Hold the Gloom. The Economy is Changing, not Dying

I've been working on some other projects recently, but I wanted to respond to some of the increasing darkness and pessimism about the future that is seeping into public discussion. Take this article in Commentary Magazine, "Our Miserable 21st Century," which attracted much attention this week.

It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly.

The warning lights have been flashing, and the klaxons sounding, for more than a decade and a half. But our pundits and prognosticators and professors and policymakers, ensconced as they generally are deep within the bubble, were for the most part too distant from the distress of the general population to see or hear it. (So much for the vaunted “information era” and “big-data revolution.”)

David Brooks reinforces the message in the NYT here.

 Of course, it's a good thing to highlight problems. Opioid addiction and people dropping out of the labor force to live on disability and daytime TV are serious issues.  

But the despair is not justified. Society and technology and customs and institutions are always changing. That means we have to be resourceful and creative in making the changes work for us. It means we have to change how we think and realize some major 20th century social institutions need to adapt as well. 

We might have said much much worse about the economy in 1820 or 1830, just before the world got an order of magnitude wealthier than ever before in the following decades.  Malthus told us the mass of the population would be immiserated and kept at starvation levels, forever. Engels noticed working life in Manchester was horrific. Marx argued this was inevitable and would lead to such pain and rage the whole social system would be overthrown. 

None of this came true. The economy didn't collapse. It went through a boom of  stupendous magnitude and duration.

Now the problem is too little dark satanic mills and too much uninspiring lower class leisure like daytime tv? 

The world got hit with two massive shocks in the last twenty years. 

1. Global labor supply effectively doubled in the 1990s, both because of the entry of China and India into the world economy and because logistics and communication made it much easier to use remote labor.  The impact of that hit the American working class. A shock of that magnitude takes time to absorb.
2. Most new innovations are free at the point of delivery (Github, Facebook, Dropbox ) or not excludable goods, like cleaner air. 

A Shift in the Boundaries of the Market

That means we are seeing a shift in the boundaries of the market economy. Relatively fewer things will be exchanged for money, because the marginal cost of many goods  will be zero and distribution costs will be near-zero. Automation and artificial intelligence will only accelerate that trend. 

The shift in the boundaries of exchange is also because most of the new needs people have as society gets wealthier - status, affiliation, stimulation, meaning - aren't as easily bought and sold as grain or port wine or mousetraps .  

That doesn't necessarily mean disaster, though.  Most human societies historically have always had a smaller market sector. The "commons" was larger. Gift exchange, feudal or hierarchical obligation, family ties or subsistence agriculture have been far more important than the labor market for most of human history.  Women  mostly didn't work in the moneyed sector at all until forty years ago.  Indeed, even England only became a fully market economy in the early 1800s when the old medieval commons were enclosed and labor forced off the land to the cities or colonies. And it was only the requirement to pay government taxes in currency that forced many groups around the world into the market economy at all. The current  bundle of rules that make up a "job" or "corporation" and legal framework and expectations that go with them are mostly only 150 years old at most, not eternal  facts of nature.

In 1800 over 95% of populations worked the land. Now in the US it's about 3%. We have more agricultural productivity than ever, by a massive margin. But it's less important to the whole economy and population. The same thing will happen to the monetized exchange sector of the economy. The goods and labor market will be more productive than ever,  but a smaller proportion of the whole. 

We have a motivational and moral problem, not an economic problem

But it takes a lot of time for culture and human institutions and values to catch up. (See Douglas North, for example, or Avner Offer's brilliant The Challenge of Affluence.)  The main issue now  for humanity isn't starvation. It's motivation and what makes for human flourishing and the good life.  (Probably not daytime tv and OxyContin.)  It's  very much as Keynes foresaw in his famous essay Economic Possibilities for our Grandchildren. 

We've now actually solved the original economic problem of raw economic scarcity, starvation and disease. The problem isn't 30% child mortality or famine, as for most of human history.  Survival is rarely the problem any more. Instead, it's purpose. It's value and reward and how people get respect. That's an institutional, social or moral problem more than an economic one, which is why many economists can't handle it.

That's an epochal shift. We just have to figure out what to do with it. 

"For the Last Time, Robots Do NOT Cause Unemployment"

Here's a pushback at RealClearMarkets against recent worries about technology and the job market.

Parts of the nation's commentariat have been seized, in recent months, with a nasty bout of technophobia. Technophobia is a psychological condition, but infectious. Hardly a week goes by without a new outbreak documented in another blog post or business column. To judge from the symptomatic hand-wringing the epidemic is spreading, we are on the verge of mass unemployment as work becomes increasingly automated.

As I've often said, it is clearly true that there has always been an increase in aggregate demand for labor in the past. But to argue that will continue indefinitely carries an assumption the nature of needs and wants is static. Economics is not that good at understanding changing needs and preferences. Instead, they are treated as exogenous. And that is a foolish assumption.

In fact, it's not at root an economic problem. It's an ethical and instiutuonal problem. There needs to be deeper change and adaptation in economic institutions. That more attention to issues of the "good life " given basic economic survival is no longer the prime problem facing humanity. The labor market achieved huge prominence in the industrial revolution period, dominating life in a way which would have been inscrutable to medieval peasants on the land, or aristocratic Romans. It may be less prominent in the future.

Abundance and Self-Realization

I'm looking at Robert Fogel's The Fourth Great Awakening and the Future of Egalitarianism, starting here.

Distribution of income matters less than distributiion of "spiritual resources", he says. That means there is a tendency in the "Fourth Awakening" to refocus on the individual again, rather than material conditions in society as a whole.

I have often talked about abundance on this blog, such as here and here. Fogel also emphasizes the saturation of material goods.

Our society is so well saturated with consumer durables, in fact, that even the poorest fifth of households are well-endowed with them. Consequently, the era of the household accumulation of consumer durables, which sparked the growth of many manufacturing industries in the many decades following World War II, is largely over in the United States. p189

So where are things going? Meaning becomes more important as survival challenges recede.

Today, people are increasingly concerned with what life is all about. That was not an issue for the ordinary individual in 1880, when nearly the whole day was devoted to earning the food, clothing and shelter needed to sustain life. A half century from now, perhaps even sooner, when increases in productivity make it possible to provide goods in abundance with half today's labor, the issue of life's meaning, and other matters of self-realization, will take up the bulk of discretionary time. p 191-192

Health and leisure time will be the focus of the future economy, although, he says, it is difficult to foresee the details.

The point is that leisure-time activities (including lifelong learning) - volwork - and health care are the growth industries of the late twentieth century and the early twenty-firsty. They will spark economic expansion during our age, just as agriculture did in the eighteenth century and the early nineteenth and as manufacturing, transportation and utilities didin the late nineteenth century and much of the twentieth. The growing demand for health-care services is due primarily, not to a distortion of the price system, but to the increasing effectiveness of medical intervention. p201

What does self-realization mean? Interestingly, Maslow is not mentioned at all, nor are the older classical ideas about virtue in any detail. Instead, Fogel develops his own list.

To those philosophers who have developed the concept, self-realization means the fullest development of the virtuous aspects of one's nature. ..Of all the maldistributed spiritual resources, sense of purpose may be the most important. p205

Others include "a vision of opportunity", "a sense of the mainstream of work and life" which means a sense of where opportunities are and how to pursue them. There must be "a sense of community", an "ability to engage with diverse groups", which entails an "ethic of benevolence". As self-realization is often achieved through an occupation, a "work ethic" and "sense of discipline" are required, as well focus and a "capacity to resist the lure of hedonism". There needs to be a "capacity for self-education", a "thirst for knowledge". an "appreciation of quality", and some "self-esteem." p205-206

To this updated list of virtues he adds a sense of balance or, as Aristotle would put it, the golden mean.

Each of the fifteen spiritual resources just outlined must be possessed in moderation. There is an optimal amount of each spiritual resource, which will vary from one individual to another. Too much of a sense of purpose turns dedication into ruthlessness. Too little sense of purpose may cause one to be uncompetitive in a given pursuit. p207

It isn't quite a virtue ethics, perhaps, as it is more a list of desirable psychological attributes, being well-adjusted rather than arete or excellence. But it comes close. It is not utilitarian, nor based on more simplistic ideas about happiness. It is certainly reconcilable with older virtues such as courage or temperance or practical wisdom. It is also reconcilable with other ideas we have looked at, such as the evolution of the economy from manufacturing to services to experiences to, finally, transformation of individuals, or the requirements for individual flourishing.

What it does not do (and no book can do everything) is explain what happens to labor markets and economic incentives when material needs are saturated. How might a post-scarcity economy work? How will people make a living?

In all, it is quite a radical book for an academic economist. It is also politically quite eclectic - egalitarian, but taking religion seriously; interested in the condition of the poor but skeptical of government intervention. It asks the right questions, even if the answers are not wholly developed.

The basic conclusion is income is no longer a suitable end-point for policy discussions. Nor are national income statistics. Like the rich sons of Athens two thousand years ago, the nature of the good life is the main question that confronts us once material needs are saturated. Even some Nobel Prizewinners in Economics can see that.

 

 

 

Waves of ethical and religious change

I'm looking at Robert Fogel's The Fourth Great Awakening and the Future of Egalitarianism, starting here.

So Fogel argues the main challenge is no longer material inequality, but spiritual inequality. He adds a theory of cyclical evolution of ethics in responses to changes in technology and the economy. This is quite intriguing.

While economic growth since 1700 has been relatively steady and technological change has accelerated, there has been a recurring lag between the vast technological transformations and the human adjustment to those transformations. It is this lag which has produced the crises that periodically usher in profound reconsiderations of ethical values, that produce new agendas for ethical and social reform, and that give rise to political movements that champion the new agendas. p8-9.

People must evolve new ethical perspectives to cope with technological transformations. Exactly, and it seems obvious when put like that. He does not appear to adopt a vulgar Marxist-type approach, however, where ethics and culture are simply superstructure above the real economic base. People adapt their ideas ro suit circumstances when external events force them to reevaluate their perspectives and needs. And those ideas in turn create political and legislative programs.

Interestingly, he argues that this revaluation shows up in religious movements first, long before electoral politics, which, because of its compromise and balancing tends to lag behind. For example,

The greatest of all reform movements in American history, the abolition of slavery, was for decades almost exclusively a religious movement until a number of religiously inspired Northern politicians developed brilliant tactics and strategies necessary to create a winning antislavery coalition. P7

So he has a theory of how and why ethical transformations occur, which is fascinating. Why should religious movements be more responsive? Because in the frenetic competition of American religious denominations, indepedent congregations are likely to evolve responses to new ethical needs far quicker than political parties. The Awakenings are more political than relgiious, but they show up more quickly in relgious reaciton to new technology and new circumstances.

The religious response has been more rapid because of the high degree of independence of specific evangelical congregations from hierarchical control and from the restraints imposed on political parties, which must often trim their policies to maintain coalitions. P9

 

Great Awakenings

Evangelical religion reacts more quickly than more hierarchical and less populist churches. It means there have been a series of "Great Awakenings" in American religious life, which spilled over into politics after a generation or two.

These Great Awakenings are reform movements with an ethical/programmatic phase followed by a legislative/political phase, both of which arise out of the lag between technological change and institutional adjustment. Each Awakening lasts about one hundred years, including a declining phase in which exponents of one great awakening clash with those of the next. The First Great Awakening began in the 1730s and ripened into the American Revolution against the British Crown. The Second Great Awakening began about 1800 and produced the crusade against slavery that eventuated in the Civil War. The Third Great Awakening arose at the end of the nineteenth century and led to the rise of the welfare state and policies to promote diversity. The Fourth Great Awakening, which began about 1960, has recently entered its political phase and is focused on spiritual reform. p9-10

Importantly, the Awakenings mostly came from the margins of society.

The Great Awakenings have not usually originated from the top; generally, they have welled up from below and have often been given voice by ministers and novice leaders on the fringes of the establishment. p42

The First Great Awakening eroded older Puritan beliefs and emphasized individial rights. The Second Great Awakening emphasized equality of opportunity, and moved even away from Calvinist ideas of predestination towards a sense , influenced by Methodist theology, that people could work towards their own salvation.

 

Individual sin versus Social Corruption

The third Great Awakening arose in large part because of the challenge of industrial development and the growth of huge enterprises. That produced a move away from emphasis on individual sin and corruption to social reform, as well as economic and social egalitarianism. Equality of condition mattered more than equality of opportunity.

The Third Awakening rejected the idea that poverty was the wages of sin, and came to terms with Darwinism and science. The innate depravity of man was abandoned in favor of a conception the innocent young corrupted by society.

Modernists in the mainstream denominations evolved into the Social Gospel movement.

Its leading figures argued that, if America was to realize itself, it would have to change not only its creed, its theory of man's relationship to God, but also its ethics. It would have to make poverty not a personal failure, but a failure of society, and evil would have to be seen, not as a personal sin, but as a sin of society...The victory of the modernists and the Social Gospellers laid the basis for the welfare state, providing both the ideological foundation and the political drive for the labor reforms of the 1930s, 1940s and 1950s, for the civil rights reforms of the 1950s and 1960s, and for the new feminist programs of the late 1960s and early 1970s. p24-5

The first three awakenings are part of mainstream historical scholarship, but Fogel is more isolated is seeing a fourth awakening, including the rise of the religious right in recent decades. Logically, however, major shifts in technology and transformation of the economy would entail some sort of Fourth Awakening in due course, however. And it is undeniable, as he points out, that the mainstream Protestant denominations have shriveled, and evangelicals have risen to over a third of the electorate.

Meanwhile, the Third Awakening forces have been secularized.

As modernist theory grew stronger, the supernatural aspects of religion diminished among those creating the New Theology, and conversions ceased to be central to their missionary work. Social reform increasingly replaced personal reform as the center of the struggle to perfect American society... The essence of religion became the elimination of poverty and inequality. p121

The rise of the professional classes has been one of the main economic transformations, and they tend to be secularized, along with a liberal mainstream media. The universities were originally founded largely to train one profession - the ministry. But the growth of new professions and vast increase in demand for skilled graduates transformed them. Academic disciplines which generally had their modern origin in 19th century theological disputes (such as economics, as founded in the American Economic Association) tended to forget the history of their disciplines.

It would be easy to quibble with this scheme of revivals and awakenings, and some would be uncomfortable putting religious feeling so close to the heart of economic and political life. Nonetheless, it is a viable and interesting theory of how and why changes in ethical perspective come about, and I had not read about these movements in any detail before. It is a story of how deep changes in the assumptions about human nature and possibility ramified through theological debate and into practical political outcomes over a period of generations.

The story is now more secularized, as ethical debate now takes place on a much wider sphere than it did one hundred years ago. But it is equally clear that purely secular perspectives can overlook much of the deeper changes going on in the world, which include the massive growth of evangelical religion in Asia, Africa and Latin America. Something is going on out there even if it is not evident in the New York Times or the New York Review of Books view of the world. The world is less secular on the whole than we think.

Inequality of Income

Moreover, many of Fogel's do not rely on his Awakening scheme for their force. He is skeptical of the Third-Awakening focus on income distribution, and he has good technical reasons for saying so. For one thing, that approach underestimates the massive improvement in nutrition, healthcare and life expectancy since the nineteenth century, as well as more leisure, both of which accrued more to the poor than the well-off.

The theory projected by the Social Gospelers, and embraced by modernism generally, held that cultural crises could be resolved by raising incomes. That theory has been given a long trial and has turned out to be incorrect. Despite the sharp rise in incomes, especially at the low end of the income distribution, the moral crisis of the cities remains unresolved. Although income transfers have gone far beyond the mild redistributions advocated by Bascom, Ely and Commons, such problem as drug addiction, alcoholism , births to unmarried teenage girls, rape, the battery of women and children, broken familitgies, violent teenage death , and crime are generally more severe than they were a century ago. p172

Income redistribution is at the core of the current political debate. But it is also increasingly irrelevant. We will conclude looking at the book tomorrow.

The Fourth Great Awakening

I read Robert Fogel's The Fourth Great Awakening and the Future of Egalitarianism over the holidays, and it is a very interesting book. Fogel is a Nobel Laureate in Economics (1993) , mostly for his earlier quantitative economic history and study of the historical economics of slavery in the US. Perhaps he felt liberated to write a much more original book, published in 2000. Yet it is based on deep knowledge of US history.

He focuses on the impact of the waves of religious revival in the US on broader growth and public policy. The main challenge for egalitarianism now is not material redistribution, he says, but the maldistribution of "spiritual resources."

The agenda for egalitarian policies that has dominated reform movements for most of the past entry - what I call the modernist egalitarian agenda - was based on material redistribution. The critical aspect of the postmodern egalitarian agenda is not the distribution of money income, or food, or shelter, or consumer durables. Although there are still glaring inadequacies in the distribution of material commodities that must be addressed, the most intractable maldistributions in rich countries such as the United States are in the realm of spiritual or immaterial assets. These are the critical assets in the struggle for self-realization. p2

Traditional measures of income inequality are inadequate. They ignore consumption of leisure and improved health, for example.

They focus on a variable - money income - that currently accounts for less than half of real consumption and that in a generation may account for less than a quarter of real consumption. Such measures shed little light on the most intractable forms of poverty (those related to the unequal distribution of spiritual resources). Nor do they bear on the capacity of individuals to overcome the social estrangement that undermines their quality of life. p3

So a politics based on income transfers is exhausted. That naturally leads to consideration of the good life.

A good place to begin a consideration of the content of a postmodern egalitarian agenda is with Socrates' question, What is the good life? That was a crucial question not only for the sons of rich Athenians but for the sons of the landed rich throughout history. Freed of the need to work to satisfy their material needs, they sought self-realization in public service, military adventures, philanthropy, the arts, theology, ethics and moral philosophy. p2

Naturally, I felt a huge sense of recognition and agreement at this point, as I believe that without some sense of the good life public action is empty. Fogel adds another twist. State action cannot redistribute such spiritual resources.

Realization of the potential of an individual is not something that can be legislated by the state, nor can it be provided to the weak by the strong. It is something which must develop within each individual on the basis of a succession of choices.

The quest for spiritual equity thus turns not so much on money as access to spiritual assets, most if which are transferred and developed privately rather than through the market. Moreover, some of the most critical spiritual assets, such as a sense of purpose, self-esteem, a sense of discipline, a vision of opportunity, and a thirst for knowledge, are transferred at very young ages. P4.

This is very much in tune with what I have been arguing on this blog. The main challenges we face are more ethical than economic now, about how people can be helped realize the good life and what kinds of behavior should be rewarded. It is surprising to see such a clear statement in this vein from an academic economist - although economic historians consistently seem more heterodox and interesting than mainstream model-builders.

We will look at more tomorrow, especially his emphasis on how ethical concerns develop over time.

 

 

 

The Golden Age and the stale 1980s debates

Here's a take on Keynes' long view from an Australian economics professor. (H/t AI Daily).

Malthusian ideas of scarcity began to be contested in the late 19th century.

The idea that a combination of technological progress and political reform could produce a genuine utopia became an appealing alternative to the ‘pie in the sky’ of an afterlife. Edward Bellamy’s Looking Backward (1888), a critique of 19th century capitalism written from the imagined perspective of the year 2000, was the archetypal example of this literature.

Few utopians had a serious theory of growth, he says, but Keynes was more realistic in expecting incremental improvements in living standards over many decades.

The trouble is Keynes' vision has not been realized.

So on a first reading, ‘Economic Possibilities for our Grandchildren’ seemed prophetic. Yet, 40 or so years later, I am a grandparent myself, the year 2030 is rapidly approaching, and Keynes’s vision seems further from reality than ever. At least in the English-speaking world, the seemingly inevitable progress towards shorter working hours has halted. For many workers it has gone into reverse.

The culprit, he thinks, is market liberalism. He says

If work was distributed more equally, both between households and over time, we could all be better off. But it seems impossible to achieve this without a substantial reduction in the centrality of market work to the achievement of a good life, and without a substantial reduction in the total hours of work.

The first step would be to go back to the social democratic agenda associated with postwar Keynesianism. Although that agenda has largely been on hold during the decades of market-liberal dominance, the key institutions of the welfare state have remained both popular and resilient, as shown by the wave of popular resistance to cuts imposed in the name of austerity.

Key elements of the social democratic agenda include a guaranteed minimum income, more generous parental leave, and expanded provision of health, education and other social services.

This is the problem. He sees it as a reason to go back to 1980s-style welfare liberalism and expand already bloated public services. It is fighting out the debates of the late twentieth century over and over. It makes it far more difficult to achieve any genuine change if it becomes associated with outdated liberal leftism.

However, he does come close to a good point.

It seems clear enough that technological progress can generate the necessary productivity gains, so what is needed most is a change in attitudes to work that would make a guaranteed minimum income socially sustainable. The first is that the production of market goods and services needs to become pleasant enough that those doing it don’t mind supporting others who choose not to. The second is that the option of receiving a guaranteed minimum income does not become a trap, leading into the kind of idleness that produces despair.

The key is to make some form of minimum income "socially sustainable" without causing resentment. That is where the left's ideas of equal distribution block anyway forward. Without some convergence on ideas about the good life, most people will not want to subsidize other's "rights". Liberal ethics undermines liberal economics.

 

The Importance of Stocks and Depreciaton

 

We're looking at Double Entry: How the Merchants of Venice Created Modern Finance by Jane Gleeson-White, starting here. Book-keeping evolved into accounting as outside investors needed assurance that dividends were paid out of actual income, not capital.


Railways and factories also wore out, however, which led to another important concept: capital stock and depreciation.

The advent of the corporation raised several other key accounting issues; for example, how to calculate the declining values—due to wear and tear—of large investments in machinery, rails, rolling stock (or railway vehicles), and so on. This problem gave rise to the concept of depreciation.

It took a long time for accountants to come to terms with depreciation and properly accounting for assets. And this is still a problem, she says, when it comes to the environment since many assets are free.

This is because until recently economists have assumed that natural resources are so plentiful that any loss of them is insignificant, not worth counting. They assumed that natural resources like water, soil, forests and air were free gifts of nature.

But just as the nineteenth-century railway entrepreneurs had to learn that human-made capital—rails and machinery—wears out and must be depreciated, so some economists are beginning to understand that nature’s capital is also subject to wear and tear and depletion. Cambridge University’s Professor Sir Partha Dasgupta is one economist who is critical of the GNP and its use to judge the progress or otherwise of nations. He argues, ‘as so many economists have already done, that GNP’s main weakness lies in the fact that it is insensitive to the depreciation of capital assets’. And from an environmental point of view, this is critical.

The Modern Economy is about Stocks

This is no doubt true. But she perhaps over-emphasises environmental gaps to the exclusion of other social assets like trust or quality of life.

The larger point is we are often too focused on flows rather than stocks, including the depreciation of assets (stocks meaning an amount, like a stock of wheat, rather than an equity share like the stock exchange.) This is a basic economic distinction we often forget. As Dasgupta says, we need to be sensitive to the depreciation of capital assets.

We are much better at being conscious of flows of income rather than the valuable stock of assets which produces that income. Yet many of the great economic challenges of our era have more to do with stocks than flows of income. Many or our capital assets, such as the knowledge required to build an Intel processor or the song "Hey Jude" do not depreciate in the traditional way. They may have to be re-learned or passed on, but they do not wear out.

So what happens when the stock of our valuable assets, properly defined, gets disproportionately much larger than money income flows? In many ways, our prime objective should be to increase the stock of assets. Income and distribution are secondary factors , especially of many of the benefits flowing from those assets are free. Some of our political thought gripes towards this, especially those who think capitalism should be left unfettered to create wealth which government can then redistribute. But that often confuses income with value.

We will come back to this point another time.

Finally, Gleeson-White emphasizes again how the numbers may often conceal deeper uncertainties.

Even accounting’s most fundamental concepts and practices, such as income measurement and asset valuation, are based on uncertainties. Accountants still cannot agree on how to define income, the measurement of which remains one of the intractable problems in financial accounting theory and practice. The valuation of assets only becomes more complex and more fiercely debated as modern global corporate structures and financial instruments become increasingly labyrinthine, and income measurement, the key to determining profits and therefore dividends, is inextricably linked to this contentious, chimerical practice of asset valuation. Nor is the crucial measurement of costs an objective process: costs are also highly contestable figures and may result as much from the collusion or rivalries of firms as from any other actuality. Accrual (or corporate) accounting—the need to allocate revenues and expenses between accounting periods and to value assets and liabilities at the end of an accounting period—raises problems which have never been solved and are probably incapable of solution. Numbers can be negotiated to make management look good. In effect, ‘accounts are used to justify decisions and to excuse mistakes’.

She concludes

In an era of international capital, when our wealth is more than ever tied up in its fortunes, and at a time when corporations, governments and financial institutions are demonstrating their fallibility on a global scale, it is essential that we are aware of the somewhat arbitrary laws of account that govern them—especially because it is in the labyrinthine workings of our accounting systems that value itself is assigned. It seems that if we want to bring our infinitely voracious consumerism into line with the resources of our finite planet, we must consider giving our planet a value that the market can recognise and account for, assign a monetary value to the oceans, air, forests, rivers, wildernesses. • Delete this highlight

(My bold). In the end, we come back to the problem of economic value. There have been many major shifts in perception of costs and decisions and stocks and accountability and depreciation. Together, they make up the modern economy.

It is time for another major shift, to cope with intangibles and abundance and our reliance on those abundant stocks. Value should not be defined by arbitrary default.

 

Krugman, Robots and Redistribution

There's a lot of attention to this post by Paul Krugman on long-term growth.

And this means that in a sense we are moving toward something like my intelligent-robots world; many, many tasks are becoming machine-friendly. This in turn means that Gordon is probably wrong about diminishing returns to technology.

Ah, you ask, but what about the people? Very good question. Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots.

Perhaps at some stage there will be a deeper discussion of these issues. He says in a related column he will talk more about long-term growth in due course. But, he concedes, economists know very little about long-run prospects.

The great bulk of the economic commentary you read in the papers is focused on the short run: the effects of the “fiscal cliff” on U.S. recovery, the stresses on the euro, Japan’s latest attempt to break out of deflation. This focus is understandable, since one global depression can ruin your whole day. But our current travails will eventually end. What do we know about the prospects for long-run prosperity?

The answer is: less than we think.

The long-term projections produced by official agencies, like the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. In particular, productivity — the key driver of growth — is projected to rise at a rate not too different from its average growth since the 1970s. On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward.

It’s not hard to understand why agencies make these assumptions. Given how little we know about long-run growth, simply assuming that the future will resemble the past is a natural guess. On the other hand, if income inequality continues to soar, we’re looking at a dystopian, class-warfare future — not the kind of thing government agencies want to contemplate.

Yet this conventional wisdom is very likely to be wrong on one or both dimensions.

An additional problem is economics has very little understanding of the drivers of productivity. I don't know how many times senior officials have told me that it is a "residual of a residual" in quantitative terms.

 

Redistribution

We've looked at these issues before, such as here and here.

In particular, we looked at an excellent survey of technological developments here. Diamandis and Kotler conclude their book Abundance: The Future Is Better Than You Think with this:

Our problem is not that we don’t have enough stuff—it’s that we don’t have enough ways for people to work and prove that they deserve this stuff.

However, simply transferring money from "the rich" to the middle class or the poor is ultimately self-defeating. It undermines self-reliance and self-respect and the fact that living is more than just having stuff.

Redistribution is going to be the core issue in coming years - but even the word itself is tainted with leftist welfarism.

Instead, we need a better conception of how people earn a living, especially if the labor market is in trouble. And that means a better idea of value. And that entails some idea of the good life for people, instead of liberal neutrality whose whole point is to avoid any discussion of value.

Economics has deep difficulty with this, because value is primarily an ethical issue which is not reducible to models. Indeed, we saw recently economics as a discipline sidestepped the problem of value in the marginalist revolution by replacing it with a poorly conceived mathematical treatment of utility.

The whole apparatus of pareto-equality and welfare economics is flawed. Liberal ethics is flawed. Both lack any conception of human flourishing. Automatic equality of respect destroys any prospect of a better life, because it corrodes value. If everything is equal, there is no value.

 

The Art of Choosing

I read Sheena Iyengar's The Art of Choosing last week. It is a stimulating and rewarding book about recent psychological investigation, often by Iyengar herself, into choice. She is a Professor at Columbia, and her work seems another prime example of the renaissance of psychology has a discipline in the last ten-twenty years. We looked, for example, at Martin Seligman's work here, and Daniel Kahneman has had a major impact on economics.

Iyengar is more interested in choice than happiness or heuristics, however.

Our deep need for choice

First, she emphasizes the profound importance of a feeling of agency, of having some control, to almost all creatures. Even zoo animals exhbit listlessness and distress if they do not have agency. One might think of a zoo as a paradise for wild animals, with food and material needs taken care of. Instead, this "perfect hotel" is anything but.

In spite of the dedication of their human caretakers, animals in zoos may feel caught in a death trap because they exercise minimal control over their lives. .. Due to these physically and psychologically harmful effects, captivity can often result in lower life expectancies despite objectively improved living conditions. Wild African elephants, for example, have an average life span of 56 years as compared to 17 year for zoo-born elephants. p11, 13

There are other examples. Lower ranks of the British civil service have worse health and die younger than the upper ranks, according to a famous piece of research, as they have less control over their daily tasks. Giving residents of an old people's home more control over trivial things - plants, movie screening times, TV - leads to significantly better outcomes in health and happiness.

This is fascinating. We need a minimal sense of control over our surroundings and workflow to be happy. A utopia that takes care of material needs but allows us no sense of control or agency is likely to be make us miserable.

A society built on keeping people in captivity is bound to be unhappy. People need to feel they have choice, or they shrivel. Material abundance alone is not enough to make people happy. It is more likely to be an existence like a captive zoo animal.

Cultural differences

However, cultures differ quite radically in how they think about choice. Most cultures emphasize collective needs and approval over individual needs. The United States, not unexpectedly, is at the individualist extreme.

She contrasts this with the SIkh wedding of her parents in India. All choices were made by the families and tradition. The first time the groom saw the bride was when he lifted her veil after the marriage ceremony.

These cultural predisposotions affects workplace behavior too. She studied worldwide employees of Citibank, carrying out the same tasks. They differed significantly in the amount of choice they perceived they had on their jobs, and how much they preferred management to exert.

 

"Freedom from" versus "freedom to"

She traces such cultural attitudes back to a more fundamental difference over "freedom from" versus "freedom to", which she says Erich Fromm postulated in his 1941 book Escape from Freedom (which I read as a teenager). "Freedom from", said Fromm, is "freedom from the political, economic and spiritual shackles that have bound men,", especially others interfering with the pursuit of our goals. "Freedom to" is an ability, the ability to "attain certain outcomes and realize our full potential."

A system tending too far in either direction can limit people's opportunities, Iyengar says. Capitalism tends towards "freedom from", but not everyone will have access to all the choices available. Communism tends towards "freedom to", including equality of outcomes rather than opportunities. The problem is there is little incentive to work harder or produce more, and it requires a strong government which may become corrupted by power.

She found strong differences still endure between West and East Berliners in her research, for example.

.. people's long-held assumptions about fairness can't simply be swapped for another set of beleifs. I consistently found that West Berliners, like Westerners in general, understand the world through the lens of "freedom from." On the other hand, East Berliners, and in particular the older people, focused on "freedom to", even though communism was now only a memory for them. p65

The American dream is all about "freedom from".

People who see themselves and others as having high personal control tend to favor "freedom from", not only because it provides more opportunities to attain their personal goals but also on grounds of justice - those who put in the most effort will be rewarded, while those who slack off won;t be able to ride on anyone else's coattials. p68

Americans as a whole arguably believe more wholeheartedly in "freedom from" than any other nation.. The basic premise is no one can stand in the way of your highest aspirations, provided that you have the ambition and skills to realize them. p70

This matters because it might mean potentially fundamental and irreconcilable cultural differences in what people believe about the good life, which is a primary interest of this blog. The good life in the Confucian tradtion would be very different from the good life in the Jeffersonian tradition, so perhaps it is better not to think about it at all.

Freedom to what?

I don't think that's true, though. The fact of abundance, the end of the struggle for material survival, is a challenge to every culture, whether one contronts it on an individual or social level. We face "freedom from" the traditional limits of material and social scarcity. That is a massive change from the lot of humanity for all the thousands of generations before we solved the "economic problem".

Since the 1960s, many of the traditional limits in society have been lifted. What have we achieved with it? TV and the welfare office.

We have abundance. Then the question is - what do we actually want? And "Freedom from" in isolation doesn't say anything at all about that. It suffers the traditional liberal blindspot about where preferences and tastes and wants and desires and pleasure actually come from.

How do people find what they want, especially when older cultural institutions like the churches are in decline? What cultural influences or standards influence what people want to do with their lives after it becomes genuinely a matter of choice? Iyengar doesn't go into this.

For example, we looked some time ago at economist Tibor Scitovsky's work. People want the right level of stimulation, he argues, but it has to be genuinely novel stimulation, not simply quantitatively more. How do we achieve a system where there is more genuine choice, rather than people running faster and faster on hamster wheels for more of the same?


But at the same time, simply accepting traditional or collective notions of what "freedom to" means seems alien to our tradition in the West, and at risk from technological and cultural change. There is an impoverished group of choices for "freedom to".

In the past, "freedom to" has often meant spoilt aristocrats fighting futile dramas of status and prestige and honor, or rich trust fund kids subsiding into drugs and nihilism. It has meant religious extremism and monastric austerity and self-denial. At present, it often means crystal meth in small towns and people thinking of the office cubicle as a second home. In practice, it can lead to alcoholism and divorce and loneliness and pursuit of celebrity. As John Stuart Mill once pointed out, much rests on the quality of what we want.


There is, in fact, a longer history to these ideas. "Freedom from" is analagous to "liberty", whereas "freedom to" is more consonant with older ideas of "freedom", where being free has a positive meaning. (This reminds me of one of David Hackett Fisher's books, Liberty and Freedom: A Visual History of America's Founding Ideas (America: A Cultural History)which I must look at again. ) America was at the forefront of liberty in the eighteenth century, with lingering social consequences. It ought to be at the forefront of what freedom means now.

Everyone has to answer the question of "what next?". Perhaps the Woodstock Festival or the ABC Fall Line-up or the Google free snackbar in their Silicon Valley offices is the highest point people will ever achieve. Perhaps not. We do not discuss what we should aspire to any more, beyond egailtarianism.

 

"Freedom to" is not necessarily egalitarian or traditionalist

Iyengar's conception - and the traditional view - of "freedom to" is too limited. "Freedom to" is not necessarily socialist or egalitarian. It is not necessarily about minimal provision for all, or Rawlsian maximin welfarism. After all, we've seen that Aristotle's account of the good life has been criticized since for being so unconcerned with equality.

Instead, I think this is an example of where we have taken such a wrong turn. As soon as any suggestion of material sufficiency or abundance has appeared, the first response has been equal distribution. It seems to set off an egalitarian mania, in terms of welfarism and rights and taxation. Yet egalitarianism is not the only vision of the good life, or indeed, a particularly inspiring or just one.

There are deep potential problems with "freedom to", particulalty if people are coerced into a state vision of what it means. But once "freedom from" has been achieved, the only alternative to more discussion of "freedom to" is an unthinking default socialism or nihilism. We need a new conception of "freedom to" that will also correspond to an answer to the conundrum of "value" in economics which we were discussing recently.

I think that has to be centered on people developing their skills and capacitiies to their full potential, and that has to be connected to a conception of virtue and the good life.

We'll look at more of the book tomorrow.

 

 

 

No flying cars, but there is still progress

Virginia Postrel writes that a spate of gloom about the rate of technological innovation is wrong. People lament the fortieth anniversary of the moon landings.

“You promised me Mars colonies. Instead, I got Facebook,” reads the cover of the current issue of MIT Technology Review. In an essay titled “Why We Can’t Solve Big Problems,” editor Jason Pontin considers “why there are no disruptive innovations” today.

But we hardly notice many of the improvements around us, she says.

The world we live in would be wondrous to mid-20th-century Americans. It just isn’t wondrous to us. One reason is that we long ago ceased to notice some of the most unexpected innovations.

Forget the big, obvious things like Internet search, GPS, smartphones or molecularly targeted cancer treatments. Compared with the real 21st century, old projections of The Future offered a paucity of fundamentally new technologies. They included no laparoscopic surgery or effective acne treatments or ADHD medications or Lasik or lithotripsy -- to name just a few medical advances that don’t significantly affect life expectancy... The glamorous future included no digital photography or stereo speakers tiny enough to fit in your ears.

 

"More Heat than Light": the failure of modern economics

I'm going to turn now to Philip Mirowski's More Heat than Light: Economics as Social Physics, Physics as Nature's Economics, which is a quite devastating critique of mainstream neoclassical economics.

The heart of modern economics, he argues persuasively, was lifted wholesale from physics in the late nineteenth century. The trouble was that the main figures of the marginalist revolution, such as Walras, Jevons and Marshall, didn't quite understand all the math they imported into political economy.

The neoclassical founders almost all came from an engineering or natural science background. But they had a limited grasp of the state of the art of physics even at the time. Above all, says Mirowski, they failed to understand the importance of conservation principles in the math. To accurately measure change, something must stay the same. That means most of the edifice of neoclassical economics is based on stale physics contaminated by basic errors.

 

Substance and fields

What happened was basically this. Natural scientists struggled in the early nineteenth century with ideas of heat and motion, imagining fluids or ethers or substances. By the 1870s, that had given way to a unified view centered on energy, and the conservation of energy as it was transformed from one kind to another. Instead of fluids or other kinds of substance, physicists now thought of fields and forces, and worked out the vector math of kinetic and potential energy.

The heart of neoclassical economics, says Mirowski, is that economists replaced energy with utility in the same equations, and lifted the framework wholesale. The marginalist revoluton paralled the revolution in physics in preceding decades. Classical economists saw Value as a substance, such as the equivalent of wheat for the physiocrats or the labor theory of value for Ricardo and Marx. But for neoclassicals, Value was a field, like electromagnetism in physics. Kinetic energy was essentially spending and income; potential energy was utility.

He quotes several of the major marginalists who explicitly acknowledged that this is how they thought. But later economists mostly forgot these origins. The discipline has never been that historically self-conscious.

There were two main problems with all this, however. First, without a conservation principle, the math didn't work. Conserving energy implied income and utility were a constant - so essentially the same thing. That would mean utility would be superfluous as a separate measure to money, which was not at all desirable. The point was often lost in a technical debate about "integrability". Leading physicists tried to explain the point to economists, who appeared to have been mostly baffled and nonplussed at the argument.

Secondly, physics moved on from its 1870-vintage "proto-energetics" state, as Mirowski termed it. The second law of thermodynamics implied entropy was always increasing, so interactions were not easily reversible. Special relativity, general relativity and quantum theory all upset the mechanical "Laplacian dream" of 1870s physics, bringing frames of reference, probability, indeterminacy and the role of the observer into the picture. Symmetries and conservation principles could be broken. Matter could decay. Particles could pop in and out of existence. In contrast to notions of inherent "scarcity", the whole universe might be a "free lunch", something which came from a temporary variation in nothing.

None of these could easily be incorporated into the neoclassical framework. However, economists insisted all the more stridently that they were pursuing disciplined science, in contrast to sociologists or anthropologists, while actual scientists were increasingly doing something quite different.

As long as the Laplacian Dream was their dream, they clutched neurotically at their portrait of persons as irrotational mental fields suffusing an independent commodity space, as science ebbed ever further away toward a world subject to change, diversity and indeterminacy, and at one with the observer. P275

And the outcome?

In brief, the practical dissolution of the energy concept in advanced twentieth-century physics has painted neoclassical economics into a corner. p388

Mirowski wrote the book in 1989. Of course, the metaphor of utility as (potential) energy looks even more strained today. We now know that the visible universe of 1870s physics is only 4% of the universe. The rest is dark matter and dark energy that we cannot as yet observe and don't understand.

So what? Some mainstream economists concede to his argument about the origin of the neoclassical model, notes Mirowski, but they claim it is not relevant to the subsequent evolution of the discipline.

But it is. They still want the appearance of science, while being stuck with a model which is increasingly divergent from science in reality, he claims. To talk about analogies to entropy, said Samuelson, for example, is always the mark of a crank. But Mirowski points out that Samuelson frequently published articles with tenuous links to physics himself. Indeed, the key to Samuelson's career was maintaining the appearance of scientism.

Economists have produced various ad-hoc conservation principles in the twentieth century, according to Mirowski, "but in the final analysis this is all one big shell game, with the offending conservation principles passed from one assumption to another." p274

 

Production

The metaphor of utility as an energy field is too embedded to be given up by neoclassical economics, he says The trouble is it is also a metaphor of instantaneous exchange, and as such it has proved consistently difficult to reconcile with production, which had been the focus of classical economics. Classical economics thought that value was created in production, circulated in trade, and consumed in consumption. Neoclassical economics was focused on exchange, and found it hard to explain production at all.

That inconsistency explains a proliferation of production functions in postwar economics, and difficulties with temporarily and the existence of firms through time.

Economists have effectively tried to reinvent a substance theory when it comes to production, says Mirowksi. But this is bound to be inconsistent with utility as a potential energy field. So the profession has not been able to settle on a satisfactory answer.

The situation was embarrassing, but no neoclassical was willing to come right out and say that production was superfluous or irrelevant in their scheme of things. (Lionel Robbins came the closest). p272

Scarcity

There are also implications for scarcity. The idea of scarcity as the heart of the economic (and human) condition was largely an artifact of the neoclassical approach, he says.

Prior to that time, scarcity as some sort of primordial state of mankind did not play any signficant role in the value theory of classical political economy. Only with the dominant impression that Nature enforced a general state of dearth, say, rather than the physiocratic notion of Nature's bounty, could it become possible to even think of economic equilbrium as a state of psychological counterpoise, hemmed in by the urgent necessity to clear markets in a state of stringent limitations. p240

This caused obvious problems.

The metaphor of utility as potential energy was predicated upon a Weltanschauung of a closed, bounded system that exemplified the natural state of mankind as enduring ineluctable scarcity. If and when production was to be introduced into this morality play, it had to be done in such a way as to prevent the contravention of the scarcity principle, all the while maintaining the field theory of value. p293

Of course, I think this is fascinating given I think one of our main challenges now is thinking through the implications of abundance.

Keynes, he says. succeeded in introducing a kind of value substance in the guise of "national income". That allowed the idea of an economic process to be reintroduced. There has been an immense effort in recent decades to link macro with rational choice "microfoundations." But this is doomed to failure, says Mirowski.

Keynes generated a theory of an unstable economic process by the instrumentality of his reversion to a substance theory of value, a tactic that allowed the joint conceptualization of production, growth and the passage of time in (relatively) internally consistent manner. In contrast, it is the avowed intention of the microfoundations school to renounce all value substances and to recast all macroeconomic analysis in the format of production and utility fields. It is precisely this choice that prohibits the logical modeling of process in priduction, in growth, and in exchange, as explained earlier in this chapter. The field metaphor cannot represent a circular economy where outputs become inputs and so on, ad infinitum. It cannot specify precisely what it is that grows in an economy. p346

Fields are just not suitable when time is involved.

.. the formalism of the field is useful only in cases where one can safely abstract away all considerations of process and the passage of time. p346

Utility

Mid-twentieth century neoclassical economics would have found an alternative to utility if it could, he says. The mainstream forgot how widespread concern about utility had become in the profession before the second world war. Mirowski quoted Viner as saying economists' understanding of utility was comparable to "the knowledge of heat prior to the discovery of the thermometer." It could not be satisfactorily measured. There had always been concern at how locating value in a purely mental framework came close to idealism or solipsism.

The development of the indifference curve approach and Samuelson's theory of revealed preference were not durable responses, either, and only served to obscure the origin of the utility metaphor. Revealed preference was not empirically tractable, for one thing, and confused preferences and behavior.

In the absence of the metaphor of utility as nineteenth-century potential energy, there is no alternative theory of value, no heuristic guide to research, no principle on which to base mathematical formalism, no causal invariant in the Meyersonian sense, and most threatneing, no basis for the claim that economics has finally become scientific. p368

So what does this lead to? There is, Mirowski says, no scientific method that can guarantee economics' scientific status.

This lesson is the legacy of the decline of positivist philosophies of science in the late twentieth century. Juxtapose this fact with the hypothesis that economic research has always met with the greatest difficulties in establishing the credibiliy of its results and fending off charges of charlatanism and quackery. p357

It is hard to revise the neoclassical framework without undermining it. New approaches do not have that problem. This means, he says, neoclassical economics will be vulnerable to new contenders for the role of social physics.

Theories of Value

And is there an alternative theory of value? Mirowski says there are two main alternatives. One is to deny any separate value, rarely advocated, but as represented by someone called Samuel Bailey (who I have never heard of).

This position argues that no economic phenomenon is conserved through time, and therefore scientific analysis is impossible. Whatever one might think of the truth of this option, it should be clear than the nihilism inherent in the program assures that in this instance there can be no legitimate research program called economics. p400

The other alternative is a "social theory of value", he says, based not on scientific or social metaphors , but in social institutions such as accounting conventions or property rights.

I doubt myself whether this is true. I imagine evolution is the main contender for an alternative scientifc framework, together with the notion of adaptability and "fitness" of some kind or another.

Conclusions

Overall, it is a very bracing read. It seems, at least to me, highly persuasive - but I would want to read some reviews and responses to make sure I am not overlooking flaws in Mirowski's own analysis. .

What it underlines is that utility and scarcity were chosen not so much because of their psychological or social accuracy, but because the math "worked". And if the math worked there was more scientific respectability. I have always had the firm impression that this was the driving force of major parts of the discipline, which is likely the main reason I did not become an academic economist. It did not ring true. It was about the aesthetics of models rather than genuine insight. It was about a particular quasi-religious view of rationality rather than solving problems.

The book is also highly illuminating , not to say shocking, about the origins of utility in modern economics. I've often talked before about how ethical theory went off the rails in the eighteenth and nineteenth centuries, dropping the older tradition of the virtues and the good life for a more utilitarian, neutral and welfarist approach. Mirowski excavates a much deeper layer of intellectual history underlying current economics. It was not a matter of an import from Bentham. It was an import from physics, and just more or less happened to be called utility.

The metaphor of potential energy as a utility field locked economics into an increasingly less productive path for a century - and to a large extent still does. I knew most of the arguments about indifference curves, production functions and revealed preference, of course, but I was much less familiar with the intellectual history of the arguments. It is fascinating. And disturbing.


Perhaps most of all, it shows how value theory is the great unsolved problem at the heart of economics. That is what I have been grasping toward in my own terms on this blog. To understand the future of the economy , we have to be back up into ethics and the question of the good life and human flourishing. That, after all, is the only place a valid notion of value can come from.

 

Welfare and the Good Life

 

We're looking at Charles Murray's Coming Apart: The State of White America, 1960-2010, starting here.

Against the European Welfare model

The connection between the four basic social institutions and happiness leads Murray to argue for American exceptionalism, as against the European welfare model.

The tacit assumption of the advanced welfare state is correct when human beings face starvation or death by exposure. Then, food and shelter are all that count. But in an advanced society, the needs for food and shelter can be met in a variety of ways, and at that point human needs can no longer be disaggregated. The ways in which food and shelter are obtained affects whether the other human needs are met.

People need self-respect, but self-respect must be earned—it cannot be self-respect if it’s not earned—and the only way to earn anything is to achieve it in the face of the possibility of failing.

This is of course a version of what I have talked about before, a change in needs as we rise up Maslow's hierarchy. The welfare state ramified in the 1960s as one response to abundance. Given sufficient wealth, the main political drive has been towards equal distribution rather than new flourishing and possibility.

Upper class people still generally practice these four institutional virtues, he says. They are much more likely to be married, see a job as a calling and work hard, practice religion, and believe others can be trusted. In a sense, getting ahead requires them.

The new upper class still does a good job of practicing some of the virtues, but it no longer preaches them. It has lost self-confidence in the rightness of its own customs and values, and preaches nonjudgmentalism instead.

He thinks this view, nonjudgemental "niceness", is living on borrowed time, however, as science produces more results which refute it.

Here are some more examples of things I think the neuroscientists and geneticists will prove over the next few decades: Human beings enjoy themselves when they are exercising their realized capabilities at the limit of those capabilities. Challenge and responsibility for consequences is an indispensable part of human motivation to exercise their realized capabilities at the limit of those capabilities. People grouped by gender, ethnicity, age, social class, and sexual preference, left free to live their lives as they see fit, will produce group differences in outcomes, because they differ genetically in their cognitive, psychological, and physiological profiles. Regardless of whether people have free will, human flourishing requires that they live in an environment in which they are treated as if they did.

So he thinks it will become obvious that nonjudgemental welfarism will be understood to undermine the crucial institutions of society.

The institutions surrounding marriage, vocation, community, and faith will be found to be the critical resources through which human beings lead satisfying lives. It will be found that those institutions deteriorate in the advanced welfare states for reasons that are intrinsic to the nature of the welfare state. It will be found that those institutions are richest and most robust in states that allow people to work out their lives on their own and in company with the people around them.

Putting it together

So what do we make of this? As a rule I consider libertarianism a horrible mistake. But Murray is a strange kind of libertarian. He is not so much arguing for the market and voluntary Ayn Randian contractualism, as strengthened independent social institutions.

He calls for an emphasis on virtue, which I like, but it in practice he means strengthening his four core institutions rather than the Aristotelian virtues as such. It is sociology more than ethics. He does not have much of the rest of virtue ethics, such as the golden mean, or an emphasis on the multiplicity of virtues.

What he does have is a kind of sociological vision of the good life, of flourishing, which I think makes him divergent from full libertarianism. Flourishing for him means strengthening those four institutions and reducing the role of government and bureaucracy in life.

I think this is what my friend, who I mentioned at the beginning of the post, was hostile to. Murray says people have to make their own choices in life, but his view is much less sympathetic for radical innovation in lifestyles. He believes in marriage, in standard jobs, in the churches, in stability.

But there is a basic confusion here. People do not work out their lives on their own, or even just in the company of those around them. They do so in the context of an ethical vision of the good life, of what contributes to happiness. We do not start off from year zero every time we make a decision.

Government and bureaucracy cannot run our lives for us. That much is true. But we still need a conception of the common good. Traditional libertarianism does not do that. It is just about process. Murray's distaste for government means he throws much of the possibility of common culture out as well.

I've said a number of times I think the debate between government and the market is a stale 20th century debate. Instead, the real issue is what we do about abundance and what flourishing means. Murray contributes some hard statistical evidence to that question, about the value of social institutions. But it correlation, rather than explanation.

It is a good argument against welfarist government. But it does not make any case for the positive possibilities of abundance, or how institutions need to adapt. What becomes of work if the demand for medium-skilled jobs is being hollowed out, for example? How do you promote social trust?

America is about new possibilities of freedom - and what that means substantively when material necessities are met.

 

 

Virtue and the Founders

We're looking at Charles Murray's Coming Apart: The State of White America, 1960-2010, starting here.

Murray argues that mainstream America is seeing crucial social institutions erode. He gives a fascinating account of how the founders of the United States were convinced that the bedrock of the Republic was the virtue of the people. Naturally, I found this illuminating because of my continued interest in virtue ethics, like this post the other day. According to Murray,

Everyone involved in the creation of the United States knew that its success depended on virtue in its citizenry—not gentility, but virtue. “No theoretical checks, no form of government can render us secure,” James Madison famously observed at the Virginia ratifying convention. “To suppose that any form of government will secure liberty or happiness without any virtue in the people is a chimerical idea.”

For Benjamin Franklin, this meant that “only a virtuous people are capable of freedom. As nations become more corrupt and vicious, they have more need of masters.” On the other hand, virtue makes government easy to sustain: “The expense of our civil government we have always borne, and can easily bear, because it is small. A virtuous and laborious people may be cheaply governed.”

Washington emphasized the point too:

George Washington said much the same thing in the undelivered version of his first inaugural address, asserting that “no Wall of words, no mound of parchment can be formed as to stand against the sweeping torrent of boundless ambition on the one side, aided by the sapping current of corrupted morals on the other.” Or as he put it most simply in his Farewell Address: “Virtue or morality is a necessary spring of popular government.” In their various ways, the founders recognized that if a society is to remain free, self-government refers first of all to individual citizens governing their own behavior.

This shows, of course, how natural and widespread and unexceptional a belief in the virtues was before the utilitarian 19th century.

Now Murray believes virtue is eroding.

The success of America depended on virtue in the people when the country began and it still does in the twenty-first century. America will remain exceptional only to the extent that its people embody the same qualities that made it work for the first two centuries of its existence. The founding virtues are central to that kind of citizenry.

 

Four key institutions

He spends much of the rest of the book distingushing between the mores of an upper class suburb, which he calls Belmont, and a lower class one, Fishtown. The four core institutions of society - marriage, work, religion, and social trust - have all eroded markedly in Fishtown, he says. Marriage has declined:

For the first time in human history, we now have societies in which a group consisting of a lone woman and her offspring is not considered to be sociologically incomplete—not considered to be illegitimate—and so I will adapt and call them nonmarital births.

So too has the work ethic. One interesting thing is he emphasises work as a vocation, a calling, rather than just a means to pay the bills. He thinks that even low-paying work can give meaning if it helps support others.

Yes, you can overdo it. There is more to life than work, and a life without ample space for family and friends is incomplete. But this much should not be controversial: Vocation—one’s calling in life—plays a large role in defining the meaning of that life. For some, the nurturing of children is the vocation. For some, an avocation or a cause can become an all-absorbing source of satisfaction, with the job a means of paying the bills and nothing more. But for many others, vocation takes the form of the work one does for a living.

The data shows lower-class neighnborhoods have changed much more than upper-class ones.

In 1960, 81 percent of Fishtown households had someone working at least forty hours a week, with Belmont at 90 percent. By 2008, Belmont had barely changed at all, at 87 percent, while Fishtown had dropped to 60 percent. And that was before the 2008 recession began. As of March 2010, Belmont was still at 87 percent. Fishtown was down to 53 percent.

Religious adherence - Catholicism in the case of Fishtown, which is based on an actual inner suburb in Philadelphia - has declined sharply.

The jury is still out on the metaquestion of whether secular democracies can long survive. But the last few decades have brought forth a large technical literature about the role of religion in maintaining civic life and the effects of religion on human functioning.

Social trust has also plunged.

The scariest message from the GSS [survey] does not consist of declines in specific activities that make up social capital, but this: The raw material that makes community even possible has diminished so much in Fishtown that the situation may be beyond retrieval. That raw material is social trust—not trust in a particular neighbor who happens to be your friend, but a generalized expectation that the people around you will do the right thing. As Francis Fukuyama documented in Trust: The Social Virtues and the Creation of Prosperity, the existence of social trust is a core explanation of why some cultures create wealth and other cultures are mired in poverty.

Diversity, for all its positive qualities, also erodes social trust.

Another problem regarding social trust, and one that may help explain the decline, has surfaced more recently: The key ingredient of social capital, social trust, is eroded by ethnic diversity. In the years after Bowling Alone appeared, Robert Putnam’s research led him to a disturbing finding: Ethnic diversity works against social trust within a community—not only against trusting people of the other ethnicity, but against trusting even neighbors of one’s own ethnic group. In addition, Putnam’s research found that in areas of greater ethnic diversity, there was lower confidence in local government, a lower sense of political efficacy, less likelihood of working on a community project, less likelihood of giving to charity, fewer close friends, and lower perceived quality of life.

The erosion of these institutions diminishes happiness. And there is a common notion of what happiness means, says Murray.

... the core nature of human happiness is widely agreed upon in the West. It goes all the way back to Aristotle’s views about happiness in the Nicomachean Ethics. Distilling his discussion of happiness into a short definition leaves out a lot, but this captures the sense of Aristotle’s argument well enough for our purposes: Happiness consists of lasting and justified satisfaction with life as a whole. The definition in effect says that when you decide how happy you are, you are thinking of aspects of your life that tend to define your life (not just bits and pieces of it); that you base your assessment of your happiness on deep satisfactions with the way things have gone, not passing pleasures; and that you believe in your heart of hearts that those satisfactions have been worth achieving. It is not really a controversial definition—try to imagine a definition of happiness you could apply to your own life that is much different.

There seems to be a strong connection in survey evidence between the strength of Murray's four core institutions and happiness.

At baseline—unmarried, dissatisfied with one’s work, professing no religion, and with very low social trust—the probability that a white person aged 30–49 responded “very happy” to the question about his life in general was only 10 percent. Having either a very satisfying job or a very happy marriage raised that percentage by almost equal amounts, to about 19 percent, with the effect of a very satisfying job being fractionally greater. Then came the big interaction effect: having a very satisfying job and a very happy marriage jumped the probability to 55 percent. Having high social trust pushed the percentage to 69 percent, and adding strong religious involvement raised the probability to 76 percent.

I'll conclude looking at the book tomorrow.