It turns out that my recent post on finance did not satiate my urge to make counter-intuitive arguments. So today I’d like to argue that happiness is unrelated to utility, that you should try to purchase a house next door to a child molester, and that the US government first impoverished our banking system, and then took advantage of its weakened state with predatory lending. (After all, if Michael Pettis can sell out his blog readers for a cushy job in banking, why can’t I?)
Part 1. What if utility and happiness are unrelated?
Imagine a country called “Lanmindia,” where much of the population has seen its legs blown off in horrible accidents. Does that sound like a pretty miserable place? Happiness research suggests not. The claim is that there is a sort of natural “set-point” for happiness, and that after winning a lottery one is happy for a short time, and then you revert right back to your natural happiness level. I find that plausible. They also claim that if someone loses a limb, then they are unhappy for a short period and then revert back to normal. I find that implausible, but if the evidence says it is the case then I guess I need to accept that.
My claim is that although Lanmindia is just as happy as America, it has much lower utility. Let’s define ‘utility’ as “that which people maximize.” People very much don’t want to have their legs blown off, and hence emigrate from Lanmindia in droves. People behave as if they care about utility, not happiness.
Do I have any proof? No, but I’ll provide two pieces of evidence, one macro and one micro. The Economist recently did an absolutely heartrending story about the plight of undocumented farm-workers in California. I wish I could quote the entire piece, as the cumulative effect is very powerful, but space constraints limit me to a shorter passage:
Farm work has, for most crops, become no easier since Steinbeck’s day. Strawberries, the crop the Vegas started out with, are nicknamed la fruta del diablo (the devil’s fruit) because pickers have to bend over all day. “Hot weather is bad,” says Felix Vega, but “cold is worse” because it makes the back pain unbearable. Even worse is sleet or rain, which turns the field into a lake of mud. The worst is picking while having the flu.
Every crop exacts its own particular discomfort, as this correspondent discovered on an August day picking grapes in the very part of the San Joaquin Valley where Steinbeck’s Joad family looked for work. Working with two Mexican brothers and a young Mexican couple, he cut the grapes, collected them in tubs and periodically dumped them into a wagon pulled by a tractor.
The lanes between vines are exactly as wide as the tractor, so the little group had to duck into and underneath the vines all day long. They crawled alongside the tractor, trying to avoid having their feet run over. Within hours this correspondent’s shins were bleeding as the wagon’s metal protrusions slammed into them, which seemed unavoidable. With an encouraging smile, a co-worker pulled up a trouser leg to reveal his own scarred shin.
Because the pickers were squatting or kneeling under the vines and twisting to reach up for the grapes (the low-hanging fruit proving the trickiest), their necks and shoulders were soon in agony. Standing up to relieve their backs thrust their heads into the vines, which are covered in pesticides. There are many cases of birth defects and cancer in the families of farmworkers. But as the heat climbed above 100°F (about 40°C), the vines, soaked in toxins or not, became allies. The air underneath them is stagnant, as in a sauna, but their foliage is the only available shade.
Just as the heat threatened to overwhelm this correspondent, the woman in the group broke into a slow Mexican song, which somehow helped. But heatstroke is common in the fields. In 2008 Maria Isavel Vasquez Jiminez, a 17-year-old Mexican girl who was pregnant, collapsed while picking grapes and died two days later.
Hungry amid food
As Tom Joad in Steinbeck’s novel discovered, many farmworkers, even as they spend their waking hours picking food for others, can barely afford to eat. Between harvests they have no work. When they do work, their wages are meagre. The workers picking grapes with this correspondent got $8 an hour. That is vastly superior to the $9 a day—not hour—which the tractor driver says he used to get at home in Mexico. But costs in the United States are higher too.
You should read the entire piece, as there is 5 times more of this woe. At the end, the reporter asks the following question:
Teresa, Felix and Gonzalo Vega only nod sadly when asked about the rancour, the Arizona law, the politics. They feel they had no choice in coming illegally. Would they do it again? “No, not if I had known what lay ahead,” says Felix. But after a silence, he corrects himself. Yes, he would, because even though he doesn’t think he’ll ever get papers, he has two sons who are American and could be lawyers or writers one day, living openly.
Teresa Vega is the most reticent. She admits that her “plan didn’t work”. She hears that Erminio, at home in Oaxaca, is not doing well. He is often ill. “He needs love” and doesn’t get enough, she says. But then she, too, reverses herself. She always thinks of her first son, the one who died because she had no money to save him. Yes, she would come again.
If the life described in this piece is accurate, then life in Mexico must be an absolute living hell. Why else would millions of desperate Mexicans endure the following to try to reach those California fields?
Once they walked all night through the desert of Arizona, slashing themselves on fences of barbed wire and running out of water, before border-patrol agents ambushed them. The agents tied them up, shouted at them, threw them into a van and then into a freezing jail, where they slept on a bare floor for several nights until enough migrants had been rounded up to fill a bus that took them back to the Mexican side.
On another crossing Mexican bandits waylaid them. They pointed guns, stole their food and stripped them naked. Because the Vegas speak an indigenous language called Mixtec and understand little Spanish (and no English), Mr Vega’s wife and the other women did not understand the bandits and feared they would be raped. They were not, but then had to cross the frigid night desert without clothes, food or water, until la migra caught them again.
Gonzalo Vega, yet another cousin, made the trip with his wife, five months pregnant, and his two younger brothers, who were seven and ten at the time. He carried all their water and food, but the children struggled. After a day and two nights of walking they were desperate for sleep, but Gonzalo didn’t let them rest in the freezing cold lest they not wake up again. He could not light a fire, because la migra would have seen it.
They threw themselves into ditches whenever the border patrol’s SUVs approached. Once Mr Vega’s wife fell hard onto her bulging belly. The worst moment came when la migra caught them again, beat Gonzalo and threatened to take his brothers away from him. When the family was allowed to remain together, even the cold jail floor felt good, he recalls. Gonzalo’s group succeeded on the fifth try.
So just imagine how bad Mexico must be. Even worse, income in Mexico is highly unequal, with a tiny elite of wealthy and many poor people. Yet it turns out that if Mexico is a living hell, it is an extremely happy living hell. Robin Hanson recently cited research that shows Mexico is the second happiest country on Earth. I claim that Mexico is a country with very low utility, full of very happy people. Think of ‘happiness’ as “personality,” and think of ‘utility’ as “living conditions.”
Many bloggers have been commenting on a NYT piece where a Chinese mom explains the rigorous upbringing she imposed on her children. Bloggers as diverse as Matt Yglesias and Bryan Caplan suggested that this type of mother was quite cruel. Define ‘cruelty.’ My hunch is that these mothers lower their children’s utility, but don’t make them unhappy. My evidence? My daughter has a Chinese mom who makes her take all sorts of lessons, and she seems 10 times happier than I was as a kid with enormous freedom. How’s that for a scientific study?
So what are the policy implications, should government officials try to maximize happiness or utility? I’m a utilitarian, so naturally I favor utility. Do you really want to defend a policy goal that implies there’s little point in clearing land mines from Cambodia, Afghanistan, and Iraq, because happiness always reverts to a set-point? I dare you to see the movie Turtles Can Fly, and then insist happiness matters more than utility. (Note that this view doesn’t really conflict with Caplan and Yglesias, although I probably left that impression above.)
One last point. It is true that richer countries tend to be happier. Does that disprove my set-point theory? No; countries full of happy people tend to be more civic-minded, as depressed people are resentful of others. Civic-minded cultures tend to produce governance that is relatively free market and non-corrupt. Denmark is the happiest of all developed countries, the most civic-minded of all developed countries, the least corrupt of all developed countries, and the most free market of all developed countries. Coincidence? I don’t think so. And yet my theory doesn’t work for developing countries, and I have no idea why.
Part 2. Why you should move next door to a child molester.
Economists have known for years that deaf people should move right next door to an airport. The noise won’t bother them, and the house will be much cheaper. Recent research by Scott Wentland, Raymond Brastow, and Bernie D. Waller Jr. suggests that families without children should move next door to child molesters. Why? Because houses are much cheaper, indeed $14,340 cheaper if within 0.1 miles of a child molester in rural Virginia. I met Scott at the recent AEA meetings, and he talked me into attending his presentation. I’m glad I did, as I had no idea such bargains were available. Afterwards Scott told me that he had also been surprised by the large effect, but when he started talking to other people he found that women were especially likely to check the registry of sexual offenders before buying a house in a given neighborhood.
Of course if you actually have young children you might want to live somewhere else. And even if you don’t, you might want to move two or three houses away from the molester–at least if it gives you a creepy feeling to look out the window and see him (it’s usually a man) barbecuing in the back yard.
Part 3: Poor, poor, pitiful banks.
Consider the following. The Fed spots a weakened banking system in mid-2008, and then pounces in for the kill. They engineer the biggest drop in NGDP since 1938. More importantly, they drastically reduce NGDP expectations for the out years. This sharply reduces asset prices and causes a severe banking crisis. Then in late 2008 and early 2009 they snap up all sorts of financial assets from the weakened banking system at rock bottom prices. Between early 2008 and early 2009 IMF estimates of banking losses nearly triple, as NGDP growth expectations plummet. But the worst doesn’t happen and we don’t have another depression. Instead the Fed begins QE in March 2009, and NGDP expectations start rising. As they do so the estimated losses to the banking system fall back to more modest levels (again using IMF data.)
Then reports start coming in that the Treasury may actually make a profit from the TARP program, as they forced banks to pay interest on the loans received from the government. Those banks that did not want to participate were given an “offer they could not refuse.” At first is seems impossible that the government could profit from these “bailouts,” and people looked for other possible losses outside of TARP, such as the Fed’s purchases of toxic assets. But then it’s is reported that the Fed made record profits of $47.4 billion in 2009. It looks like the Fed made some great deals. Then the doubters claimed that the Fed’s losses would show up once the economy started to recover. But just yesterday the following obscene profits were reported by the Fed:
WASHINGTON (AP) — The Federal Reserve is paying a record $78.4 billion in earnings to the U.S. government, reflecting gains from the central bank’s unconventional efforts to lift the economy.
The payment to the Treasury Department for 2010 is the largest since the Fed began operating in 1914. It surpasses the previous record $47.4 billion paid in 2009, the Fed said Monday.
The bigger payment mostly came from more income generated by the Fed’s massive portfolio of securities, which includes Treasury debt and mortgage securities.
My more progressive readers will notice that the US government committed almost every imaginable financial sin:
1. Insider trading. The Fed waited until things looked very bad, and asset prices were at rock bottom before pouncing. They knew that they were not going to allow a depression, and then engineered a recovery right after the purchases, through a policy of QE.
2. They charged usurious interest rates in the bailout, taking advantage of the weakened position of impoverished and desperate banks, just like payday lenders.
Here’s my question: What should we taxpayers do with this huge windfall received from the banking industry? Should the Fed profits of nearly $80 billion be used to pay off the national debt, or fund new entitlement programs? And is it fair to extract so much wealth from the banking industry at a time when they were already seeing a sharp increase in loan defaults? The Finreg bill has a consumer protection agency, how about a banker protection agency to protect banks from predatory lending by the government? And is there a moral hazard problem here, with the government not vigilant enough in preventing financial crises, knowing it can profit handsomely during a crisis by taking advantage of weakened banks.
PS. I was just kidding about Michael Pettis, he is doing great work nurturing alternative rock bands in Beijing, such as The Carsick Cars. I’m glad he found extra funding.
PPS. I am actually serious about two of these three posts, can you guess which ones? (The other is just to annoy people.)
PPPS. I’ll do another post soon describing my panel (with DeLong) at the recent AEA convention.
PPPPS. Traumatic events make people say and do some really foolish things. (I know; I’ve been there myself.) Exhibit A is the attempt by some progressive bloggers to blame loudmouth Republicans for the recent tragedy in Tucson. They did the same in 1963, until it was discovered that the killer of JFK was a leftist, not a conservative. It would not surprise me if we eventually find out that the nut in Tucson was not a loyal fan of Rush Limbaugh. The populist right should be held accountable for bad policy, not political violence.