Quote Analysis Assignment #2 Matthew Retallack

February 28, 1012

We may be able to modify human nature. But we cannot annihilate our existing nature and libertarians should be the first to take that as their starting point Richard Layard, Lecture 2 Income and happiness: rethinking economic policy, page 10

This statement is Layards response to a libertarians assertion that public policy should not interfere with an individuals free choice to earn more money rather than spend their time otherwise. If they choose work over leisure, or any number of other non-financial sources of happiness, that is their choice and their choice alone. In his reply Layard is in effect saying that non-financial sources of happiness are not without their economic implications. Indeed, I believe he is suggesting that we may have fallen into the wrong hands, and should the libertarians be allowed to carry out their philosophy to its ultimate end this could result in a general unravelling of the circumstances within which this sort of debate is possible: a lawful and functioning society.

My initial objective will be to present some thoughts on our role within the market and some of the broader aspects of people and society that are relevant to that specific site of action. Providing a degree of support for Layards response to the libertarians, this sets the stage for a subsequent discussion of those broader aspects and their workings. That will be the core of the discussion and will eventually lead us back to the quote from Layard.

To begin, I would like to make an initial general assumption: that society benefits from economic activity, in particular from having a functioning market. The market we have is generally motivated by neoclassical economics and that idea that a freely functioning market will, through the independent decisions of individual rational actors acting in their self-interest, arrive at an efficient allocation of our collective resources. This efficiency, it is argued, will lead to the greatest amount of happiness for the largest number of people.

However within the theory of neoclassical economics there is a fundamental flaw. Man is not is merely a rational actor. His decisions are not narrowly made solely on the basis of self-interest. The economy is more than a system of self-interested decisions. Rather, according to Sen, economic systems tend to rely on the existence of attitudes toward work which supersedes the calculation of net gain from each unit of exertion (RF, pg 334). These attitudes, he asserts, flow from ethics, morals, and in a broader sense culture. Layard echoes this assessment stating that contracts and courts could not deliver good outcomes if most people werent already predisposed to good behaviour (Lecture 3, pg 15). So pure self-interest, if interpreted as being unbounded by other considerations, can not sustain the economy on its own. Market efficiency requires a society that operates according to a social contract, guided by ethics and morals.

This calls into question the notion that a single ordered set of preferences underlies the decisions of any given economic actor. If we make decisions that are based on selfinterest but tempered by a social contract, it seems unlikely that a single static set of

preferences could cover the range of possible scenarios. Generally speaking we are attracted to things that make us feel good and conversely repelled by things that dont. According to Layard most psychologists believe we are constantly evaluating our situation, often subconsciously, deciding what is good and what is bad given the circumstances (Lecture 1, pg 12). Sens concept of meta-rankings presents a conceptual model for how this might play out. Meta-rankings are sets of different ordered rankings of preferences. These acknowledge that our preferences arent fixed but rather we will have different preference orderings depending on the situation. For instance a person may make one decision in their role as the head of a household but may respond based on an entirely different set of preference if they were presented with a similar decision at work. In this way, Sen states, meta-ranking enables moral articulation (RF, pg 338).

Beyond contemplating, in a general sense, the decisions an economic actor might make in one decision making scenario versus another, what specific factors could shape how a decision is formulated? According to Layard seven factors contribute to our happiness: income, work, private life, community, health, freedom, and philosophy of life (Lecture 3, pg 2). As he sees it, moral philosophy is not about a limited set of moral dilemmas, but about the whole of life how each of us should spend our time and how society should allocate its resources (Lecture 3, pg 16). The question then becomes, how do we go from identifying the sources of happiness, and recognising the transient nature of preferences, to some functional understanding of how these elements factor into decision making within a context so broad as the whole of life? Sen has provided us with the key, and that is culture.

It is our cultural beliefs that shape our ethics. Our stories and myths carry and communicate the values that underpin our ethics and morals (King, 2003). Going back to Sens model of meta-rankings, there are certain cultural expectations we have learned to observe. These tell us what is expected from us in the role of a good father or good partner. Similarly they define our work ethic and are called upon when we find ourselves in between work and family trying to strike a balance between these sometimes opposing obligations. It is in that in-between state where Sens concept of meta-rankings breaks down, unless we are prepared to accept the idea of an infinite set of discrete rankings. Otherwise we can see quite easily that there will be an infinite number of scenarios where our obligations, or interests, are in varying states of opposition. Our preferences will vary accordingly and I submit that our values act as guideposts as we navigate this rolling terrain.

However our values are not given and they are subject to change. Looking at values and behaviours in the context of social institutions and cultural theory, ORiordan & Jordan (1999) have shown how an individuals preferences are attached to and influenced by their worldview. Cultural preferences are endogenously defined through association and bonding. As members of larger social groups such as families or communities, the formulation of an individuals values and preferences is influenced by socio-cultural context and learning through information sharing and social discourse (Chee, 2004). What is right, the choices we are compelled toward, the things that make us happy, become apparent through our culture. Happiness, according to Layard, depends on

your tastes, which you acquire from your environment and on the whole social context in which you live (Lecture 3, pg 2).

So, if the market requires that we adhere to some form of social contract, and this is shaped by the same culture that gives rise to the values that shape our preferences from one situation to the next, clearly it is important that we consider not only the ramifications of economic policies on the market directly, but also on the factors that affect our behaviour in the market. In particular how will these policies affect culture and associated values? It becomes important to consider the relationship between culture, cultural change and societys decisions. How society allocates its resources will support or undermine certain cultural values. This in turn will have implications for productivity and other objectives of resource allocation. It is through understanding and embracing these dynamics that we may arrive at policies that provide for increased stability for markets and society, and increased happiness for individuals within society. To heed Layards caution, let us understand this while we can, or risk losing what we have: We may be able to modify human nature. But we cannot annihilate our existing nature. Our existing nature that we exist depends on how we manage our human nature, on the values we shape for ourselves through our own decisions.

References Chee, Y. E. (2004). An ecological perspective on the valuation of ecosystem services. Biological Conservation, 120(4), 549-565. King, T. (2003). The truth about stories: A native narrative, Toronto, ON: House of Anansi Press Inc.

Layard, R (2003). Happiness: Has social science a clue?, Lionel Robbins Memorial Lectures, London School of Economics. O'Riordan, T., & Jordan, A. (1999). Institutions, climate change and cultural theory: Towards a common analytical framework, Global Environmental Change, 9(2), 81-93. Sen, A., (1977), Rational fools: A critique of the behavioural foundations of economic theory, Philosophy & Public Affairs, 6(4), 317-344.