By Winton Bates, on December 6th, 2010
Before reading Eric Jones book, ‘Locating the Industrial Revolution’, I had thought that the reasons why the industrial revolution began when and where it did would have a lot to do with relative levels of economic freedom in England in the 18th and 19th centuries. The book seems to me to reinforce that view, even though it does not argue strongly in favour of it. The message I get from the book is that the political forces favouring greater economic freedom prevailed over opposing forces in those areas of economic policy that were most critical to economic growth at that time.
 My prior view that the industrial revolution would have had a lot to do with relative levels of economic freedom was associated to some extent with dissatisfaction with alternative explanations such as that offered by Gregory Clark (discussed here). I admit, however, that my prior views were most strongly influenced by contemporary econometric evidence that greater economic freedom tends to promote higher economic growth. I would not be surprised if Eric Jones considers that such reasoning displays ‘too great a willingness to accept dubious data as proxies for the real thing, and too much of a preference for neat solutions’ (p. 6). He uses those words as a general criticism of economists.
The main question that Jones considers in this book is why the location of manufacturing industry shifted from the south to the north of England prior to the industrial revolution. This is an important question because the clustering of industry in the north provided an economic environment conducive to subsequent innovations, including use of coal-fired steam engines as an energy source.
Jones suggests that the economic history of England does not provide neat solutions to the problem of locating the industrial revolution. He claims:
‘There is no determinate solution to the puzzle of why the industrial revolution took place, and when and where it did so. All that can be achieved is a narrowing of the range of possible mixes’ (p. 245).
Jones sees problems with a simple explanation in terms of levels of economic freedom:
‘Ordinarily we might expect that economic growth would be spurred by market freedoms but there are problems with this line of argument. A number of the outcomes do not seem to have been stable. Free-market preferences within the judicial system were inconsistent, since the judges reverted to precedent when it suited them – not that every law was enforced. Protective duties were raised precisely when “a modest flow of works” was starting to extol the virtues of free trade. Nor was corruption decisively reduced until some way into the 19th century’ (p. 243).
However, similar objections have been raised against attempts to explain China’s economic growth in recent decades as a consequence of market freedoms. A point that is often overlooked is that in considering the potential for economic growth offered in a particular economy by a particular level of economic freedom the most relevant comparison is with levels of economic freedom generally prevailing in other economies with similar income levels. An improvement in economic freedom in a low income country can provide an impetus to more rapid growth even though economic freedom remains heavily restricted.
Jones suggests that the main factor responsible for the redistribution of manufacturing activity to northern England was market integration associated with improvements in transportation. The merging of markets led to greater competition and specialization on the basis of comparative advantage – with a greater focus on agriculture in the south and manufacturing in the north. He points out, however, that these improvements in transportation often had to overcome substantial political obstacles from wealthy land-owners, whose concern to protect the social status that land ownership offered (linked to landscapes, recreation and privacy) often outweighed their interest in increasing the rental value of their land. He suggests that privatising of rights of way – described as ‘judicial theft of the subjects rights’ – was an ‘astonishingly common’ adverse effect of the enclosure of the commons (p. 153). The merging of markets was only possible because the judges and parliament together increasingly embraced market ideology and overlooked, rejected or struck down local protectionist measures (p. 185).
It seems to me that Eric Jones has provided strong evidence that the industrial revolution occurred when and where it did because market ideology prevailed sufficiently to enable market integration, specialization on the basis of comparative advantage and the clustering of manufacturing industry. I am conscious, however, that he might suggest that in offering that summary my preference for neat solutions has gotten the better of me.
By Winton Bates, on November 25th, 2010
Over the past year I have read five or six books about progress. Matt Ridley’s book, ‘The Rational Optimist’ (discussed here and here) was the most optimistic. Ronald Wright’s book, ‘A short history of progress’, is probably the most pessimistic.
Wright’s book has the virtue of being short and easy to read. His message is that past civilizations have generally failed and that we are making the same mistakes. He notes that we have the advantage of knowing where those past societies went wrong. As you might guess, however, he suggests that we haven’t got much time to mend our ways. He says that if we don’t act now, ‘this new century will not grow very old before we enter an age of chaos and collapse that will dwarf all the dark ages in the past’ (p.132). Wright’s book was published six years ago, so if his analysis is correct the age of chaos and collapse will soon be upon us.
Cartoon by Nicholson from “The Australian” newspaper: http://www.nicholsoncartoons.com.au/
Anyone interested in a summary of Wright’s book will not find it too difficult to find one elsewhere. What I want to do here is to attempt to identify what makes Wright so pessimistic about the future of civilization.
An obvious starting point is his view of human nature. Wright doesn’t believe in the innate goodness of humanity. He suggests that ‘prehistory, like history tells us that we are at best the heirs of many ruthless victories and at worst the heirs of genocide. We may well be descended from humans who repeatedly exterminated rival humans – culminating in the suspicious death of our Neanderthal cousins some 30,000 years ago’ (p. 31). Furthermore, an inability to foresee – or to watch out for – long range consequences of our actions may be inherent in our kind (p. 108). We are doomed by hope. Hope drives us to invent new fixes for old messes, which in turn create ever more dangerous messes (p. 123). Homo sapiens is still ‘an Ice Age hunter only half-evolved towards intelligence; clever but seldom wise’ (p. 132).
Wright acknowledges that humans have been influenced by culture. In fact, he suggests that culture is a key to our success: we are ‘experimental creatures of our own making’. Yet culture also poses risks to us: ‘As cultures grow more elaborate, and technologies more powerful, they themselves may become ponderous specializations – vulnerable and, in extreme cases, deadly’ (p. 30). He describes this as a ‘progress trap’. The wreckage of past civilizations litters the earth because their populations grow until they hit the bounds of food supply, while the concentration of wealth and power at the top of large scale societies gives the elite a vested interest in the status quo.
According to Wright’s view, all large-scale societies are locked into some kind of path dependency – leading them to outrun natural limits and collapse. How then does he explain the success of modern civilization despite all the failures that have occurred in the past? His explanation seems to be that nature has been forgiving. When societies failed there was natural regeneration and human migration to lightly settled areas. Civilization has been exceptionally long-lived in Egypt and China as a result of ‘generous ecologies’ – extra topsoil brought in from elsewhere by water and wind.
I think Wright’s pessimism stems from his views on both human nature and culture. His model doesn’t seem to recognize that humans have biological instincts that encourage cooperation and that this enables rules of conduct to evolve to meet changing circumstances. His model fails to take account of cultural evolution. Our ancestors may have helped destroy mega-fauna through their hunting practices, but hunting and gathering rules evolved in the more successful societies to avoid wanton destruction of valuable resources. Further rules followed including those relating to ownership of animals, grazing rights, land ownership etc. – all serving to encourage more efficient use of scarce resources.
Whether societies collapse or survive and prosper depends largely on the rules they live by. People in advanced western societies live by rules that have evolved to encourage mutually beneficial exchange, specialization and innovation, to ensure valuable resources are not wasted and to avoid environmental degradation.
Is modern civilization locked in to a path that will lead to chaos and collapse if we don’t immediately mend our ways? I don’t think so. Once the hyperbole about running out of resources is cleared away, the only real concern that remains in my view relates to environmental pollution that cannot be controlled by any one government acting alone. Even here there are grounds for optimism. Despite their many failings, the governments of major countries show enormous goodwill toward the future of humanity. We can be reasonably confident that concerted international action will be taken if a major environmental catastrophe ever actually threatens the future of humanity.
By Winton Bates, on October 29th, 2010
Somewhere in Africa more than 100,000 years ago, a phenomenon new to the planet was born. A Species began to add to its habits, generation by generation, without (much) changing its genes. What made this possible was exchange, the swapping of things and services between individuals. That gave the Species an external, collective intelligence far greater than anything it could hold in its admittedly capricious brain. Two individuals could each have two tools or two ideas while each knowing how to make only one. … In this way, exchange encouraged specialization, which further increased the number of different habits the Species could have, while shrinking the number of things that each individual knew how to make. Consumption could grow more diversified, while production grew more specialized (Matt Ridley, ‘The Rational Optimist’, 2010: 350).
 Ridley’s bold claim is that human progress can be explained mainly in terms of exchange and specialization. Eric Jones, a scholar who has written extensively on the history of human progress, considers that Ridley makes the case very well, based ‘on the few knowns of early pre-history’. Jones also considers that Ridley gets the story of the industrial revolution ‘mostly right’ (Review in ‘Policy’, Spring 2010, 26 (3)).
The weight that we can place on exchange and specialization as explanations of human progress depends importantly on the extent to which advance of knowledge and innovation can be attributed to exchange and specialization. It is possible to go some distance in explaining technological progress as a consequence of specialization. As Bill Easterly points out in his NYT review, however, many breakthroughs come from creative outsiders who combine technologies generated by different specialties.
Ridley mentions that government actions of various kinds in different countries have often inhibited innovation, particularly the introduction of new products and new ways of doing things that threaten the survival of established patterns of production. The implication is that freedom is a necessary condition for progress comes through clearly in Ridley’s recent contribution to Cato Unbound:
‘I am saying that there have always been liberals, who want to be free to trade in ideas as well as things, and there have always been predators, who want to extract rents by force if necessary. The grand theme of history is how the crushing dominance of the latter has repeatedly stifled the former. As Joel Mokyr puts it: “Prosperity and success led to the emergence of predators and parasites in various forms and guises who eventually slaughtered the geese that laid the golden eggs”. The wonder of the last 200 years is not the outbreak of liberalism, but the fact that it has so far fought off the rent-seeking predators by the skin of its teeth: the continuing triumph of the Bourgeoisie’ (p. 252).
I can’t help thinking that this sounds more like rational pessimism than rational optimism. According to Ridley, the industrial revolution is largely a story about coal – and progress since then has been possible mainly because of abundant cheap energy from fossil fuels. He notes that his optimism wobbles when he looks at the politics of carbon emissions reduction and the potential this has to load economies with further rules, restrictions, subsidies, distortions and corruption (p. 347).
Cartoon by Nicholson from “The Australian” newspaper: http://www.nicholsoncartoons.com.au/
The optimistic note on which Ridley ends his book comes from his view that innovation is such an evolutionary, bottom-up phenomenon that it will continue as long as exchange and specialization are allowed to thrive somewhere in the world.
In the end, it would seem that the gains from innovation, exchange and specialization all depend on liberty – liberty is the key to human progress.
 Join the forum discussion on this post - (1) Posts
By Claus Vistesen, on September 10th, 2010
Kay-Yut Chen and Marina Krakovsky have earned their colours as behavioural economists at Hewlett Packard in the HP Labs and in in their new book Secrets of the Moneylab they present the gist of their research over the past 20 years. The book is a run-through of the most salient aspects of behavioural economics and its applications and since behavioural economics is all about designing (clever) experiments, the book oftentimes presents itself as an experimental handbook of their main results. As such, this is not an academic book but more so a how-to guide for business practitioners on how to implement lessons (and even experiments) of behavioural economics in a business context. Yet, the book never descends to the lower levels of the 10 Steps to Business Success type of books and always steers clear of making pretentious profit promises for the eager business man. This is a welcome plus and means that the stories are presented in a credible way.
The book covers a number of classic results in behavioural economics and especially the chapter on fairness reveal some well known, but often forgotten, truths about human nature. For example; the tendency to punish others so that they don’t get the better deal even though refraining from it would give you the best of two possible outcomes is a result that defies conventional economic logic. The experiment is detailed in Solnick and Hemenway (1998) and involves participants from the Harvard School of Public Health who are asked whether they would prefer one of two options:
1. You earn $ 50.000 and the other earns $ 100.000
2. You earn $ 100.000 and the other earns $ 250.000
Even under the condition of identical price levels in both contexts half the participants chose option 1 which is a result traditional neo-classical economics using homo economicus as the representative agent would have difficulties explaining. Another interesting passage concerns the collective intelligence and how tapping into it can lead to superior forecasts of market performance, demand figures, sales etc. Personally, I believe this is very important and while the collective intelligence is always noisy and contains a lot of dead ends, understanding how to harness it is becoming a key parameter for business success today.
However, all this has a catch.
Experimental economics and the study of human behavior is all well and good, but my feeling is that we still have too small an overall sample size to really be confident of its conclusions. The work of Chen and Krakovsky is of course a step in the right direction here, but does it matter whether you run the experiment above in Denmark or the US, is there a difference across time or age groups of the participants etc. These questions essentially address the robustness of the results and while some of the experiments have indeed been tested in many contexts, the replication of results is something I think is important as we move on from here.
Is it a Buy Then?
Behavioural economics is ultimately about what people do under a given set of controlled circumstances rather than what they should do given an idealized pre-determined model and I think economists would be wise to take this lesson to heart. The economic profession should take due note not only of the actual results, but also the implied shift in methodology which is a consequence of working with behavioural economics.
The nobel prize winning economist George A. Akerlof finishes his preface of the book stating that Secrets of the Moneylab is economics at its best. This is a tall order, but after having read it I am inclined to agree with him. Behavioural economics maps an important alternative way to do economics and Secrets of the Moneylab is a fine representation of this tradition.
–
Full Disclosure: If this reads as a plug, it is because it is a plug. However, please note that regardless of whether the book does well, poorly or somewhere in between I have no financial stake in it. The book goes on sale in Europe in October.
Join the forum discussion on this post - (2) Posts
By Ajay Shah, on August 17th, 2010
Raghuram Rajan’s book Fault Lines (Princeton University Press for the international edition, and Harper Collins for an Indian
edition with a special chapter on India) is possibly the most thought-provoking contribution in the aftermath of the economic and
financial crisis that has engulfed the West after 2007 with significant global repercussions.
The epilogue of the book summarizes its punch line:
The crisis has resulted from a confusion about the
appropriate roles of the government and the market. We need to find
the right balance again, and I am hopeful we will.
The key idea of Fault Lines is to focus on slow-moving tectonic plates in the global economy: consumption by borrowing in
countries with fiscal deficits, excess savings in exporting countries that are fiscally in surplus, and growing sophistication of the
financial sector. None of these movements might seem dangerous in itself, but when these plates come together and collide, the global economy can get badly shaken. To most players focused narrowly on their own positions, leave alone the movements of the plate they stand on, the earthquake – like this crisis – may seem an unfortunate happenstance. In the analytical framework of Fault Lines, the crisis was not a pure accident and that more severe crises could arise in future unless the root causes are addressed sufficiently soon.
The book presents two important government distortions in the global economy and their underlying causes. These are (i) the push for universal home ownership in the United States, and (ii) export-led growth in countries such as Germany and China. Together,
these policies have led to massive “global imbalances”, with some countries such as the United States, the United Kingdom and
Spain persistently being in deficit, and borrowing from the surplus, exporting nations. While pursuit for home ownership affordability and growth do not necessarily have to be distortionary, the book makes the sharp observation that these have been occurring at the expense of something more important but subtle.
In the United States, there has been growing income inequality, which combined with a relatively feeble safety net for the poor and
unemployed, has created pressure on politicians to find quick ways to bridge the inequality. Instead of improving the long-run
competitiveness of labor force for a global market with a changing mix of industries and required skills, governments have adopted the short-run option “let them eat credit” (the title of Chapter One). The presence of government-sponsored financial firms in
the United States (Fannie Mae and Freddie Mac, in particular) enabled exercising such an option readily through a push for priority
lending to the low-income households (sub-prime mortgages).
In case of surplus countries, it has been the problem of exporting to grow (the title of Chapter Two). Their single-minded focus on exports has led governments to ignore the domestic sector, preventing sufficient redeployment of surplus for internal development, and somewhat perversely, even boosted domestic savings rates significantly due to lack of adequate safety nets (at
least in case of China, if not in case of Germany). As someone mentioned in a recent dinner conversation: Each child in China is
saving to fund post-retirement expenses not just of two parents but also of four grandparents. These savings have thus had no place to go but outside, giving rise to massive capital inflows that fueled the housing sector expansion in the US, the UK and Spain.
What is fascinating is that Fault Lines explains how these lop-sided government policies of two separate sets of countries have
interacted with each other – and with the financial sector – in fueling the expansion to levels of unsustainable housing bubbles. The
idea here is that the invisible hand operating through the price when the price is distorted can also lead to massive distortions in the
allocation of capital. The financial sector in developed world is so sophisticated and amoral (a great choice of word by the author) that its dispassionate pursuit of profits leads it to direct capital to wherever there is a relative mis-pricing. So if governments are
subsidizing home ownership, efforts will be made to deploy all free capital of the world to the housing sector. If some governments are finding it cheap to borrow because savings are seeking them out, the financial sector will grow at a sufficient rate to absorb and support expansion of housing credit through these capital inflows.
Clearly there have been incentive-based distortions in the financial sector, especially due the short-term nature of accounting-based compensation that ignores true long-term risks. The book explains, however, that the bigger issue was something else: that the imbalance of capital flows and the ease of pushing sub-prime home ownership – both due to government distortions – meant the
financial sector was essentially a conduit to making happen what the rest of the world was seeking to achieve. In the process, banks made a ton of bad loans (but the governments were happy with that till it all really blew up). And some parts of the financial sector pursued this role even more aggressively than one could have imagined due to the steady entrenchment of too-big-to-fail expectations — large banks being repeatedly bailed out through government forbearance and enjoying Central-Bank monetary stimulus each time markets turned south.
Some may question the basis of this argument by saying – why did we see credit expansion across board and not just in low-income
households? Here, Fault Lines focuses on a rather fascinating phenomenon that recoveries from recent recessions, especially in the
United States, have remained “jobless” for extended periods of time. Perhaps as a subconscious response to this (or due to
ideologies in other cases), Central Banks have tended to provide massive monetary stimulus to get the financial sector to push the
household consumption and real sector investment harder and harder through greater lending and intermediation. Such stimulus,
unfortunately, again serves to transfer rents from households to the financial sector (by keeping interest rates low) and produces
mispriced risk. Thus, the economy moved “from bubble to bubble” (the title of Chapter Five), until the most recent bubble could not be mopped up by anyone, not even the most innovative Central Bank of all, despite its own best efforts.
In essence, Fault Lines connects the dots visible to all of us in a rather ingenious manner to provide an explanation of what brought about the perfect storm we have recently weathered.While the book is worth it even just for its explanation of why we had a crisis now rather than at some other points of time, it goes the extra mile and proposes valuable reforms, focusing on all three
issues: building a better safety net in the United States (see in particular, the suggestions to improve education access to all and
extend a greater level of unemployment insurance), reducing the global imbalances, and improving the regulation of the financial sector so that it (and its financiers) pay for mopping up of bubbles it fueled, rather than governments and Central Banks passing on these costs to taxpayers.
The book also helps understand why export-based Chinese and German growth, and their effective vendor financing of consumption in the US and Euro-zone countries, may ultimately face limits as consumption slows. These countries are now being forced to become the stimulators of growth and run the risk of planting seeds of bubbles in their own economies. This is how hidden fractures still threaten the world economy, as the book’s subtitle goes. It also leads one to reconsider that India’s slower growth rate than China, while not entirely faultless, might however be more balanced given its lack of extreme export reliance.
Raghuram Rajan’s writings are always cogent and based in sound set of facts. But this book is special in the sense that here he paints on a much larger canvas, covering bases from distributional issues within income strata of society, to the persistent capital imbalances across large countries of the world, and the ruthless profit-maximizing incentives of modern market-based financial sector.
There is a lot going on in the book. But it is written with great examples and cases – almost lyrical at times (even has a fascinatingpoem recounted in the chapter “The Fable of the Bees Replayed”), and should be accessible to one and all. It willcertainly question some long-held biases about current state ofeconomic conditions in Western countries. But it is hard to not take a deep breath and ponder once you have read it all. In many ways, it shows that when economic conditions so demand or induce, the developed world behaves much the same way as the developing world: they are both after all driven by choices of human beings and the book lays out somecommon patterns of global economic behavior – in households, marketsand governments.
By Winton Bates, on June 25th, 2010
 Richard Posner’s recent book, ‘The Crisis of Capitalist Democracy’, is mainly about the global financial crisis, how it came about in the US, the lessons that the author thinks we should have learned from it and what governments should do to prevent similar crises in future. According to this distinguished author the crisis came about because of lax regulation; we have learned from it that the financial system is inherently fragile and that Keynes is still relevant; and the way to avoid similar crises in future is to introduce regulatory reform in the financial sector.
To be fair, Posner condemns some of the knee jerk responses of governments introducing tighter financial regulation and acknowledges that he is not entirely happy with his own suggestions for regulatory reform. He views the only ambitious proposal that he discussed sympathetically – the separation of commercial banking from other forms of financial intermediation – as ‘fraught with problems’ (p.362).
It is arguable that the global financial crisis was a crisis of capitalism. A milder financial crisis might still have occurred if central banks had not previously acted in ways that led major financial institutions to expect that they would be bailed out if their excessive risk-taking resulted in major losses. It is even possible to entertain the idea (as I did here) that the financial crisis has highlighted a fundamental problem in that laws governing the financial system currently permit financial intermediaries to make promises that they can’t always keep. But why view this economic crisis as a crisis of democracy?
The title of the book arises from Posner’s view that while the American political system can react promptly and effectively to an emergency, it ‘tends to be ineffectual’ in dealing with longer term challenges:
‘The financial collapse and the ensuing depression (as I insist we must call it) have both underscored and amplified grave problems of American public finance that will not yield to the populist solutions that command political and public support. The problems include the enormous public debt created by the decline of tax revenues in the depression, the enormous expenses incurred by government in fighting the depression, and the boost the depression has given to expanding the government’s role in the economy. These developments, interacting with a seeming inability of government to cut existing spending programs (however foolish), to insist that costly new programs be funded, to limit the growth of entitlement programs, or to raise taxes, constitute the crisis of American-style capitalist democracy’ (p.387-8).
Unfortunately, the quoted passage appears in the final paragraph in the book rather than the introduction. There is not much discussion in this book about this supposed weakness of the US democratic system. The author implies that it is largely a problem of political culture. Republicans favour low taxes but they have been reluctant to reduce government spending. Democrats favour high levels of government spending but they have been reluctant to raise taxes. As a result:
‘From the standpoint of economic policy we have only one party, and it is the party of profligacy’ (p.384).
As a person living in a democratic country in which a large part of the electorate has come to equate responsible economic management with budget surpluses and minimal public debt (to the dismay of some left wing economists who would like to see more public sector investment) I find it difficult to take seriously the idea that the current political culture in the United States involves a crisis of capitalist democracy. I am confident that before too long Americans will insist that their governments balance their books in order to avoid the problems currently being experienced in Greece and other European countries.
However, the picture might look a lot different from within the US. Before a change in political culture can occur in the US it will be necessary for a lot more Americans to become concerned about the future implications of current fiscal policies. Richard Posner claims that he has no idea how to solve the problem of America’s political culture (p.385) but I think he is contributing to the solution by merely raising awareness of the problem.
By Winton Bates, on April 16th, 2010
Having just finished reading Gregg Easterbrook’s new book, ‘Sonic Boom’, I think he would say that we should welcome globalization. He sees fantastic potential for social progress, but improved living standards are likely to be ‘wrapped with ribbons of stress, anxiety and dissatisfaction (p.34). His bottom line seems to be that globalization is inevitable and that we just have to learn to live with it.
Easterbrook expects the forces of globalization to grow stronger. That means that the insecurity that people often associate with globalization is likely to accentuate:
‘Job turmoil, the economic roller-coaster, financial bedlam, media superficiality, celebrity inanity, political blather, targeted advertising, scream-and-shout discourse, the paving over of nature – they’re all going to get worse. A lot worse in some cases. Most likely, global economics will be blamed for whatever about coming decades we don’t like.’
He also suggests, however, that much of what people tend to like about life will get better:
‘Prosperity will increase, especially in the less affluent nations where improvement is most needed. Democracy will flourish on five and perhaps six continents … . Information and knowledge will proliferate as never before, while art and culture become available to everyone. Many aspects of this evolving sonic boom will be really terrific.’
Then comes the recommendation:
‘The terrific aspects and the anxiety inducing aspects will be intertwined and we’re just going to have to live with this’ (p. 209).
Why is globalization inevitable? I think Easterbrook discusses this in several places but I have noted one place in particular. (I’m glad I made notes as I read the book because there are few clues offered in the contents page about where to find stuff and the index doesn’t seem to be as helpful as it could be. But I digress!) Easterbrook suggests that we can’t stop global change because it is associated with the spread of freedom – ‘most of the world’s nations are acquiring the same core structures (democracy, free-market economics, emphasis on education) that makes the United States the current world leader … . The more America-like the world becomes, the faster the pace of economic change will be’ (p. 192).
I think Easterbrook is basically right about this. It would probably take a world war to stop globalization and there doesn’t appear to be one of those on the horizon. Perhaps some people said similar things around 1900 – prior to a few decades of disruption in global trade and investment. Even so, the main point is that the forces shaping the future of the global economy are beyond the control of any individual, firm or government. At a national level it is possible to shield some groups from the forces of global change but only by reducing the opportunities available to others.
Easterbrook acknowledges that it is possible for governments to provide a safety net that will provide citizens with some degree of security, particularly in relation to health care. He argues that people in the U.S. suffer more stress than do people in western Europe because of problems associated with the U.S. health care system (pp. 200-202). I don’t know whether or not this is a valid point. Evidence from the Gallup World Poll suggest that people in the U.S. tend to experience more stress than do people in western European countries and Australia. But Mexicans report experiencing a lot less stress than Americans and less stress than Europeans and Australians – so there is probably more involved than health care.
My main reservation about this book, as with Easterbrook’s earlier book ‘The Progress Paradox’ (discussed here), is that I think he overstates the insecurity that people actually feel as a result of the forces of globalization. The book seems to be full of colourful phrases to describe this insecurity. For example, Easterbrook writes of ‘change-based anxiety’ (p.34), ‘Multiple Media Personality Disorder’ which he defines as a ‘a universal low grade nervous tension from which there may be no realistic escape’ (p.70), ‘the Super Bowl of stress’ (p. 72) and ‘collapse anxiety’ (p. 168).
I acknowledge that job insecurity has increased. Easterbrook makes a strong case that each year it gets easier for someone to come along with a superior idea and put an established firm out of business (p. 134). He could be right that in future there will be a greater risk that people who have risen to the middle classes will ‘fall back’ down the economic ladder and end up bitterly unhappy (p. 196). I also acknowledge that the insecurity of modern life is a popular topic of conversation, particularly in the media. But I don’t think insecurity is having a large impact on behaviour and the way people feel about their lives. If a lot of employed people were feeling a high degree of insecurity about their jobs I think they we would see more precautionary saving and less willingness to go into debt than we have seen in recent years. Survey evidence suggests that the vast majority of people in high-income countries feel that they have a great deal of control over their lives.
My conclusion is that there must be a huge gap between the fears that a lot of people express when they talk at a superficial level about the challenges and insecurity of modern life and the deeper feelings that they have about opportunities and threats in their own lives.
By D H Smith, on January 18th, 2010
If you want to understand Democrat fantasies in the absence of financial constraint or common sense, read Reed Hundt’s book, “In China’s Shadow.” Reed Hundt is a permanent member of the American politcal class, a Yalie, a partner in a high-powered law firm, head of Bill Clinton’s FCC, and a member of Barack Obama’s transition team.
Free money is Reed Hundt’s great idea.
Here’s how it works. Muggins, that is you & me, the hard-pressed American taxpayer, should buy everyone from Nome to Tierra del Fuego a pension, healthcare, and education. By these means, the United States will win in the economic competition with China that furnishes the title of his book and a small fraction of its other content.
No, it’s not a joke! He is being serious — if you’re an American with a job, you should spread the wealth around the hemisphere.
The leftist cabal currently in power and the pointy-headed intellectuals who influence them really think this way.
By Russ Nelson, on November 3rd, 2009
Tom Slee has written a book entitled No One Makes You Shop at Wal-Mart. The introduction of the book ends with “why we need to rely on collective action rather than individual choice to take us to where we want to be”.
Poor Tom! He fantasizes that once the tools of coercive collective action are created, intellectual such as himself will be in charge of directing the action. And yet, when you point him at collective action gone wrong (e.g. Jim Crow laws, or the War in *, or the War on Drugs), he’ll just tell you that the wrong people (e.g. George Bush) are in charge.
No, it’s far more likely that when powerful tools are created, powerful people (politically and/or economically powerful — which you surely must acknowledge doesn’t include intellectuals) control them. That’s why I oppose the creation and ongoing maintenance of these tools. Not because you can’t do good things with them — you can — but it’s more likely that bad things will be done with them.
By Winton Bates, on August 12th, 2009
“Societies need subjective indicators of well-being to aid policy makers and ordinary citizens in making decisions.” This is the opening line of the recently published book, “Well-being for Public Policy” by Ed Diener, Richard Lucas, Ulrich Schimmack and John Helliwell. The first three authors are psychologists (Diener has played a leading role in the field of happiness research) and Helliwell is an economist.
The final sentence of the first paragraph explains: “Overall, accounts of subjective indicators of well-being will help policy makers make wiser decisions regarding policy alternatives and help citizens be better educated about the choices that affect their lives”.
I am in favour of research to enable people to become better informed about the choices that affect their lives. I hope that what the authors mean by “help citizens to be better educated” doesn’t involve anything more sinister than publication of research findings.
While reading the book I became irritated by what seems to me to be a naive view it presents of the policy making process. Although the nature of policy making is largely incidental to the purpose of the book, I will devote the remained of this comment to policy making. I promise to focus on the substance of the book in a later post.
According to the “public interest” view presented in the book, public policies are made by “policy makers” who would make wise decisions if only they knew what policies would improve the well-being of citizens. In reality, however, the policy making process is a messy business which involves politicians seeking votes and hoping to further their careers, civil servants seeking to expand and protect empires, voters who have little interest in most policy issues and even less incentive to understand likely consequences of the proposals being considered, interest groups seeking to further the interests of the people they represent and electoral rules that may give disproportionate power to particular groups. The process also attracts ideologues of various kinds who wish to advance their particular views of the good society.
In my view, rather than attempting to persuade us that more information on the subjective well-being of citizens would help some hypothetical “policy maker” to make better decisions, it would have been better if the authors had sought to persuade us that this information would enable policy processes to produce better outcomes.
Would this have made any difference to the book? Although the basic arguments about the validity of subjective well-being measures and their potential usefulness would have been unchanged, I think this change of focus would have made some difference. In particular, it seems to me is that the authors would have had less difficulty convincing readers that they “do not advocate the idea that governments should intervene strongly to move society towards a primary goal of increased well-being” (p209). When most of the book seems to be devoted to telling “policy makers” how they can use subjective information to improve the well-being of citizens it is natural enough to expect readers to be concerned that some “policy makers” might act paternalistically in using this information. Some readers might not be entirely reassured that paternalistic “policy makers” would have regard to the findings of happiness research which show that humans tend to feel most satisfied when they perceive that they have freedom to choose how to live their lives.
The problem of how paternalistic interventionists might like to use research findings is placed in perspective once it is recognized that competing interests are involved in policy-making through discussions in a range of different forums. These discussions are about various things, but the matters discussed by vast majority of participants usually relate in some way to the effects of different policies on the well-being of people.
The important issue is whether measures of subjective well-being can make useful contributions to the discussion of policy issues.
Join the forum discussion on this post - (1) Posts
|
|
Most Popular Posts