Tag: Microeconomics and policy analysis

Dr. Manhattan links to a post by Tim Blair linking to an essay by Michael Crighton.

Crighton’s lecture is interesting, complex, and cranky (his romanticized view of the scientific process is in flat contradiction to scientific studies of the actual scientific process). Dr. Manhattan, Tim Blair, and especially Tim Blair’s commenters all boil it down to the thought (which I have found attributed to Yogi Berra, Sam Goldwyn, and Niels Bohr (!) — does any reader have an actual source document?) that prediction is dangerous, especially about the future.

Of course that’s true, for at least five reasons:

1. Models are necessarily under-specified.

2. The correspondence of the causal relationships they embody to actual phenomena is never known to be perfect.

3. The observable initial conditions are never perfectly observed.

4. There are always unobservable initial conditions. (What if a big asteroid hits? That might be predictable in the sense that the asteroid is already on its collision course with the Earth, but from a practical viewpoint it may be unobservable.)

5. Some processes are chaotic, such that arbitrarily small errors will cumulate to arbitrarily large deviations from prediction.

In addition, in long-term social modelling, there’s a sixth source of irreducible uncertainty: technological change. As Popper points out, the rate of techological change is never perfectly predictable; if we knew now what we are going to know later, we’d know it now. And while rules of thumb such as Moore’s Law can usefully predict the rate of change in established fields, the larger the innovation, the less predictable it is. Fusion power, which has been just around the corner since I was a child, might arrive some day.

Right, then. We can’t know what the world will look like in 2100. But unless we also don’t care what the world looks like in 2100, or unless we think our current actions have zero predictable impact on what he world will look like in 2100, we need to make decisions now — we are, in fact, making decisions now — in which results a century hence are part of the objective function.

Uncertainty about the results of our actions will indeed suggest that we should discount predicted far-future effects vis-a-vis more predictable near-future effects (this in addition to the normal discounting for the time-value of resources). But not to zero, surely?

Moreover, it’s reasonable to be risk-averse over very large changes; that gives rise to, if not the vaunted “precautionary principle” itself, at least a principle that paying relatively small costs to somewhat reduce the probability of huge disasters may be worthwhile even if the cost is greater than the expected present value of the reduction in damage. That’s not some fancy philosophical principle; that’s just the same thinking that leads to buying insurance even though the premium is in general larger than the expected present value of the claims.

The example of weather forecasting is repeatedly offered as an illustration of the uselessness of modeling the future as a guide to action. But that must surely be wrong. Due to better data-gathering and better modeling, short-term forecasting is in fact much better than it used to be, and no one seriously argues that the famous uncertainties surrounding hurricane predictions means that we shouldn’t issue warnings, and even evacuation orders, based on those forecasts.

Moreover, even when the details are completely unpredictable, the gross trends may not be: ever since the Neolithic Revolution, farmers have been planting in the spring on the expectation that the average daily temperature would tend to rise between February and August. The weather is unpredictable, but it’s not perfectly unpredictable, and it would be absurd to discard the predictive value of whatever models we have at hand, whether it’s a global warming model or the weather heuristics in Hesiod’s Works and Days.

Like the affected contempt for “planning,” which it closely resembles, the denunciation of “modeling” is largely, though of course not entirely, insincere and ideological. The corporations that make the contributions to the foundations that support the denunciations of “planning” and “modeling” wouldn’t for a minute consider not having plans and using predictive models in the conduct of their own affairs. The smart ones make flexible plans and treat the predictions of models with caution, that’s all.

Of course, none of this is purely an abstract debate. It’s all part of the argument is about global climate change. That global temperatures are secularly rising is no longer subject to doubt. That some current human activities tend to raise global temperature, and that those activities have been and are now growing rapidly in volume, is also a matter of fact, not of debate.

How much of the temperature/time gradient we currently observe relates to human activity is an open question, but the answer “An amount too small to care about” seems implausible.

(Note that if we are in the middle of a secular warming trend with geophysical roots, that is likely to increase, rather than decreasing, the practical importance of the human contribution in the future. If the damage associated with a given temperature change rises more-than-linearly with the size of the change, then a two-degree temperature increase due to human activity will have a greater cost if it comes on top of a two-degree increase with geophysical causes than if it comes alone.)

There remain two open questions:

1. How much damage (and how much offsetting gain) will be associated with different levels of warming?

2. What policies could reduce the degree of human contribution to warming, at what cost?

So without presuming to judge the debate between global warming believers and skeptics, a cautious policymaker would, I submit, be looking right now for relatively low-cost ways of reducing the human contribution to global warming, such as a shift from coal-fired to nuclear electricity generation. Whether higher-cost measures are also warranted is a much harder question, but it is still a question, one that no amount of obscurantist raving about the mystical unknowability of the future can answer.

[By the way, am I the only one to have noticed that, insofar as the “Nuclear Winter” folks were right, we have the solution to global warming right at hand? The only technical question is how many cities we’d have to nuke to generate the degree of cooling necessary to offset any given degree of warming. Which cities to nuke is, of course, a political, rather than a technical, question.]

A reader writes in to ask whether I can say in detail what’s wrong with the Medicare bill.

The truthful answer is that, mostly, I can’t. That’s what Bush & Co. are counting on: that most people won’t study the issue closely enough to figure out what’s going on. (As Machiavelli advises his Prince, “Many see, but only a few touch.”)

Here’s the laundry list of what I think is wrong with the bill, speaking under correction from those who know more than I do about the topic:

1. The bill forbids the Medicare program, which will instantly become the largest single buyer of pharmaceuticals in the U.S., from using its market power to negotiate lower prices from pharmaceutical companies, as every private insurere does.

2. The structure of the coveage — 75% up to $2200/yr., then nothing up to $5,000, then 95% of the rest — makes no sense whatever, except politically.

3. By working in higher premiums for higher-income seniors, the bill begins the process of picking apart the political coalition that holds Medicare in place, and does so for trivial fiscal benefit.

4. The bill actually reduces benefits for the poorest seniors, those eligible for both Medicare and Medicaid.

5. The bill allows private insurers (albeit on a limited basis) to compete with Medicare. Competition is good, right? But the privates would not be required to cover all comers. As a result, healthy seniors would be peeled away by the privates, who would coin money as a result. (Insuring a pool you get to select and being paid on the basis of a less selective pool is an underwriter’s vision of Paradise. Moreover, the privates won’t be barred from negotiating prescription drug rates.) That will leave a sicker and sicker, and thus more and more expensive, pool for the Medicare program itself. And if you’re wondering whether the right wing will really have the chutzpah to claim that the resulting gap between Medicare costs and the costs for the private insurers shows the superior efficiency of the private sector, stop wondering.

6. To prevent the private sector from dropping drug coverage from its retiree health plans and dumping all those expenses back on Medicare, the bill provides for an enormous bribe to companies for continuing to do what they are already doing.

Anyway, that’s what I think is going on. All I’m sure of is that the more you know about health care finance, the less you like the bill. I’m not aware of anyone who studies the topic for a living who thinks the bill (now — shudder — the law) is anything but a monstrosity. My conservative friend David Boyum, who has worked on this topic with the liberal Ted Marmor of Yale, writes:

I was talking to Ted Marmor today and we agreed that the Democratic leadership deserves a lot of blame for the Medicare fiasco. But not because Daschle, Pelosi, et al. were unable to enforce party discipline. Rather, the problem is that Democrats mindlessly took on their customary role of advocating greater benefits than the Republicans were offering when they should have been pushing in the other direction. This is case where less would have been more. The Democrats should have promoted a simple catastrophic plan—something like 100% coverage above a deductible of, say, 5% of AGI. Such a plan would be relatively cheap (especially when you consider that corporations wouldn’t need to be bribed to keep their existing drug coverage) and administratively simple (the whole thing could be handled on tax returns, as Martin Feldstein suggested long ago in his proposal for national catastrophic health coverage).

Politically, it’s hard to believe that such a minimalist plan wouldn’t have attracted enough conservative Republican support (only 3 votes in the House were required) to at least torpedo the plan we now have. At worst, it would have put the Democrats in a much stronger position to argue that the Republicans are fiscally irresponsible.

Ted, who knows as much about this problem as anyone, has two good articles covering both the substance and the politics: this one at Tom Paine.com and this one looking at Medicare reform more broadly.

Now that the bill is law, it’s essential to make it a political disaster both for Bush and for the AARP. Apparently the calculation Novelli and his advisers made was that the bill would appeal to the people old enough to join AARP but too young to be eligible for Medicare: the 50-65 age bracket. If you happen to be in that bracket, do, please, give them a phone call and explain that in your particular case they were wrong. That number, once again, is 1-800-424-3410.

(The voice referral system is either deliberately fouled up or overwhelmed by the call volume, but if you push zero you’ll eventually get the voice of a human being. Yes, you’re entitled to a rebate on your membership dues.)

The State of California owns and operates three of the twenty most important research universities in the United States (UC Berkeley, UC San Diego, and UCLA), one of the great biomedical research centers (UCSF), and two more campuses (Santa Barbara and Irvine) each of which is substantially better in academic terms than the flagship campus of the average state university system.

Even during the boom, however, the state had implicitly made the decision to let those assets run down over time. In 1970, UC spent 70% of what Stanford spent to educate an undergraduate for one year; now it spends about 30% as much ($14,000 v. $50,000. The enrollment growth necessary to serve the echo baby boom generate is being paid for at $8000 per student per year.

In addition, the quality of undergraduate education has been severely eroded by the policy of accepting almost exclusively California residents as freshman admits, depriving UC students of exposure to people from the rest of the country (let alone the rest of the world).

There are two alternatives to a policy of letting UC sink slowly (fortunately, this sort of thing does happen slowly, over a period of years) into mediocrity: more money from the state budget, or higher tuition. (Pardon me: that’s “fees;” the California constitution requires that the university charge no tuition, so our students have the privilege of paying “fees” instead.)

In Maryland, where the previous two administrations managed to bring the flagship campus to the very brink of excellence, the new governor seems to be committed to pulling it back from that brink.

No doubt the same pattern is being played out elsewhere.

As a faculty member of the University of California, my own view about the right course of action is hardly an impartial one. But I’d like to pose a question to our new governor, elected on a platform of improving California’s business climate, and to Maryland’s new governor, who also likes to describe himself as “pro-business”: What is the impact on the business climate of a state of having, or not having, a world-class state university system?

Crowded roads are one of the classic examples of “commons problems.” If a good is rival in consumption but its use is unlimited, then it tends to get overused to the point where its value to everyone who uses it is diminished, if not extinguished. The solution is as well known as the problem: charge for use of the scarce resource. London has already instituted a charge for bringing a car into the built-up area, and even that quite crude measure seems to have been a success.

In addition to fixing a major headache for travelers and massively reducing air pollution, congestion charges could make a very substantial contribution to fixing the state’s budget problems.($10 per commute times 5 million crowded commutes per day commutes times 250 workdays per year is $12.5 billion, which is roughly the shortfall in the state budget.)

Here’s the puzzle: with the rush-hour commute from the High Desert to Los Angeles now clocking in at two hours each way, and the state of California tottering toward bankrupcy, why hasn’t the idea of congestion prices on the freeways at least risen to the status of a political loser? Of course there would be complexity and hasn’t even made it into the the radar screen.

Part of the answer seems to be that the government-haters have convinced the voters that money available for public expenditure is actually perceived as a disadvantage.

As Poor Richard could have told William Safire, it’s better to remain silent and be thought a fool than to open one’s mouth and remove all doubt.

Safire’s column today on prescription drug pricing and the issue of re-imports from Canada betrays a pluperfect ignorance of microeconomics. He seems to think that (1) American pharamaceutical manufacturers could collude to raise prices in Canada without violation about seventy-‘leven anti-trust laws and (2) if they did manage to raises prices in Candada, that would magically cause price reductions for American consumers.

His column would be as laughable as he himself is contemptible — he is, after all, a man who, at the very start of his journalistic career, let himself be used to convey a threat from the Nixon gang that if John Dean didn’t shut up he’d be put in a prison where he was likely to be raped — if I didn’t suspect that he has some residual influence in the darker reaches of the Republican power structure.

The question of how to pay for innovation in the pharmaceutical market is a very tough one: it resembles the question of how to pay for music, but with the differences that there’s much more money at stake and that no one ever died for lack of an Eminem CD.

The logic of the problem is well known to everyone who kept awake in his freshman micro or policy-analysis class: unlike the consumption of chairs or cars or houses, where if I have the item you can’t have it, consumption of products that are made up, in economic terms, entirely or almost entirely of information is “nonrival.” Physically producing another copy of a CD or another bottle of pills costs effectively nothing, but someone has to pay to write, perform, and record the music or to invent and test the drug.

If copyright or patent protection is used to allow the makers of the CD or the drug to charge more than the marginal cost of production and distribution, an inefficiency results: some people who are willing to pay more for the CD or the pills than it costs to make another album or bottle, but less than the artificial price created by the laws of intellectual property, will go without. But if those means are not used, then there must be some other system of incentives (not necessarily monetary ones) to keep the process of innovation working.

It’s easy to show that, in principle, direct subsidies to innovators (grants or prizes) can maintain innovation while avoiding the inefficiency created by monopoly pricing. However, that leaves the question of how to evaluate each new product if we don’t have the evidence of its value provided by consumers’ willingness to pay for it.

No solution will be perfect, and a solution needn’t be perfect to be better than the current system. There’s no reason to expect that the right system will be the same for inventions as for artistic works, or that all categories of invention or artistic creativity ought to be treated alike. The triumph of Big Pharma, as of the software industry and the recorded-music industry, is keeping the whole topic of alternatives to state-enforced monopoly pricing off the agenda.

Every year, the proportion of developed-country GDP that is non-rival-consumption information rather than rival-consumption matter, energy, and personal service rises, so getting workable answers to the varied problems of “public goods” production (the rather misleading label econonmists apply to this class of problems) grows increasingly pressing. Neither collectivist nor libertarian slogans are likely to provide useful guides to action.

Update Michael O’Hare has a specific idea about how to pay for recorded music.

Disagreeing with your guru always creates an interesting situation, especially when you back into it unawares.

Blogging has been light of late partly because I’ve been teaching a big undergraduate lecture class: the introductory course in policy analysis. Having 120 students means I can’t even pretend to run a discussion, and therefore I’ve been doing elaborate lecture notes and a powerpoint slide show for each class, all of which — along with a presentation to a National Research Council panel on immunotherapies for substance abuse (of which more later) — has cut into blogging time.

One valuable side-effect of teaching an intro course is the need to get clear with yourself exactly what it is you believe to be basic, and what you believe to be true, about your field. How much of the pure benefit-cost analysis that seemed such an eye-opener when I was a graduate student do I still think is valid? Insofar as it is valid, how can I say it in a relatively jargon-free way to a group of people whom I can’t assume to know either microeconomics or calculus? (I had the thrill today of a student’s coming to me and saying, as a side-note to another discussion, that my explanation of marginal benefit had finally convinced her that there might be some valuable substance hidden under the mathematical formalism of the first derivative.)

My current topic is the ethics of benefit-cost analysis in a world of inequality. If rich people are willing, as they on average are, to spend more of their own money to reduce small risks to their own lives than poor people are willing to spend of their money to reduce small risks to theirs, how should we think about those differences when it comes time to spend public money, or regulating private action? Should our safety regulations applying to inter-city buses take into account that the people travelling — and who will have to pay more if the safety regs get tighter — are on average much poorer than, for example, airline travellers? I’m pushing the “yes” answer, I’m not sure how successfully.

The central example I used was the Titanic, and I offered the following thoughts, in what I called “a meditation in the spirit of Thomas Schelling.” (The reading for the day was Schelling’s “Economic Reasoning and the Ethics of Policy,” which uses the example of safety equipment at airports with different clienteles, but I thought the Titanic would be a more dramatic case.)

The Titanic had enough lifeboats for first and second class passengers, but not for steerage. So the poor passengers almost all drowned, while the rich passengers mostly survived. Pretty disgusting, right? The company ought to be ashamed of itself, even after eighty years. There ought to be (ought to have been) a law!

Well, maybe not. It turns out that about half the passengers on the Titanic were travelling steerage (what United Airlines calls “coach”). But their total fares amounted to only 8% of the revenues for the voyage. A requirement of one lifeboat space per passenger might have made carrying steerage passengers unattractive to the lines — they could have carried cargo instead, as the Lusitania famously did. At least, it would have made the cost of carrying steerage passengers greater, since even a big liner has only so much space and weight-bearing capacity. If the steerage passengers were only paying 8% of the total fares, a small increase in the total costs of running the ship would have translated into a big increase in their fares.

So the well-intentioned regulation “one lifeboat space per passenger” might have had the consequence of making it much harder for poor people to emigrate from Europe. (Since all of my great-grandparents came over in steerage, and since there was no alternative way to get from Europe to America, I take this point rather personally.)

Now it’s possible to construct combination policies to take care of this problem: combining the regulation about lifeboats with a further regulation requiring the lines to take some proportion of steerage passengers at some legislated price. That would in effect be a tax on first- and second-class steamship passage to subsidize immigration, plus a regulation requiring the subsidized emigrants to spend their subsidy on lifeboat tickets rather than something else they might have needed or wanted much more urgently. Phrased that way, neither the tax nor the regulation is obviously justified.

If you want to help emigrants, I said in Schelling’s name, you ought to help them with what they want, not with what it would make you feel good for them to have. If you hate the fact that they have to travel in danger as well as discomfort because they’re so poor and life in Europe is so miserable, it’s the poverty and the misery you should be worrying about, not just the particular consequences of that poverty and misery that interfere with your enjoyment of your breakfast newspaper.

I can’t tell how well my argument went over; all I can say is that no one actually screamed at me or walked out, and the questions were calm and analytical.

Today’s lecture was even tougher morally: I talked about computing the value of preventing statistical deaths. [I asked one of my TAs afterward how she thought the lecture had gone, and she said she’d found it “morbid,” partly, I suppose, because I kept using my own life as the example.]

The text for today was another Schelling essay, “The Life You Save May Be Your Own.” (Both essays are in his collection Choice and Consequence; if you haven’t read it, you have fifteen treats in store for you.) But what did I find when I reread that essay last night but the following paragraph:

…the success of organized society depends on traditions, attitudes, beliefs, and rules that may appear sentimental or extravagant to a confirmed materialist (if there is one). The sinking of the Titanic illustrates the point. There were enough lifeboats for first class; steerage was expected to go down with the ship. We do not tolerate that any more. Those who want to risk their lives at sea and cannot afford a safe ship should perhaps not be denied the opportunity to entrust themselves to a cheaper ship without lifeboats; but if some people cannot afford the price of passage with lifeboats, and some people can, they should not travel on the same ship.

Well, I take his point. I would have hated to be the crew member in charge of keeping the steerage passengers away from the lifeboats. But, if I understand the joint-production economics of liner traffic correctly, there could never have been steerage passage without first- and second-class passengers to provide most of the revenue. If that’s right, Schelling’s proposed rule against mixing passengers with and without lifeboat access would have kept my ancestors in Latvia and Galicia and Russia, which were lousy places for poor Jews when they left and got substantially worse later.

So I think I prefer my view — the one I confidently offered as Schelling’s — to Schelling’s own.

However, if that’s right, that would make twice in thirty years that I’ve been right and Schelling wrong when we disagreed. A careful Bayesian would at best keep an open mind on the question pending further discussion. Consider this an invitation to that discussion.

[Edited to remove what turned out to be an incorrect guess about the plot of the movie. Thanks to a reader for the correction.]

Update Ampersand challenges the factual basis of the above; how deeply, he asks, would a lifeboat requirement have actually cut in to the availablity of steerage passage? He points out that the lifeboat-space deficiency on the Titanic was the product of regulatory lag. Glen Whitman asks a different question, to which I don’t know the answer: Did the steerage passengers on the Titanic know they weren’t getting lifeboat space when they bought their tickets?

What is the relationship between material wealth and overall well-being? That question is, after more than half a century of being largely excluded from the discourse of academic economics, coming back into fashion. Tibor Scitovsky’s The Joyless Economy led the way, but it was so far in advance of its times as to be largely ignored despite the distinction of its author. The same could be said of Thomas C. Schelling’s essay “The Mind as a Consuming Organ.” Robert Frank’s Luxury Fever drew more attention, but it had flaws in exposition that allowed even someone as generally open-minded as Jack Hirshleifer to dismiss it as “a demonstration of what happens when a good economist gets mugged by Thorstein Veblen.”

Now comes Richard Layard, in this year’s Lionel Robbins lectures. [Thanks to Brad DeLong for the pointer.] There is irony here: It was Lionel Robbins, in The Nature and Significance of Economic Science, who persuaded the discipline seventy years ago to abandon the idea of “utility” as a measurable (at least notionally measurable) quantity, comparable across individuals, and to substitute preference satisfaction as its guiding principle.

The following propositions seem to be reasonably well established:

1. Survey questions about “happiness” or “life satisfaction” seem to elicit consistent and meaningful responses, which seem to have predictive power over various objectively measurable phenomena such as morbidity and mortality, holding constant the obvious potential confounders.

2. Transient self-report measures of “happiness” and “unhappiness” seem to correlate closely with measures of localized brain activity in two areas in the prefrontal cortex, with (in normally-wired right-handed people) happiness marked by activity on the left side of the brain and unhappiness by activity on the right side.

3. Most of the variation in overall happiness appears to stem from individual-level constitutional factors rather than anything observable in the environment. Twin studies show fairly high correlations among identical twins raised apart, vanishingly small correlations among fraternal twins raised apart.

4. Being healthy, married and living with one’s spouse, and securely employed all correlate strongly with self-reported happiness. The effects of employment and employment security remain even after controlling for income.

5. Whether you’re rich or poor, it’s nice to have money. In every society, those with higher incomes or greater wealth report greater average happiness.

6. The contribution of money is relatively modest compared to other situational factors: a divorce, for example, is two and a half times as bad as a drop in income equal to a third of the average income in the surrounding society.

7. Surprisingly, the correlation between wealth and well-being observable in any society at any time, with richer on average meaning happier, doesn’t carry over across societies or over time. Over the past half-century, GDP per capita has more than doubled in the US and sextupled in Japan, without moving the average happiness score in either country. People living in very poor countries tend to be less happy than people living in richer countries, but above about $16,000 per capita — roughly half the current US level, putting Ireland and New Zealand just above the cutoff and Spain and East Germany just below it — there seems to be no consistent trend. Both Ireland and New Zealand, for example, are slightly ahead of the US in average reported happiness.

8. The explanation seems to be threefold. First, people habituate to consumption patterns; as Scitovsky puts it, pleasures (which cause active happiness by their presence) degenerate into comforts (which aren’t noticed if present but cause discomfort if absent). Anyone who spends time thinking about drug abuse will recognized the pattern. Second, people evaluate their own consumption bundles relative to standards that are sensitive to average consumption patterns; when asked “How large an income would someone in this area need to live decently?” people give answers that, over time, track closely the actual average income. Third, having more than one’s neighbors confers status, while having less is a status insult, so some of the benefit of income at the individual level is winnings in a zero-sum game.

9. Not all forms of material comfort are equally subject to habituation, norm-referencing, or rivalry. Leisure, for example, seems to be absolutely, rather than relatively, valued, at least in paper-and-pencil exercises.

Layard and Frank draw similar sets of policy prescriptions from these observations: Tax private consumption to finance public services (on the theory that having a larger car is a zero-sum game, while breathing cleaner air isn’t). Try to revise the terms of the leisure/income tradeoff to encourage more leisure. Redistribute income. Target happiness directly rather than GDP growth in making economic policy choices. Change parenting and educational practices to (1) make people more conscious of what does and does not make them happy and (2) encourage values that produce less zero-sum consumption behavior.

All of these seem to make sense, though none is bullet-proof. In particular, the logic of redistribution is that more of the consumption of the poor is non-zero-sum than is the case for the rich, which may or may not be true. (That might be a question subject to empirical study.)

Layard’s lectures, more than Frank’s book, consider explicitly some of the philosophical questions raised by this, but I can’t report that Layard is especially successful in doing so. In particular, Layard elides the distinction between transient states of feeling well (what Bentham called “pleasure, and the absence of pain”) and overall happiness or satisfaction with one’s life.

But Kahnemann has shown that, in evaluating a pleasant or unpleasant experience, people’s overall assessments, when compared to their moment-by-moment assessments, don’t even obey the principle of dominance. That is, an experience can be evaluated as less unpleasant overall even though it was evaluated as more unpleasant at each moment. It isn’t immediately obvious which evaluation ought to control. The problems if one extends this to a lifetime rather than a colonoscopy are presumably even greater.

Moreover, even life-satisfaction isn’t obviously the same thing as overall well-being or well-faring, unless, as J.S. Mill said, you’re really prepared to say that a satisfied pig is happier than a dissatisfied Socrates. Imagine that it turned out that the brain activity that correlates with moment-to-moment happiness were actually causally related to it, and that we learned how to stimulated brain activity in the key left-brain locations and suppress it in the key right-brain locations. (This is an old science-fiction speculation.) Would a life lived passively lying back and having one’s pleasure center stimulated electrically truly be a choice-worthy human life?

Layard dances past this question in his discussion of religion. It turns out that people who report belief in God report themselves as happier, even controlling for frequency of attendance at religious services. Layard, who judging from these lectures is some sort of agnostic humanist, would like to have it that “God” merely means being in touch with some principle of right action, and says that it would be useful to encourage people to establish that contact, quickly adding that no one should believe anything contrary to “his reason.” But that avoids the hard question. What if there were no God, but believing in God made people happier? Or, to get out of the metaphysical realm, what if the theory of evolution were substantially correct, but believing in a divine origin for human beings made people happier? Or if people who thought that the Earth was the center of the Universe were happier than those who had heard of Copernicus and Einstein? Or simply that (as seems to be the case) people who optimistically misjudge their own actual capacities and the opinions of other people about them are happier than those with more accurate self-knowledge? On what grounds would Layard say that such beliefs were a bad thing?

There’s a simple answer to that question, I think. Pleasure is not the sole good. Dignity, for example, is also a good, and it’s undignified to believe things that are palpably false just because it makes you feel good. (*) [See “clarification” below.]

What’s missing from Layard’s analysis is any sense of the possible distinction between “hedonics” and “eudaimonics.” Merely going back to Bentham cannot really be the way forward.

Still, from a larger perspective, all this is quibbling. To shake economics loose from its fixation on the satisfaction of subjective preferences, and refocus its attention on the question on the material causes of human well-being, is a great service, and Layard and Frank have begun to lay the foundation of a more useful economic science.

Clarification I didn’t mean to imply that belief in God was false; that question would get me in to metaphysical waters over my head. I certainly didn’t mean to say that individual believers were lacking in dignity. I did mean to say that, IF a given religious (or other) belief were false, it would be undignified to hold it, just as it is undignified to believe that the Earth is flat. Someone could have considerable personal dignity and still hold such beliefs, of course, but I claim that the thing itself — believing what is not the case, and in particular embracing beliefs that make one comfortable rather than those supported by reason and evidence — is undignified, like speaking one’s native language poorly, walking around in pubilc with one’s fly open, or farting in church.