How can we know what we ought to do?

Dear readers, I would like you to consider a particular approach to the question of how we can know what we ought to do. I have used James’ reasoning about whether or not he is a good person in order to illustrate this approach. In case you are wondering, James is a figment of my imagination.

When you ask James whether he is a good person, he says he would like to think of himself as a good person, but he is not as good as he would like to be. He will tell you that he doesn’t claim to be righteous, but neither does he pursue his own pleasure without regard to other people and the norms of the society in which he lives. He says he is happy most of the time, satisfied with his life as a whole, and his conscience does not trouble him much.

James has been fairly successful in his life so far. He was moderately successful in sporting and academic pursuits. He is a friendly person and his relationships with other people are generally cordial. He loves his family. His marriage might not be blissful, but it has survived longer than the marriages of most of his friends. He has been a dependable and caring father to his children, but regrets not spending more time with them while they were young. James has pursued a successful career, which has been a source of great satisfaction to him.

James has a healthy lifestyle. He says that this is about cultivating good habits rather than following a strict diet and exercise regime. He claims that having a healthy lifestyle is just a matter of being the person he has potential to be.

This idea of being the person he has potential to be seems to motivate James’ behaviour in many other aspects of his life including management of finances and work habits. James says that most of the time he can manage himself best by reminding himself of his aspirations and exercising a gentle discipline, rather than by setting detailed rules and attempting to use willpower to comply religiously. He likes the idea of being spontaneous. Nevertheless, he says that there are some lines that he will never cross in his personal behaviour. He regards himself as personally responsible for his conduct, but is inclined to listen politely when people disapprove – at least until he decides whether or not they should be told to mind their own business.

James has always perceived himself to have potential to express many of the traditional virtues. It has been integral to that perception for him to develop and make good use of his reasoning powers and self-knowledge, and to develop his own character in ways that he values. As well as temperance, he has shown a great deal of integrity and courage in many aspects of his life. He takes pride in being honest and trustworthy.

James is also kind. He has not sought a reputation for kindness. He objects to being told that he has an obligation to help those less fortunate than himself. He explains his altruism – he would not object to my use of that term – as being in his nature. His acts of kindness come from the heart, without him expecting anything in return, except for the people he helps to be willing to help themselves to the extent that they are able. He is not a “soft touch”.

James says that becoming a good person is like playing cards well. He says that rather than bemoaning the fact that you have not been dealt a better hand, it is better to maintain good humour and focus on how best to play the cards you have been dealt. You never think of cheating and you avoid playing with people who cheat. You like to win, but you participate mainly to enjoy the social interaction. Playing the game is also a learning experience. You learn how to perceive opportunities, develop strategies, cooperate with others, and to win and lose graciously. As you learn to play well you become a better person.

You might be surprised that the line of reasoning James employs in evaluating whether he is a good person is somewhat controversial among philosophers. I have constructed his line of reasoning so that it is broadly consistent with the ethics of responsibility as espoused by Douglas Den Uyl and Douglas Rasmussen in their new book, The Perfectionist Turn.

The “perfectionist turn” referred to in the title is a turn away from the ethics of respect, which views personal ethics in terms of norms of social interaction, toward the Neo-Aristotelian, eudaimonic, naturalistic ethics of responsibility. This is called “perfectionist” because it is grounded in a developmental (teleological) process which serves to orient a person towards her or his flourishing. The perfectionism referred to has nothing to do with the psychological usage of the word in terms of striving for flawlessness and setting excessively high performance standards.

The reason why many philosophers would suggest that James is confused in his explanation of the motives for his good behaviour is because it is teleological.  James seems to be committing the error of attempting to derive an “ought” from an “is” because he has not provided a reason why he ought to be the person that he has potential to be.

From my reading of The Perfectionist Turn, I think the authors would defend James' reasoning on the grounds that he is describing his natural inclination to engage in activities that constitute the actualization of his potential or his fulfillment. Awareness of his potential for flourishing provides James with reason and motivation, and is the basis on which he determines what he ought to do.

Some critics will probably suggest that if we view individual human flourishing as our measure of goodness we have no way to judge that a person like the great Mongol warrior and emperor, Genghis Khan, was not a good person. I am not sure whether Genghis Khan believed his military conquests were helping him to achieve his potential as a human, but it seems reasonable to argue that he was deluded if that was what he thought. The authors acknowledge that through lack of awareness or misapprehension of what their good consists of humans often make the wrong decisions. They have an Afterword in the book devoted to “big morality” and the potential for some individuals to do great harm, or great good. The thrust of their argument there is that it is to the particular individual soul that one must appeal in the final analysis because “it is the nature and quality of that particular soul which will produce the actions that are to become the objects of moral concern”.

However, the authors also note that the perfectionist turn “is not a turning away from metanorms”, which were the subject of their earlier book, Norms of Liberty (2005). As I see it, there will always be some deluded egocentric leaders who will need to be prevented from impeding the flourishing of other humans. Even the activities of rational self-directed humans seeking to flourish in their own way will sometimes clash with the activities of other rational self-directed humans. As Douglas Den Uyl and Douglas Rasmussen still acknowledge, we need a political/legal order that answers the questions that they asked in Norms of Liberty:

“how is it possible to have an ethical basis for an overall or general social/political context -a context that is open-ended or cosmopolitan - that will not require as a matter of principle, that one form of human flourishing be preferred to another? How, in other words, can the possibility that various forms of human flourishing will not be in structural conflict be achieved?” 

Will neural lace save us from the super-intelligent robots?

Source: Gifts for professionals

If neural lace sounds like something out of a science fiction novel that is probably because that is where the idea originated. A couple of months ago, however, a group of scientists published a paper about injecting an ultra-fine mesh into brains to create neural lace. The mesh has been tested on mice, which survived the implantation and are thriving. Suggested uses for neural lace include “monitoring brain activity, delivering treatment for degenerative disorders like Parkinson’s, and even enhancing brain capabilities”.

In terms of economics, innovations to enhance brain capabilities seem to have many characteristics in common with other innovations. It seems reasonable to expect that, as with other successful technological advances, entrepreneurs developing the technology will initially be able to charge a high price for it. As suggested by Anders Sandberg, of the Future of Technology Institute at Oxford, the price of some brain enhancements (pills and gadgets) can be expected to fall as a result of competition, while the price of service-heavy enhancements (genetic engineering) is more likely to stay expensive. On that basis, there could be potential for the price of neural lace to fall fairly rapidly and for it to become widely used within a few decades, if it offers substantial benefits to users.

 Another reason to expect the price of neural lace to fall rapidly is that research in this area is likely to be undertaken in several different countries. It seems unlikely that the government of any one country will be able to protect the rents of entrepreneurs who develop the technology by suppressing international competition for a prolonged period.

Elon Musk’s proposal to develop neural lace to prevent humans becoming house pets of intelligent machines provides a further reason to expect neural lace to be priced for the mass market. Elon has several other highly ambitious projects on his plate, but he seems willing to add neural lace to the menu. His attitude: “Somebody’s got to do it. If somebody doesn’t do it, then I think I should do it”.

Elon Musk established OpenAI as a not-for-profit venture, so his neural lace project would presumably not be aimed at maximizing shareholder value. Perhaps Elon can attract sufficient potential investors (or donors) to be able to fund the necessary research and development.

So, why not join Elon’s fan club and help him begin work on neural lace as soon as possible to save our descendants from the robots? Michael Cook, a bioethicist, has given three good reasons to proceed cautiously:

“Take privacy. If you can hack a computer, you can hack a brain. Integrating your memories and cognitive activity with the internet allows other people to see what you are doing and thinking 24/7 — a kind of upscale parole bracelet.

Take autonomy. In our culture, this is the most cherished of our personal values. But once brains are integrated into an information network, they can be manipulated in increasingly sophisticated ways. And since technology always serves its owner, we could easily become the tools of Google or the government.

Take responsibility. There might be no crime, as the neural lace could shut down the ‘hardware’ whenever passions threaten to overwhelm social norms – as defined by the network.”

Elon Musk’s claim that humans are already cyborgs should be rejected. The fact that we, as individuals, may have a presence on social media does not mean that we have ceased to be uniquely human. Individuals can have brain implants and still be uniquely human.

Neural lace will not be worth having unless it can be developed in such a way as to enable humans to protect the privacy, autonomy and responsibility that is integral to their individual flourishing.  

What did Australian soldiers on the Western Front write home about?

A century ago Australian soldiers were in France and Belgium fighting on the Western Front. It is worth remembering that these young men were facing a much more imminent existential threat than most tourists who visit Europe today. They would probably be inclined to brush aside our concerns about the current threat posed by terrorism, and would almost certainly be amused by alarmist reactions to the EU’s ongoing existential crisis.

This post focuses on what two of my relatives wrote about in their post cards. Readers who are looking for a more representative answer to the question might be interested in Miss Lynch’s letters.

In May 1916, Harry Bates (my father’s uncle) wrote a card to his sister-in-law, Jessie, who was the local school teacher at Dobie (a township near Ararat in Victoria, that has since ceased to exist) and the Bates family’s letter writer. Harry, shown in the photo, was 35 years old when he sent the card.

At the front of the card is a picture of the cathedral in Marseille, which looks much the same today, so I haven’t reproduced it here.

Harry’s card to Jessie was mainly about the weather. That is not surprising because Harry was a farmer, and like a lot of other farmers in Australia, had been affected by the Federation Drought (1911-16). Harry mentions that in an earlier letter Jessie had told him that the preceding harvest had been good, which is consistent with the good seasonal conditions in Victoria during 1915.

It is interesting that Harry writes of France: “This place is all the world like home”. As I watch the Tour de France, I can see why he would say that. Much of the countryside does look similar, except for the castles and the villages.

The second card was written by Frank Lowe to his cousin, Ethel Vernon, my grandmother, who lived at Crowlands (a township north-east of Ararat). I am grateful to Tom Grieves for his help in identifying Frank Lowe as the author of the card and helping me to decipher the writing. The card was probably written in the latter part of 1917 (following the battle of Messines in June 1917). Frank mentions that he “got through the Messines stunt alright”. Frank would have been 22 when he wrote the card; Ethel was 17.

Frank begins by writing about the card itself: “They have some very pretty things in this line over here.” The card is embroidered with a pocket at the front.

Much of Frank’s card is about relatives and friends who had also enlisted, including Ethel’s brother, Arthur Vernon and Bill Croft, her brother-in-law.

The card asks Ethel to convey a message to her sister, Margaret and brother-in-law, Ivan Frost: “Tell Mag and Ivan never to let their son go to the war if he ever grows up as it is a very poor sort of a game”.

Sadly, Frank’s message was not heeded. Margaret and Ivan Frost’s two eldest sons, Ted and Henry, died as prisoners of war of the Japanese at Sandakan POW camp in north Borneo in 1945.

Will the Ems flourish?

You should be interested in this question because some of your descendants might become Ems during the next century or so. 

Ems are the human-like robots that will be created by emulation of human brains. The emulation process will involve scanning an individual’s brain to record its particular cell features and connections and then building a computer model that processes signals according to those same features and connections. Ems will think, feel and behave like the humans from whom they are created. They will assume they have consciousness and free will, just as humans do.

That view of Ems is presented by Robin Hanson in his recently published book, The Age of Em.

The Age of Em is not the most difficult book I have ever tried to read, but of all the books I can claim to have actually finished reading, I have possibly had greatest difficulty finishing this one. It wasn’t the technical material in the book that put me off. Robin has explained enough of it well enough for non-technical readers like me to get the gist of the scenario being portrayed. I just became bored reading about the Ems. I persisted only because I feel that more of us (humans) should be taking an interest in the future of human-like entities.

Others also seem to have become bored reading about the Ems. In the Finale of his book Robin indicates that a “who cares” attitude was common among people who read early drafts of the book, and among those who declined to read. It would certainly have been easier for me to adopt that attitude than to finish reading the book.

In writing about the Ems, Robin Hanson has attempted to predict what is likely to happen, rather than to present a vision of what he would like to happen. He suggests that the Ems will mostly live in a few tall, hot, densely packed cities, which will seem harshly functional when viewed in physical reality, but will look spectacular and stunningly beautiful in virtual reality. Humans will live far from the Em cities, mostly enjoying a comfortable life on their Em-economy investments.

A distinguishing characteristic of the Em economy will be the ability of Ems to replicate themselves at relatively low cost. Robin suggests that there will be enough Ems willing to make copies of themselves to greatly lower wages to a level near the full cost of computer hardware needed to run Em brains. Under that Malthusian scenario, wages of most Ems will be so low that they will barely be able to afford to exist, even though they will be working hard half or more of their waking hours.

Most Ems will have office jobs, and work and play in spectacular virtual realities. Many of them will enjoy high status during their working lives because they will have mental capacities many times those of human brains. They will be slowed down after retirement, but will have the opportunity to live for as long as Em civilization persists.

Robin suggests that the Em future, as he portrays it, might look pretty good in terms of utilitarian evaluation criteria. Even with wages close to subsistence levels, Ems would have great opportunities for entertainment via virtual reality, and they would live long lives. If there are many billions or perhaps even trillions of them, as Robin suggests, utilitarian calculus would conclude that the Age of the Ems would see a big increase in total happiness relative to our world today.

That view seems to me to highlight the deficiencies of crude utilitarianism. The quality of life of the typical Em, as portrayed by Robin, strikes me as being lamentable. I predict that most humans faced with the choice of whether to live such a life, or the life of an average human, would choose to live the life of a human. Since Ems would inherit our values, I predict that most of them would also reject the life offered by their hot houses of virtual reality in favour of a more authentic life closer to nature. The choices involved are similar to those posed by Robert Nozick in his famous experience machine thought experiment (discussed previously on this blog in a post that has recently been re-published on Common Sense Ethics).

That brings me to what seems to me to be a major flaw in the scenario that Robin Hanson posits. I think he misjudges human values and preferences when he suggests that large numbers of humans and Ems would be willing to make copies of themselves under circumstances where Em wages were low and falling. As advances in technology have made it easier for humans to exert greater control over their own reproduction they have used that power to ensure their offspring have good prospects to have lives they will value. Ems might view their replication decisions differently, but I don’t see why they would choose to bring into the world large numbers of twins earning subsistence wages.

The other problem I have with Robin’s scenario is that I think he may be too pessimistic about the potential for Ems to increase their productivity by expanding their use of non-Em robots, as an alternative to replicating themselves. As Ems obtain more advanced capital to work with (including non-Em robots) their marginal productivity could be expected to rise, thus tending to raise wage rates.

This book is based on the assumption that brain emulation is likely to happen before artificial machine intelligence develops to the point where machines will achieve broad human level abilities. I don’t have the technical competence to comment on whether that is likely. Some issues relating to the latter possibility were discussed in my review of Nick Bostrom’s book, Superintelligence. The idea that human-like robots may be created through brain emulation at some time during the next century does not fill me with joy, but life might be better for humans (and Ems) if the Ems are created before the intelligent machines, so they can prevent them from running amok.

Despite my reservations about this book, I recommend that readers should buy it in order to give Robin Hanson appropriate encouragement for his efforts in attempting to foresee the future of human-like creatures. An even better reason to buy the book is to try assess for yourself whether Robin’s base-line scenario is plausible.

How do people living in the modern world get happiness all wrong?

Leah Goldrick provides her answer in this guest post, which is a slightly modified version of an article originally published on her excellent blog, Common Sense Ethics .

We all want to be happy. But could it be that we have our understanding of happiness all wrong? The general definition of happiness is philosophically unsophisticated. It pretty much boils down to the ongoing experience of positive emotions and a lack of negative ones. Life is about more than just moving yourself around, spending money and enjoying your next fix. Is our unphilosophical (and perhaps incomplete) understanding of happiness why so many of us are miserable according to mental health statistics?

Is there a missing moral component at the root of happiness? The ancient Greeks definitely thought so, and it turns out that genomic research conducted by Barbara Frederickson, which has previously been discussed on Freedom and Flourishing, indicates that we may be biologically wired for what they called eudaimonia (from daimon, or true nature). Differing from hedonism (pleasure or self gratification), eudaimonia is often translated as flourishing or living well, with a sense of noble purpose, virtue, and connection to others.

​In other words, real happiness is impossible without virtue - or arete in ancient Greek. Arete means excellent character, or reaching your highest human potential. Eudaimonia not only protects our physical and mental health at the cellular level, it may lead to a long term, more profound sense of well being. 

So what do we do if we want to experience eudaimonia? How do we reach our highest potential?

There are 3 concrete steps that you can take to be happy in the ancient Greek sense. First, you must acknowledge that virtue is necessary for happiness. Eudaimonia is about more than just feeling good, it is about becoming the best person that you can be. Second, you must do the inner work that is necessary to truly "know yourself," as Socrates said when he quoted the Delphic Oracle. And finally, you must take action and apply your unique talents and gifts in life for the good of yourself and others.

​1. Understand That Virtue Is Necessary For Happiness

What is happiness anyway? The experience of pleasure? The absence of pain? Gaining things that bring you contentment? The enjoyment of life? It seems like there is something missing here. An entire industry of motivational speakers and self-help gurus revolve the concept of well being, but each of them probably interprets happiness differently.

Various Eastern and New Age philosophies offer a different definition of happiness, one that is interesting and perhaps more complete - that happiness is the byproduct of our life's journey, and not a destination to be arrived at or something to be gained. But rather a state of mind or a sense of flow. This definition is closer to eudaimonia, but still morally agnostic.

It was the ancient Greeks who offered the most compelling definition of happiness, one that includes an ethical dimension - eudaimonia. Aristotle was the first philosopher to really flush out the concept of eudaimonia, but Plato's writings, as well as Socrates', contained elements of it. Aristotle felt that happiness in the modern, hedonic sense was a vulgar concept. Not all pleasures lead to well-being. In the Nichomachean Ethics, Aristotle notes that "Living well and doing good are the same as being happy."

The Stoics went even further than Aristotle and argued that only virtue is necessary for happiness. Aristotle thought that some elements of hedonic happiness, such as having good food, a home, family, leisure, and so on, were necessary for a good life. But a good life was incomplete without also pursuing excellence. We don't live well only by amusing ourselves.

The ancient moral dimensions of happiness through virtue and excellent character were lost sometime in the interceding millennia. But Barbara Frederickson's recent genetic study seems to support Aristotle's position, or maybe the Pythagorean position. While hedonia is somewhat necessary, it is eudaimonia which benefits us the most: 

“We can make ourselves happy through simple pleasures, but those ‘empty calories’ don’t help us broaden our awareness or build our capacity in ways that benefit us physically,” she said. “At the cellular level, our bodies appear to respond better to a different kind of well-being, one based on a sense of connectedness and purpose. Understanding the cascade to gene expression will help inform further work in these areas,”  Frederickson states.

Frederickson's research may also offer some insight into the theory of hedonic adaptation - that people are observed to revert back to prior levels of happiness soon after experiencing something pleasurable. Pleasures may make us happy in the short term, but they are fleeting and unable to provide us with long term health benefits and a sense of well being that comes from working to improve ourselves and becoming the best person that we can be.
​

2. Know Yourself

The phrase "Know thyself," or Gnōthi sauton in Greek, is typically attributed to Socrates because he often used it. But it has its roots in the legend of the founding of ancient Greece. As the story goes, 7 sages and law givers gathered at Delphi and laid the foundations for Western civilization. They had the phrase inscribed on the entrance to the sacred oracle. "Know thyself," has been the philosopher's clarion call ever since.

Plato believed that the human psyche has 3 parts: logical (or intellectual), spirited (having to do with action and the courage to be good) and appetitive (having to do with desires and emotion). In the just person, all three parts of soul agree that the logical must rule, bringing the other 2 parts - the spirit and the emotions - into a state of good or concordance.

The point here is that if you want to be happy, you can't be internally at war with yourself.  You must bring your intellect, emotions, and actions into harmony with each other. Otherwise, you might experience a situation where you desire something that you know to be wrong intellectually - and the result is often bad decisions and unhappiness. 

The psychologist Carl Jung believed that accepting and Integrating the shadow into your conscious personality is a great way to flush out any internal contradictions withing your psyche. The result of shadow work is the full integration of the self, leading to a better understanding of your true nature, or daimon in Greek.

If you don't know how to begin doing shadow work, my Knowing Yourself Better Questionnaire is a good place to start. I can say that this technique has helped me personally.

  

3. Find Your Life's Purpose

Can you be truly fulfilled without knowing what you are living for? Once you understand yourself at a deep level, you will know where you can best contribute your unique talents in the world. As sense of noble purpose rooted in meaning is the is the final step towards eudaimonia or flourishing. 

​We all have free will to make choices that improve our well-being. This tendency towards growth and flourishing is common to both the Greek philosophical tradition and modern humanistic psychology. The psychologist Carl Rogers states:

‘...man's tendency to actualize himself, to become potentialities. By this I mean the directional trend which is evident in all organic and human life - the urge to expand, develop, mature - the tendency to express and activate all the capacities of the organism and the self. This tendency may become deeply buried under layer after layer of encrusted psychological defences; it may be hidden behind elaborate facades that deny its existence; it is my belief, however, based on my experience, that it exists in every individual, and awaits only the proper conditions to be released and expressed'.

​

Make sure that your activities in life have a noble purpose. Each of us has special talents that we can use to make the world a better place. The daimon, or true nature, refers to a your highest potential, ​and when you put your potential into action, happiness is the result. 

​A good, happy life, is the result of a virtuous character, self acceptance, and continual striving towards excellence.


You May Also Like:
​4 Life Lessons We Can Learn From The Cynics
​The Shadow: How Introspection Can Teach You Everything You Need to Know About Yourself

Will machine intelligence threaten life, liberty and the pursuit of happiness?

This post has nothing to do with the influence of political party machines on current election campaigns.

As some readers will already know, Nick Bostrom’s book, Superintelligence, discusses the challenge presented by the potential for machine brains to surpass human brains in general intelligence. Bostrom does not claim that is imminent, but he suggests it is somewhat likely to happen sometime this century. After AI has surpassed human intelligence, the author fears that an initial superintelligence might soon afterwards obtain a decisive strategic advantage and pose a threat to human life. There have been several good reviews of Superintelligence, including one by Ronald Bailey in Reason.

How could a machine programmed by humans come to threaten human life? Some examples mentioned by Bostrom imply that it would be quite easy for that to occur by accident. For example, a machine that was given the simple objective of maximizing the production of paperclips could seek to acquire an unlimited amount of physical resources and to eliminate potential threats, including humans who are likely to try to prevent it from achieving its goal.

People like Bill Gates and Elon Musk, who could not be viewed as technophobes, argue that the threats posed by superintelligence should be taken seriously. That didn’t stop me asking myself why anyone in their right mind would program a machine to maximize the number of paperclips. Any sensible businessman would ensure that the machine was programmed with a profit-making objective, rather than a production objective. I have to acknowledge, however, that would still leave the problem of ensuring that the superintelligence doesn’t use unethical means to eliminate competitors. 

There is also the problem that some of the people developing AI might be crazy, or antipathetic towards humans. For example, it does not seem beyond the bounds of possibility that a group of extreme Greenies might seek to develop a superintelligence that would pursue the selfless goal of restoring the natural environment to its condition prior to the Anthropocene.

Most of Superintelligence is devoted to a discussion of the difficulty of designing superintelligence so that it would not be a threat to humans. While reading the book I felt that at times I was reading about the problems of designing a god – an enormously powerful entity that would govern our lives. For example, if the AI is given the seemingly innocuous goal of making us all happy it might arrange for us to have electrodes implanted in the pleasure centres of our brains, or perhaps even upload our minds to computers and then administer the digital equivalent of a drug to make us ecstatically happy all the time.

At other times I felt the problems being discussed were more like those which might be involved in establishing the characteristics of a good society. Bostrom seems to favour AI being given a goal such as maximizing our coherent extrapolated volition (CEV). As I understand it the CEV concept implies that if we knew more and thought faster our individual views about the nature of a good society would converge, so that a consensus could be discovered. The author explains that the CEV approach does not require that all ways of life, moral codes, or personal values be blended together into a stew. The CEV dynamic “is only supposed to act when our wishes cohere”.

The CEV concept has some appeal to me because it seems consistent with my own efforts to describe the characteristics of a good society in the most popular post on this blog. However, it does not require superintelligence to identify those characteristics. It would not be difficult to establish through existing survey methods that the vast majority of humans want to live in peace, to have opportunities to live for a happy lives and to have some degree of security to protect against misfortunes. The problem is in ensuring that a superintelligence would interpret such objectives in a manner consistent with individual human flourishing.

The main reservation I have about Superintelligence is that it does not contain much discussion about defence against malevolent AI. As I see it, it is probably worthwhile to undertake collaborative efforts to avoid the accidental development of machine intelligence in ways that might not be benign. But such efforts are not likely to prevent the AI being used unethically by people with nefarious objectives. Our defences against cyber-attack will need to be strengthened to protect against malevolent AI.

We need a Superintelligence dedicated to defending our individual rights. But we should be careful what we wish for! Once upon a time, a few centuries ago, some enlightened people set about establishing forms of government dedicated to protecting life, liberty and the pursuit of happiness. We ended up with warfare/welfare states.

What is the "bourgeois deal" and why should you care?

The ‘bourgeois deal’ is a term used frequently by Deirdre McCloskey in Bourgeois Equality, the third book of her trilogy which aims to show that it is ethical and rhetorical change that has enabled most humans today to be much better off than their forebears. The bourgeois deal refers to societal acceptance of innovations that compete with and displace old ways of doing things in exchange for widespread improvements in living standards.

Big deal? This has been a huge deal. Deirdre argues persuasively that trade-tested betterment associated with the bourgeois deal was responsible for the massive improvement in living standards enjoyed by vast numbers of people that began over 200 years ago and has now spread to most parts of the world (as shown in the accompanying chart prepared by Max Rosser using Angus Maddison’s data).

There are two aspects to the rhetorical-ethical revaluation discussed in Bourgeois Equality:

• A change in prevailing attitudes gave greater respect to people engaged in commercial activities.
• The development of rhetorically open societies – involving freedom of conscience and greater freedom of speech – propelled the French and Scottish Enlightenments, science, experimentation and invention, journalism, the spread of technical knowledge, and the economic and political dignity of ordinary people.

In emphasizing the importance of trade-tested betterment to economic growth, Deirdre McCloskey’s views are consistent with the mainstream view of economists, who, for the last half century at least, have acknowledged the important role of technological progress (and technological catch-up) in the economic growth process. Anyone who persists in espousing alternative explanations such as imperialism, or capital accumulation by itself, might benefit from reading Deirdre’s demolition of such theories.

The author seeks to differentiate her views from those of neo-institutionalists, such as Douglass North, who have sought to explain economic growth as stemming from institutional change i.e. changes in economic incentives associated with changes in the rules of the game in society (social norms as well as constitutions, laws and regulations). She succeeds in dismissing some factors, including property rights, previously emphasized by the neo-institutionalists. Property rights were reasonably secure in England for centuries prior to the industrial revolution. 

Nevertheless, institutional change was necessary to enable intellectual innovation to be protected from the violent responses that had previously been meted out to heretics and innovators who were perceived to constitute a threat to long-established patterns of production, distribution and exchange.

Some components of relevant rhetorical and ethical changes do not fit under the heading institutional change. For example, changes in perceptions of personal identity that enabled some individuals to take on entrepreneurial roles seem to have been closely related to rhetorical change, but probably had little to do with changes in rules or incentives. Similarly, changes in the rules can have an independent economic impact that does not fit easily under the heading of rhetorical and ethical change. For example, political leaders sometimes get ahead of public opinion e.g. in promoting free trade or privatisation of government owned enterprises.

Perhaps we should be lumping rhetorical, ethical and institutional change together. The author cites an example which seems to involve all three elements. The reduced willingness of courts in England to support the restrictiveness of the craft guilds, from the early 17^th century onwards, has been described by Eric Jones as attributable to “the national shift in elite opinion, which the courts partly shared”. In many instances, however, relevant rhetoric has been directed specifically toward changing the rules of the game. Adam Smith’s influential discussion of the appropriate role of government in Wealth of Nations comes to mind.

Hopefully, some of you - those who are still reading - will be wondering why the bourgeois deal is relevant to you. (I wonder whether any of those who stopped reading before this point will read the 650 pages of text in Bourgeois Equality. It seems to be a big ask to get anyone to read even 600 words these days.)

We should all care about the bourgeois deal because we are confronted with choices among a menu of different deals. Deirdre points out that, after 1848, the Bourgeois deal was challenged by the utopian Bolshevik deal and the Bismarckian (or Beveridge) deal.

The Bolshevik deal promised that all the problems associated with nasty concentrations of power in property owned by the bourgeoisie would be resolved by government ownership of the means of production and that the nature of man would change with the arrival of socialism. That deal was taken off the menu in 1989 (everywhere except North Korea) after it became too obvious that it was an extraordinarily bad deal for everyone except Communist party officials.

The Bismarckian deal stemmed from Bismarck’s scheme to steal the thunder from his socialist enemies by introducing a welfare state. Deirdre describes it thus:

“The deal is that the welfare state will substitute for your own and your family’s voluntary provision for old age or unemployment or medical care, and you will come to view the present state as your noble and benevolent lord” (p 604).

The Bismarckian deal lives on, coexisting uneasily with the Bourgeois deal because the high taxes required to support it act as a disincentive to trade-tested betterment. That is my judgement; I imagine Deirdre would agree, but I can’t see where at the moment. Like all good libertarians (the bleeding heart variety) she supports the provision of a welfare safety net directed specifically toward assisting those in need.

In my view we are now confronted with a third deal, which could be described as the doomsday deal, or if you want to personalise it, the Paul Ehrlich deal (after the biologist Paul Ehrlich who, like many other sect leaders who prophesy imminent doom, seems to have managed to maintain the loyalty of many of his followers even though the doom he predicted did not happen). Deidre describes such prophesies as the “eighth pessimism of our times”, rather than a deal. I see the doomsday deal as offering us the hope of being saved from an imaginary environmental doom if only we are prepared to forgo further economic betterment. Those who accept the doomsday deal deny that the bourgeois deal can be compatible with sensible measures to avert environmental disasters.

We should care about the bourgeois deal because it is constantly under threat. As Deidre McCloskey puts it in the table of contents for her book:

“Rhetoric made us, but can readily unmake us”.


Postscript:

Deirdre McCloskey has provided the following comment:

What an intelligent and penetrating discussion!  You clarify for me what I dislike most about neo-institutionalism, namely, that is always, every time, about incentives.  Humans respond to incentives.  I admit it (I am after all an economist).  But other matters than cost and benefit move people, too.  The Anzac men going over the top at Gallipoli cannot be summarized as responding to incentives alone.

I like your supplement to the Bismarckian Deal--Beveridgean!  

Is economics becoming a branch of psychology?

I began pondering this question while reading Misbehaving, Richard Thaler’s entertaining and somewhat triumphalist account of his career in helping to establish behavioral economics. The fact that Thaler was made president of the American Economic Association in 2015 might signal growing acceptance within the profession that economics should be built on the insights that psychology provides about human motivation and behaviour, rather than on conventional neoclassical assumptions about individual rationality. For those who accept Lionel Robbins famous definition of economics as “a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses” and consider the rise of behavioral economics in that context, it would not involve a huge leap to suggest that all economics is behavioral economics, and therefore a branch of psychology.

It is acknowledged that behavioral economists seem to behave in many respects more like economists than psychologists, but that could, perhaps, be interpreted as a clever use of psychology. In the absence of behavioural economics, it would have been easy for economists to continue to ignore psychologists who suggest that the it is not realistic to assume that individuals maximize utility. It has been much more difficult for economists to ignore one of their number who makes the same point, while suggesting that the assumption that humans behave like mythical Econs should be retained as a benchmark against which actual human behaviour should be assessed. Early in the book Thaler writes:

“Theories based on the assumption that everyone is an Econ should not be discarded. They remain useful as starting points for more realistic models” (p7).

When it suits his purpose I think Thaler also uses the conventional utility maximizing assumption as a normative benchmark (just as many economists have wrongly used the concept of perfect competition as a normative benchmark). Although he claims that it “has never been my point to say that there is something wrong with people”, a lot of his efforts have been directed toward suggesting that humans make systematic cognitive errors that can be ameliorated by the “nudges” provided by wise government agencies. I have previously argued (here and here) that while the libertarian paternalism Thaler advocates is preferable to coercive paternalism, people need to be vigilant to ensure that they not being nudged toward choices that are contrary to their interests. We need apps to advise us whether or not to accept the default options offered to us by “choice architects”.

I cannot resist feeling bemused that during the period while psychology was gradually being welcomed into economics, like a Trojan horse, neoclassical economists were widely held to be behaving like imperialists, invading the subject matter of other social sciences, following the leadership of Gary Becker. Paradoxically, using the neoclassical assumption of individual welfare maximization, economists have been able to provide some useful insights to the study crime, the family, education and many other topics. Even when disciplinary overreach was fairly obvious, as in the theory of rational drug addiction, it has been plausibly argued that people like Becker challenged researchers to develop alternative theories and to confront those theories with data. The challenge of economists’ imperialism lives on in popular discourse, such as Freakonomics, as well as universities.

Perhaps the Trojan horse of behavioural economics will thrive within the broad domain of economic imperialism. We might see a convergence of psychology and economics in the study of a wide range of issues.

However, as I see it, the fundamentals of economics will continue to remain largely unaffected by both behavioural economics and the conventional neoclassical assumptions about individual welfare maximization. The theory of choice is worthy of study, but it is not as central to economics as it has commonly been claimed to be. Lionel Robbins definition of economics as being about solving allocative problems has tended to distract from the more important role of economists in studying “the propensity in human nature” to “truck, barter, and exchange one thing for another” and how this promotes “general opulence” or human flourishing.  The quoted words were, of course, used by Adam Smith in The Wealth of Nations.

In his article “What should economists do?”, published in 1964, James Buchanan argued that the theory of choice should be removed from “its position of eminence in the economist’s thought processes”. He suggested that economists should concentrate their attention on human behaviour in market relationships and other voluntaristic exchange processes, and upon the various institutional arrangements that can arise as a result of this form of activity.

Since Vernon Smith has studied how such institutions can emerge in experimental settings, it is fitting that he should be given the last word here:

“Individual choice … is not where the action is in understanding economic performance and human achievement. … The main work of socioeconomic systems is in specialization and the exchange systems that make possible the wealth they create, not the minutiae of choice and preference representation. The functioning of these systems is far beyond the field of vision of the individual, but it should not be beyond the vision of economic science” (Rationality in Economics, p 156). 

Postscript:

By coincidence, not long after I had finished writing this post I was enjoying my daily quota of Bourgeois Equality by Deirdre McCloskey, when came across this:

“Nowadays the behavioral economics of, say, Dan Ariely does a job of demolishing claims of individual rationality in moderns. Yet it too commits the Weberian mistake of focusing on individual psychology instead of group sociology and market economics. The experimental economics of Vernon Smith, Bart Wilson, Erik Kimbrough, and others, by contrast, works always with groups, showing that a wisdom of crowds often prevails over psychological shortsightedness and calculative confusion. And by the way, it makes a good case that property arises without the help of the state or the nudging of the clerisy” (p 282).

Why has Australia prospered much more than Argentina?

In the first half of the 19^th Century the Australian and Argentinian economies were similar in many respects. Both countries were being settled by European migrants and their economies were heavily dependent on pastoral activities. Around 1900, per capita GDP levels in Argentina were thought to be not far below those in Australia (see the chart below). Since then, while Australia has prospered to much the same extent as other relatively wealthy countries, Argentina has slipped behind.

Ian McLean’s attempt to explain why Australians have prospered to a much greater extent than Argentinians is to my mind the most interesting feature of his book, Why Australia Prospered (2013).

Part of Ian’s explanation did not come as a surprise to me, but nevertheless deserves to be repeated - often! There have been periods during the last century when inappropriate institutions and policies have threatened to retard the improvement of Australian living standards (e.g. the 1970s) but long-run stagnation was avoided because appropriate economic reforms were made and sustained. As Ian comments: “This contrasts with the historical record of Argentina” (p 252).

A deeper, and more novel, aspect of Ian’s explanation is his speculation that the past willingness of Australians to change institutional arrangements when future prosperity has been threatened is linked to the emergence among 19^th century Australians of a democratic and egalitarian temperament, and its persistence since then. Ian notes that there were strong economic forces opposed to the emergence of such culture in Australia because the initial distribution of ownership of pastoral land - the principal basis of wealth in the economy - was highly unequal. In terms of the analysis of Stanley Engerman and Kenneth Sokolov, the economic power acquired by the wealthy elite could have been expected to have been employed to shape political and social institutions as occurred in Latin American countries, entrenching inequality and resulting in ongoing growth-stunting distributional conflict. According to Ian’s speculations, Australia avoided a long period of squattocracy (oligarchic government by wealthy land owners) only because the British were still in control at the critical point in the 1850s and were able to determine the nature and timing of self-government.

This story challenges some of my preconceptions. I like to think of the squatters as heroes of free enterprise rather than as oligarchic rent-seekers. But I guess few humans are able to resist the temptation to exercise political power in their own interests when the opportunity presents itself. The squatters would have had little difficulty in believing that they were serving the common good by seeking to entrench their dubious property rights and encourage ongoing importation of cheap labour for use on their properties.

The idea that the British government was acting in Australia as an enlightened force promoting democratic ideals might require some explanation.  Ian points out that British attitudes and policies towards the colonies had been shaped by the loss of American colonies and by political instability in Canada. He also notes the existence of domestic pressures for institutional change:

“The attitudes and aspirations of the flood of immigrants arriving after the discovery of gold reflected those of mid-Victorian Britain where reform of the corrupt and class-based political system and concern at social and economic inequalities were much in evidence” (p 252).

Ian McLean’s account of Australian economic history shows that it would be as difficult to sustain the view that Australia has prospered because the heroes of free enterprise have consistently won political battles against the proponents of egalitarianism, as it would be to sustain the view that Australia has prospered because government interventions have consistently been benign in this country. Early establishment of democratic institutions seems to have acted as an important safety valve reducing the potential for distributional conflict, even though it brought with it restrictions on economic freedom, such as trade protectionism, that were later to hinder economic growth. Over the long term, a democratic and egalitarian culture has so far helped Australians to restore and maintain sufficient economic freedom to ensure their ongoing prosperity. 

Is Australian housing more than 40% over-valued?

Source: Australian Bureau of Statistics

A recent article in The Economist suggests that “housing appears to be more than 40% overvalued in Australia, Britain and Canada” (“Hot in the city”, April 2, 2016 - possibly gated). This claim is based on the extent that the ratios of prices to disposable incomes and prices to rents are above their long term averages in those countries. By contrast, according to The Economist, housing prices in the United States are currently at “fair value” because those indicators are close to their long run average.

When they talk about “fair value” I guess what the authors of The Economist article have in mind is an equilibrium price that may differ from current market prices.  That raises some thorny conceptual issues, but I am prepared to accept that markets are sometimes affected by the irrational exuberance or pessimism of large numbers of investors.

The Economist has been using the same methodology for quite a few years now to suggest that housing prices are overvalued in countries in which they have risen strongly since the GFC.

When I wrote in 2011 about a previous article in The Economist using this methodology I pointed out that it was unrealistic to expect average rental yields (the inverse of the house price to rent ratio) in Australia to return to its long term average over the period since 1975 because over the first half of that period high nominal interest rates were suppressing demand for housing. As inflation rates and interest rates came down, housing affordability improved markedly during the 1990s, but this led to increased demand for housing, a sharp rise in house prices and a decline in rental yields. What we were seeing was a return to normality rather than the emergence of a house price bubble.

The Economist has published an infographic (ungated) which neatly illustrates how the ratios of prices to disposable incomes and prices to rents are currently above their long term averages in Australia, Britain and Canada. However, their infographic also illustrates the potential for large errors to be made by assuming that long term averages of house price to rent and house price to income ratios represent equilibrium prices. If you look at movements in the ratios of prices to disposable incomes and prices to rents over the whole period 1970 to 2016, you will notice that those ratios for Australia and Canada were well below the corresponding ratios for the US in the 1970s and ‘80’s. The same was true for Britain in the ‘90s. Even if actual price to income and price to rent ratios were currently the same in all four countries, the ratios for Australia, Canada and Britain could still be expected to be above their long run averages.

So, what does a comparison of actual ratios for Australia, Canada, Britain and the United States show? I haven’t attempted a complete assessment, but the latest data from Global Property Guide (GPG) on gross rental yields suggests yields of 4.4% for Australia (Sydney), 4.4% for Canada (Toronto), 3.2% for the UK (London) and 3.9% for the US (New York). The GPG data for the US relates to Manhattan which might be perceived by investors to offer better prospects for capital gains than most other localities in the US. The Economist’s data on price to rent ratio’s for the US implies a much higher gross rental yield for New York (about 7%) and even a somewhat higher yield for San Francisco (about 5%).

Given current and prospective interest rate levels, those comparisons do not seem to provide much evidence of irrationality in housing prices in any of those countries. It seems to me that there is no more reason to think housing investors in Australia, Canada and Britain have been irrationally exuberant in recent years than to think those in the United States have been irrationally pessimistic.  

What is the objective of superannuation?

This post is prompted by the Australian government’s discussion paper entitled “Objective of Superannuation” released yesterday. The government is raising the matters as part of a consultation process prior to introducing legislation to specify the objective of superannuation in legislation. The discussion paper uses the word “enshrine”, rather than “specify”, but that seems inappropriate.

Unfortunately, the paper fails to point out that in specifying the objective of super the government is (or should be) focused on public policy, rather than the wide range of different objectives of different individuals and firms with an interest in super. Some people use super to build wealth to pass to their children. Some people use it to save for retirement. I expect that many people don’t have a clear objective in mind, but view super as a useful savings mechanism. Employers may view super as a way of attracting staff or ensuring that valued staff are able to live comfortably after retirement. The financial institutions that provide superannuation products have different objectives again.

The question the legislation should be trying to clarify is:  What is the objective of government legislation with respect to superannuation?  If we have an answer to that question we may be in a better position to consider questions such as whether there might be a case for individuals to continue to be encouraged, nudged or even compelled (as at present) to save via superannuation .

The government proposes to legislate the objective recommended by the Financial System Inquiry:

“To provide income in retirement to substitute or supplement the Age Pension”.

In my view that is a sensible public policy objective. The government should be encouraging people to become more self-reliant rather than expecting taxpayers to support them in their old age. This is particularly important given the projected increases in the government spending on pensions in coming decades and the many other burdens being placed on taxpayers.

The subsidiary objectives raised for discussion tend to cloud the issues. For example, “facilitating consumption smoothing over the course of an individual’s life” is presumably also an objective of the age pension, unemployment benefits and other welfare payments. Some other suggested subsidiary objectives relate to prudential regulation and fiscal policy.

A potential problem I see with the proposed clarification of the objective is that pursuit of that objective in isolation could result in a less efficient tax system than we currently have. 

Even though they do not do as much as they should to substitute or supplement the aged pension, the current tax concessions for super do reduce the bias against savings and investment under the income tax system. The concessions reduce the extent that individuals who save, and re-invest income from their savings, pay a higher lifetime tax bill than people with similar earnings who choose to save less. The bias against savings and investment will be exacerbated if super tax concessions are reduced without more fundamental reforms being taken to improve incentives for savings and investment.

I was also concerned about this when writing about the potential for tax reform on this blog in April last year. Whilst suggesting that it made sense to include reductions in super tax concessions as part of a tax reform package, I hoped that the government did not forget to obtain a substantial reduction in tax on capital incomes as a quid pro quo.

It will be interesting to see whether specifying a sensible objective for superannuation policy helps to achieve a better overall tax policy outcome.

Was the great tax debate worth having?

The great tax debate began about a year ago when Joe Hockey, the former Treasurer, released a discussion paper prepared by Treasury. Rather than suggesting a small range of options for consideration, the discussion paper put 66 questions on the table.

The answer that the authors were hoping to be given to some questions was, nevertheless, fairly obvious. For example, when they asked how important is it to reform taxes to boost economic growth, it was fairly obvious that the authors were hoping to told it was important. When they asked how should Australia respond to the global trend toward reduced corporate tax rates, they were probably hoping to be told that Australia should seek to have a tax system that would not deter foreign investment. Information provided in the report implied fairly clearly that there could be economic gains from relying less heavily on company taxes and stamp duties levied by State governments and more heavily on GST and taxes on labour income.

However, the debate had hardly begun before Tony Abbott, the former prime minister, began taking options off the table. He might have had good reasons for that, but he kept them to himself. So, by the time Malcolm Turnbull took over as prime minister, the great tax debate was becoming a fiasco.

Not long after prime minister Turnbull declared that all options were back on the table, the Labor opposition began to claim that the government was intending to raise and/or broaden the GST. The pressure became so intense that the government announced a decision on the matter prior to announcing the tax policy reform proposals it plans to take to the next election. The PM stated:

"After you take into account all of the compensation that you would need to ensure the change was equitable, it simply is not justified in economic terms."

That has elicited a range of responses from economic commentators. The most general response seems to have been that if a GST increase is ruled out, that removes the potential for the government to go to the election with a major tax reform program that would encourage economic growth. Some commentators have suggested that such an outcome was predictable in any case, so there was no point in having the great tax debate.

I don't think either of those responses is appropriate. 

Time will tell whether the government is able to come up with a credible tax reform package that will encourage economic growth. There is potential to do so, but it will require the Commonwealth to transfer back to the States the responsibility for raising more of the revenue required to pay for schools and hospitals. The politics of the federation probably require the Commonwealth to take a leading role in the tax reforms required at state level to enable that to happen. The potential exists for the Commonwealth to play a leading role because the payroll tax was once a Commonwealth tax before being given to the States, in the forlorn hope that they would use it as a growing source of revenue and become less dependent on Commonwealth grants.

Even if the conclusion of the great tax debate is that there are no easy tax switch options to encourage economic growth, that doesn’t mean that the debate was not worth having. If enough people had read and understood the stuff I was writing on this blog (here and here) around this time last year, they might have concluded at that point that there are  no costless taxes and that the focus of the debate should be on how to reduce government spending. Other people were writing similar things - more people probably read and understood some of their contributions - but they still had a negligible impact on understanding of the issues by the general public.

The great tax debate was worth having as a public education exercise. In order for people to persuade themselves to think seriously about ways to reduce government spending they need to bring themselves to understand that there are no costless ways to raise additional government revenue. 

Postscript:
When I wrote this a couple of days ago I had assumed that after the government rejected their proposal to increase GST in order to reduce the company tax rate the Business Council of Australia (BCA) had probably picked up its bat and ball and gone home to sulk for another decade or so . Yesterday, however, they have come back into the game stronger than before. The BCA has now proposed a tax reform agenda that will be difficult for this government to sweep off the table. It is well worth taking a look.