Thursday, November 02, 2006

Richard's Economic Beliefs Questionnaire

I've long wondered why it is possible for people to hold utterly opposite views on matters that are resolvable by examination of evidence.

A classic example is whether top-down, centralised, redistributive economies are better than decentralised, competitive free-market economies.

Without having to provide examples of "pure" examples of either, there are enough examples along the continuum to tell us which works best.

And then it dawned on me... perhaps the anti-free-marketeers are actually arguing about another point.

So here's my thought experiment.

Imagine two possible countries (not based on real ones; please don't debate whether such places exist!):

  • Country one: everybody earns £2,000 per year - total equality
  • Country two: the poorest earn £10,000 per year and there is a range of incomes up to mind-bogglingly large salaries - great inequality but even the poorest are better off than those in country one.

Which would you rather live in?

My suspicion is that free-marketeers would vote for country two because everybody is richer than in country one and that those opposed to economic liberalism would vote for country one because of the gross inequality in country two.

Have I characterised this correctly?

12 comments:

Jon Deane said...

I still hold issue with the idea that you have to choose either.

Richard Brown said...

I still hold issue with the idea that you have to choose either.

Put another way, my claim is that there are two possibilities:

1) economic liberalism results in greater wealth and greater inequality

OR

2) economic liberalism results in no real increase in overall wealth but causes greater inequality.

The latter would clearly be a system with which many people would quite rightly have issues. But the former is a system one could really argue about: which is better - generally wealthier people but great inequality or relatively poorer people with lower inequality?

And it's not a no-brainer.... there are plenty of studies that show that it is people's relative status that predicts happiness (rather than absolute)....

As an example, there was an experiment where people were given two choices: you can have $50,000 or you can have $100,000 but your neighbour/friend/brother/whatever will be given $200,000.

Most people chose the 50k.

So there are clearly good psychological reasons for preferring the "world one" approach even though, logically, it would appear insane.

Jon Deane said...

Actually, the "everyone equally poor" option is preferable to those, who are naturally competitive (being social animals) but consider that their ability to gain advantage over others is hampered either by malicious action or impossible circumstance (real or imagined) and is not actually insane at all -- it's straight forward self-interest. This is indeed why communism appealed to so many in the late 19th and early 20th centuries.
Experience has shown that this is just as unsustainable as ye olde Victorian laissez-faire. The trick is not only to provide equality of opportunity (which does not yet exist, but is better than it has been since... ever) but also to convince the "deprived" that the opportunity is there.

Andrew Ferrier said...

Jon, indeed. And I think that is precisely why most states in the world today are socialist (to varying degrees) - most people are acting in their own self-interest because they believe they aren't capable of being one of the rich elite (whether that's true is a different discussion). We've been told communism doesn't work, but that doesn't stop us trying a watered-down version.

However, that doesn't mean that this is a thought pattern that should be encouraged - it still doesn't address the immorality of a redistributive system or produce the wealth and standard of living we could otherwise attain.

I'm not sure about Victorian laissez-faire being unsustainable. It's certainly true that we don't have a legal system that would support it, but I'm not convinced the Victorians did either.

Michael said...

Well, there is an unspoken 'all other things being equal' in your thought experiment.

Here is a clarifying question: is the standard of living made possible in country 1 at 2000 higher, lower, or the same as in country 2 at 10000?

Another clarifying question: Does one country have a higher rate of disenfranchisement and abuses of justice than the other? One can easily imagine scenarios that put either in a bad light by that measure.

Henry said...

The problem with this question is that we (you, I and, I suspect, most of your readers) live in Country 2 and have income well above the median (albeit, not so significantly above the mean).

Whether we accept it or not, we are programmed through familiarity to enjoy/expect/appreciate the opportunities not available in Country 1 and so have difficulty appreciating the value structure present there.

A trivial example: TV advertisements in the UK are no longer for things you need: when was the last time you saw an ad where the message was "By Bloggs's Bread - it's better than our competitor's"? Instead, TV ads are for "lifestyle-enhancing" products such as facial creams with added hydrokabobble 7, shiny cars that will get you lots of sex and cleaning products specially formulated to kill germs on bathroom mirrors. This is indicative of how we - as the comfortable middle class - think as a group: we don't have to worry about feeding/warming/clothing ourselves, so the advertisers concentrate on flogging things we don't need with higher margin. And you can benevolently smile at the poor fools who buy the £20 tubs of grease with added hydrokabobble 7, but of course you always have your own things that are the equivalent -- hifi components, Polish lagers, lifestyle magazines, books on transport infrastructure, beautiful riverside apartments. Ultimately, however great your pay is, you always end up with nowt at the end of the month.

When we visit Country 1 - or more typically a country closer to 1 than 2 - we enjoy buying well-made local products, getting taxis around for peanuts and snapping our fingers to get another beer for fourpence. We may even look in awe at the sight of a country that still has some primary and secondary industry. However, what we reflect on when we go back to our palatial 5* hotel is not how happy everyone is, but instead how awful it is to live without a bathroom, a car, or moisturizer with hydrokabobble 7. And when we get home, we talk about the great experience we had, but "I could never live there".

I guess the questions I'd like to know the answer to are:

1. Which members of Country 1 would prefer Country 2?
2. Which members of country 2 would prefer Country 1?

of course the obvious answers are:

1. The most aspirational of Country 1.
2. The most poor of Country 2.

but I fear I only think that because of my prejudices.

Thoughts?

Richard Brown said...

so have difficulty appreciating the value structure present there.

I lost *all* acceptance of this line of argument when I saw Mine Your Own Business. Several of the environmental activists used exactly the same line of reasoning to argue against the mine:

"These people prefer using horse and cart rather than driving cars" (Reality: every single person interviewed said they would rather have a car)

"It is in these people's culture not to value education" (Reality: every single person interviewed said they sent as many kids as they could afford and wanted a job in the mine to be able to afford to send the others"

It went on....

Richard Brown said...

Another clarifying question: Does one country have a higher rate of disenfranchisement and abuses of justice than the other? One can easily imagine scenarios that put either in a bad light by that measure.

Implicit in my description is that they have the same level of disenfranchisement and abuses of justice. However, if anything, country 1 is likely to have higher levels (consider the state machinery required to intervene in the economy so drastically as to enforce such a massive level of "equality")

As for your standard of living question. Again, I'm not sure how relevant it would be to the discussion but, given the nature of a globalised world economy, one would imagine that the standard of living would be lower in country one.

Richard Brown said...

Actually, the "everyone equally poor" option is preferable to those, who are naturally competitive (being social animals) but consider that their ability to gain advantage over others is hampered either by malicious action or impossible circumstance (real or imagined) and is not actually insane at all -- it's straight forward self-interest. This is indeed why communism appealed to so many in the late 19th and early 20th centuries.
Experience has shown that this is just as unsustainable as ye olde Victorian laissez-faire. The trick is not only to provide equality of opportunity (which does not yet exist, but is better than it has been since... ever) but also to convince the "deprived" that the opportunity is there.


Good Lord. I think I might actually agree with most of that.

However, I guess it might come back down to the 50k for me vs 100k for me and 200k for my enemy discussion.

If you don't believe you will beat somebody else, it is very tempting to try to stack the table so that you end up winning or they, at least, don't gain too much from their success.... a pretty mean-spiritied way to view the world

Richard Brown said...

I guess the questions I'd like to know the answer to are:

1. Which members of Country 1 would prefer Country 2?
2. Which members of country 2 would prefer Country 1?


I suspect an elementary survey of the number of humans travelling between the US and Cuba would provide an easy answer.

The documentary on Romania made this point clear to me again: the fishermen of Madagascar weren't flocking to the education classes on how to improve their fishing techniques in the light of the new harbour that was to be built for the mine... they were too busy trying to get better jobs in the mine.... they weren't fishing for the fun of it or because they liked being quaint... they did it because, until the mine came along, they had no alternative.

Henry said...

Not quite the point I'm making. I wasn't suggesting the question was anything as trite as "Would you prefer to carry on living in squalor and disease, or would you prefer to live longer in luxury with loads of opportunities," rather something like "would you prefer to buy healthy nutritious vegetables for $1, or the same healthy nutritious vegetables in a plastic box with a pretty picture on the front for $10".

I suppose my agenda for this is that although on balance I'm much happier in Country 2, whenever I visit Country 1 among the squalor and disease, I see some things I envy hugely. These mostly relate to the lack of extraneous processing and cost inflation of basic products.

Richard Brown said...

Hi Henry,

Sorry - missed your point.

I see the point and I guess the point is that it comes down to freedom:

In country 1, you don't really have any choice: the rough-and-ready vegetables are all you have.

In country 2, the easiest option is pre-packaged, expensive, possibly-processed vegatables but the alternative is still there (or is there sufficiently often to make the point). For example, I was saying to Jamie only yesterday that I resent paying so much to Waitrose for fish when Billingsgate Market is less than a mile away. If I really wanted better quality, lower cost fish, I could get up earlier and buy them from Billingsgate.

And yet... although I may say I'd prefer the country 1 choice (i.e. Billingsgate), I reveal my preferences by ordering from Tesco online instead.



The point is: