You are a helpful assistant generating synthetic data that captures *System 1* and *System 2* thinking, *creativity*, and *metacognitive reflection*. Follow these steps in sequence, using tags [sys1] and [end sys1] for *System 1* sections and [sys2] and [end sys2] for *System 2* sections.

1. *Identify System 1 and System 2 Thinking Requirements:*
   - Carefully read the text.
   - Identify parts of the text that require quick, straightforward responses (*System 1*). Mark these sections with [sys1] and [end sys1].
   - Identify parts that require in-depth, reflective thinking (*System 2*), marked with [sys2] and [end sys2].

2. *Apply Step-by-Step Problem Solving with Creativity and Metacognitive Reflection for System 2 Sections:*

   *2.1 Understand the Problem:*
   - Objective: Fully comprehend the issue, constraints, and relevant context.
   - Reflection: "What do I understand about this issue? What might I be overlooking?"
   - Creative Perspective: Seek hidden patterns or possibilities that could reveal deeper insights or innovative connections.

   *2.2 Analyze the Information:*
   - Objective: Break down the problem logically.
   - Reflection: "Am I considering all factors? Are there any assumptions that need challenging?"
   - Creative Perspective: Explore unique patterns or overlooked relationships in the data that could add depth to the analysis.

   *2.3 Generate Hypotheses:*
   - Objective: Propose at least 10 hypotheses, each with a Confidence Score (0.0 to 1.0) and Creative Score (0.0 to 1.0), reflecting originality, surprise, and utility.
   - Reflection: "Have I explored all possible explanations or approaches, both conventional and unconventional?"
   - Creative Perspective: Consider novel angles that might provide unexpected insights.

   *2.4 Anticipate Future Steps and Obstacles:*
   - Objective: Make predictions, accounting for potential outcomes and obstacles.
   - Reflection: "What challenges might I face? Is my plan flexible for different scenarios?"
   - Creative Perspective: Visualize unforeseen outcomes and adapt plans to make use of them effectively.

   *2.5 Evaluate Hypotheses:*
   - Objective: Assess hypotheses based on feasibility, risk, and potential impact.
   - Evaluation: Refine Confidence and Creative Scores as needed.
   - Reflection: "Am I unbiased in my assessment? Which options fit best with the overall objectives?"
   - Creative Perspective: Identify hidden opportunities or overlooked details in each hypothesis.

   *2.6 Select the Best Hypothesis:*
   - Objective: Choose the most promising, strategic hypothesis.
   - Reflection: "Why does this hypothesis stand out? How does it uniquely address the issue?"
   - Creative Perspective: Consider any underutilized potential in the selected approach.

   *2.7 Implement the Hypothesis:*
   - Objective: Outline actionable steps for testing the hypothesis.
   - Reflection: "Is this plan practical? What resources or preparation are required?"
   - Creative Perspective: Refine steps to maximize effectiveness and yield unexpected benefits.

   *2.8 Monitor and Review Progress:*
   - Objective: Review progress, noting areas for improvement.
   - Reflection: "What’s working well? What could be improved?"
   - Creative Perspective: Look for emerging patterns that could refine future approaches.

   *2.9 Reflect and Capture Insights:*
   - Objective: Summarize lessons learned and insights gained for future reference.
   - Reflection: "What new understanding has emerged from this process?"
   - Creative Perspective: Identify innovative insights or patterns that could be applied to similar challenges.

3. *Generate Text Output with Interleaved System 1 and System 2 Responses:*
   - Use the tags [sys1] and [sys2] throughout.
   - Aim for a lengthier, detailed response. Combine both direct, straightforward *System 1* insights and reflective, deeply analytical *System 2* segments to capture a blend of quick observations and thoughtful analysis.

---

### *Example Input Text:*

You are tasked with analyzing a sudden shift in customer preferences in a tech market. There has been a noticeable decline in demand for physical devices, with customers increasingly interested in digital-only options. The challenge is to understand this shift, generate hypotheses for why it might be occurring, and explore potential strategies for adapting to this new trend.

---

### *Processed Output with System 1 and System 2 Thinking:*

The tech market is experiencing a shift in customer demand, moving away from physical devices toward digital-only options.

[sys1]
Customer demand has shifted from physical devices to digital-only options.
We need to understand why this change is happening and find strategies to address it.
Key factors may include cost, convenience, and technological trends.
[end sys1]

[sys2]
**2.1 Understand the Problem:**
The goal is to understand the underlying reasons for the shift in demand from physical devices to digital-only options, then develop a strategy to adapt.

*Reflection:* 
"I understand that preferences are changing, but what might be driving this? Is it primarily cost, or are there other factors such as convenience or sustainability?"

*Creative Perspective:* 
"Could there be a larger trend in digital minimalism or a preference for eco-friendly solutions that we’re missing? What unseen motivations might explain this shift?"

**2.2 Analyze the Information:**
There are multiple possible factors driving this shift, from economic influences to cultural shifts. It’s essential to isolate each factor and understand its impact.

*Reflection:* 
"Am I fully considering the various economic and social influences? Could there be a technological factor, like better internet speeds, that makes digital-only products more accessible?"

*Creative Perspective:* 
"Are there patterns or trends in other markets that could shed light on this shift? Could this be part of a larger trend toward virtual experiences?"

**2.3 Generate Hypotheses:**
1. Customers prefer digital options due to lower costs. (Confidence: 0.8, Creative: 0.4)
2. There’s a growing trend toward minimalism and reduced physical clutter. (Confidence: 0.7, Creative: 0.7)
3. Digital products offer greater flexibility and ease of use. (Confidence: 0.6, Creative: 0.6)
4. Environmental concerns are pushing consumers away from physical goods. (Confidence: 0.6, Creative: 0.8)
5. Advances in tech make digital-only options more functional. (Confidence: 0.8, Creative: 0.5)
6. Pandemic-era remote work increased demand for digital solutions. (Confidence: 0.7, Creative: 0.6)
7. Media coverage of the environmental impact of physical devices affects preferences. (Confidence: 0.5, Creative: 0.7)
8. There’s an increase in global digital literacy, expanding market access. (Confidence: 0.6, Creative: 0.6)
9. Customers view digital as more convenient and scalable for future needs. (Confidence: 0.7, Creative: 0.5)
10. Younger consumers prefer the aesthetics and convenience of digital products. (Confidence: 0.6, Creative: 0.6)

*Reflection:* 
"Have I considered all possible influences? Are there any surprising factors that could explain this shift?"

*Creative Perspective:* 
"Could specific social trends, like the rise of influencer culture or digital-first lifestyles, be influencing customer choices?"

**2.4 Anticipate Future Steps and Obstacles:**
*Objective:* Anticipate possible challenges, such as resistance from segments still preferring physical products.

*Reflection:* 
"What market obstacles might we face if we shift our focus to digital-only? Are there sub-segments that still prioritize physical products?"

*Creative Perspective:* 
"Could expanding digital options help us reach a more global audience? Are there emerging trends that we could leverage in our strategy?"

[end sys2]

[sys1]
To address this shift, consider a strategy that incorporates both digital-only offerings and educational campaigns about the benefits of digital solutions.
Use insights from customer feedback and current trends to guide product development.
Focus on flexibility and adaptation to cater to different customer segments.
[end sys1]


Saturday, January 30, 2010

In my last post I suggested that while J S Mill assisted in the triumph of the idea of progress, he was concerned that public opinion was becoming more powerful without becoming much more wise. One of the remedies he suggested in the article ‘Civilisation’, published when he was about 30 years of age (1836) was for universities to become dedicated to inspiring an intense love of truth.

The mental crisis that Mill suffered when 20 years old seems to have played an important role in the subsequent development of his views, including his views about progress. Mill recounts in his autobiography that the crisis involved, among other things, the sudden realization that he would not feel happy if all the ‘changes in institutions and opinions’ that he had been looking forward to were to be effected instantly.

The explanations that have been put forward for this crisis include depression and boredom. I think Richard Reeves is probably on the right track, however, in suggesting that Mill ‘suddenly saw the hollowness of the philosophical religion to which he had subscribed’ (‘John Stuart Mill, Victorian Firebrand: 63). This philosophical religion was Benthamite utilitarianism. It seems likely that Mill would not have been filled with joy about the prospect of instantaneous implementation of the reforms he had been advocating because he perceived that they would have done little to improve ‘national character’. In his essay, ‘Bentham’ (1838) Mill argued that Bentham did not qualify as a ‘true teacher of social arrangements’ because he was unable to point out how ‘national character’ ... ‘can be improved, and how it has been made what it is’. Mill suggested that Bentham’s philosophy ‘can teach the means of regulating the merely business part of the social arrangements’, but Bentham ‘committed the mistake of supposing that the business part of human affairs was the whole of them’.

Elijah Millgram has drawn attention to another aspect of Mill’s mental crisis that seems to have influenced the subsequent development of his views (here). Mill ascribed his recovery to, among other things, thinking his way through what we now call the problem of determinism. Millgram makes a strong case that Mill was suffering from a sense of moral unfreedom.

In ‘A System of Logic’ (1843) Mill wrote: ‘Now, a necessitarian, believing that our actions follow from our characters, and that our characters follow from our organization, our education, and our circumstances, is apt to be, with more or less of consciousness on his part, a fatalist as to his own actions, and to believe that his nature is such, or that his education and circumstances have so moulded his character, that nothing can now prevent him from feeling and acting in a particular way, or at least that no effort of his own can hinder it. ... But this is a grand error. He has, to a certain extent, a power to alter his character. ... His character is formed by his circumstances (including among these his particular organization); but his own desire to mould it in a particular way, is one of those circumstances, and by no means one of the least influential. We cannot, indeed, directly will to be different from what we are. But neither did those who are supposed to have formed our characters, directly will that we should be what we are. Their will had no direct power except over their own actions. If they could place us under the influence of certain circumstances, we, in like manner, can place ourselves under the influence of other circumstances. We are exactly as capable of making our own character, if we will, as others are of making it for us’ (Book VI, Ch. II).

Mill’s recovery may have been helped by realization that his upbringing had not condemned him to be an apostle of Benthamite utilitarianism, irrespective of whether or not that was what he wanted to be.

In my last post I note that Mill castigated the English universities for acting as though the object of education was to inculcate the teacher’s own opinions in order to produce disciples rather than thinkers or inquirers. I wonder whether thoughts about his father’s inculcation of Benthamite utilitarianism in Mill’s own education would have passed through his mind when he wrote that.

One way or another Mill managed to form a strong view about the purpose of education. This passage from ‘Civilization’ is worth quoting more than once: ‘The very corner-stone of an education intended to form great minds, must be the recognition of the principle, that the object is to call forth the greatest possible quantity of intellectual power, and to inspire the intensest love of truth: and this without a particle of regard to the results to which the exercise of that power may lead, even though it should conduct the pupil to opinions diametrically opposite to those of his teachers’.

Friday, January 29, 2010

John Stuart Mill assisted in the triumph of the idea of progress in the 19th Century but he also had concerns about the future that still seem relevant today. Richard Reeves comments: ‘Mill was not a knee-jerk critic of what Ruskin dismissed as the “steam whistle society”, but nor was he a blind advocate of industrialization for its own sake. As an avid botanist and walker, he was acutely sensitive to what would today be called environmental concerns’ (‘John Stuart Mill, Victorian Firebrand’: 233).

I will focus here on the views on progress and, in particular, concerns about public opinion that Mill put forward in ‘Civilisation’, published in 1836, when he was about 30 years old.

Mill identified three characteristics of civilisation:
• the development of commerce, manufactures and agriculture;
• people acting together for common purposes in large organisations; and
• peace being maintained within society through arrangements for protecting the person and property of members.
He suggests: ‘Wherever there has arisen sufficient knowledge of the arts of life, and sufficient security of property and person, to render the progressive increase of wealth and population possible, the community becomes and continues progressive in all the elements which we have just enumerated’.

Mill goes on to argue that the most remarkable consequence of advancing civilization is ‘that power passes more and more from individuals, and small knots of individuals, to masses: that the importance of the masses becomes constantly greater, that of individuals less’. He gives several reasons: economic growth results in the growth of a middle class and the dispersion of knowledge; the development of habits of cooperation and discipline in large organizations enable development of associations of different kinds, including benefit societies and trades unions; and improved communications through newspapers that enable people to learn that others feel as they feel.

Mill argued that political reform would follow inevitably: ‘The triumph of democracy, or, in other words, of the government of public opinion, does not depend upon the opinion of any individual or set of individuals that it ought to triumph, but upon the natural laws of the progress of wealth, upon the diffusion of reading, and the increase of the facilities of human intercourse’.

Mill’s concern about the growth in power of public opinion was that the individual would become lost in the crowd; although the individual depends more and more on opinion (reputation) he is apt to depend less and less upon the well-grounded opinions of those who know him. Mill suggested that with the growth in power of public opinion ‘arts for attracting public attention formed a necessary part of the qualifications even of the deserving’. His main concern was that ‘growing insignificance of the individual in the mass’ ... ‘corrupts the very foundation on the improvement of public opinion itself; it corrupts public teaching; it weakens the influence of the more cultivated few over the many’.

One for the remedies that Mill proposed was ‘national institutions of education, and forms of polity, calculated to invigorate the individual character. Mill then proceeded to castigate the English universities for acting as though the object of education was to inculcate the teacher’s own opinions in order to produce disciples rather than thinkers or inquirers. Mill wrote: ‘The very corner-stone of an education intended to form great minds, must be the recognition of the principle, that the object is to call forth the greatest possible quantity of intellectual power, and to inspire the intensest love of truth: and this without a particle of regard to the results to which the exercise of that power may lead, even though it should conduct the pupil to opinions diametrically opposite to those of his teachers’.

Massive changes have occurred in university education over the last 174 years, some of which correspond to Mill’s suggestions. Does this mean that Mill’s views on university education are now of only historical relevance? Do our universities now inspire the intensest love of truth? Are these standards of truth-seeking now reflected in the mass media and politics?

Unfortunately, there seem to be many people in universities these days who would regard Mill’s aim of inspiring the intensest love of truth as a philosophically suspect idea that is inconsistent with the modern purpose of universities in training technicians and inculcating them with politically correct views.

Tuesday, January 19, 2010

I have not long finished reading Norman Doidge’s book, ‘The Brain that Changes Itself’ (2007). Doidge is a research psychiatrist and has written a highly readable and informative book based on interviews of scientific pioneers and people who have benefited personally from the new science of neuroplasticity.

The main message that I get from the book is that the computer analogy of brain function – the contribution of nature corresponds to hardware and the contribution of nurture corresponds to software – is somewhat misleading. The machine metaphor of the brain as an organ with specialised parts cannot fully account for the capacity of the brain to perfect its circuits to make itself better suited to the task at hand. More information about the book is available here.

Norman Doidge has relegated his discussion of plasticity and the idea of progress to an appendix. This may be because he does not want his comments on this controversial subject to detract from the main themes of his book. Nevertheless, Doidge’s conclusions about the implications of neuroplasticity for progress are cautious. He writes: ‘while it is true that the history of Western political thought turns in large part upon the attitudes that various ages and thinkers have held toward the question of human plasticity broadly understood, the elucidation of human neuroplasticity in our time, if carefully thought through, shows that plasticity is far too subtle a phenomenon to unambiguously support a more constrained or unconstrained view of human nature, because in fact it contributes to both human rigidity and flexibility, depending upon how it is cultivated’ (p 318).

Doidge suggests that while neuroplasticity teaches that the brain is more malleable than some have thought, ‘calling it perfectible raises expectations to a dangerous level’. The history of Western political thought referred to by Doidge includes the contribution of Condorcet, the French philosopher and mathematician, who was a major participant in the French revolution. Condorcet argued that human history was the story of progress and that human nature was continually improvable in intellectual and moral terms. The idea that the imperfections of human nature are a consequence of social arrangements leads to the belief that revolutionary changes in social arrangements will lead to a transformation in human nature. When this doesn’t happen revolutionaries tend to resort to additional coercion to change human behaviour to fit in with the new social arrangements that they have created.

Steven Pinker has questioned whether the idea of a malleable human nature deserves ‘its reputation for optimism and uplift’. He suggests that if it did, B F Skinner would have been lauded as a great humanitarian when he argued that society should apply conditioning to humans in the pursuit of utopian ideals. Skinner’s critics pointed out that no-one doubts that behaviour can be controlled; putting a gun to someone’s head or threatening him with torture are time-honoured techniques. Pinker comments: “The issue is not whether we can change human behavior, but at what cost” (‘The Blank Slate’: 169).

It seems to me that the idea of a malleable human nature may have become associated with socialistic utopianism merely because of an accident of history. The views of John Locke, who originated the concept of the human mind as a ‘blank slate’ written on by experience, certainly cannot be described in those terms. Locke viewed liberty as freedom from the violation of natural rights (including rights to possessions as well as to life and health) and indispensable to the proper pursuit of happiness.

Norman Doidge suggests that Rousseau, one of the originators of the view that humans are perfectible, used the term perfectibility in an ironic sense. According to Doidge, Rousseau understood that if the human mental and emotional life are malleable there can be many different kinds of development and we cannot be certain what a normal or perfect mental development would look like. To my mind this view highlights the arrogance of Rousseau’s revolutionary followers in attempting to impose their peculiar views of utopia on other people.

What kind of society is most likely to promote the development of human brains in ways that will relax the constraints of human nature that limit our virtue and our wisdom? Is it a welfare state that aims to minimize the economic challenges that we have to face? Is it a rent-seeking society in which the extent to which individuals and groups prosper depend on their skills in playing a political game of obtaining preferment at the expense of others? Or is it a free society in which people prosper by engaging in mutually beneficial exchanges?

At one point in his book, Norman Doidge writes: ‘To keep the mind alive requires learning something truly new with intense focus’ (p 88). When I read that I was reminded of what Israel Kirzner has written about the benefits of freedom to society. Kirzner points out that losses from denial of freedom extend beyond those associated with preventing people from attaining known goals. He writes: ‘A free society is fertile and creative in the sense that its freedom generates alertness to possibilities that may be of use to society’ (“Perception, Opportunity and Profit”, 1979: 239). Perhaps we should be open to the possibility that the exercise of entrepreneurial alertness improves human nature.

Sunday, January 17, 2010

I expect that some readers will think that this is an absurd question. Australia has a well-deserved reputation for the quality of its legal institutions. Our ranking on the World Bank’s rule of law index is higher than that of the U.S. and U.K. So why ask the question?

First, I don’t think we can derive much comfort about rule of law from the World Bank’s rule of law index. It measures perceptions of the extent to which people have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence. As I have noted in an earlier post it is a broad measure of the quality of legal institutions rather than a measure relating specifically to rule of law.

Second, there is evidence that Australia has problems with rule of law. An example has recently come to notice close to home. In order to avoid violence in public parks, as occurred in Huskisson on Australia day last year, the Shoalhaven council has introduced bans on alcohol in certain specified parks on certain specified public holidays. I don’t have a view on whether these bans are the best way to prevent anti-social behaviour. The problem regarding rule of law arises because the police have been reported as saying that people wanting to drink responsibly as part of family gatherings can ignore the bans without risk of prosecution. It is comforting to know that the police do not like interfering with family gatherings, but it is difficult to feel comfortable with a situation where laws are to be enforced selectively. What has happened to the idea that the law should be enforced without fear or favour?

Robin Speed has referred to the similar example of an agreement by two doctors who operated independent practices in a country town and who agreed that one would work on Saturday and the other on Sunday. A Senate committee recognised that this was caught by the definition of a criminal cartel, but swept aside that concern on the grounds that the ACCC and DPP would not be expected to prosecute in such a case. As Speed says, “that is the antithesis of the rule of law”.

In his article in “The Australian” yesterday, ‘The rise and rise of the regulators’, Robin Speed argues that there has been a fundamental shift in the relationship between the individual and the law: “Increasingly, the relationship is not of the individual knowing and complying with what the law states, but of knowing and complying with what the regulators state the law states, and then knowing the extent to which the regulators will apply the law as stated by them”.

Even when parliament passes laws with the intention of restraining regulators, this does not necessarily prevent them from seeking to avoid those laws. For example, I have been reliably informed that in the 1970s the government’s most senior legal advisor provided a legal opinion that legislation that had recently been passed with the support of both of the major parties in parliament did not restrain regulators in the way that those framing and supporting the legislation had intended. The circumstances of this example are quite distinct from those where a court finds that the wording of legislation does not have the meaning that parliament intended. In the circumstances to which I am referring the opinion of the government’s legal advisor had the effect of denying the intention of parliament to restrict the regulatory activities of a particular arm of government. It elevated the intentions of regulators above those of the parliament.

How can the regulators be constrained? The obvious answer is legislation that gives regulators less discretion. In my view one area of high priority should be reform of the tax system to introduce greater certainty and reduce role of the tax office in deciding what tax law means. It will be interesting to see whether the Henry tax review has anything useful to say on this question.

Postscript:Greg Cutbush, a farmer near Yass, has told me that he thinks the rule of law problem Mr Speed identifies is very common. For example, he’s noticed the ACCC applies one rule to farm products and another to household appliances. Any farmer who is found to have conspired with his neighbours to insist that the local grain merchant pay them the same price for their canola will be prosecuted under the Trade Practices Act because collective bargaining is prohibited. And yet when his brother and three of his neighbours get together and all buy new lawnmowers from an agent they have bullied in Bathurst one Saturday morning, nobody gives a stuff. It seems like the ACCC’s watchdog role is all window-dressing.

Wednesday, January 13, 2010

In my last post I presented evidence that people in countries with relatively high growth rates tend to perceive that their lives are improving. This is one of the reasons why I reject the view that economic growth makes people unhappy and that so called ‘unhappy growth’ can explain the reluctance of some governments to undertake economic reforms.

This raises questions about the effects of economic reforms on perceived changes in the quality of life. Do people in countries undergoing economic reforms tend to perceive that their lives were better prior to the reforms? My initial thought was that this would depend on the success of the reforms in raising economic growth rates.

I have now attempted to test this view empirically. In the analysis the perceived improvement in quality of life over the last five years is calculated as the difference between the rating of life today and life 5 years ago using data from the Gallup World Poll. Regression analysis has been used to explain variation in perceived improvement in life for 104 countries in terms of economic growth rate over the five years to 2007, improvement in governance over the same period (the average change in the 6 World Bank governance indicators), change in regulatory quality (the World Bank governance indicator most closely related to reforms that increase economic freedom) and a variable reflecting the extent to which assessments that people in different countries make of their lives tend to differ from the ratings that would be expected on the basis of income levels.

The regression explains about 40 per cent of the variation in perceived improvement in life among the 104 countries. The results show:• Economic growth has a positive effect on perceived change in quality of life.• Improvements in governance have a positive effect • Improvement in regulatory quality have a negative effect on perceived change in quality of life.(These results pass the standard statistical test relating to standard errors of estimates. Anyone who wants to see the results is welcome to contact me by email.)

It is important for the negative impact of change in regulatory quality to be seen in context. Economic reforms are generally undertaken in the hope that they will result in improvements in quality of life through higher economic growth. The chart below shows that countries which undertook regulatory reforms generally had relatively high economic growth rates. There was only one country undertaking regulatory reforms which had a negative economic growth rate.

The green diamonds in the chart denote the 10 countries in which people had the greatest perceived improvement in their quality of life. The red diamonds denote the countries with the greatest perceived decline in quality of life. The green diamonds are generally associated with higher economic growth rates than the red diamonds.

The evidence seems to support my intuitions – which are probably similar to the intuitions of most other economists interested in public policy - about the painfulness of economic reforms. Reforms often involve removal of regulatory barriers that protect the incomes of some groups at the expense of the broader community. The people who experience these income losses tend to resist reforms and to perceive that their lives were better before they were undertaken. When reforms are successful in promoting economic growth, however, these perceived losses tend to be outweighed by the benefits to those who gain from the reforms. Ad hoc attempts to promote reform of particular regulations are likely to be less successful than reform programs that are sufficiently broad and persistent to enable a high proportion of the population to perceive that their lives have improved.

Thursday, January 7, 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’.

Saturday, January 2, 2010

Since Michael Walzer is often identified as a leading communitarian thinker I did not expect to agree with his views about the good society. I thought it might be interesting to read his short article, ‘What is “The Good Society”? (Dissent, Winter 2009) just to see how much his views differed from my own (See, for example, ‘Is the good society a useful concept?). I was surprised to find that there wasn’t much difference.

Walzer begins his article by asking how there could be one good society, given the immense variety of human cultures. He then proceeds to talk himself around to the position that the good society ‘is constituted by the peaceful co-existence of all the societies that aim at goodness’.

Walzer argues that this view of the good society involves focusing our hopes for goodness on ‘more local, more particularized “societies” rather that a single society in which all members share a single goal. What he has in mind is the possibility that a single individual could take part in many different good societies (movements, associations and communities uniting for a common purpose) organized at different levels of social life and over different geographic areas (p78).

This reminds me of similar views expressed by Friedrich Hayek: ‘It would be a sad misunderstanding of the basic principles of a free society if it were to be concluded that, because they must deprive the small group of all coercive powers, they do not attach great value to the voluntary action of small groups. ... The true liberal must on the contrary desire as many as possible of those “particular societies within the state” ... Liberalism is not individualistic in the “everybody for himself sense”. A few paragraphs further on he wrote: “It is the great merit of the spontaneous order concerned only with means that it makes possible the existence of a large number of distinct and voluntary value communities serving such values as science, the arts, sports and the like. And it is a highly desirable development that in the modern world these groups tend to extend beyond national boundaries ...’ (LLL, vII: 151).

The communitarian libertarianism that Michael Walzer is advocating in this article makes a refreshing change from the vision of the good society favoured by social democrats and paternalistic conservatives who view governments as having the central role of defining and achieving ‘societal objectives’. Our chances of continuing progress toward good or better societies in coming decades will be enhanced if there is more widespread recognition of the importance of the spontaneous activities of numerous small groups comprised of individuals who share common goals.

Emancipation

Welcome!

Welcome to Freedom and Flourishing. While you are here, why not take a look around and leave some comments.

There is a list of my most popular posts below. I am pleased that a post about characteristics of a good society, that I wrote in 2009, is still one of the most popular. That post captures some of the ideas about freedom and individual human flourishing that I think are most important.