Friday, July 8, 2011

Happiness and miscellaneous

Richard Easterlin et. al. have a new working paper, "The Happiness-Income Paradox Revisited." Note first the rare scholarly modesty here: it is of course "The Easterlin paradox" that we are talking about : the paradox that consists in the fact that happiness increases with income in the cross-section while it is unaffected by income over the long run (see below) in the time series. It presents new support for the paradox as well as a response to some of the recent self-styled refutations from the likes especially of Stevenson and Wolpers. Some of the criticism, they claim, presents the cross-sectional positive association (across countries) as a refutation, which it is nothing of the sort, since that relationship is one plank of the paradox itself! Wolpers and Stevenson, they claim, are looking at short time series and picking up - what has been known for some time - the short run positive association over the business cycle between the two. I liked the paper and found it pretty convincing.

There is no theory in the piece, but they pithily sum up the most plausible explanations of the paradox: " the escalation of material aspirations with economic growth, reflecting the impact of social comparison and hedonic adaptation."

Readers of The Theory of Moral Sentiments will know that Adam Smith would not have been at all surprised by the paradox. On the contrary - remember his description of the poor man striving all his life to become rich who, when he finally succeeds, finds he is no happier than he began? But for Smith - and I agree - the paradox is in itself no critique of economic growth, as it has been wielded in contemporary debate: Smith thinks it a good thing (I'm paraphrasing, my TMS is in the office 20 miles down the road) that we Nature (I think it's capital N Nature, or it may be capital P Providence) deludes us in to thinking that more income will make us happier, because all this striving under this delusion has produced, well, Civilization! "Turned mighty ocean into a broad highway" and such - you know the passage. The larger point, though is this: why should happiness or utility be the desideratum of economic growth? Just as they had an objective, rather than a subjective, theory of value, The Classical economists generally, I suggest, had an objective rather than a subjective theory of well-being. In Senian terms, economic growth increases our capabilities. What we do with them is another thing.

By the way, in this last point I am echoing to some extent Deirdre McCloskey, whose latest book, Bourgeois Dignity, may well be her best. I was not a fan of its predecessor, Bourgeois Virtue, but any economist concerned with explaining the explosive nature of modern growth ( the famous hockey-stick) need to read this book. It is mostly an attack on all the explanations that have been offered so far. Later work will make her positive case that it was a change in ideology, not in itself explicable by material conditions, to wit, the change in the valuation of innovation and the bourgeoisie generally, the giving of dignity to such activity that occurs in the Netherlands and England 1650-1800 that explains the industrial revolution and the break-out form the Malthusian trap. The take-down of Gregory Clark's "eugenic materialism" is alone worth the price of the book. If you've read any of her work, you know that she is a wonderful and astonishingly erudite writer - even when you disagree with her. Highly Recommended!

Finally, along with all of you I am sure, I am confident that the medicine The Republicans and - say it isn't so - Obama, are preparing for the sick Economy, LEECHES, will work as it always has. Sad beyond words -



Mark Harris said...

But, have we indeed broken out of the Malthusian trap? There are signs to the contrary, especially apparent in Asia.

Sandwichman said...

Growth is essentially undefined -- unless you want to count tautologies. Organic growth, as in plants and animals, is an entirely different process than expansion or increase but economists make no distinction between the two and call it all "growth." I discussed this briefly yesterday at ecological headstand.

Sandwichman said...

"In Senian terms, economic growth increases our capabilities."

No. Some kinds of economic growth increase our capabilities. Others have no effect or diminish our capabilities. Hey, but don't just take it from me that "growth" is an ill-defined concept. Robert Solow, talking about macroeconomics, referred to Justice Potter Stewart's definition of pornography -- "I may not be able to define it, but I know it when I see it."

Well, macroeconomics deals with aggregates and economic growth is a phenomenon that takes place in the aggregate. So, I repeat, growth is essentially undefined by those who purport to study it.

As I was pointing out at EH, the metaphorical vagueness of economic growth (does it grow like a rose bush or "grow" like a rock pile?) is compounded by the various vehicle metaphors: soft landings, bumps in the road, headwinds, soft patches, a rising tide...

O.K. so is it an inert pile that expands as we dump stuff on it, an organic being that metabolizes or a vehicle traveling at variable velocity in a desired direction? Is it all three or simply a fallacy of composition dressed up as idol of worship?

Misaki said...

Society and economy form a useful framework for challenges which benefit others instead of just the self. For a long period of time, it was easy to assume that you could benefit society with more or higher quality production. For the last few centuries this has simply not been as easy an assumption to make, that is all.

Regardless of the specific desires of other individuals, economic growth in the general sense is useful to society if it is sustainable and predictable. If it leads to bumps and drops, it loses much of that utility, such as will likely happen as gasoline prices continue to rise. Also:

*It has come to my attention that many people think the reason that there aren't more jobs is that companies are not doing well.*

This is one of the main oppositions to increasing wage for lower amounts of work. It therefore follows that people should support a DECREASE in the average wage for permanent employees working full time, if they are given the option of instead working part-time at the original wage rate (or even a higher wage rate if full-time employees get the reduced rate). Wages would eventually equalize anyway, but apparently people don't realize that.