Monthly Archives: January 2014

Life satisfaction, GDP and sense

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Normally, I’m a sunny-natured optimist but every so often I get grumpy. A recent post on Vox made me grumpy – it’s about life satisfaction and GDP. At first I thought I’d ignore it. But this morning I was dipping into A Century in Books, the little volume from 2005 celebrating the centenary of Princeton University Press, and it fell open at the page on Clive Granger’s 1964 book, Spectral Analysis of Economic Time Series. My PhD used a lot of time series econometrics – Mark Watson, now at Princeton, was one of my supervisors. I did my PhD so long ago that it’s now Once Upon A Time, and it is simply depressing that a generation after time series econometrics matured so many economists fail to think about the statistical properties of different kinds of time series data –  like GDP and reported life satisfaction.

(Actually – this is a rant for another time – it’s depressing that so many economists aren’t interested in data and statistics at all, but just expect to be able to download data files and run them through packages that churn out impressive-looking test statistics, without ever pausing to think about how the statistics are constructed or what the regressions might really mean. See Deirdre McCloskey eg [amazon_link id=”1843761742″ target=”_blank” ]Measurement and Meaning in Economics[/amazon_link].)

One of the first things you learn about in time series econometrics is the importance of understanding whether your data have the property of stationarity or not. (It’s on page 3 of my antique textbook, Granger and Newbold’s [amazon_link id=”0199587159″ target=”_blank” ]Forecasting Economic Time Series [/amazon_link] and no doubt equally early in [amazon_link id=”0521634806″ target=”_blank” ]Hendry and Clements[/amazon_link].) In other words, does the series drift over time far away from where it started? If so, it is non-stationary. GDP is like this; it is an analytic construct with no theoretical upper limit. Life satisfaction, however, is a stationary time series – in the World Values Survey it is measured on a scale of 1 to 10 – so it can never go above 10 over time.

So you don’t need to do any fancy econometrics at all to know that the correlation between GDP and life satisfaction over time is zero. You just need to plot the two separately on a chart over time. One is an almost flat line, one goes up a lot.

Or just engage the brain a bit. Over the course of many decades, average height in most developed countries has increased, thanks to better nutrition, healthier mothers, public health measures etc, all the fruit of economic prosperity. There is certainly a link between GDP and height – but you would not expect average height to have increased in proportion with GDP or we’d all be many metres tall; our average height in the UK would have roughly trebled since 1955. Life satisfaction is similarly an organic kind of characteristic and there is no reason at all to expect it to increase proportionately with GDP. That does no mean economic prosperity has no bearing on happiness.

Think of it another way. There has been next to no growth – indeed, falling GDP in some cases – since 2008. Has this really not diminished life satisfaction?

The Vox column gives the appearance of addressing some recent work challenging the idea of no links between GDP and life satisfaction – this by Stevenson and Wolfers is the best known but there are several papers – but it misrepresents them. The Vox authors write: “This last interpretation [ie the no-link interpretation] has been questioned by Deaton (2008) and Stevenson and Wolfers (2008), who claim that there is a positive relation between GDP and life satisfaction in developed countries.” In fact, this is exactly what they do not claim; they agree there is none. However, they find strong evidence for a positive relation between life satisfaction and GDP growth. GDP growth is a stationary time series (ranging between say -10 and +10 percentage points), so this positive correlation can be meaningful.

The psychology of adaptation might well help explain why the level of GDP has no relation to life satisfaction, which could be reflected in the statistical properties. There are equally strong psychological reasons for expecting the change in GDP to be positively associated with life satisfaction.

As Hobbes put it in [amazon_link id=”0199537283″ target=”_blank” ]Leviathan[/amazon_link]: “There is no such Finis Ultimus, no summum bonum as is spoken of in the books of the old Moral Philosophers. Nor can a Man any more live, whose desires are at an end, than he whose senses and Imaginations are at a stand. Felicity is a continual progress of the desire from one object to another.”

GDP is often thought of as just more of the same stuff, and of course how could having one more car or handbag or house make you happier once you already have a certain number? But this is to misunderstand fundamentally what GDP growth indicates (see my forthcoming [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief but Affectionate History[/amazon_link]) – which is in fact variety and innovation, new services and goods, from new medicines to graphene, or the internet, that speak to the fundamental human curiosity identified by the Enlightenment philosophers.

Shipping and statistics

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A link from Twitter this morning to these photos of the now-demolished Taoho Design Office and Studio appealed to my interest in shipping containers, which will be well-known to readers of this blog. The ur-text is of course Marc Levinson’s [amazon_link id=”0691136408″ target=”_blank” ]The Box[/amazon_link], published in 2007, but selected by Bill Gates as one of the best books he read in 2013.

[amazon_image id=”0691136408″ link=”true” target=”_blank” size=”medium” ]The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger[/amazon_image]

Parenthetically, I thought the whole list was terrific  – I quite enjoyed William Rosen’s [amazon_link id=”1845951352″ target=”_blank” ]The Most Powerful Idea in the World[/amazon_link]. I’ve not read the others but they all sound interesting. I have read some papers preceding Morten Jerven’s [amazon_link id=”080147860X” target=”_blank” ]Poor Numbers[/amazon_link], although the book wasn’t out in time before I finished writing [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link]. It’s interesting – and encouraging – to see new interest in what the aim is in measuring ‘the economy’. It must be a good thing if the wider world is getting interested in shipping containers and statistics.

[amazon_image id=”1845951352″ link=”true” target=”_blank” size=”medium” ]The Most Powerful Idea in the World: A Story of Steam, Industry and Invention[/amazon_image]

urbanphoto_blog
Ahead of its time: HK architect Tao Ho built eco-friendly office from shipping containers… in 1989 http://t.co/pFufIZWwdy
10/01/2014 02:56

Charles Dickens on economics

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In Household Weekly, 1850:

“Political economy is a mere skeleton unless it has a little human covering, and filling out, a little human bloom upon it and a little human warmth in it.”

Courtesy of Sylvia Nasar’s [amazon_link id=”1841154563″ target=”_blank” ]Grand Pursuit: The story of the people who made modern economics[/amazon_link], which I’m finally reading now it’s out in paperback.

[amazon_image id=”1841154563″ link=”true” target=”_blank” size=”medium” ]Grand Pursuit: The Story of the People Who Made Modern Economics: A Story of Economic Genius[/amazon_image]

In last Saturday’s FT John Sutherland opted for [amazon_link id=”1853262374″ target=”_blank” ]George Eliot[/amazon_link], rather than [amazon_link id=”014143967X” target=”_blank” ]Dickens,[/amazon_link] as the Victorian author with the most to say about poverty and wealth. I’d go for [amazon_link id=”046087781X” target=”_blank” ]George Gissing[/amazon_link] or [amazon_link id=”014043464X” target=”_blank” ]Mrs Gaskell[/amazon_link] or [amazon_link id=”0199538697″ target=”_blank” ]Zola[/amazon_link] or [amazon_link id=”0140444300″ target=”_blank” ]Victor Hugo[/amazon_link] above either.

The uses of declinism

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The title of Josef Joffe’s new book tells you the argument: [amazon_link id=”0871404494″ target=”_blank” ]The Myth of America’s Decline: Politics, Economics and a Half Century of False Prophecies[/amazon_link].

[amazon_image id=”0871404494″ link=”true” target=”_blank” size=”medium” ]The Myth of America’s Decline: Politics, Economics, and a Half Century of False Prophecies[/amazon_image]

The first part of the book sets the scene with an entertaining history of American declinism through the decades, starting with the Sputnik shock and fear of the Communists in the 1950s, through the upheavals of the 60s, the impact of Vietnam and dire economic situation in the 70s, the Japan-bashing of the 1980s, a 1990s hiatus thanks to the end of the Cold War and the New Economy (as Joffe writes, “It doesn’t take much to vault from declinism to triumphalism when the geopolitics is right”), and the 2000s angst about the rise of China culminating in what the Chinese call the North Atlantic crisis of 2008.

The most interesting aspect of this first section is Joffe’s analysis of the political uses of declinism. For he convincingly shows it is used as a prelude to the promise of redemption. Ronald Reagan for one, John F Kennedy for another, used the claim of present decline very effectively in election campaigns to promise a brighter future. Joffe writes that declinist prophecies are intended to be self-averting: “Declinism is a political programme even though it comes in the guise of an empirical exercise such as counting guns or measuring growth.” He contrasts the 20th century declinist political philosophy with the Enlightenment tradition of optimism about the possibility progress, noting how feted pessimistic pundits are these days. (Though there are some optimistic ones – Matt Ridley’s [amazon_link id=”0007267126″ target=”_blank” ]The Rational Optimist[/amazon_link] is one, Mark Steven’s [amazon_link id=”1846683572″ target=”_blank” ]An Optimist’s Tour of the Future[/amazon_link], Charles Kenny’s [amazon_link id=”0465020151″ target=”_blank” ]Getting Better[/amazon_link] – and his new one, [amazon_link id=”0465064736″ target=”_blank” ]Upside of Down[/amazon_link]).

The next section of Joffe’s book turns to the empirical matters when it comes to comparing the US now with the challengers, especially China. He argues that direction of travel is irrelevant – the BRICs have grown rapidly but from such a low base that there is no challenger to the US: “It is size and weight that count.” A lengthy section runs through all the by now well-known arguments about China’s prospects. He is dismissive of the BRICs concept, arguing that the countries are too dissimilar to be relevant to each other, and a neat acronym has had too much purchase. It’s true they are not at all alike but I think this greatly underestimates the impact the concept has had in drawing attention to a genuine shift in the world economy – as I noted here recently writing about Jim O’Neill’s [amazon_link id=”1907994130″ target=”_blank” ]The BRIC Road to Growth[/amazon_link] and Danny Quah’s work.

The final section considers America’s prospects and status in the world, especially vis a vis China. Joffe concludes that if America’s relative decline continues, it will be self-inflicted. America’s demography is in its favour, he argues, its military might is vastly ahead of its rivals, it is still the most innovative country with free and flexible markets to bring innovations to fruition. He seems to think this will outweigh problems such as the disintegrating infrastructure, inequality and social problems and so on, but is it possible to predict how relative global growth rates will play out when there are such uncertainties on both sides of the Pacific? Writing in a country which did have the world’s leading empire and then did decline (the flavour so well captured in Corelli Barnett’s books such as [amazon_link id=”033034790X” target=”_blank” ]The Audit of War[/amazon_link] and [amazon_link id=”0330346393″ target=”_blank” ]The Lost Victory[/amazon_link]), but I’m not sure.

Inevitably, Joffe is selective in his evidence and fails to address the kind of questions many people have now about the American model. The gross inequality of income and wealth, and consequent accumulation and abuse of power, is just one aspect of it. There are questions about the US tradition of freedom, post-NSA revelations. In a time of generally polarised party politics, American politics stands out as particularly grotesque. Many people would also challenge’s Joffe’s rather positive view of how America is currently exerting its military power overseas.

It is interesting to hear his rather contrarian view. I would have preferred, though, more on the politics and philosophy of declinism, and the use to which it is being put, which is the best part of this book.

Enlightenment values

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I’ve thoroughly enjoyed reading Anthony Pagden’s [amazon_link id=”019966093X” target=”_blank” ]The Enlightenment and why it still matters[/amazon_link] (a present from Son 1 for Christmas along with home-made biscuits and sweets – how well I brought him up). The ‘why it still matters’ argument is that we’ve inherited from the Enlightenment’s ‘science of man’ the values of common humanity, universality, a ‘global civic ethic’; and that these are values well worth defending against narrow nationalism and exclusive communities.

[amazon_image id=”019966093X” link=”true” target=”_blank” size=”medium” ]The Enlightenment: And Why it Still Matters[/amazon_image]

The book concludes:

“Nothing in the future will ever be achieved by shutting ourselves up in communities, by measuring out our lives by the horizons of what our fathers and forefathers have set down for us …. Much of what modern civilization has achieved we obviously owe to many factors, from increased medical knowledge to vastly improved methods of transport, which although they are an indirect legacy of the Enlightenment, and the revolutions in science and technology which both preceded and followed it, have no immediate of direct connection to its ideals. But our ability to even frame our understanding of the world in terms of something larger than our own small patch of ground, our own culture, family or religion, clearly does.”

The book is excellent on the intellectual restlessness that drove Enlightenment thinkers – something that Hobbes attributed to all of us, “the general inclination of mankind.” He argued against the Aristotelian idea of the ultimate good or greatest good: “There is no such Finis Ultimus, no summum bonum as is spoken of in the books of the old Moral Philosophers. Nor can a Man any more live, whose desires are at an end, than he whose senses and Imaginations are at a stand. Felicity is a continual progress of the desire from one object to another.” ([amazon_link id=”0199537283″ target=”_blank” ]Leviathan[/amazon_link] 70 I xi)

Hobbes was at the most radical end of the spectrum, but Kant agreed – sadly, finding a pithy quote from Kant is difficult, but he emphasised the ‘proceeding and growing activity’ rather than the end-state of happiness, which seems to me similar to Czistalmilhalyi’s ‘[amazon_link id=”0712657592″ target=”_blank” ]flow[/amazon_link]’. Kant was also firmly against state paternalism: “A government established on the principle of benevolence towards the people, like that of a father towards his children – that is, a paternalistic government – … is the greatest despotism thinkable.” So it’s clear what he would have made of the current vogue for governments ‘nudging’ us all to be ‘happy’!

Pagden is – like me – a big fan of [amazon_link id=”0140432442″ target=”_blank” ]David Hume[/amazon_link]. (Incidentally, I learned that Hume might have been the first philosopher in Britain to earn a living from writing – not that it can be a crowded field.) He writes that part of Hume’s importance stems from his appreciation that in the study of humankind, the object and the subject doing the observing are the same – and putting that into practice in his own writings. As Diderot phrased it: “It seems to me that one must be at once inside and outside oneself. One must perform the roles simultaneously of the observer and the machine that is being observed.” (I wish I’d read this before giving a lecture last summer!)

Pagden is of course alert to the negative aspects of the Enlightenment and its consequences, perhaps best encapsulated in Edmund Burke’s opinion that it combined: “Benevolence to the whole species, and want of feeling for every individual with whom the professors come into contact.” Isn’t that combination still found on the trendy, universalist left, those who eat organic quinoa but won’t send their children to the local state school because it’s full of poor people? More seriously, communitarian thinkers of course reject the individualism they trace to the Enlightenment, and the pace of change and loss of traditional identity. This is not a set of concerns to be dismissed lightly. Similarly, the Aristotelian theme of virtue has – quite rightly – enjoyed a revival post-crisis, when the loss of moral compass in the modern global economy became so apparent. (This review of David Caute’s new book on Isaiah Berlin, [amazon_link id=”0300192096″ target=”_blank” ]Isaac and Isaiah: The Covert Punishment of a Cold War Heretic[/amazon_link], indicates that Berlin – an evangelist for Enlightenment values – was also well aware of their negative aspects too.)

Yet progress is a bit out of fashion – we fear the robots rather than embracing them. So a reminder of the achievement of the Enlightenment at a time when there seems to be an inclination to pull up the drawbridge and turn away from the world is timely. As Mary Wollstonecraft put it: “The more I see of the world, the more I am convinced that civilization is a blessing not sufficiently estimated by those who have not traced its progress.”

The book is not chronological; rather, each chapter covers a theme, with as a thread running through it the debate about the role of government – in the historical context bookended by the English Civil Wars and Treaty of Westphalia in the mid-17th century and the French and American Revolutions in the late 18th century. Over the years I’ve read many books about the subject – Roy Porter’s [amazon_link id=”014025028X” target=”_blank” ]Enlightenment: Britain and the Creation of the Modern World[/amazon_link] is still a favourite. This is a worthy addition to the shelf.

[amazon_image id=”014025028X” link=”true” target=”_blank” size=”medium” ]Enlightenment: Britain and the Creation of the Modern World (Allen Lane History)[/amazon_image]

My one quibble is the number of typos in this book – from the minor like missing commas to frequent substitutions like ‘palette’ for ‘palate’ and ‘Chaplin’ (as in Charles) for ‘chaplain’, as if dictated to word-recognition software. There are one or two per page. Surely OUP could have run to a copy-editor?