolutions in much the same way as to other goods. For example, a person who swears a great deal might gain some satisfaction if she can refrain from using foul language in the presence of children. The further increment she obtains from refraining from swearing in front of people whom she knows to be disgusted by the behaviour, might be somewhat smaller. The increments in satisfaction could be expected to become progressively smaller as she adds further classes of people or situations.

All this brings to mind the image of a scissors diagram, regarded as a thing of great beauty by many economists of my vintage. The downward sloping line in the diagram below represents the declining marginal utility of resolutions and the upward sloping lines represent the rising marginal cost of resolutions (expressed in utility terms). If you are having difficulty viewing the quantity of resolutions as a homogenous good, think of the horizontal axis as measuring the extent to which you might consider reducing your use of a particular swear word over the next year. 

I have drawn two cost curves in the diagram to illustrate how the optimal investment in resolutions would change if it became less costly to make and keep resolutions. The initial optimum is at point A, where our subject makes a relatively small investment in New Year’s resolutions. If it became less costly to make resolutions, the optimum would move to point B. At that point she would make more resolutions - and her total utility would be higher.

So, what does economics have to tell us about how to reduce the costs associated with New Year’s resolutions? An obvious place to look is behavioral economics. It is not difficult to find articles on the internet suggesting how we can use behavioral economics to help us to stick to our resolutions. Much of the underlying research is more in the field of psychology than economics, such as the work of Roy Baumeister on willpower (which I discussed here).

In my view the area of economics that has most potential to help us to understand and reduce the costs associated with making and keeping resolutions is ‘identity economics’. The key idea of identity economics – as explained in a book of that name by George Akerlof and Rachel Kranton - is that individuals gain satisfaction when their actions conform to the norms and ideals of their identity. In the way Kranton and Akerlof develop the concept, identity is determined to a large extent by the groups to which individuals belong. 

However, when you think about your own identity, as an autonomous individual, you are free to think of it as being defined by the qualities you value most highly - or identify with. (There is some relevant discussion in a recent post in which I reviewed Russ Harris’s book, The Happiness Trap.) Recent research by Anthony Burrow and Nathan Spreng, which suggests that having a purpose in life tends to impede impulsivity, points to the potential benefits of keeping in mind the qualities we value most highly.

This brings to mind the potential to draw a possibilities diagram showing trade-offs between some of the things I value. On one axis is excellence and on the other axis is tranquility. I will leave it to your imagination.

Postscript

On reflection, it doesn’t seem to make much sense to think in terms of trade-offs between excellence and tranquility. It might make more sense to think in terms of a trade-off between satisfaction with professional achievement and satisfaction with relationships, as shown below. An investment in emotional health might expand the possibilities available.

Why wish everyone a Merry Christmas?

Why not? It is that time of the year again. It is a custom I grew up with. It is a widespread practice in the country in which I live.

So, does that mean my seasonal good wishes are intended to apply only to people who share a similar cultural heritage?

Actually, when I think about it, most of those who share a similar cultural heritage will probably think I am just hoping that they enjoy the customary things that many of us enjoy at this time of year - attending parties, going on holidays, preparing for celebrations, meeting with family members, exchanging gifts, feasting, getting “merry” etc.

Even if none of that applies to you, I still wish you a merry Christmas.  No-one is excluded from the sentiments of the Christmas message: Peace on earth and goodwill to all. (That might or might not be an accurate translation of relevant scripture, but it is the one I read on Christmas cards – and it is good enough for a non-church-goer like me.)

Christmas gives me a convenient excuse to express my hope for you to enjoy tranquility and opportunities to flourish in all aspects of your life.

How can we avoid the happiness trap?

The idea that pursuit of happiness can be futile has been around for thousands of years. In my last post, I discussed J S Mill’s contribution in the 19^th Century. In this post I will discuss the contribution made by Russ Harris in The Happiness Trap: Stop struggling, start living, which was first published in 2007. This book is based on Acceptance and Commitment Therapy (ACT) developed by Steven Hayes.

Russ Harris suggests that many people are caught in a happiness trap, which is based on four myths:

1. Happiness is the natural state for all human beings;
2. If you’re not happy, you’re defective;
3. To create a better life, we must get rid of negative feelings; and
4. You should be able to control what you think and feel.

It would be easy for me to become side-tracked into a discussion of how prevalent the happiness trap might be. The survey evidence suggests to me that in high income countries most people are actually fairly happy, but the picture that emerges does differ depending on the way happiness is measured. For example, at a national level high levels of positive emotion are not always accompanied by low levels of negative emotion. It is also possible for a substantial proportion of the population to experience chronic anxiety and depression at some time during their lives, despite the sustained existence of relatively high average happiness levels.

The important points are that too many people are falling into the trap of struggling to get rid of negative feelings and of attempting to control what they think and feel. I don’t think it is a myth that happiness is the natural state for most humans to be in: a majority of humans seem to have an inbuilt optimism bias. Nevertheless, there are times when it is natural, healthy and appropriate for humans to have negative thoughts and feelings. We cannot avoid having negative thoughts and feelings, but we can exercise a great deal of control over our responses to thoughts and feelings.

Harris argues that happiness has two very different meanings. The first refers to a feeling: a sense of pleasure, gladness or gratification. The second refers to a rich, full and meaningful life. The happiness trap is associated with craving the first form of happiness. If we seek to live a full and meaningful life at various times we can expect to experience the full range of human emotions, including sadness, fear and anger.

The author writes:

“The reality is, life involves pain. There is no getting away from it. As human beings we are all faced with the fact that sooner or later we will grow infirm, get sick and die. …”

But he provides grounds for hope:

“The good news is that, although we can’t avoid such pain, we can learn to handle it much better – to make room for it, rise above it and create a life worth living”.

So, how does the book suggest we go about creating lives that are worth living?  As I read it, the book does this by suggesting ways in which we can exercise and develop our personal powers (or capabilities) in relation to thoughts, sensations, values and goals. The underlying idea seems to be that if we manage to cope with unhelpful thoughts and unpleasant feelings, identify and endorse the values we want to guide us, set sensible goals for ourselves, act purposefully and engage fully in what we are doing, we will end up with lives that are worth living. That makes a lot of sense to me.

The approach suggested for coping with unhelpful thoughts or stories is to defuse them. The simplest technique suggested is to give yourself some distance from the thought by observing, “I am having the thought that …”. Many other techniques of defusion are suggested. One I particularly like is to thank my mind for the unhelpful advice it is giving me, and then ignore it.

The approach suggested for coping with unpleasant feelings and sensations is expansion -  that means making room for them rather than struggling with them. The three basic steps of expansion are: to observe the feelings and sensations in your body; breath into them; and let them come and go, or just stay there. If that sounds like Vipassana meditation, there are probably good reasons for that.

On the basis of my personal experience (as a consumer of self-help advice rather than a professional) I have doubts about the author’s recommendation to focus on the most uncomfortable sensation first. Acceptance of unpleasant sensations seems easier in the context of scanning my whole body, noticing and accepting all the sensations. Nevertheless, I particularly liked this comment:

“As you practice this technique one of two things will happen: either your feelings will change or they won’t. It doesn’t matter either way, because this technique is not about changing your feelings – it is about accepting them”. 

Russ Harris is of course not the first person to argue that we need to be guided by our values – our deepest desires relating to how we want to be and what we stand for – in order to have a rich full and meaningful life. For example, Aristotle emphasized the importance of values to individual flourishing, and Ayn Rand had John Galt develop a cogent argument leading to a definition of happiness as “that state of consciousness which proceeds from the achievement of one’s values” (Atlas Shrugged, p 1014). Harris underlines the importance of values by referring to Viktor Frankl’s observation that the prisoners who survived in Auschwitz were often not the physically fittest, but those who were most connected with something they valued such as a loving relationship with their children.

Harris suggests that people identify their values in all domains of their lives: family, marriage, friendships, employment, personal development, recreation and leisure, spirituality, community, environment, health etc. Many of the questions involve asking what sort of person we want to be and what qualities we want to bring to our experiences.

The next step is to set goals and action plans relating to our values for each domain of our lives. When reading about it, the process seemed as though it might be just as boring as corporate planning, but that need not be so. Findings of recent neural research (by Christopher Cascio and colleagues at the University of Pennsylvania) indicate that a focus on things we value in life -  referred to as self-affirmation – is associated with greater activation in parts of the brain that are known to be involved in expecting and receiving reward (the ventral striatum and the ventral medial prefrontal cortex).  A focus on what is most valued in a future context also involves more neural activity in areas associated with thinking about the self (the medial prefrontal cortex and posterior cingulate cortex).

It is worth remembering that the point of acting in accordance with our values is about the quality of our journeys through life rather than about reaching ultimate destinations.  As Russ Harris puts it:

“When we move in a valued direction, every moment of our journey becomes meaningful”.

I have written enough to provide a few hints about the contents of the book. My one criticism of the book (as a consumer of self-help products) is its failure to recognize that some cognitive approaches, e.g. Neuro-Semantics, can help people to adopt the frames of mind that they value, without having to engage in a struggle against negative thinking. Leaving that aside, in my view, this book has great value in helping readers to work out what they have to accept in life, what they can hope to change, and what commitments they have to make to make their lives more meaningful.

Was J S Mill correct in his observation that happiness cannot be obtained by seeking it?

John Stuart Mill is often quoted as an authority on the question of

whether happiness can be obtained by seeking it. In Autobiography he wrote:

“Those only are happy ... who have their minds fixed on some object other than their own happiness; on the happiness of others, on the improvement of mankind, even on some art or pursuit, followed not as a means, but as itself an ideal end. Aiming thus at something else, they find happiness by the way”.

How can that view be reconciled with Mill’s conviction “that happiness is the test of all rules of conduct, and the end of life”? That was no problem for J.S. Mill. In Utilitarianism he proposed:

“the happiness which forms the utilitarian standard of what is right in conduct, is not the agent's own happiness, but that of all concerned. As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator”.

Mill enlisted the support of a widely-esteemed authority in support of that proposition:

“In the golden rule of Jesus of Nazareth, we read the complete spirit of the ethics of utility. To do as you would be done by, and to love your neighbour as yourself, constitute the ideal perfection of utilitarian morality”.

Mill might not have been a reliable exponent of the teachings of Jesus, but he was certainly an artful propagandist for utilitarianism.

Coming back to the original question, it seems important to be clear about the nature of the happiness that Mill claimed could not be obtained by seeking it. In his writings he seems to accept that some of the pleasures of life can be obtained by seeking them. As noted in my discussion of his views on pushpin and poetry (here and here) he regarded some pleasures as being higher than others.

Mill saw the development of “noble character” as intimately linked to the higher pleasures. At one point Mill seems to suggest that development of a noble character is an avenue to happiness. In Utilitarianism he wrote:

“... if it may be doubted whether a noble character is always the happier for its nobleness, there can be no doubt that it makes other people happier ...”.

Mill argued that some happiness could be obtained by cultivating tranquillity:

“the conscious ability to do without happiness gives the best prospect of realizing, such happiness as is attainable. For nothing except that consciousness can raise a person above the chances of life, by making him feel that, let fate and fortune do their worst, they have not power to subdue him: which, once felt, frees him from excess of anxiety concerning the evils of life, and enables him, like many a Stoic in the worst times of the Roman Empire, to cultivate in tranquility the sources of satisfaction accessible to him, without concerning himself about the uncertainty of their duration, any more than about their inevitable end”.

In saying that happiness cannot be obtained by seeking it, Mill possibly meant that tranquility of mind cannot be obtained by seeking pleasure. Mill’s personal experience is relevant here. He reports that he helped himself to regain some measure of happiness after suffering a nervous breakdown when he was a young man by reading the poetry of William Wordsworth. In Autobiography he wrote:

“What made Wordsworth's poems a medicine for my state of mind, was that they expressed, not mere outward beauty, but states of feeling, and of thought coloured by feeling, under the excitement of beauty. They seemed to be the very culture of the feelings, which I was in quest of”.

Wordsworth’s poem “Imitations of immortality from recollections of earlychildhood” might provide an example of what Mill was writing about.

What should be make of Mill’s suggestion that to be happy people need to fix their minds on some object other than their own happiness? In his autobiography Mill reports that he came to that view after his nervous breakdown. It has been suggested (for example by Kieran Setiya) that Mill displayed a lack of self-knowledge because he became unhappy even though he had already met his own condition of aiming not at his own happiness, but at the happiness of others.

However, my reading of Mill’s account suggests that he saw his problem as stemming from the moment when he asked himself whether he would be happy if all his objects in life were realized. Mill implies that his mistake was to question his own happiness:

“Ask yourself whether you are happy, and you cease to be so. The only chance is to treat, not happiness, but some end external to it, as the purpose of life. Let your self-consciousness, your scrutiny, your self-interrogation, exhaust themselves on that; and if otherwise fortunately circumstanced you will inhale happiness with the air you breathe, without dwelling on it or thinking about it, without either forestalling it in imagination, or putting it to flight by fatal questioning”.

Under what conditions would a person who was fully absorbed in a major social or political movement be likely to be made to feel depressed merely by asking himself if he would be happy if all the objectives of that movement were realized? It seems to me that one set of circumstances in which that outcome might make sense is if the person concerned had been indoctrinated into the movement from an early age and had not previously considered the extent to which “his” objects in life were consistent with his own personal values. Those conditions may have applied in the case for JS Mill, who was educated by his father to become a propagandist for utilitarianism.

That explanation fits with Mill’s account that the first "small ray of light broke in upon [his] gloom" when he "accidentally" read the passage from Marmontel's Mémoires that relates his father's death and the sudden inspiration by which he, then a mere boy, felt as a result of his increased responsibilities. It strikes me that Mill might at that moment have been inspired to see himself as an autonomous individual rather than a creation of his father (James Mill) and Jeremy Bentham (his godfather).  

So, after all that, was Mill correct in his observation that happiness cannot be obtained by seeking it? The answer depends on what we mean by happiness. The small amount of wisdom I have gained from my reading in this area suggests that it makes sense to pursue the things we (as autonomous individuals) value most highly in all domains of our lives. Whether or not that brings us great joy, it is likely to give us the satisfaction of knowing that our lives are meaningful.

Note: This is a revised version of an article posted on this blog in 2008. I have revised it because my views have changed.

Why donate through Opportunity International Australia?

It must have been over 15 years ago when I first began making modest monthly donations to Opportunity International Australia. Opportunity is a microfinance organisation that provides small loans to help people in low-income countries break the poverty cycle by starting their own small businesses. It also offers its clients other financial services including savings accounts and insurance.

What attracted me to Opportunity the most was the potential for money donated to be recycled to help more people as loans are repaid. Over the years I have obtained satisfaction from the information that Opportunity has sent me about transformations that have occurred in the lives of individuals who were being helped. There have been many heart-warming stories about donations being used in ways that help poor people, mainly women, to build better lives for themselves and their families.

Nevertheless, the sceptical old economist in me has been muttering that he would like to see such stories backed by more empirical data showing how the economic and social prospects of Opportunity’s clients have improved as a result of the help that they have been given.

The enthusiasm of development economists for microfinance seems to have waxed and waned over the years, but recent research findings suggest that it can be an effective way to expand the opportunities available to people living in poverty who would otherwise be unable to obtain credit (or would have difficulty servicing loans at interest rates reflecting the high credit risks conventionally perceived to be involved). One particular study I have in mind, undertaken by Shahidur Khandker and Hussain Samad for the World Bank, uses over 20 years of panel data for Bangladesh. This study found that microcredit programmes resulted in increases in income, expenditure and net wealth, and increased participation in education. The results suggest that microcredit has been a particularly effective tool for reducing poverty among women.

In terms of global microfinance, the Opportunity International Network is a relatively small player, but a recent Social Performance Report indicates that it now has 3.6 million loan clients and its gross loan portfolio stands at $US 841.6 million. As indicated in the chart below, most of those loans have been made to India and other parts of Asia.

Those priorities seem appropriate from an Australian supporter’s perspective, but I would personally like to see Opportunity also establish a presence in Papua New Guinea.

   

Information in the Social Performance Report also indicates to me that Opportunity has been fairly effective in targeting assistance to those whose needs are greatest. A high proportion of new clients have been living in poverty, using $2.50 per day as the benchmark; new clients often have had no previous access to loans or savings facilities with a financial institution; and 94% of clients are women.

Information on the impact of loans and other assistance is currently patchy, but efforts are being made to develop appropriate indicators. The Social Performance Report provides evidence of a substantial reduction in the proportion of clients in poverty in the Philippines and of substantial job creation in clients’ businesses in African countries. One statistic which must imply impressive economic performance by clients is the repayment rate of loans – it is reported that 98% of Opportunity loans are repaid.

Rather than rounding off this post with a conclusion that any two-handed economist might be proud of, I want to do something I have never done before. I urge readers to spare $6 or more (hopefully much more) each month to make a regular donation to Opportunity. You might get a warm inner glow by giving money to other charities, but it would be hard to find anything more deeply satisfying than giving a hand-up to poverty-stricken people who seeking to build better futures for themselves and their families.

Will the Swedes maintain their positive attitudes toward non-European immigration?

Attitudes toward non-European immigration are much more positive in Sweden than in other EU countries. This is illustrated in the following chart, based on a Eurobarometer survey.

EU countries in which the highest proportion of the population have positive feelings toward non-EU immigration

Note: SE = Sweden; DK = Denmark; FI = Finland. Norway is not a member of the EU.

Source: Eurobarometer 82; Survey Nov.2014; QA 11.2 (Abridged)

The high proportion of Swedes who have positive attitudes toward non-Western migration sits somewhat oddly with the difficulty that Sweden has had in integrating such migrants. That is apparent in Michael Booth’s book, The Almost Nearly Perfect People, which I began to discuss in my last post. Booth writes of “newly arrived immigrants being shunted off to places like Rosengård, where they are given just enough money to live on but often face insurmountable obstacles to progressing further in society”. He suggests that the Swedish welfare state creates “ghettos” for “clientification” of new arrivals. I guess clientification has come to describe the process by which people become dependent upon welfare because government welfare agencies pretend to run businesses in which welfare beneficiaries are viewed as clients.

Michael Booth notes that newly arrived migrants becoming dependent upon welfare is in sharp contrast to the situation in the US, for example, where immigrants generally have to work hard to survive. That comment presumably refers specifically to illegal Mexican immigration into the US. It brings to mind Milton Friedman’s comment to the effect that illegal Mexican migration is a good thing because illegal immigrants are not eligible for welfare benefits. Friedman also made the more general point that it is not possible for a welfare state to maintain open borders because that would disproportionately attract the kinds of migrants who are likely to become eligible for welfare benefits. (He was, of course, more favourably disposed to open borders than to welfare states.)

It is worth noting at this point that immigration programs are sometimes seen as making a net contribution to welfare systems. Immigrants to Australia have tended to be of working age and to have useful skills, so that, on average, their tax contributions have tended to exceed the welfare payments made to them. That probably reflects immigration policies designed to attract migrants with useful skills and would not apply under an open-borders policy with migrants immediately eligible for welfare benefits.

It would be difficult for anyone to argue that the ongoing positive attitudes of the Swedes toward non-European immigration stems from social cohesion that has been created by the welfare state. The Scandinavian countries with less positive attitudes to immigration also have large welfare states. Moreover, the weight of evidence seems to support the view that high levels of trust and social cohesion in the Scandinavian countries prepared the way for the welfare state, rather than vice versa. Michael Booth tends to support that position – he reports interesting interviews with protagonists on both sides of the debate.  The international evidence that I have presented in an earlier post supports the view that people in high trust societies tend to have greatest support for moving toward a more humane society, with more redistribution of income to reduce inequality. 

Michael Booth makes the point that many Danes take pride in the fact that they pay a lot of taxes. This is apparently a way for them to say how successful they are. Booth notes that the pride that Danes take in paying tax does not prevent them from evading tax by shopping enthusiastically on the black market. Evidence from a tax audit suggests that many Danes also engage in income tax evasion when they have an opportunity to do so.

It would be reasonable to expect that a high proportion of Danish taxpayers are proud of the support that they provide to other Danes who rely on welfare payments. High levels of inter-personal trust would be likely to make such sentiments more common in Denmark and other Scandinavian countries than in most other parts of the world.

However, different attitudes seem to apply in Denmark when tax revenue is used to pay welfare benefits to newly arrived migrants. In recent years Denmark has taken the path of applying a two-tier welfare system with different provisions for new arrivals. Denmark has also adopted a more restrictive approach to immigration.

This brings me to politics. The Danes, Norwegians, Finns and Swedes all have anti-immigration parties that poll a substantial proportion of the popular vote (over 20 percent for the Danish People’s Party). The Swedish Democrats have been less influential than the xenophobic parties in the other Scandinavian countries. They obtained a lower percentage of the vote (13 percent in the last election) but the main reason they have been less influential is because they have been shunned by the other parties in Sweden. My source for this information is an article by Alberto Nardelli and George Arnett on the rise of the anti-immigration parties in the Nordic States (published in The Guardian, 20 June 2015).

I hope the vast majority of Swedes will continue to set an example to the rest of the world by maintaining strongly positive attitudes toward non-European immigration. However, that looks to me to be a forlorn hope - unless they can find a sensible way to restrict welfare benefits to immigrants (perhaps accompanied by special policies to assist refugees to find jobs). In my view, other countries, including Australia, should also consider moving toward a two-tier welfare system. Immigration to countries with costly welfare systems has a lot in common with having new members join a club that exists to provide benefits collectively to its members. It is much easier for current members to remain positive about having new members join if they are required to make appropriate contributions before being eligible for the full benefits of membership.  

Are the Scandinavian countries almost nearly perfect?

This question is prompted by Michael Booth’s book, The Almost Nearly Perfect People. The author is English; he is married to a Dane and lives in Denmark. The subtitle (of the version I read) suggests that the author has exposed “the truth about the Nordic miracle”. The book is indeed informative, but the author’s main aim seems to be to entertain readers with his observations on the different character traits of the people in the five Nordic countries – Sweden, Finland, Norway, Denmark and Iceland - and what they think of each other.

The book could be viewed as essential reading for people thinking of spending time in Scandinavian countries. Visitors might need to be warned, for example, that Swedes tend not to be as well-mannered as observers of the on-court behaviour of Swedish tennis players might expect. Booth describes their behaviour when boarding public transport as “breathtaking rudeness” (but he comes from a country in which people do tend to apologize excessively).

The book also has much to offer people, like myself, with an interest in explanations for the high average happiness levels of these countries (as recorded in numerous international surveys) and those attempting to understand why Scandinavian welfare states have not yet collapsed.

The book was recommended to me by Jim Belshaw, an old friend and fellow blogger, because of my interest in happiness research. Jim has recently visited Denmark and has written on his blog about hygge – which translates as cosiness and has some similarity to the Australian concept of mateship – as well as about ethnocentricity and migration.

Michael Booth is bemused that the Danes tend to be consistently close to the top the world happiness rankings: even by comparison with the British they seem to be “a frosty bunch”. He suggests that the Danes are among “the least demonstrably joyful people on earth, along with the Swedes, the Finns and the Norwegians”. The author suggests that many Danes are themselves similarly bemused: “they tend to approach the subject of their much-vaunted happiness like the victims of a practical joke waiting to discover who the perpetrator is”.

It is often difficult to know when Booth is being serious, but he offers several more or less plausible explanations for the apparent contentedness of the Danes. These include low expectations resulting from their turbulent history, and a facility for denial of the costs of being Danish - including the high taxes and the loss of freedom of expression and individualism associated with hygge and Jante Law (the social norms of a small town). Such speculation is fun, but it may not be necessary to an understanding of why the Danes tend to be relatively satisfied with their lives. The relatively high average happiness levels of the Danes and other Scandinavians can be largely explained (statistically at least) in terms of such variables as average income, social support (having someone to count on in times of trouble), healthy life expectancy, perceived freedom to make life choices, generosity and relative absence of corruption. There is a good discussion in World Happiness Report 2015 (pages 21-26).

There is another possible explanation for Scandinavian happiness that I was hoping Michael Booth might have had some fun with. Last year Eugenio Proto and Andrew Oswald published exploratory research findings suggesting that cross-country differences in happiness are associated with “genetic distance from Denmark”. Apparently, the closer a country is to the genetic makeup of Denmark, the happier are the people in that country, other things equal. The study seeks to control for a fairly wide range of other variables. One part of the study is based on information on the incidence of people with short alleles (those who draw the short straw in terms of the serotonin-transporter gene) who have a genetic predisposition to overreact to stressful events. I was hoping that Michael Booth might have speculated about whether there might be something in the cultural heritage of the Scandinavians that could explain their genetic makeup. Unfortunately, the research paper was probably not published before his book was finished. When Booth did comment he cast doubts on the validity of the research findings, citing “the Dane’s record high consumption of antidepressants, which would appear to contradict the report’s assertions regarding clinical depression”. Well, who knows? More research might be required.

The thought of Scandinavians as being “almost nearly perfect” raises the question of how well these countries rate in terms of the “good society” characteristics, which I have previously proposed on this blog (in my most popular post) and in Free to Flourish as criteria that nearly everyone would consider to be important. For convenience, relevant information is summarised in the table below. The table shows data for the top 20 countries, according to their average ranking on the three criteria: peacefulness, individual opportunity and economic security. The shading - from green, through yellow to red - denotes levels of performance on each criterion from relatively strong to less strong for these top performers. (The indexes combine 15 indicators, using methodology described in Free to Flourish.)

It is obvious from the table that the Scandinavian countries are relatively good societies - according to the criteria I espouse. They rank very highly in terms of peacefulness and economic security - although, apart from Norway, they do not rank so highly in terms of individual opportunity. Equal weighting of the criteria might not be appropriate. If I had to choose whether it would be better for my grandchildren to live in a country offering greater individual opportunity or greater economic security, I would choose individual opportunity. However, my personal priorities are probably not widely shared in the Nordic countries. I wonder to what extent those priorities are shared among the large numbers of people who have migrated to Sweden in recent years.

The more contentious issue is whether these societies will remain “good” in the future. Michael Booth provides some hints in his discussion of productivity in Denmark:

“I have read numerous articles in Danish newspapers of which the gist has been ‘Well, things are going well for the other Scandinavian countries so they will probably go well for us too,’ in which no mention is ever made of Norway’s colossal oil wealth or Sweden’s manufacturing supremacy and major public sector reforms. Denmark’s economy is far, far weaker than its neighbours’, and the country is facing far more serious problems, but the Danes are oddly reluctant to address their private debt levels or their gigantic welfare state”.

So, what about Finland and Iceland? There is apparently more to the Finns than taciturnity, modesty, trustworthiness and binge drinking. As well as Santa and forestry, they have a substantial electronics industry (think Nokia). Research and development spending is relatively high as a percentage of GDP and relatively little of this is public money. The Finnish education system seems to be relatively good by OECD standards (average PISA scores are very high) for reasons which seem to be related to the high regard for teaching as a profession and the simplicity of the Finnish language. The future economic growth prospects of Finland have been rated highly by the World Economic Forum, among others.

Iceland’s economy was almost wiped out by the GFC, but it now seems to be recovering. That is an interesting story, but it doesn’t deserve space in this post because the population of Iceland is tiny (about 330,000). That is less than the population of Canberra (which is admittedly somewhat bloated).

Since I have mentioned population I should note in passing that world-wide interest in the Nordic countries seems to be disproportionate to the size of their populations. The total population of the Nordic countries is only about 25 million – not much larger than Australia's. Sweden is largest, with 9.6 million people; the populations of Denmark, Finland and Norway (5.6, 5.4 and 5.1 million respectively) are all smaller than that for Victoria (5.8 million).

Coming back now to the question of whether the Nordic countries will remain good societies, it looks as though Norway will continue to be helped along for a few more decades by the rents from oil resources, while the Swedes and Finns will probably get by without too much trouble on the rents from their past investment in intellectual capital. All the Nordic countries will be helped by their high levels of social capital (trust) which seems to make changes in policy direction relatively easy to achieve as they endeavour to make their welfare systems more affordable. At this point I should mention the impact of immigration.  (So, I have mentioned it.)

Before I end this long post I want to give you a better indication of the flavour of the book by referring to some of the author’s comments on what the people in the different Scandinavian countries think of each other. According to Michael Booth, their Danish neighbours regard the Swedes as stiff, humourless, rule-obsessed and dull, and the Finns see them as “slightly foppish”. These days the Norwegians have enough money to rise above ancient resentments – they pay Swedes to wait on their tables and peel their bananas (to make a sandwich spread). The Swedes, who are wealthier than their other neighbours, tend to remain aloof from regional resentments, but they are inclined to make sanctimonious comments about anti-immigrant policies adopted by the Danes.

The overall impression I am left with, however, is that the lingering resentments among the Nordic countries are fairly tame by comparison with those among the different national and regional groups in the British Isles.