By Ethan Zuckerman, on October 13th, 2011
The member meeting at the Media Lab features speakers from within the lab, like César Hidalgo and Joi Ito, and outside speakers – in that latter case, the invited speakers reflect César’s wonderfully idiosyncratic take on networks. One of his major collaborators is Ricardo Hausmann, director of Harvard’s Center for International Development and former Minister of Planning for Venezuela.
Hausmann argues that to succeed economically, humans have learned how to specialize. Someone who’s marvelous in one area is likely mediocre at others – consider Michael Jordan’s ill-fated attempts to play professional baseball. Some tasks require a full human’s worth of knowledge – a person-byte – to carry them out successfully. Others require much more knowledge – building a complex product like a computer might require a kilo-person byte or more – the highly specialized knowledge and skills of a thousand different people. “Modern man is useless as an individual. Making a computer is a team sport.”
By understanding how much knowledge and coordination different economies are capable of, we might understand their economic growth potential. In the US, the average employee works with 100 coworkers. In India, the average employee works with 4 coworkers. Hausmann explains that’s not coincidental – the difference in wealth and income between the nations is closely related to the ability of firms to take on complex tasks. This also helps explain recent disappointment with the limited impacts of microlending – those loans go to small firms that are limited in terms of personbytes. They’ve only got so much knowledge they can apply to producing complex and high value products.
We might characterize economies in terms of those where lots of people do very simple work – he illustrates this with a marvelous Edward Burtynsky photo of assembly line workers processing chicken in China – and those where individuals do complex things in consort, like the players within a symphony orchestra. Hausmann shows us a “map” of the world, a complex graph that represents nations and what products they produce. Most nations produce a few things, and a few produce many different things. Some products are made everywhere, while others are made in very few places.
There’s an underlying pattern to this. The nations that make only a few things all tend to make, more or less, the same things. Basically, we can divide the world into two sets of countries – those that have sufficient personbytes of knowledge to produce a wide range of goods, and those that can produce only a few simple things. The places that make everything make things that few others make. Hausmann explains that products require a specific set of personbytes to produce. When you gain additional personbytes of skill, it’s like getting new letters in Scrabble – you can produce a new set of words, but only within the constraints of the letters (skills, knowledge) you already have.
“Poor countries make few things, and things that everyone makes. Rich countries make unique things. And this is true for municipalities as well as for countries.” He shows a graph of manufacturing in Chile that looks curiously like his graph of the world – on the top is Santiago, where people manufacture all sorts of things… on the bottom “is where there’s nothing but penguins” and capacity for manufacturing is very low.
Global economics, Hausmann explains, is a little like the BCS scoring in college football. It’s not just about who you beat, it’s about who they beat as well. What do you make, and what does everyone else make? What do you make that no one else makes? What new products could you manufacture based on what you already make?
Why pay attention to this idea, the “economic complexity index”? It’s a very good tool for explaining the classic question of “Why are some countries rich and others poor?” Specifically, it explains 73% of the variances of incomes across nations. And where the predictions economic complexity theory offers differ from reality, it’s possible that reality is wrong. The index suggests that India should be richer and Greece should be poorer, which suggests that error in the index is predictive of future growth. If you want to bet on economies that are undervalued, Hausmann suggests you invest in China, India, Thailand, Belarus, Moldova and Zimbabwe. (On the last, he suggests that Zimbabwe’s main economic problem is a single persistent individual, but that there are many personbytes of knowledge ready to produce goods once the political situation changes.)
Is economic complexity actually measuring another phenomenon, like education? Probably not. We can look at investment in education and economic growth, and education appears to correlate more weakly than economic complexity. He suggests we look at Ghana, which has invested heavily in education since 1975, and Thailand, which hasn’t invested as heavily. Ghana hasn’t moved far from a largely agricultural economy, while Thaliand has moved from producing jute and sugar to becoming a major manufacturing center. They’ve accumulated many personbytes even if they didn’t invest heavily in education.
This raises a tricky question – how do you become a watchmaker in a country without watchmakers? The answer is that you move from what you currently produce to products that require only a fractional increase in personbytes, from one product space to a closely related one. The question for economic success may be how close you are to good products from what you already know how to make.
I find Professor Hausmann’s theory fascinating, in part because I’ve had the chance to play with the gorgeous visualizations César has built of economic progress in different parts of the world based on economic complexity. What I still don’t understand is how Thailand kicked Ghana’s butt economically. How do you get from jute to microcircuitry? And why couldn’t Ghana get from aluminum production to more complex manufacturing. Looking forward to reading his papers and understanding a bit more, as the core concept of complexity is a very compelling one.
By Simon Grey, on September 27th, 2011
What is the biggest single drag on the beleaguered global economy? Opponents of globalisation might point to the current crisis, which shrank the world economy by about 5%. Proponents of globalisation might point to the remaining barriers to international flows of goods and capital, which also serve to shrink the world economy by approximately 5%. That sounds like a lot.
But the truly big fish are swimming elsewhere. The world impoverishes itself much more through blocking international migration than any other single class of international policy. A modest relaxation of barriers to human mobility between countries would bring more global economic prosperity than the total elimination of all remaining policy barriers to goods trade – every tariff, every quota – plus the elimination of every last restriction on the free movement of capital. [Emphasis added.]
I’ve addressed the stupidity of the “free trade” advocates before, so I won’t do it again here. However, I will address the problems with the concept of free labor.
First, the economic models used to demonstrate the wisdom of free labor often ignore the simple fact that the conditions facilitating trade in the first place are predicated on culture, and that allowing people from one culture to interact with the trade-oriented culture will diminish the support for the very conditions that allow for trade in the first place. In other words, all cultures are different. Some are pro-trade, others are not, and some are only pro-trade when the benefits are staggeringly obvious. Expecting radically different cultures to interact with one another without also expecting a change in the cultural institutions that harbored that interaction in the first place is astonishingly stupid, and, indeed, ignorant of basic human nature.
This mindset, that the free market will be enough to ensure that all people from all cultures will behave rationally and interact peacefully with one another, is predicated on the wholly fallacious assumptions that people are inherently rational, that all cultures are equivalent, and that cultural biases and prejudices are easily overcome. Of course, the real world differs significantly from this model. People are not rational creatures; they are rationalizing creatures. And, shockingly, people still hate people from other countries simply because they’re from other countries!
Economic growth is rarely (perfectly) linear and never guaranteed. Furthermore, the conditions for growth are vast and complex, and so it is the height of arrogance to think that models that inaccurately measure a few irrelevant variables are going to make for a compelling argument. Yet, this is precisely what economists are doing when they argue for free labor.
Second, free labor (and, come to think of it, free trade) advocates tend to ignore the very simple fact that wealth is not based on being able to buy things at lower prices. Lower prices are the effect, not the cause. Quite simply, economists ignore fundamental microeconomic principles, leading to this wacky macroeconomic theory.
Wealth, fundamentally, comes from producing something of value, whether for yourself or someone else. As long as you value that which you’ve created in the quantity in which you’ve supplied it, you have created wealth. If you create something that someone else values in the quantity in which they value it, you have created wealth.
The standard macroeconomic theory posits that people are effectively wealthier when they can consume more products at identical or lower prices. Of course, this thinking extends to labor, with the argument being that cheaper labor enables one to produce more with less (in essence, the decreased cost of inputs means that cheaper labor translates to greater economic activity).
This argument is technically true, but irrelevant. Lower prices as a result of cheap labor does not make consumers wealthier because consumption is, by definition, destructive since one is using up a resource. What makes consumers wealthier is their own personal production, not lower prices. Lower prices, in a sense, give the illusion of wealth because they make it easier for poor people to have the things that rich people once exclusively enjoyed. Note that this is not to condemn lower prices in and of themselves, but rather to clarify that lower prices are no substitute for production.
And so, the argument made by free trade and free labor apologists is largely irrelevant. Lower prices do not make people inherently wealthier. Instead, they reveal how other people have become wealthier by improving their means and methods of production. Confusing cause and effect is a fundamental error, and one that is often overlooked in this debate.
In sum, the argument for free movement of labor completely ignores human nature, as well as basic economic principles. As such, it does not merit any further discussion, nor should it be taken seriously.
By Simon Grey, on August 17th, 2011
Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.
My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
I think I can do Mr. Buffet one better. How about a tax on all billionaires named Warren Buffet wherein all their assets are confiscated and liquidated and all future income is taxed at a rate of one hundred percent. Furthermore, all billionaires named Warren Buffet will be prohibited from leaving the country at any point in the future, which ensures that any and all assets that they’ve socked away overseas will either be taxed eventually or left unused. Finally, anyone who receives an inheritance from all billionaires named Warren Buffet will have their inheritance taxed at one hundred percent as well. I think that this will ensure that all billionaires named Warren Buffet will certainly share in the sacrifice.
As an aside, I generally oppose tax increases, at least given the current tax rates. However, if rich people want to pay more in taxes, I see no reason to say no. It is difficult to find people willing to pay taxes. And so, if there are people who are willing to do so, I see no reason to stop them.
After all, if a man thinks the government is better at managing money than he is, he’s more than likely correct.
By Winton Bates, on June 1st, 2011
I am not sure the OECD’s better life index is meant to be fun. But I have had some fun playing with it. The index is interactive. The fun comes from giving different weight to 11 different criteria (or topics as they are described by the OECD) and then observing how this affects rankings of well-being of OECD countries.
The criteria used in the index are: housing, income, jobs, community (individuals’ perceptions of the quality of their support networks), education, environment (air pollution by tiny particulate matter), governance (voting and transparency), health, life satisfaction, safety (assaults and homicide) and work-life balance (working mothers, total hours worked and leisure).
Under the default setting, with all criteria being given equal weight, the countries that come out on top are Australia, New Zealand, Canada and Sweden. If you suppress all criteria other than income, Luxembourg is a long way ahead of the field, followed by the United States and Switzerland. The income measure used in the study (reflecting household financial income and wealth) has Australia in 14th place and New Zealand in 25th place.
The substantial difference between the outcomes of these weighting systems is interesting. In a previous post I observed that all well-being indicators tend to tell similar stories about well-being levels in different countries. The two observations are actually consistent. My research covered a larger number of countries, including many poor countries as well as the wealthy democracies of the OECD. Well-being indicators tend to tell a similar story when wealthy countries are compared with poor countries, but can tell different stories when wealthy countries are compared to each other.
Equal weighting of a range of indicators and a focus on income alone seems to me to be equally arbitrary approaches to well-being comparisons. Well-being is obviously affected by factors other than income, but it would be difficult to argue that all relevant factors are equally important. Value judgments have to be made to determine appropriate weights. An appropriate weighting system might be derived by conducting surveys to obtain weights reflecting the values of people in different countries. Alternatively, surveys could be used to obtain weights reflecting the values of people with different political views in particular countries, or across the whole of the OECD.
In the absence of such survey evidence, I have looked at the rankings for three somewhat extreme political groups drawn from my own imagination: Scrooges, Socioholics and Warm Fuzzies. As I imagine them, all three groups perceive governance and safety as being important to well-being. The Scrooges add income as the only additional factor. The Socioholics add housing, jobs, education and health in addition to income. The Warm Fuzzies exclude income and all the additional factors added by the Socioholics, but replace those factors with community, environment, life satisfaction and work-life balance.
So, which countries come out on top of the welfare rankings according to the values of these three political groups?
Scrooges: The countries that come out on top are Australia, Luxembourg and the United States. New Zealand is placed about 8th, behind Sweden, Austria, Canada and UK.
Socioholics: Australia and Canada come out on top, followed by New Zealand and the United States.
Warm Fuzzies: Australia, Denmark and Sweden are on top, followed by New Zealand, Canada and Norway.
What do I get out of this? My main observation is that Australia seems to come out fairly well, whatever coloured political lenses you use. The well-being of New Zealanders also looks fairly good, particularly if you adopt either a Socioholic or Warm Fuzzy perspective.
Having had some fun, the more serious question that comes to mind is whether a focus on the OECD’s well-being indicators (and other similar constructions) is likely to distract political attention away from much-needed economic reforms to improve the economic strength of some economies. For example, if well-being indicators suggest that people in some lovely country (New Zealand comes to mind) tend to enjoy living standards substantially higher than other countries with comparable per capita GDP levels, there may be a tendency for the government of that country to become complacent about establishing conditions more favourable to further improvement of living standards.
By Ajay Shah, on March 23rd, 2011
Why do some places achieve great feats of architecture, while others routinely opt for merely functional structures? The economist
in me is instinctively unsatisfied at a claim that America lacks great architecture because they have poor taste. Taste-based explanations are a cop-out. Instead, how about the following five angles:
- Surplus
- To go beyond merely functional structures requires resources to spare. At low levels of income, people are likely to merely try to get some land and brick and stone together. In these things, we have nonlinear Engel curves. Pratapgarh looks picayune because Shivaji lacked surplus.
- The desire to make a statement and to impress
- Ozymandius wanted to make a point: He wanted ye Mighty to look at his works and despair. I have often felt this was one of the motivations for the structures on Raisina Hill or the Taj Mahal.
- Arms races
- There may also be an element of an arms race in these things. Perhaps the chaps who built the Qutub Minar (1193-1368) in Delhi set off an arms race, where each new potentate who came along was keen to outdo the achievement of the predecessor. I used to think that the Taj Mahal (1632-1648) was so perfect, that it could not be matched, and thus it put an end to
this arms race. But then I saw the Badshahi Mosque in Lahore (1671-1673), and I had to revise my opinion. We are used to
thinking of Aurangzeb as a bit of an ayatollah, but in the Badshahi Mosque, there is genuine beauty, and more than a hint of rivalry with the Taj Mahal. And that same arms race may have mattered all the way into the 20th century: perhaps if Delhi/Agra/Lahore had not been strewn with majestic structures, the British would have approached Raisina Hill (1912-1931) differently.
In similar fashion, perhaps the great cathedral building of the European continent had an element of an arms race, where each team was keen to outdo all that had come before.
As in biology, it is hard to predict where an arms race will erupt, but one can argue that if and when some quantum fluctuations
set off an arms race, then it can lead to great flourishes of architecture.
- Transparency
- You only need to impress someone when there is asymmetric information, where that someone does not know how great you are. Shah Jahan needed to build big because the targets of his attention did not know the GDP of his dominion and his tax/GDP ratio. In this age of Forbes league tables, Mukesh Ambani does not need to build a fabulous structure for you to know
he’s the richest guy in India. A merely functional house suffices; a great feat of architecture is not undertaken.
- Accountability
- The incremental expense of going from a merely functional structure to a great feat of architecture is generally hard to justify. Hence, one might expect to see more interesting architecture from autocratic places+periods, where decision makers wield discretionary power with weak checks and balances.
From this point of view, let’s think about architecture in India and China and the outlook for this in the coming decade. China is
undertaking great feats of architecture today. What explains this, and how might things shape up?
- Surplus.
- China’s GDP has grown fabulously and has generated this surplus. Perhaps India’s new buildings will match up to China’s within 10-15 years, when India’s GDP matches the present Chinese GDP. But the other four elements of the reasoning go against
such a prognosis.
- The desire to make a statement and to impress.
- The lack of legitimacy of the Chinese State implies that there is a greater desire to impress.
- Arms races.
- Has there been a competitive element in China’s construction, where each person running a project is out to prove he’s better than those that came before? And in India, perhaps one or more powerful people could set off an arms race. Gujarat’s GIFT project could represent a first salvo of that.
- Transparency.
- The greater transparency in India reduces the urge for architecture.
- Accountability.
- The greater accountability in India reduces the outlook for great feats.
By Claus Vistesen, on January 11th, 2011
If you ask the layman about what economics is the answer you get is likely to contain the notion of money. This is understandable. After all, if economists do not study money in some form or the other what are we doing then?
As such, you might be surprised to learn that in the grand sweep of the economic literature, economists have often found it very difficult to explicitly model the role of money and indeed to incorporate this role into the overall model framework. Put very generally, graduate econ students will see two types of models which incorporate money. The first is the money in utility model (MIU) where money is simply added, alongside consumption, to the utility of the representative individual and where some form of monetary instrument (e.g. bonds) are added to the wealth and thus inter the problem through the budget constraint. The other is the cash in advance model (CIA) where we essentially assume that consumers must hold cash solely for the purpose of buying the goods that they want. Or in more convuluted terms; to facilitate the exchange of goods and services.
If the story above is the one that trickles down into the the university classroom the real world is of course more complicated and any student who starts to dig deeper will find a diverse literature which, notably, have been greatly enriched on the back of the financial crisis.
A paper from the Chicago Fed by Ed Nosal, Christopher Waller, and Randall Wright takes a look at recent endeavors in this field.
The first question which you would probably like to ask is; why the neglect by economists of money and the explicit modelling of something so important? Well, in the word of the authors, blame it on the general equilibriumnistas;
The reason many economists either ignore institutions like money, or slip them in with short cuts, is this: they do not take seriously the nature of the process of exchange. Following classical general equilibrium theory, agents do not trade with each other, but trade only against their budget constraints. Any bundle that is worth no more than the value of ones endowment is available, with no discussion of how it is to be acquired. Everyone worth his salt understands that there is no role in Debreus frictionless paradigm for money, intermediation, or anything else that facilitates the process of exchange since this process is not part of model.
But this is not the whole explanation (fortunately). As the authors go on to explain, many economists sees the working of money as the plumbing behind the scene and thus that it should be assumed to simple do its work (i.e. facilitate the exchanges in a Arrow-Debreu GE world). However, as the authors point out; what happens when the plumbing goes wrong? Indeed, what happens when liquidity, credit and ultimately money transmission mechanisms breaks down?
Some have argued that modeling the details of exchange and intermediation is nothing more than studying the plumbingof the economy it all works well behind the scenes and so we do not need to pay attention to it. This seems wrong. How do we know it is working well if we do not pay attention to it? What happens if the plumbinggoes bad? We know what this entails, and it is not pretty. We believe that it is dangerous to ignore the details of plumbingand that the recent
nancial crisis makes this obvious. We therefore think that it is important to study institutions that help to facilitate exchange, and the papers in this special issue do just that.
And here then is the cue to go read the paper or at least to bookmark it. Note in particular how the authors group recent contributions in the context of money, credit and liquidity and thus what was originally simply a facilitator of exchange has now become a much broader concept.
Naturally, economists of an Austrian pedigree have known this for a while and one decidedly fruitful consequence of the financial crisis is the nascent incorporation of their thoughts into the mainstream economic methodology [1].
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A lot has been written about Japanese savings and especially about when they would run out so as to make the country dependent on foreigners for the financing for the ever growing mountain of public debt. I have written extensively about this basically arguing that while the flow of savings in Japan is indeed inadequate for the ongoing financing of the debt, Japan has two things in their favor. The first is a large stock of domestic savings of which not everything, yet, is parked in government bonds and secondly, central bank which will be forced into taking up any bid that would otherwise have gone to yield hungry bond vigilantes.
A recent working paper by Tokuo Iwaisakoy and Keiko Okadaz from the Japan Ministry of Finance Policy Research Institute (PRI) looks to be well worth reading; (my emphasis);
The decline in Japans household saving rate accelerated sharply after 1998, but then decelerated again from 2003. Such nonlinear movement in the sav- ing rate cannot be explained by the monotonic trend of population aging alone. According to the life cycle model of consumption and saving, popu- lation aging will increase short-run uctuations in the saving rate, because the consumption of older households is less sensitive to income shocks. Ana- lyzing income and spending data for di¤erent age groups, we argue that this is exactly what happened during the recession following the banking panic of 1997/98. Two important changes in income distribution are associated with this mechanism. First, the negative labor income shock, which in the initial stages of the lost decadewas mostly borne by the younger genera- tion, spread to older working households in the late 1990s and early 2000s. Second, there was a signi
cant income shift from labor to shareholders asso- ciated with the corporate restructuring being undertaken during this time. This resulted in a decline in the wage share, so that the increase in corporate saving o¤set the decline in household saving.
An important aspect of Japan’s economy is the ongoing increase in corporate savings which is just about the only chart on the Japanse economy (apart from the public debt to GDP one) going up. Indeed, it may just be one of the most important charts to understand Japan’s economy;
(click for larger image)
Retained earnings have grown at an average of 4% since 2000 and has thus offset, to a large extent, the decline in private household savings.
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[1] – Indeed Austrians seem have become more mainstream in the aftermath of the financial crisis as a whole. This is no doubt to their great lament since it means you actually have to provide policy advice and not just advocate eternal damnation and bloodletting.
By Winton Bates, on October 11th, 2010
 In his book, ‘A Theory of Justice’, John Rawls considered what principles of justice would be agreed upon by all behind a veil of ignorance in which no one knows their place in society – their wealth, their class position or social status, their intelligence, strength, state of health etc. One of the principles that Rawls argued would be agreed upon is the ‘difference principle’ – that social and economic inequalities should exist only insofar as they benefit the least well off members of society.  I think the veil of ignorance thought experiment is useful to consider public policy issues from a perspective that is broader than my own perceived interests. When I do this thought experiment, however, I don’t endorse the difference principle (sometimes referred to as the maximin principle). The principle I come up with is to maximize the opportunities of any person chosen at random, subject to provision of a safety net to protect the well-being of the least well off members of society. I expect that some critics would say, however, that I get this outcome because I am not doing the thought experiment properly.
A study undertaken by Hörisch Hannah a couple of years ago does not seem to have the same potential for personal bias to influence the results obtained. Hannah implemented the Rawlsian veil of ignorance in a laboratory experiment using variants of the dictator game (see: ‘Is the veil of ignorance only a concept about risk? An experiment’, Munich Discussion Paper No 2007-4). In the first experiment, one player, the dictator, decides how much of the pie will be received by the other player, given an efficiency loss of 50 percent for units that are transferred from the dictator to the receiver. The veil of ignorance is implemented by requiring each player to decide how much to give to the other player before being assigned the role of dictator or receiver (with equal probability). The second experiment is the same as the first except that the role of receiver is not actually assigned to a person so the outcome can be interpreted as a self-interested response to risk.
Only a minority of subjects opted for the maximin principle under either experiment. The vast majority of male participants perceived the veil of ignorance as introducing only risk. Among women participants, however, impartial social preferences were a second significant motivation that induces stronger concern for equality.
Although I think the results of the study are extremely interesting, they can hardly be presumed to reflect universal values. The study is quite small, with only 167 participants (all university students). There may be potential for bias because about two-thirds of respondents have studied some economics. It would be interesting to see results for similar studies, for people of different ages and backgrounds in different countries.
It would also be interesting to know whether there is any link between the values that people display when they play this game and their political views. Are the views of individual voters strongly influenced by principles that they support irrespective of their own perceived interests? If so, then perhaps politicians are whistling the wrong tune (or whistling to the wrong dog) when they are seen all the time to be responding to rent-seeking by narrow interest groups.
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By Winton Bates, on July 8th, 2010
‘Contrary to both those who say money is not associated with happiness and those who say that it is extremely important, we found that money is much more related to some forms of well-being than it is to others. Income is most strongly associated with the life evaluation form of well-being, which is a reflective judgment on people’s lives compared with what they want them to be. Although statistically significant, the association of income with positive and negative feelings was modest’ (Ed Diener, Weiting Ng, James Harta and Raksha Arora, ‘Wealth and happiness across the world …’, Journal of Personality and Social Psychology, (99:1), 2010, p. 60. Media reports: here and here.)
In my view this recent article makes an important contribution to understanding of the relationship between wealth and emotional well-being by attempting to disentangle the determinants of life satisfaction and positive feelings. The article, based on data from the Gallup World Poll, suggests that while satisfaction with standard of living has a substantial impact on satisfaction with life as a whole it has little impact on positive or negative feelings (emotions experienced ‘yesterday’).
The study uses satisfaction with standard of living and a measure of whether people own luxury conveniences (TV, computers etc) as proxy measures of fulfillment of material desires. The basic idea is that people learn to desire material goods because of their social situation (including the influence of advertising) and the fulfillment of these desires leads to feelings of well-being. Some groups (e.g. the Amish) seem to be reasonably happy without much income because they have relatively low aspirations for material goods.
The authors link their findings to the distinction that Tibor Scitovsky made between comfort and pleasure (‘The Joyless Economy’, 1978). They suggest that ‘it may be that’ comforts increase life evaluations whereas pleasures increase reports of positive feelings:
‘Comfort comes from having one’s needs and desires continuously fulfilled, whereas pleasures come from fulfilling unmet needs and from stimulating and challenging activities. One source of pleasure according to Scitovsky is social stimulation, which he suggested lies largely outside the realm of economics. Novelty and learning can be sources of pleasure too. Thus, Scitovsky’s reasoning is in accord with our findings that wealth predicts life satisfaction, and social relationships and learning new things predict positive feelings’ p.59 .
I found that passage fairly challenging, but reading it didn’t give me positive feelings. I don’t have too many problems with the idea that being satisfied with your standard of living is closely related to comfort, but there other factors related to economic activity – such as a sense of achievement – that may make an important contribution to life satisfaction.
A couple of years ago I attempted to identify how necessary various domains of quality of life are to high satisfaction with life as a whole using data compiled by the Australian Centre on Quality of Life (reported here). The criterion used was the percentage of respondents with high satisfaction with life as a whole among those with low ratings on particular domains of quality of life. The percentages were follows (ranked in order of importance of each domain): personal relationships 10.8%, achieving in life 11.8%, standard of living 12.8%, future security 15.6%, health 15.9%, community connectedness 19.0% and safety 20.3%. The results suggest that ‘achieving in life’ is more necessary to high life satisfaction for Australians than is ‘standard of living’.
I do not claim that working for money is the only way that people can obtain a strong sense of achievement, but it would be very surprising if achievement is unrelated to economic success.
By Winton Bates, on January 7th, 2010
Several researchers have noted that there is a tendency for average life satisfaction to be lower in the countries with high economic growth rates even though there is strong evidence that average life satisfaction is higher in countries with higher incomes. Carol Graham and Eduardo Lora have referred to this as the ‘paradox of unhappy growth’. In one recent paper Eduardo Lora (with Juan Camilo Chaparro) suggests that ‘unhappy growth’ may help to explain why some countries have been reluctant to adopt economic reforms that would lift economic growth rates (‘The conflictive relationship between satisfaction and income’, Nov. 2008).
This is an interesting view, but I doubt its validity. It seems to me that ‘unhappy growth’ could be a misnomer. Before explaining why I should try to summarise the authors’ explanations for ‘unhappy growth’. One explanation is in terms of an aspirational treadmill. Economic growth raises aspirations, so people experiencing high income growth may come to expect higher incomes and hence feel less satisfied with their current incomes than people experiencing low growth. The other explanation is that economic growth is often associated with structural changes that result in income losses to some groups as well as gains to others. As a result of loss aversion the average life satisfaction may decline while average income rises.
Both of these explanations seem plausible, but they leave us with a paradox. How can high incomes – which must have resulted from economic growth in the past – be associated with high average life satisfaction if economic growth reduces average life satisfaction?
There is a simple explanation that dissolves this paradox. The observation of lower average life satisfaction in the countries with higher growth rates might just reflect the shorter time that the people in the countries with higher growth have had to accumulate the capital necessary to enjoy the fruits of their current income levels. Consider two countries which currently have similar per capita incomes, one of which has experienced rapid growth over the last couple of decades and one which has experienced low growth. It would be reasonable to expect that per capita net wealth would be lower in the high-growth country than in the low-growth country because people in the former country have had less opportunity to accumulate wealth from their current incomes. People with lower per capita net wealth could be expected to have poorer standards of housing and to feel less financially secure, so it is only to be expected that they would feel less satisfied with their lives. (This is similar to the explanation offered by Angus Deaton, namely that life satisfaction responds to the long-term average income, as in a permanent income model of life satisfaction. See: ‘Income, health and well-being around the world’).
There is some evidence that average life satisfaction is strongly influenced by net wealth. A study by Bruce Headey and Mark Wooden has shown, using Australian data, that wealth is at least as important to subjective well-being as is income (IZA Discussion Paper 1032, Feb. 2004).
There is also some evidence of a similar phenomenon with respect to education levels. Regression analysis suggests that there is a tendency for average education levels to be lower in countries with high growth rates, after controlling for income levels. This can be explained in terms of the time taken for accumulation of human capital. It would make no sense to attempt to explain it in terms of economic growth resulting in less education.
Finally, there is evidence in the following chart that people tend to perceive that their quality of life has improved in countries that have experienced relatively high growth rates. The perceived improvement in quality of life over the last five years can be calculated as the difference between the rating of life today and life 5 years ago using data from the Gallup World Poll. The chart plots perceived improvement in quality of life against per capita GDP growth rate for the period 2002-07 (based on rgdpl data from Penn World Tables) for 103 countries. The pink dots in the chart lie on a line fitted by regression.
The evidence of perceived improvements in quality of life in countries experiencing high economic growth rates is not consistent with the idea that economic growth makes people unhappy. I don’t accept that the failure of governments to adopt economic reforms can be explained by ‘unhappy growth’.
By Trace Mayer, on November 16th, 2009
The vampire squids of Wall Street and Washington DC are parasitic organisms and you are locked in mortal combat with them. They desire to suck all the value they can from you and then toss your carcass aside. As with most parasites they prefer subtle tactics that do not attract attention.
But now the spotlight is being directed towards them and individual humans are becoming increasingly aware of their status as human livestock to be feasted upon and slaughtered by these parasitic vampire squids. Increasing numbers are declaring their independence from these nefarious parasites. There are a few simple things you can do to defend yourselves from these repulsive psychopathic parasitic vampire squids and assert your sovereignty.
IMPROVE YOUR INFORMATION DIET
If an individual sustains life by eating low quality junk food then they are more susceptible to disease, cancer, obesity, diabetes, heart disease, inflammation and a host of other health problems. A few small changes in one’s physical diet can have a tremendous effect on one’s health and general feeling wellbeing.
So likewise your time and attention is extremely valuable. Most Americans watch 5-10 hours of television per week. A significant problem with television and corporate media is the degree of misinformation and subliminal programming.
A subliminal message is a signal or message embedded in another medium, designed to pass below the normal limits of the human mind’s perception. These messages are unrecognizable by the conscious mind, but in certain situations can affect the subconscious mind and can negatively or positively influence subsequent later thoughts, behaviors, actions, attitudes, belief systems and value systems.
Because of the consensual nature of watching television you let your intellectual guard down and are more susceptible to the lies, misinformation and subtle tactics of programming that are engaged in by the archaic media. In most cases, their corporate profits are in a direct conflict of interest to your happiness. A blatant example would be the tobacco industry.
By removing TV and corporate media from your daily information diet you can reallocate a large amount of your time to more productive uses, start a new hobby, develop additional skills or a host of other things. By purifying your information diet and purging the toxic and harmful influences the probability for having a happier and more fulfilled life increases. As many people have been doing this the newspapers have been evaporating at rapid speeds.
CEASE RELATIONSHIPS WITH CORRUPT PEOPLE AND INSTITUTIONS
Banks, brokerages, insurance companies, cable operators, credit card issuers, etc. are almost completely corrupt. You cannot afford to have contact or business relationships with this infestation of parasitic vampire squids. You cannot afford to allow these liars, thieves and murders to handle your money and data.
Whenever you do business or transact with a corporation who has access to your data then your privacy is greatly diminished or removed through the use of transactional databases. Because of the highly invasive nature of these tools I think it is extremely important that you think seriously about who you reveal data to and who you will allow to access your data.
Dr. Colin Ross, a psychologist with CCHR International, a mental health watchdog, reveals findings from 15,000+ pages of documents disclosed under the Freedom Of Information Act in his book Military Mind Control about inhumane treatment by psychologists employed by the CIA and major pharmaceutical companies such as Eli Lilly which first manufactured LSD under government contract.
Although there are some laws in place regarding privacy we see how well the traitorous vampire squids of Washington DC behave when executing their oath to ‘preserve, protect and defend the Constitution’. So assume there is no privacy and work actively to protect it and learn how to vanish.
IMPECCABLE COMPLIANCE WITH COSTUMED CRIMINAL GANGS
The traitorous vampire squids strut around in their costumes extorting your hard earned wealth while they regularly flaunt the law and like Tim ‘tax cheat’ Geithner they willingly evade the taxes levied on themselves. Of course, there is a massive industry that derives revenue from involuntary incarceration. Your freedom is in conflict with their profits. This is a reason why America has the highest documented incarceration rate in the world with over 7.2 million adults on probation, parole or in either jail or prison.
While Americans like to sing that they are the ‘land of the free’ it is really the home of the incarcerated. To avoid being engulfed by this massive police state you should be properly trained on how to interact with the psychologically damaged and intellectually retarded criminal gangs that masquerade in costumes as peace officers.
For example, in 1999 in Jordan v. City of New London Robert Jordan of Waterford, CT, a corrections officer, received worldwide attention when his application to the New London, CT Police Department was rejected on the grounds that candidates scoring too high on intelligence tests become bored with police work and often quit. Jordan scored a 33 on the Wonderlic intelligence test, a feat equivalent to having an Intelligence Quotient (IQ) of 125. New London’s policy is limited to interviewing candidates with scores between 20 and 27.
Consequently, it is extremely wise when one is unjustifiably subject to these presidents, kings, rulers or magistrates to be impeccably compliant with their extortions and threats. This compliance is recommended not because of some faux moral duty like Hitler’s perverted interpretation of Romans 13 but instead because if a robber sticks a loaded gun to your head and says ‘Your wallet or your life.’ then it is usually a better outcome to lose only your wallet.
But make no mistake; the robber’s demand is immoral and therefore you are under no moral duty to obey and under most state’s self-defense statutes you would be justified in using lethal force against the aggressor. America is the largest police state in the history of the world with highly complex rules and very little privacy protection. Therefore it is wise to never violate the various gang rules.
REPOSITION ASSETS
We live in economic warfare and as with any game there is a goal: equity and control.
Most people underinvest in their health and knowledge with poor physical and information diets. With malnourished human intellectual capital it is very difficult to be successful. To reposition your assets you will need your health, knowledge, intelligence and the ability to think and act.
We currently live in an illusory economy but because The Great Credit Contraction has begun we are transitioning to a real economy where individuals want hard assets. The Chinese are on hunting trips for real assets. They are exchanging their illusory Federal Reserve Note for farmland, oil, gas, water, etc. So it is wise to shift out of financial assets and into tangible assets or securities that have solid economics behind them.
LONG TERM TRENDS
The trend is your friend. The vampire squids of Wall Street, with shills like Jim Cramer, attempt to goad you into playing follow the vampire squid. This results in a lot of people being so busy trading they are unable to fundamentally analyze what they own. The more fractionalized your mind is from rabid trading the easier it is for the vampire squids to harvest you.
Precious metals are in a long-term secular bull market and fiat currencies are in a long-term secular bear market. Certificates of confiscation will evaporate your wealth. High quality farmland, food and clean water are becoming increasingly scarce and important. Jim Rogers analyzes and discusses the reasons in Hot Commodities. The old saying is, ‘The trend is your friend’.
REVOLUTION
Sure, you can buy gold hoping to make a profit or even protect your purchasing power. There are plenty of objective reasons for doing so. For example, those who followed the advice on RunToGold would have significantly more purchasing power given platinum has risen from $1,118 to $1,375. So likewise the analysis has been provided with silver’s slight backwardation and the fundatmentals for buying platinum.
But there are more important reasons for buying the precious metals. When you own the monetary metals you own sovereign wealth. In effect, you have declared independence and are fighting all the central banks and vampire squids in the world.
There are two ways to fight a revolution and assert your sovereignty against immoral criminal gangs costumed in government regalia: guns and currency. The use of fiat currency allows for confiscation through inflation which is a form of taxation without representation and without due process of law.
Are you upset about Congress passing the health car bill? Does the cash for clunkers program of destroying working vehicles annoy you? What about privatizing the gains and socializing the losses to the tune of trillions of dollars that is used to bailout the vampire squids of Wall Street? Does the closed-source software and the murky voting process cause you to doubt the veracity of the political system?
One method of peaceful protest is buying gold or some other commodity currency such as silver or platinum. Doing so is a vote of no confidence in the current system.
As a peacemaker I hate to observe the other method which involves violence and will only result in undesirable consequences and darker days. There is a big difference between starving parasitic vampire squids and terminating them. We all know the golden rule : He who has the gold makes the rules. One of the reasons the vampire squids are able to harvest the American people so efficiently is because the American people have no gold.
As Mark Dice found out they would not even buy a 1 ounce gold coin for $50! Perhaps that is the most bullish aspect of this secular bull market in the precious metals.
CONCLUSION
Parasitic vampire squids are swarming around trying to harvest both the wealth you produce and you. To protect yourself take control of your information diet, cease relationships with corrupt people and institutions, maintain impeccable compliance with the arbitrary rules and regulations of the costumed criminal gangs, understand the long-term trends, reposition your assets, implement provident living principles in your ordinary daily activities, and establish your independence from these parasitic vampire squids. Declare your independence!
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