Category Archives: Happiness

Utopia, Dystopia, Uncertainty and Our Psychological Selves

I have just finished reading Dylan Evans’ book “The Utopia Experiment“, which chronicles the author’s doomed attempt to found a self-sufficient community in rural Scotland as a post-collapse prototype for others to learn from.

It is always interesting to find a hidden back story about one of the authors who sit on my book shelf–and boy does Evans have a bizarre back story. Evans is an LSE-trained philosopher and scholar of risk, robotics, artificial intelligence and evolutionary psychology (after many a wayward turn).  I already own his book “Risk Intelligence”, which deals with many of the issues I confront in this blog, particularly ‘decision-making under uncertainty’. Unknown to me, Evans’ interest in risk, combined with his own personal demons, had previously led to a decision to opt out of conventional society, which in turn led to a complete nervous breakdown.

Evans displays a compulsive personality: he pours himself into a particular endeavour for a year or two, then recoils from any further long-term commitment. To launch ‘Utopia’, he sacrifices everything: his house, his job, his relationships. To justify this, ‘Utopia’ becomes more than a mere experiment but rather a lifeboat being made ready for the collapse of civilisation. In a conversation with Oxford academic and scholar of existential risk Nick Bostrom, he is asked this question:

How likely do you think it is that something like the imaginary scenario you are acting out in Scotland might really come to pass in the next ten years?

Evans replies:

I thought a bit longer, and finally declared that I thought that the chance of such a thing happening within the next ten years was about 50 per cent. Nick looked shocked. Not even the most pessimistic scientists thought things were that bad….

….the precision that Nick had demanded of me forced me to own up to my error in a way that vagueness never would. It betrayed the extent to which what had started out in my mind as an exercise in collaborative fiction had already become an insurance policy against a global disaster that I was increasingly convinced was imminent.

Later he frames this decision as more psychological rather than intellectual. A predisposition toward depression coupled with a generalized angst at living within large corporate structures results in a rejection of his existing social and institutional ties. The irony here, as he later admits, is that for one so psychologically fragile discarding structure is about the worst thing he could have done mental health-wise.

Moreover, ever the contrarian, Evans comes to question his own beliefs more rigorously the more advanced the experiment becomes. Intellectually, his certainty is lost and without that comforting narrative ‘Utopia’ become less a personal lifeboat but more of a rip tide dragging him below the waves.

So are there any wider lessons here? I think there are many. First, as behavioural economics teaches us so well, humans and not what the economist Richard Thaler calls ‘Econs’; that is, emotionless calculating machines as opposed to humans. We can only perceive risk and uncertainty within an emotional framework. Humans have an optimism bias partly as an evolutionary means to advertise positive traits that allow us to mate and flourish but partly just to keep us sane. Examining the downside is painful and can lead to isolation, rejection and depression.

Yet perhaps there are those of us who can maintain contrarianism without falling apart. Evans documents how the participants in ‘Utopia’ rapidly progress from viewing the commune as an experiment to one of preparation for real collapse. They need a narrative to inoculate themselves from the outside world. Yet after a time, Evans starts to question all the collapse narratives that the commune volunteers espouse, falls into depression and is eventually replaced as leader by an early volunteer called Agric.

What Agric offers to the remaining volunteers is a narrative of certainty, which Evans could no longer offer. Further, this is a narrative that is immune to any counter-argument since it rests upon an irrefutable theory.

Part of the reason why Agric was so dismissive of any suggestion that civilisation might not be about to collapse was the fact that he had a powerful theory. He was in the grip of Malthus, like many before him. Malthus had shown that population growth must always outstrip food supply, right? He had proved it.

And earlier:

The idea that our civilisation might not only survive global warming but also continue to grow richer had appalled me, and this was perhaps why I had believed so ardently that it would collapse. I had wanted it to. Agric still did.

At this point it would be easy to laugh at the ‘Utopia’ pioneers, painting them as New Age fools. But not so fast. Evans’ story shows how hard it is to disentangle the dispassionate from the emotional when it comes to risk and uncertainty, particularly when it comes to tail risk. But this cuts both ways.

Let’s assign a 1% probability to collapse rather than Evans’ 50% and let’s push out the horizon to five decades rather than one. We are now entering the territory of intellectual respectability. The kind of probabilities that former Astronomer Royal Martin Rees sets out in his book “Our Final Century“.


Yet the vast majority of us are repelled at discussing such negative scenarios. Nick Bostrom points out that the academic literature is many times richer when it comes to publishing papers on dung beetles or Star Trek than it is to considering existential threats to humanity (here).

Academic Prioritisation jpeg

I propose that to seriously consider those dark-side scenarios you need either 1) immense psychological detachment and resilience or 2) no psychological detachment at all (a joyful embrace of the collapse narrative). In short, psychology-wise you need to be built differently from the vast majority.

Nonetheless, some true contrarians do exist in a variety of fields, for example, finance, and walk a fine line between delusion and perception. It is such people who populate Gregory Zuckerman’s book “The Greatest Trade Ever” which retells the story of five individuals who made their fortunes from the collapse of Lehman Brothers and the onset of the Great Recession. These are not Thaler’s dispassionate, calculating ‘Econs’ devoid of emotion. These are five individuals with their own rather peculiar character quirks who are naturally uncomfortable with both the status quo and the institutions that support the status quo. In this particular case, they emerge from Zuckerman’s book as prescient heroes. Of course, we never hear of the thousands of similar individuals whose backs are broken on the wheel of markets that go the wrong way.

Perhaps our differing reactions to upside and downside risk is nature’s way of hedging its bets. A few of us are comfortable operating in the super optimistic probability tail of upside risk and fewer still like Agric like to wallow in the pessimistic tail of downside risk. From an evolutionary perspective, most of the tail risk jockeys end up as road kill. But things do change, and perhaps a maladaptive mutation will suddenly becomes a vital survival trait. Those Agric-like fellows who believe they know the future will be the equivalent of bacteria on a petri dish that survive a dose of penicillin. A mutation that may previously have been an impediment becomes a life-saver as circumstances change.

We each have our own view of rationality, but it is our emotional state that keeps us sane when seeing the world. Don’t get me wrong: I am no post-modern relativist. For example, I think there does exist an objective assessment of the likelihood that the globe will experience extreme climate change leading to economic collapse by end century (and a non-negligible one at that). This is certainly not enough risk to make me run off to the wilds of Scotland, but it is a risk nevertheless. But I think that only some people can psychologically live with such a fact. Most can’t. The dominant narrative is: let’s pretend that climate change doesn’t exist as a factor in our or our children’s lives and carry on regardless.

Dylan Evans’ story may perhaps be one of the delusion of a few, but humanity’s inability to tackle climate change is a story of the delusion of the many. So let’s not laugh too long at ‘Utopia’.

The Evolution of Aspiration

I’ve been thinking and reading about consumption as seen through the eyes of evolutionary psychologists for some considerable time. This ties in with my interest in well-being economics, particularly the question of why we do things that don’t necessarily make us happy. From an evolutionary perspective, the answer is quite simple: human happiness mechanisms are purely means to an end in evolutionary terms, not ends in themselves. Frankly, our genes don’t care if we are happy; rather, they care that we survive, reproduce and help our close kin to survive and reproduce.

There is scope for reciprocity and trust in this Darwinian jungle. But such higher moral values are again just tools, albeit sophisticated ones, to further our genetic inheritance. We may act altruistic, but this is to either earn potential altruism in return at some future date or purely to signal our superior intellectual or physical fitness.

The evolutionary psychologist Gad Saad argues that a mind is no different from any other organ that has evolved in the body (here).

The human mind is an amalgamation or collection of domain specific computational systems, each of which evolved to solve a specific adaptive problem: find a mate, avoid predators, find nutritious food, avoid poisonous foods, invest in kin, build coalitions and friendships. Each of these important problems would necessitate some adoptive solutions that are ultimately incapsulated in our human minds….

….This is very much well-described by the Swiss Army Knife metaphor. So if you think of the Swiss Army Knife, it is an amalgamation of different knives each of which serves a different function.

Saad doesn’t address the issue of happiness and well-being. However, if you follow his logic, happiness is a dog treat to get our minds to perform these computational tricks. But you don’t give a dog an infinite series of treats after performing one trick. Likewise, we never remain in a permanent state of bliss regardless of our individual evolutionary successes.

An evolutionary psychologist who does delve into the link between evolution and happiness is David Buss of the University of Texas. In a paper called “The Evolution of Happiness“, Buss starts by emphasising that we do what we do because such strategies were successful in the past. Those that may have adopted different strategies in the past are no longer with us, suggesting such strategies were either inferior, or just met unlucky fates. Continue reading

Austerity and Aspiration UK Style

Apologies for my blogging hiatus: I’ve been otherwise engaged for the last few weeks in academic activities, some economics consulting and (most timing consuming of all) grassroots campaigning in the run-up to the UK general election.

I am not a natural ‘party political animal’, being too eclectic in my ideological views. Indeed, I like bits of each party manifesto but find other parts bonkers. Nonetheless, being back on home turf for an election for the first time in over 15 years, I wanted to get involved.

My own personal ‘wedge’ issues in this election were twofold: climate change (as would be expected from this blog) and anti-austerity. Climate change is still, to me, the central risk of our times. It has the potential to overturn everything within my children’s lifetime, not least of which is democracy itself. Unfortunately, neither climate change nor the environment in general feature in the top 10 concerns of the UK public (click for larger image):

Ipsos Mori Election Issues copy

Of the five main political parties that competed in the UK general election–the Conservatives, Labour, Lib-Dem, UKIP and Green–three have an aggressive commitment to act over climate change (Labour, Lib-Dem and Green). Unlike the Republican Party in the US, the Conservatives have in the past also had a forward-looking approach to carbon emission mitigation (as evidenced by their continued support of the UK’s Climate Change Act). The leadership, has, however, grown increasingly lukewarm over leading on the climate-change issue.

With regard to austerity, my stance is more nuanced. In short, why prioritise reducing debt at a time when interest rates on long-term government debt are at rock bottom levels? The following chart is taken from the Bank of England‘s latest “Inflation Report” published on the 13th May, Continue reading

What Maslow Misses

For many years, any discussion of what people want has been shaped by Abraham Maslow’s hierarchy of needs. His pyramid is perhaps one of the few tenets of psychology that could be referenced by any educated man or woman on the street (click for larger image on all charts).

Maslow jpeg

In reality, the 1943 paper that launched the pyramid, “A Theory of Human Motivation” now looks dated. The pyramid doesn’t recognise homo sapiens as being–if nothing else–social animals. Accordingly, the motivation for what we do is not so much to reach our own personal fulfilment but more to secure the appreciation of those around us–and thus reach our own personal fulfilment at one remove.

Of course, any evolutionary psychologist would emphasise that such acts may ultimately be selfish in terms of securing our genetic inheritance, but we still need others to get where we want to go. We don’t buy a BMW for the driving experience but rather as a signal to those around us of our wealth. Restated, to get what we need–whether sex, friends, family support or status– we must enlist the support of others. The psychologist Pamela Rutledge puts it this way in an article titled “Social Networks: What Maslow Misses“:

But here’s the problem with Maslow’s hierarchy. None of these needs — starting with basic survival on up — are possible without social connection and collaboration.

According to Rutledge, Maslows’ needs exist but there is no hierarchy. Rather, we strive for a variety of goals within a social setting.

Modern Maslow jpeg

Continue reading

What Does ‘a Good Life’ Mean?

The main British political parties are in the midst of publishing their policy manifestos ahead of the May 7 general election: The Labour, Green and Conservative party manifestos are already out, the Liberal Democrats and UKIP ones are yet to come.

I will focus on the Conservative Party manifesto in this blog post since it could quite easily form the policy platform of the next government. Moreover, in rolling out the manifesto, Prime Minister David Cameron chose to frame the policy prescription in terms of helping people to achieve “a good life”.

As a politics, philosophy and economics (PPE) graduate from Oxford, I am sure the PM is well aware that the term ‘the good life’ carries with it considerable philosophical baggage. Does he give a nod to Aristotle’s definition of “the good life” or has he reduced the concept to mere materialism? Let’s take a look by first pulling out each reference to “a good life”in the speech Cameron gave introducing the new manifesto:

The next five years are about turning the good news in our economy into a good life for you and your family.

Realising the potential of Britain…

…not as a debt-addicted, welfare-burdened, steadily-declining, once-great nation – which is what we found…

…but a country where a good life is there for everyone willing to work for it…

We can be the country that not only lives within its means and pays its way…

…but that offers a good life to those who work hard and do the right thing.

That’s what I mean by a good life – families secure, the peace of mind that comes with a proper job and a career, the security of knowing your children are getting a great education.

…to make this a country where those who work hard and do the right thing can enjoy a good life.

Part of having a good life is having a home of your own.

A good life should mean that raising your family feels like an incredible and joyful and – yes – sometimes exhausting journey…

It’s hard having a good life without a good job.

With five more years we can turn the good news in our economy into a good life for you and your family.

We offer a good life for those willing to try – because we are the party of working people.

So the good life includes 1) employment, 2) home ownership and 3) a great education for your children. It’s pretty pedestrian stuff and certainly a world away from Aristotle’s idea of the good life. Continue reading

Eight Progressive UK Coalition Government Actions to Applaud

The one and only public debate between the leaders of seven UK political parties took place tonight ahead of the UK election May 7. Key topics were 1) austerity, the budget deficit and debt, 2) the NHS, 3) immigration and 4) education and intergenerational inequality. These are all big issues but hardly new.

Forgotten in the general election campaign to date are a series of ground-breaking initiatives taken by the coalition government over the past five years. These are examples of genuinely fresh thinking and should be applauded regardless of your politics. In no particular order:

1. Establishment of The Behavioural Insights Team

Dubbed the ‘nudge unit’ in a hat tip to the book by Thaler and Sunstein, this team has taken the idea of choice architecture into the heart of government. As a result, we have seen such policies as pension provision where your choice is to opt out rather than opt in–so the lazy amongst us create pension savings by default.

The nudge unit comes about from the explicit recognition the humans are not rationale calculating machines as they are portrayed in post-war economics and that frequently ‘wantability’ is different from decision-making that maximizes our well-being (see my post here).

2. Introduction of Well-Being Metrics

The Office for National Statistics (ONS) introduced its Measuring National Well-being (MNW) programme in 2010. We now have four questions included in the well-being survey that broadly relate to the three main ideas of happiness–life satisfaction, leading a meaningful life and feelings. As this data set builds, it will give policy-makers a far better idea as to whether what they do makes people happier (click for larger image on the chart below).

How do we evaluate our lives copy

Continue reading

Wantability, Well-Being and Risk

I’ve been mulling a name change for the blog for some time. The name the “The Rational Pessimist” was a riposte to Matt Ridley’s book “The Rational Optimist“. Ridley’s book is a paean to global free markets and human innovation–and in parts is correct. Since the industrial revolution commenced, technology coupled with capitalism has lifted the bulk of the world’s population out of a Hobbesian life that was “nasty, brutish and short”. But where I differ from Ridley is in believing that a 200-year data set of economic growth can fully capture all future risk.

Ridley’s book is Panglossian. He believes that every problem we face–from climate change to resource depletion–is relatively minor, just waiting to be solved by a technological fix. For him, price always trumps scarcity. Whenever something looks like it is running out, the magic of markets will  always lead to new discoveries or acceptable substitutes.

As an economist by training, I accept that the everlasting dance between supply, demand and price is something of beauty. But I also believe that it has its limitations. A backward-looking empirical observation that things haven’t run out is different from a forward-looking theoretical prediction that things won’t ever run out. North Sea oil is running out regardless of price, and a global supply of oil is not qualitatively different from a local one.

Of course, technology may provide a perfect, or dare I say it better, substitute for fossil fuels. But then again it may not. That is uncertainty, and the consequences of that uncertainty is the concept of risk.

Continue reading

More Grumpiness on Competitiveness

Yesterday, I was a grump over national competitiveness and, in particular, the World Economic Forum‘s Global Competitiveness Index. I remain a grump today. Why does this topic bring out the curmudgeon in me?

In short, because national competitiveness is like a shell game where you are shown one definition, and this is then secretly switched to another. Here is a part of a speech by Prime Minister David Cameron on the UK economy in March 2013:

But third, as I said, we are restoring our competitiveness. At the forefront of this is our bold plan to cut corporation tax to 21%. That will be the lowest in the G7. As the recent KPMG survey shows, in just over two years we’ve transformed business perceptions of our corporate tax system from one of the least competitive to one of the most competitive in the world. We’re introducing some of the most generous tax breaks for early investment start-ups of any developed economy on the planet. And, by stripping back the red tape that was smothering businesses, we’ve put Britain back in the World Economic Forum’s Top Ten for competitiveness.

We start with the use of the word ‘competitive’ in the traditional sense: something relative to another. The claim is that UK tax rates are more competitive because they are lower. But this is really a tautology. Put another way, Prime Minister Cameron says this state of affairs is good, because good is defined as being this state of affairs. The only external evidence for the goodness of this state of affairs is the fact that it helps “put Britain back in the World Economic Forum‘s Top Ten for Competitiveness”.

Then later in the speech we see the race metaphor raised:

But my message is simple, people should make no mistake, in this battle for the future of Britain and our competitiveness, I’m prepared to roll-up my sleeves and have a fight, if that’s what it takes. So that is our plan: fiscal responsibility, monetary activism and restoring our competitiveness to succeed in the global race.

And it’s a zero sum race, since if we don’t beat the Chinese and Indians our children won’t get good jobs:

My motives, my beliefs, my passion for sticking to this plan are exactly about doing the right thing to help families and to help businesses up and down our country, because the truth is this: because if we want good jobs for our children, we will not get them if we are burdened with debt and outcompeted by India and China.

And in case you don’t get the message, the speech finishes by battering you with the race metaphor again:

By sticking to the plan, we can together make Britain a great success story in this vital global race. Thank you.

In all, I counted 16 references to ‘competitiveness’ and ‘competing’ in the speech. Productivity: zero. Prosperity: zero. Well-being: Zero.

Quick refresher on the WEF‘s definition of competitiveness, from page 4 of the Global Competitiveness Report 2014 /15:

We define competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by a country.

Note there are no sport or military metaphors to be seen. We neither appear to be in a race or a battle, just striving for a bit more boring productivity.

The report then sets out the twelve pillars that make up competitiveness, with these in turn determining productivity. The pillars are as follows:

  1. Institutions
  2. Infrastructure
  3. Macroeconomic environment
  4. Health and primary education
  5. Higher education and training
  6. Goods market efficiency
  7. Labor market efficiency
  8. Financial market development
  9. Technology readiness
  10. Market size
  11. Business sophistication
  12. Innovation

And a pretty chart (click for larger image):

Global Competitiveness Index jpeg

The calculation then gets more complex. Each pillar is subdivided into smaller categories, and each  category is given a weight and a score. Moreover, the weightings differ depending on a country’s level of development. The rationale behind the  particular weightings for each category is not revealed. Weightings appear to drop into the report like manna from heaven.

We now get wonkish as we delve into Appendix A titled “Statistically testing the validity of the Global Competitiveness Index as an estimate of the level of productivity of an economy” on page 46 of the report. In this part of the report, we are told that it is too difficult to measure productivity directly so GDP per head is used as a proxy. The following chart is then produced (click for larger image):

GCI and Level of Income jpeg

Hang on. What does this chart actually tell us? That rich nations have better institutions, education and so on. Do we really need a 500 page report to tell us that? And from statistics 101 we know that correlation doesn’t equal causation. And if there is causation, which way is it going. As we get richer, doesn’t that allow us to have better institutions and get more educated? Moreover, the accompanying text tells us that the GCI score accounts for only about two-thirds of GDP per capita anyway.

A second chart is then produced to give further credence to the GCI and productivity link. We have a little bit of sleight of hand here because we are jumping from a static to a dynamic measure: from GDP per head over a snapshot in time to GDP growth over a period of time. This is a little bit bizarre. We are saying that productivity should raise the long term growth rate. Yet the long-term growth rate is mostly driven by the change in productivity. So the idea is that if you are productive now, you will be more productive in the future. In short, innovation will continue–probably one of the most inane statements I have ever heard.

GCI and Growth jpeg

Note that in the above chart they have adjusted the growth number to take account of convergence (other things being equal, poor countries grow quicker than rich ones).

The other thing that jumps out at me from this chart (apart from all the correlation/causation problems) is that we are going backwards: the 2014/15 index score is being used as the determinant of growth from 1990-2012. Shouldn’t we really be taking the first GCI scores published in 2004 and then plotting them against the growth rates over the subsequent decade?

Despite all this, the WEF pats itself on the back and says job well done:

In conclusion, the results of both Figures 1 and 2 indicate that the GCI is a good estimate of the level of productivity. In other words, the GCI’s estimate of the determinants of competitiveness–which, in turn, fundamentally shape the (conditional) medium to long-run growth rate of an economy and its level of prosperity–is validated on a statistical level.

Between David Cameron and the WEF, we now appear in a hopeless muddle. The British prime minister bangs on about competitiveness using the metaphor of a global race. As such, Britain should rejoice that it has gone up the WEF’s Global Competitiveness Index league table. But the WEF says that the GCI is a measure of productivity, and since no-one can really measure productivity, it measures GDP per head (and it is a pretty crap measure of GDP per head at that). But if David Cameron goes along to the UK’s Office of National Statistics web page, he can read off Britain’s GDP per head statistics directly. So what is the bloody point of the GCI!

OK, in the final statistical results paragraph I quote above, an allusion is made to the GCI having some forward-looking predictive power. That is, if you raise your score today, you will become richer tomorrow. But where is the evidence in the WEF report to support this assertion? In truth, there is none.

Now within the index, there are a bunch of GCI pillars that if bolstered I am sure would lead to greater prosperity. Who doesn’t like innovation and higher education? But mixed in with this we have lower corporate tax rates, flexible labour markets (code for fewer labour rights), deregulation and privatisation. These factors are submerged within the GCI methodology like ingredients in a giant Irish stew. Do we know if any of these factors has a bearing on future productivity: no, we haven’t a clue.

In conclusion, appealing to competitiveness is often little more than a game of bait and switch, under which one kind of political agenda suddenly morphs into another. Be warned. Grump over.

What the Hell Does Competitiveness Mean and Why the Hell Should We Care?

Some advice: beware politicians talking about competitiveness.

In the socio-economic arena, you can find an index for this and an index for that. But the World Economic Forum‘s “Global Competitiveness Index” is one of the biggest beasts in this area.

From this index, we learn that Switzerland is the most competitive country in the world, followed by Singapore and the United States. But what does this mean? The WEF tries to help out:

We define competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates. In other words, a more competitive economy is one that is likely to grow faster over time.

We immediately run into a host of problems. For example, China comes in at 28 and India at 71 in the index rankings. Yet these two economies are exemplary examples of economies that have been growing “faster over time”. So the link between competitiveness and growth appears tenuous at best.

Indeed, I would argue that those countries who are least competitive (using the WEF‘s competitiveness metrics) may offer the best growth opportunities, since they have the most painless potential for catch-up. If you are corrupt and your institutions suck, then just by becoming a little less corrupt and by making your institutions suck just a little bit less, then you can grow an awful lot.

Then there is the word “prosperity”, which crops up an awful lot in talk of competitiveness. Unfortunately, prosperity is not the same thing as well-being or happiness. So are competitive nations happy nations? The question isn’t asked.

And what the hell does prosperity mean? In the United States,  a Council on Competitiveness was established nearly 30 years ago. Back in March 2007, the Council issued a report called “Competitiveness Index: Where America Stands“. It was rather smug as reports go, but America’s competitive prowess didn’t stop the country walking into the buzz saw of the Great Recession.

The report also included an introduction by Michael Porter, the doyen of competitiveness studies. If anyone can tighten up the purpose behind competitiveness, then surly Porter could.

The ultimate goal of competitiveness is the prosperity of a nation’s people, or per capita living standards….

….Competitiveness is not about a low-cost labour force, the largest share of exports of even the fastest economic growth. It is about creating the conditions under which companies and citizens can be the most production so that wages and returns on investment can support an attractive standard of living.

For those of a certain age (and an interest in economics and finance), Michael Porter’s book “The Competitive Advantage of Nations” was a must-read. Palgrave describes is as one of the most influential business and management books of all time. For a synopsis of his thesis, read this 1990 Harvard Business Review article here. My younger self was impressed when I first read his book. Now, less so.

For a start, the focus on competitiveness has not helped support “an attractive standard of living”. In the late 1980s, when national competitiveness studies swept into fashion, real median household income was around $52,000–almost exactly where we are now.

Median Wages jpeg

Of course, I frequently point out on this blog that there is a disjoint between standard of living and well-being. But the competitiveness mantra has always ignored well-being. The mantra has told us that we should keep score by looking at growth and prosperity (aka per capita incomes) alone. In short, we are admonished to remain competitive, and in so doing we must reform X, Y an Z. But, by doing this, the average Joe gets nothing in return.

Moreover, measures of competitiveness appear to have absolutely no predictive power whatsoever. In the 1990 HBR article by Porter, Japan played a staring role. Ten years later, and no apology in sight, Porter wrote a book called “Can Japan Compete?

That book, itself, contains a call on Japan to reform its uncompetitive half (a half generally ignored 10 years earlier). And this call is still sounded regularly in the editorial pages of the Wall Street Journal, Financial Times and The Economist. Thank god they have not done it. If they had, I suggest that you would have seen a far greater decline in median incomes and a marked deterioration in well-being. It is the “uncompetitive” piece of the the economy that gives Japan its low unemployment, social coherence and overall resilience to what the world economy and nature (think earthquakes, tsunamis and typhoons) throws at it.

So to conclude, whenever you hear politicians clamour for national competitiveness, expect incoherent, ill-informed and unsupported garbage.

A Short Blog Post on a Very Big Question: Well-Being and Policy

Here in the UK, a general election looms. Key themes are common to every western democracy, albeit with a few local characteristics; that is, economic growth, prosperity (narrowly defined around income and wealth), inequality (median wage growth or the lack thereof) and, to a degree, well-being (in the UK’s case proxied by arguments over the NHS). Climate change and the environment will be foot-noted at best.

So could we do better? Emphatically, yes.

To commence with, every politician (and, in fact, everyone), regardless of political persuasion, should read the report “Well-Being and Policy” published by the Legatum Institute last year. The executive summary is here and the full report here. Note the report is written by a suite of top-ranked economists including Angus Deaton and Richard Layard.

The report makes a compelling case that the young discipline of ‘well-being and happiness’ has now matured sufficiently to drive policy. Following from this, my recommendation is that every party organises its manifesto around the three major types of happiness set out in the report (and for the last few years in this blog):

  1. Life satisfaction: how we evaluate our lives
  2. Affect: the daily positive feelings (happiness, joy, contentment) and negative feelings (anger, sadness, fear, depression and so on) we experience
  3. Eudaimonia: whether we feel our lives are meaningful

Where does GDP, income and wealth show up in the above trilogy? They show up quite a lot in life satisfaction, but not so much in affect and eudaimonia. So let’s just drill down into life satisfaction a bit more. We can see its principal components here (click for larger image):

Impact of Policy A upon Life Satisfaction jpeg

For simplicity, let us ignore the eudaimonia and affect forms of happiness and presuppose that policy was purely aimed at the life satisfaction and its determinants as detailed above.

Measured against this new metric, a government could embark on a green agenda that made the UK totally fossil fuel free by, say, 2030 as long as sufficient improvements were made with respect to well-being as it relates to employment, education, family, community, environment, physical heath and mental health such that this offsets any loss in well-being from income. If this were possible, then we would have made a net positive policy choice. In short, we can have our cake and eat it: a society with a higher level of well-being and a society that isn’t destroying the well-being of future generations.

Actually, it gets even easier than that. The entire system as it stands is built around valuing consumption as the main driver of happiness. How many adverts over the last month have you seen admonishing you to cultivate an allotment as opposed to buying an SUV? Yet the evidence in the happiness literature is quite specific: engaging in a community recreational pursuit has a far greater impact on happiness than, say, purchase of a new car (on the impact of auto purchases, see here). Indeed, it is somewhat miraculous that non-monetary forms of happiness have survived the onslaught of a system that values nothing that cannot be bought.

Traditionally, economics has gone with the maxim of revealed preference; that is, look at what people do, not what they say. In short, if they are doing it, by definition it is making them happier. But psychological studies (and more recently economic studies) show that the link between what people do and whether what they do makes them happy is far more tenuous.

Let’s take cigarettes. A study by Gruber and Mullainathan demonstrated that by taxing cigarettes, the government made smokers happier by forcing them to cut down or stop smoking. By extension, in a world where we are continually persuaded to consume, we may work excessively and incur too much debt. By constricting our consumption choices, the government could actually make us use our time to secure far superior sources of happiness than those just founded on the acquisition of consumer goods.

In conclusion, what every politician should be peddling is growth in well-being–everything else is irrelevant.