Saturday, September 10, 2011


Let's hope the 9/11 tenth anniversary goes well tomorrow. And we don't have a crisis Sunday in the European banking system.

Change of Pace Photo

Landscape near Yangshuo, Guangxi Provine, China, 1999.

Green mists and Wang Wei

I was in a sinophile mood today and picked up a book owned by my other half,Chinese Poetry, 2nd ed., Revised: An Anthology of Major Modes and Genres by Wai-Lim Yip. He argues many translations of Chinese poetry distort the sparseness and flexibility of the original, imposing verbal structures that are not there.

Instead, the great ancient poetry of the T'ang Dynasty and before is better seen as intense interconnected visual scenes.

He translates Mount Chung-Nan by Wang Wei, who died in the year 761 :

Chung-Nan ranges near the imperial capital
Mountain upon mountain to the sea's brim.
White clouds - looking back - close up.
Green mists - entering - nothing.
Terrestrial divisions change at the middle peak.
Shade and light differ with every valley.
To stay over in some stranger's house -
Across the water, ask a woodcutter.

The white clouds and green mists are like separate cinematic/ visual scenes.

He provides a character by-character translation, and demonstrates that what is left unsaid, with time and tense unspecified, gives the poetry its cinematic, evocative character.

It is all about juxtaposition and montage, putting intense scenes and feelings together in sequence.
This is montage: the juxtaposition of two visual events to create a third which is different from both.

Indeed, much of the idea of montage, and the sparse poetry of Ezra Pound, William Carlos Williams and others can be traced back directly to these T'ang gems.

It feels like something which has a natural application to photography as well.

Friday, September 9, 2011

Change of Pace Photo

The Great Wall, near Beijing

The lanterns of West Lake

I finished Jonathan Spence's book Return to Dragon Mountain: Memories of a Late Ming Man. I love books which are evocative of different places and ages and different ways of seeing the world, and this is one of them.

I am also fascinated by China and Chinese history. It is about a historian and biographer named Zhang Dai, who lived throuh the collapse of the Ming Dynasty in the 1640s.

There are some remarkable scenes - for example, Zhang Dai recalls pleasure boating on the famous West Lake near Hangzhou when he was a teenager. The lake (still considered one of the highlights of China) was surrounded by villas and ornnamenal parks and trees and pavilions. At night there were lanterns everywhere on the boats, on land, reflected in the water. People banqueted and drank on the water. It is a glimpse of a very refined, elegant, aesthetically conscious society ( or at least one layer of it).

Fifty years later he returns, after the fighting that marked the fall of the dynasty. The pavillions are burnt down. The trees are gone.

Thursday, September 8, 2011

Terror Threat in New York tonight

The media are full of "credible, specific but nonconfitmed" warnings about the risk of car bombs in New York or Washington tonight.

Not the kind of thing one wants to hear. It is a long time since the authorities seemed this worried.

More about intangibles

I'm talking about measurement of economic activity, starting here.

Leonard Nakamura of the Philadelphia Fed followed up his 2001 paper on intangibles with this 2009 one.

These data show U.S. industries, consumption expenditures, and investment expenditures, all changing very substantially away from mass production and toward new product development, with only some of the new products being ones that can be mass produced. Properly analyzing this economy requires new measures and new theory.

There needs to be a paradigm shift to reflect the increasing importance of new products. He concludes:

How should economists and noneconomists think about the possibility of a
paradigm shift in economics? British economist and Nobel laureate John Hicks
(1983) argues that economic science must adapt to the nature of the economy. The growing importance of creative endeavors appears to be what’s new in the economy.

If so, this represents a significant change in the nature of the U.S. economy, one that is difficult to align with the paradigm of perfect competition. This new economy is highly competitive, but creative destruction is the center of the competition. This implies, in line with Hicks’s views, that for understanding economics now, Joseph Schumpeter’s “creative destruction” paradigm may be superior to Adam Smith’s “invisible hand.” Economic theory and economic measurement will need to develop together if economists are to understand the economic sources of economic growth.

The national income accounts framework was initially constructed on the basis of more than a half-century of industry and plant-level studies and a detailed analysis of consumer welfare that incorporated insights from Pigou to Hicks. To develop new economic measures that are able to quantify the economic sources of aggregate economic growth we will need a similar foundation of industry and plant-level studies.

The changing economy needs substantially changed economic accounting, even before we think of counting happiness or environmental sustainability in national well-being.

The crucial importance of intangibles

One of the most crucial issues about abundance and economics is measurement. This is where many of the debates start - and stop. Many people agree that GDP is imperfect as a measurement. That debate was active when I was in college, twenty years ago. But we still measure the economy primarily in terms of GDP and related data.

The problem is GDP is really measuring an economy that doesn't exist in the same way any more. GDP is good at measuring rolled steel or pairs of shoes. It is bad at measuring software investment or organizational efficiency.

One paper I read a few years ago really stunned me. Leonard Nakamura of the Philadelphia Fed - and let's face it, the Fed is not a flaky organization - argued that our current statistics do not capture much of our economy.

The title What is the gross US investment in intangibles? (At least) a trillion dollars a year(2001) says it all. When you are talking a trillion dollars, that's real money.

Currently, I estimate that US private gross investment in intangibles is at least $1 trillion.

For historical reasons, much of this US investment in intangibles still remains
uncounted. Both in US generally accepted accounting principles, and in US national income accounting dating at least back to Kuznets, investment in intangibles has been expensed, that is, treated as an intermediate input consumed in producing current output rather than as investment that produces a long-lived asset.

What are intangibles?

In this paper, I will define intangible investment as private expenditures on assets that are intangible and necessary to the creation and sale of new or improved products and processes. These include designs, software, blueprints, ideas, artistic expressions, recipes, and the like. They also include the testing and marketing of new products that are a necessary sunk cost of their first sale to customers. It is the private expense to create private rights to sell new products.

If we are not measuring it properly, does it matter? Well, yes:
An intangibles investment rate of $1 trillion suggests that US businesses are investing nearly as much in intangibles as they are in plant and equipment (business investment in fixed nonresidential plant and equipment in 2000 was $1.1 trillion). It also suggests that a third of the value of US corporate assets are intangibles, an estimate I document in part three. That means that the economics of creative destruction -- also known less colorfully as endogenous growth -- are rapidly becoming as important as the economics of the invisible hand.

For example,

Additional investments in intangibles are made by writers, artists, and entertainers. None of these are recorded as part of research and development. For example, in 1997, according to the US economic census, publishing, motion picture, and sound recording industries had a total revenue of $221 billion. Associated with this stream of revenues are investments in creativity, and in finding, developing, and publicizing artists and their work (Caves, 2000). While some of this revenue stream results in personal consumption expenditures (motion picture theater tickets) or in advertising intangibles (media buys by advertisers), additional cultural intangible assets are created. The backlists, paperback rights, and foreign rights of book publishers, the film libraries, video rights, and TV, hotel, and inflight licensing rights of the major studios, and the song catalogs of music publishers and recording houses constitute intangible assets that represent a substantial investment. Much of these rights are not represented in the corporate equity of publishing and entertainment corporations, as they
are retained by individuals, partnerships, and unlisted corporations.
If we sum the data for advertising, software, and research and development in
2000, we get a total of $597 billion, or 6 percent of 2000 GDP.

(My bold). So US GDP has not been fully accounting for such things as Hollywood - and indeed Silicon Valley, some of the key drivers of the US economy.

BEA and BLS are aware of the problem. Indeed, I had a long conversation over drinks one evening with the head of BEA once at a conference, and she openly acknowledged the problems. They do their best with limited budgets.

But our existing measures increaingly measure the economy of another age.

Change of Pace Photo

Evening light near Grimaud, Cote d'Azur

Globalization and (un)employment

There was a survey of developments in labor markets in the Economist here, which didn't really add a lot. But it did refer to an article by Nobel-winning economist Michael Spence in Foreign Affairs last issue. There was one remarkable fact:

Between 1990 and 2008, the number of employed workers in
the United States grew from about 122 million to about 149 million. Of the roughly 27 million jobs created during that period, 98 percent were in the so-called nontradable sector of the economy, the sector that produces goods and services that must be consumed domestically.

Incidentally, the 'tradable goods' sector is an economics term for the sector of the economy which produces goods for world markets - eg iPods - versus non-tradables, which are not sold in world markets, like haircuts in Brooklyn or ER services in Seattle. The "real exchange rate" is the ratio between traded and non-traded goods.

So much to know and do

There are approximately a billion things I want to post on.

Brain. Fried.

Wednesday, September 7, 2011

A tale of streaming video - and complexity

A hacker attacked a company in Tokyo and broke my movie service in New York. It took a vast amount of systematic problem solving to get it back.

It shows much of life is becoming much more filled with possibility and choice - and also vastly more complex.

People increasingly need much more ability to understand highly complex and overlapping systems to do even simple things. We increasingly float on a smooth surface of convenience in daily life which hides turbulent ocean depths of complexity if anything does not work.

I spent part of yesterday evening trying to get our Netflix streaming account working via the PS3 again. Netflix streaming is a service here in the US that lets you instantly choose from thousands of different movies and tv shows, and start watching immediately via an internet connection.

It works on PCs, Macs and has a wonderful implementation on the iPad. But we mostly use a connection via a Sony PS3 playstation/bu-ray player, because it makes it easy to select movies on our big plasma tv, using just a standard remote control from our sofa.

Our netflix connection hasn't worked since Sony's network collapsed after a hacker attack earlier this year. We sometimes relied on streaming via a HDMI cable from our iMac instead, but it is much more awkward.

I solved the problem in the end, but it got me thinking. The complexity of many normal activities is remarkable.

Twenty years ago to watch a similar movie on tv, you just plugged the VCR or aerial to the TV, and that was it. True enough, programming the VCR was beyond many people, but the actual connections were fairly straightforward.

Now there are many separate elements that need to work together. It was not clear why it was not accepting the netflix password and refusing to let us log on. Was the problem with the netflix password, the netflix app, the Sony Playstation network password that is needed for the pS3 to access the internet, or something else?

It took about ten attempts entering various passwords to work out which login was causing the problem, and which link in the chain was broken. I discovered the Sony network was not logged on, and needed to have a software update carried out to work at all.

Then it turned out the netflix app had to be reinstalled. It needed its own login password. I logged on from the computer just to make sure we had the correct password. We did. So the netflix login worked.

For the first time in months, we could open the netflix app successfully, only to find it was not showing the choices correctly. The titles disappeared off the screen, as if everything was zoomed in and too big.

I resorted to google to try and find an answer. One suggestion in a support forum was to reset the video display settings so that 1080i and 1080p were not selected, just 720p. I found the settings menu, changed the video setting, and opened up the netflix app again. It worked.

I happened to know what 1080i was, but it assumes a huge amount of knowledge for someone to know the difference between different progressive and interlaced high definition video standards to be even able to understand the solution.

So here is a tale of remarkable complexity. A hacker attack on a corporation in Tokyo broke my movie streaming service in my apartment in New York. It took diagnosing two different networks, multiple software updates, and delving deep into the inner settings of a complex HD device to get it to work again.

Indeed, it could have been an even more complex problem. The streaming also relies on Time Warner Cable Roadrunner internet service being up and running, the cable modem functioning, the ethernet cable to the router working, the router and broadband wifi working, the login for the PS3 to my domestic wifi network working, and the HDMI cable and settings between the PS3 and the Pioneer HD TV working.

The connections ramify and multiply. Figuring out what is wrong when there is a problem involves layers of trial and error and systematic problem solving.

Twenty years ago you just shoved the videotape into the machine, changed the channel on the tv, checked the cable, and that was that.

But it is also remarkable how the resources for fixing problems are also developing. I don't know how many times in the average month I know google with a problem and find an answer on one kind of support forum or another. Technical support is increasingly not a person on the phone, but vast internet archives of postings discussing problems.

Europe's brittle banks and the cost of ignoring problems

The NYT is raising questions about the condition of the European banking system here.

As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008.

European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing.

But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations.

The problem, unfortunately, is there is a negative interaction between sovereign debt and bank rescues. Bailing out banks is enormously expensive - just ask the Irish. It runs from 5% of GDP up to 40% or more in some cases.

That makes the sovereign debt burden worse, which raises fears about whether a particular country's debt will be downgraded, or even in extreme cases like Greece, default.

And here's the problem. Most banks hold their own government's debt in amounts far in excess of their own capital. Under Basel II capital rules these holdings are treated as riskless. You don't need to hold capital against them.

So when there IS obviously risk in holding government debt in such huge amounts, that adds to market fears about the viability of the bank.

It also raises fears that the contingent liabilities of the government are much larger, which makes debt/GDP ratios look much worse, which makes government bonds look a worse bet, which makes the bank balance sheets worse... which makes markets more nervous about the banks. And that raises fears about the contingent liabilities of the government.

Not to mention that blanket assurances that the authorities will not let a major bank go down is the essence of a moral hazard problem.

Italy in particular is profoundly frightening as the government debt is so large already. Many European governments do not have the resources to bail out banks without undermining their own fiscal position (again, ask the Irish). And that means people ask whether stronger governments, like the Germans, will bear some of the burden. And that raises doubts about the political viability of such burden sharing and the democratic legitimacy of European decisions. Bailing out any bankers is politically toxic in most countries, let alone assuming huge generation-crushing burdens to bail out foreign bankers. There is no good way to solve this.

Incidentally, this is why Paul Krugman is wrong to keep arguing in his NYT column that deficits should not be a concern, and record low yields (the US 10=year Treasury hit 1.94% yesterday) show that all those who worry about government debt are wrong.

Markets didn't distinguish at all between Greek and German sovereign debt yields for years. Until they did. And now the sovereign debt problem is on such an epic scale in Europe it is hard to see a way out.

By the time markets get worried about your debt, it is already too late. Krugman is right to say there should be less concentration on short-term deficits, even if the US deficit is still over 10% of GDP. You don't necessarily want to cut spending drastically when you are teetering on the brink of a double-dip recession.

But that only means you have to do more to control long-term spending, to make it clear that responsible choices are being made about the path of spending in the future. So when the day comes that markets do panic about current deficits, you have a sustainable position.

And that is just what has not been done in the US. The problem is entitlement spending, especially on healthcare. Far from taking long-term decisions to improve the path of debt, we've added two whole new healthcare entitlements in the last ten years - Bush's Medicare Part D, i.e. the prescription drug benefit, and Obamacare. The CBO score Obamacare as technically saving money - but no one believes that. The similar state plan in Massachusetts has been much more expensive than projected.

You have to fix problems BEFORE they become almost insoluble. Because then none of your options are good.

Tuesday, September 6, 2011

Winter is coming

The rain is lashing on the windows here in New York this morning. There is a general feeling of gloom in the media as well. Labor day brought a rash of articles fearing for the future of jobs in general, and specific worries on the back of Friday's zero job numbers.

European stock markets plunged yesterday, with Deutsche Bank down almost 9%. Obama is falling in approval ratings and Congress is unlikely to do anything to help the economy in any meaningful way. Even if the Fed does QE3, it is unlikely to help much.

A double dip recession is becoming the mainstream expectation.

It feels like it is going to be a rough September.

Monday, September 5, 2011

Change of Pace Photo

It is still very hot and humid outside this weekend, but fall is on the way. This is a photo from last autumn out in Queens.

A "Florentine Moment?"

I have been discussing Martin Seligman's new book, Flourish: A Visionary New Understanding of Happiness and Well-being.

Towards the end of the book, he discusses the "Politics and Economics of Well-Being." It is not a matter of left versus right, he says.

Left and right are the politics of means - empowering the state versus empowering the individual - but, stripped to essentials, they both advocate similar ends: more material prosperity, more wealth. Positive psychology is a politics that advocates no particular means but rather another end. That end is not wealth or conquest but well-being.

Economics, he says, reigns unchallenged in the policy arena.

At the time of the industrial revolution, economic indicators were a very good approximation of how well a nation is doing. Meeting simple human needs for food, shelter and clothing was chancy, and satisfying these needs moved in lockstep with more wealth. Basic goods and services, once scarce, became so widely available that in the twenty-first century, many economically developed nations such as the United States, Japan and Sweden experience an abundance, perhaps overabundance, of goods and services. Because simple needs are largely satisfied in modern socieities, factors other than wealth now play an enormous role in how well these societies are doing.

Seligman argues that GDP does not capture much of this - which is true, and I remember similar arguments being made twenty years ago as well. But we still await the BEA GDP numbers with huge apprehension to see if we are slipping into recession again. I will come back to issues of measurement later.

He dismisses critics like Barbara Ehrenreich, who argued a in a recent book Bright-Sided: How Positive Thinking Is Undermining America (which I haven't read yet) that accepting reality is more important than fostering happiness:

What Ehrenreich appears to be after is a world in which human well-being follows only from externalities such as class, war and money. Such a crumbling, Marxist worldview must ignore the enormous number of reflexive realities in which what a person thinks and feels goes on to influence the future. The science of positive psychology (and this book) is entirely about reflexive realities." (p236)

He cites George Soros' arguments about reflexivity (see The Alchemy of Finance (Wiley Investment Classics)). Financial markets do indeed depend fundamentally on perceptions and beliefs about the future, although they are the sum of many people's beliefs, not individual belief alone.

And Seligman argues that, just like the Florentine Republic around 1450, we have a choice of what to do with our wealth. Florence decided to invest in beauty, he says ( a bit simplistically. They also got Savonarola and invading French armies).

The wealthy nations of the world - North America, the European Union,Japan, and Australia - are at a Florentine moment: rich, at peace, enough food, health and harmony. How will we invest our wealth? What will our renaissance be?

That is indeed an excellent question, the one I want to help answer in this blog. Amidst all the economic gloom, there is immense possibility. But we need new thinking.

I think maximizing some measure of well-being is a more sensible course of action if there are diminishing returns to looking at GDP and exchange transactions in the economy alone. Seligman's measures, including the 24 positive psychological strengths he and his colleages identify, may not be the last word.

But I think the key thing here is he does have something as a tangible, concrete end. It is an improvement on the long-standing liberal approach of neutrality between ends and a focus on means only, or at best distribution of means. This is why I have a strand on the right looking at ethics and philosophy - for example, Amartya Sen's argument here.

Well-being is not a coercive end. It does not require belief in a particular faith or adherence to a particular ideology. But it does assume there are some things about human nature and human beings which will are common, that in the same way all human beings need food, there are some mental and moral needs in common too.

Angst for the Educated

For labor day, a post about the labor market. Here's a story in the Economist about changing job prospects for graduates and professionals like lawyers:

The gale of creative destruction that has shaken so many blue-collar workers over the past few decades is beginning to shake the cognitive elite as well. ..

The supply of university graduates is increasing rapidly. The Chronicle of Higher Education calculates that between 1990 and 2007 the number of students going to university increased by 22% in North America, 74% in Europe, 144% in Latin America and 203% in Asia. ..The best and the brightest of the rich world must increasingly compete with the best and the brightest from poorer countries who are willing to work harder for less money.
Changing technology also means demand for routine mid- level skills is being "hollowed out":

At the same time, the demand for educated labour is being reconfigured by technology, in much the same way that the demand for agricultural labour was reconfigured in the 19th century and that for factory labour in the 20th.

This is becoming quite a common observation. Of course, the agricultural revolution led to more and better jobs elsewhere. Economist and uberblogger Brad DeLong makes this point in a post from earlier this year:

I don't see a problem with the number of jobs: I don't see any reason that technological unemployment should be any more in our future than it has been in our past.

What is of interest is the effect of all of this on the wage distribution. Here, however, I think the key thing to look at is not demand but supply: the supply of workers. White collar, blue collar, skilled, unskilled, whatever--the high salary occupations in the future will be those that manage to construct and maintain barriers to entry to entrench incumbents.

He sees social barriers to entry and winner-take all competition in other sectors ("there is only one Oprah Winfrey.")

Agreed. Barriers to entry are a fundamental part of analyzing any market, as matter of basic industrial economics. It is a struggle to get people to understand this sometimes, though. I try to explain some of Michael Porter's ideas, likeCompetitive Strategy: Techniques for Analyzing Industries and Competitors to people at work who do not know much economics.

But DeLong is mistaken when he says there is no reason to think there will be any more technological unemployment in the future than the past. The kind of demand matters.

The point I've been consistently making is we have to think of the changing nature of needs and preferences as well, which is where mainstream economics has been weak. Yes, people moved off the farm, and off the factory, and we have vast abundance of food and manufactured goods. But the next things people want up the chain of needs may be different in character. In fact, I believe they are. This is not a reason for pessimism. Instead, it is a call to look more carefully about what people actually want.

And that brings us to one final post on Seligman's book.

Sunday, September 4, 2011

Avoiding the big questions for fifty years

I'm discussing Martin Seligman's book, Flourish: A Visionary New Understanding of Happiness and Well-being, starting here.

One thing he talks about is how psychology came to be so reductive.

Originally, I went in to psychology to relieve human suffering and to increase human well-being. I thought I was well-prepared to do this, but I was actually miseducated to tis task. It took me decades to recover and to work my way out of solving puzzles and into solving problems...Indeed this is the story of my entire intellectual and professional development.

He blames the influence of Wittgenstein on philosophy and psychology.

At the heart of both incarnations of the Wittgenstein movement is analysis. The job of philosophy is to analyze in rigorous and minute detail the basic underpinnings of reality and of language. The larger issues that concern philosophy - freewill, God, ethics - cannot be tackled (if ever) until this preliminary analysis concludes.'Of what we cannot speak, we must be silent,,", the Tractatus famously concludes.

But he and others were assuredly not taught about Popper's views, including the famous encounter where Wittgenstein waved a poker at Popper and then stormed out of the room.
Popper accused Wittgenstein of suborning an entire generation of philosophers by setting them to work on puzzles - the preliminary to the preliminaries. Philosophy, Popper argued, should not be about puzzles but about problems: morality, science, politics, religion and law.

How I wish I had suspected in my college years that Wittgenstein was not the Socrates but the Darth Vader of modern philosophy.

Of course, I think this general orientation spread to economics as well, a kind of logical positivism-lite.

Fast forward to 1995, when Seligman wants to hire an applied psychologist to his department. He asked an older psychologist "why the entire faculties of the great universities work only on basic processes and not on the real world."

It happened at a moment in time, Marty," said Jerry. "and I was there. It was at a 1946 meeting of the Society of Experimental Psychologists. ..the chairmen of Harvard, Princeton and Penn met at lunch and agreed that psychology should be more like physics and chemistry - doing basic research only - and that they would hire no applied psychologists. All the rest of academia immediately fell into line. (p59-60)

That might be a little close to conspiracy to be the whole story. But nonetheless Seligman says that basic and applied science depend on each other.
Physics was proceeded by an ancient science of engineering, which actually solved problems, before it grafted on abstract, basic research...Good science requires the interplay of analysis and synthesis.

Why am I so interested in this? Because I think most if not all of the social sciences, including economics, went off track in the 1930s and 1940s, and for over fifty years all the institutional forces - for a variety of reasons - militated against asking deeper questions about what people want and need, and purpose. Psychology is waking up with Seligman's work. Psychology also (separately) started to tip over into economics in the 1990s with Kahneman and Tversky's work on prospect theory, now the increasingly flourising field of behavioral economics.

For fifty years the academy by design avoided the questions we most need to answer when we approach a condition of material abundance. That helps explain why the essay I've used as a benchmark for my questions in this blog - Keynes' Economic Possibilities for our Grandchildren, starting here - dates back to 1930, before big questions became unfashionable.

I felt the same when studying economics, where I grew impatient with parsimonious mathematical models. "Research" seemed to consist in many cases of just finding more ways to torture econometrically the same narrow set of national accounts data - thin and unconvincing.

No wonder we flounder when trying to see our way forward as a society.

Happiness is important, but not the only thing

Seligman's new approach helps deal with one objection - the monism of looking at happiness alone.

Amartya Sen, whose bookThe Idea of Justice we were discussing here, says:

The central issue is not the significance of happiness, but the alleged insignificance of everything else, on which many of the advocates of the happiness perspective seem to insist. (p273)

This was one of the problems of the older utilitarian tradition.

Martin Seligman"s Flourish

I've just finished reading Martin Seligman's new book Flourish: A Visionary New Understanding of Happiness and Well-being.

Seligman is a Professor of Psychology at the University of Pennsylvania, and is generally recognized as the founder of the "positive psychology" movement which has attracted enormous attention in the last few years. The basic idea is psychology mostly focused on pathology for most of the twentieth century, "relieving misery and uprooting the disabling conditions of life", as he puts it. In 1998 he gave a speech to the American Psychological Association arguing that the discipline needed to look at healthy situations as well, a new goal of "exploring what makes life worth living and building the enabling conditions of a life worth living."

I find the book pathbreaking and persuasive in many ways. It solves some of the major problems with using "happiness" as an indicator. It is an argumentative and quirky insight into how research and academic politics work in practice. And it is remarkably engaged with real problems, such as trying to help US army veterans with their family relationships and their resilience when they return home from Iraq or Afghanistan. It is not simply theory, it is applied policy and something whih can be tested in terms of the difference it makes to real people's lives. And the difference seems to be considerable, at least on present evidence.

Of course, one of the principal reasons I find it so interesting is that it helps deal wtth the fundamental question I've been grappling with on this blog - what happens when you have abundance of material goods? How should the economy work then and what should we aim for in order to deliver more of what we actually want?

The positive elements of well-being Seligman identifies are an important part of the answer to that question.

To start off with, though, it is important to look at how his own thought has evolved. He had a major change of mind after writing a seminal book on happiness, Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment, in 2002.

He explains why he changed his mind, and lays out his theory of well-being. It is substantially different from the one he advanced in his previous work. This in itself fascinating, an exampe of a very prominent academic changing his mind in resonse to argument and evidence.

He begins by saying happiness is not one thing, or even a useful term.

.. I actually detest the word happiness, which is so overused it has become almost meaningless. It is an unworkable term for science, or for any practical goal such as education, therapy, public policy, or just changing your personal life. The first step in positive psychology is to dissolve the monism of "happiness" into more workable terms.(p9)

He argued until recently in favor of life satisfaction as the major objective. His original theory in the 2002 book broke "happiness" down into three more measurable and tractable elements which together made up life satisfaction.

The first is positive emotion, which means the presence of positive feelings like pleasure, warmth, or ecstasy.

The second is engagement, which is essentially flow - being utterly absorbed in an activity. This is the same as in Mihaly Csikszentmihaly's famous book Flow: The Psychology of Optimal Experience.

The third of his components is meaning. The meaningful life, he says, "consists in belonging to and serving something that you believe is bigger than the self".

Now he has changed his mind. The new theory emphasizes well-being over life satisfaction. Life satisfaction is too influenced by cheerful mood alone at a point in time, he says, and not enough by how you judge your life to be going.

What is more, there are other things we pursue for their own sake beyond happiness. And this must be taken into account. "Positive psychology, as I intend it, is about what we choose for its own sake". (p11). So he needs a wider concept.

Well-being is a construct, he says, with different elements that contribute to it. It is not a single measure. Instead, like "weather", it consists of different components that you can measure, such as rainfall, temperature, pressure or windspeed.

He keeps positive emotion, engagement and meaning from the previous theory. But he adds, first, accomplishment - winning, achievement and mastery for its own sake. People do pursue it for its own sake "even when it brings no positive emotion, no meaning and nothing in the way of positive relationships." It may not bring happiness in the more restricted sense.

The final element is positive relationships. "Other people are the best antidote to the downs of life and the single most reliable up." (p20). Indeed, he notes the new theories that the human brain evolved in size to deal with complex social calculations.

Put the five elements together and you have the acronym PERMA.

The rest of the book discusses practical exercise and studies. These actually appear to produce positive outcomes in schools and the US army. He talks, for example, of the power of "what went well" exercises, "signature strength" studies and the value of teaching skills in processing emotions. He looks at the outcomes of positive emotion on biological health.

A new industrial revolution

The head of the Freelancer's Union writes in The Atlantic
It's been called the Gig Economy, Freelance Nation, the Rise of the Creative Class, and the e-conomy, with the "e" standing for electronic, entrepreneurial, or perhaps eclectic. Everywhere we look, we can see the U.S. workforce undergoing a massive change. No longer do we work at the same company for 25 years, waiting for the gold watch, expecting the benefits and security that come with full-time employment. We're no longer simply lawyers, or photographers, or writers. Instead, we're part-time lawyers-cum- amateur photographers who write on the side.

Today, careers consist of piecing together various types of work, juggling multiple clients, learning to be marketing and accounting experts, and creating offices in bedrooms/coffee shops/coworking spaces. Independent workers abound. We call them freelancers, contractors, sole proprietors, consultants, temps, and the self-employed.

And, perhaps most surprisingly, many of them love it.

This transition is nothing less than a revolution. We haven't seen a shift in the workforce this significant in almost 100 years when we transitioned from an agricultural to an industrial economy. Now, employees are leaving the traditional workplace and opting to piece together a professional life on their own. As of 2005, one-third of our workforce participated in this "freelance economy." Data show that number has only increased over the past six years. Entrepreneurial activity in 2009 was at its highest level in 14 years, online freelance job postings skyrocketed in 2010, and companies are increasingly outsourcing work. While the economy has unwillingly pushed some people into independent work, many have chosen it because of greater flexibility that lets them skip the dreary office environment and focus on more personally fulfilling projects.

But as she says it is not always voluntary. It offers greater opportunity but much greater vulnerability - although perhaps that is the essence of life.

The payroll numbers on Friday - no job growth at all, zero compared to a Bloomberg survey expectation of 68k - was just awful. it is likely a sign that a double dip is on the way.

it is big corporations who have come through the crisis relatively well. I think freelance sounds attractive in many ways - but in practice it may also mean some massive corporation doesn't pay you for work you've done for 90 days or much longer to get an extra kick in its cashflow.

It has also been a theme for many years - I believe Charles Handy wrote about it the 1990s, and Robert Reich and others in the 2000s. I'll explore it and related ideas about entrepreneurship in future posts.

Density and Vitality in Cities

Here's an interesting opinion piece in the NYT on how density in cities fosters growth, by giving niche or experimental businesses more chance to find an audience:
How great are the benefits of density?... Some economists have concluded that more than half the variation in output per worker across the United States can be explained by density alone; density explains more of the productivity gap across states than education levels or industry concentrations or tax policies.

Put two workers with similar skill levels in cities of different densities and the one in the denser place will be more productive, according to two decades’ worth of research from economists...

What is it exactly that dense cities are doing? Consider a simple example. Suppose that within a population one person in 100 develops a taste for Vietnamese cuisine, and suppose that a Vietnamese restaurant needs a customer base of 1,000 people to operate profitably. In a city of 10,000 residents, there aren’t enough people to support a Vietnamese restaurant. The only restaurants that can operate profitably are those appealing to considerably more than one in 100 people — restaurants offering less daring fare. In a city of 10,000 people, there is little room for specialization, and less for experimentation.

A city of one million people, by contrast, can support multiple Vietnamese restaurants. Not only will this larger city enjoy a specialty cuisine unavailable in less populous places, but its ability to support multiple producers of this cuisine allows for competition, improving the price and quality.

The problem, accruing to author Ryan Avent, s that residents of dense cities like San Francisco also limit building, to preserve neighborhoods, and that drastically forces up house prices. And that means skilled workers can't afford to move there, or leave for places like Phoenix with a much lower cost of living.