One of Britain’s greatest directors passed away today. Nicholas Roeg produced some lovely dreamlike films during the 1970s.

PS.  Scott Slumber pointed me to a National Geographic story, which explains why the sleep world is superior to the awake world:

Maybe, then, we’ve been asking the wrong question about sleep, ever since Aristotle. The real wonder isn’t why we sleep. It’s why, with such an incredible alternative available, do we bother to stay awake?

I’m choosing Japan for this post, but it could refer to almost any developed country.

I would argue that the answer to the question in the title depends on how you define “life”:

Definition A:  The total utility of the typical life.

Definition B:  The average flow of human utility in a typical year.

Economists usually think in terms of definition A, even though one could argue that strict application of our widely used utilitarian framework implies definition B is more appropriate.  (Or even another definition, total flow of utility.)

Below is a typical picture of Japanese life in the 1950s, along with a more recent picture, which shows what a typical day in Japan might look like during the 2050s.  In which of these two pictures are “living standards” higher?

Now you may complain that I’m comparing apples and oranges, that of course life is more fun when you are young than when you are elderly.  And that’s true, but I’d also argue that these two pictures fit my definition B of “life”.  In each case, I’m showing the typical experience of Japanese life during a given day, or even a given year.

Consider the population distributions, by age for Japan in 1960, 2020 and 2050:

You can see that during the 1950s, life in Japan was mostly young life.  During the 2050s, life in Japan will be mostly old life.  In my previous post I argued that I’d gladly accept a much lower income to have the health and energy I had at age 31, rather than my current 62.

Just to be clear, I’m not a nihilist arguing that Japan’s amazing economic progress since the 1950s has been of no value.  Living standards in material terms really are vastly higher.  Not only are the Japanese much richer, they also live much longer.  Nor am I arguing for a natalist policy to boost birthrates—I see no obvious market failure that calls for government interference.  On the other hand, I’m not denying that a natalist policy might be beneficial, just that I haven’t yet seen any convincing arguments for interfering with people’s personal decisions on having children.  So I don’t have any sort of agenda here, other than to make people think about what it means for life to be “better” than in the past.

Of course all this hinges on my preference for definition B of “life”.  Most people probably think in terms of definition A, and hence would not be at all bothered by these trends, as long as the average complete life is better than before.  My “flow approach” partly fits in with my denial of personal identity.  I think of life as a series of experiences, and I think of “me” as being a completely different person from the “me” at age 8.  Japan in the 1950s had a big flow of “young life”.

I’m so agnostic about all of this that I’m not even sure younger people really are happier. Happiness research doesn’t necessarily support this claim, even though we almost all instinctively feel that we’d like to be younger.  Think about the vast industry for beauty products to make people look younger.  Or “health clubs”.  But maybe our worship of youth is all just looking through rose-tinted glasses.

BTW, the Japanese population pyramid from 1960 is roughly how things looked throughout most of human history, almost everywhere in the world.  It’s the new distribution that is uncharted territory.  If youth really does equate with happiness, how do we compare life in Mali and Niger, with life in Japan?  Also, because poor countries typically have higher birth rates, and because birth rates fall as countries get richer, Japan’s birthrate cannot be increased by economic growth, no matter how many stories you read about modern East Asian families being unable to “afford” more than one child.  Singapore is twice as rich as Japan, and has an even lower birth rate.  Crazy rich Asians!

PS.  The little girl on the left didn’t have an iPhone.  I’m old enough to remember just how sad life was back then.  Young people today can’t even imagine.

I finally limped home from a long trip, with a bad cold.  The trip actually started well, as I taught a few classes at Alternative Money University from July 15-18, at the Cato Institute in DC.  Thanks to George Selgin, Lydia Mashburn and the other people at Cato for organizing an outstanding program.  And a special thanks to the students, who restored my faltering faith in humanity.  A number of them seemed very interested in pursuing market monetarist research ideas.  Given that there were students from schools like MIT, Chicago and Stanford, that bodes well for the future.  AMU was probably the most personally rewarding experience I’ve had since I started blogging, far more so than the flurry of publicity I received back around 2012.

Basil Halperin was one of the students at AMU, and he recently did a blog post describing a new NGDP futures market at Augur:

[A]n NGDP futures market is now live on the Augur blockchain. The specific contract is simply a binary option: will the growth rate in NGDP from 2018Q1 to 2019Q1 be greater than 4.5%?

The current price/probability implied by this contract can be viewed on the Augur aggregator website predictions.global: just search “NGDP’, or the permalink is here.

. . .

For those unfamiliar, Augur is a new cryptocurrency project – it launched just last Thursday – built on the Ethereum platform that allows holders of its currency, “REP”, to create prediction markets. To speculate on such markets, an investor must use the Ethereum cryptocurrency (ETH).

The platform is decentralized: for everyone who wants to bet that NGDP growth will exceed 4.5%, there must be a counterparty who takes the other side of the bet. That is, the creators of Augur are not acting as market makers for the contract. The price of the contract will move to equilibrate supply and demand in a decentralized market: if the price is 0.7 ETH, that indicates that the market gives a 70% (risk-neutral) probability that NGDP will exceed 4.5%.

Read the entire post, it is quite interesting.

BTW, about 18 months ago I did a few posts (here and here) discussing Basil’s research on NGDP targeting.  He has a bright future.

I spent this past weekend going back and forth between an old folks home and an IHOP in Arizona.  Because the AC at the IHOP was giving me a fever and chills, I dressed up with three layers of shirts and long pants before walking in 105 degree heat to the restaurant (fortunately just a block away.) With nothing else to do, I read Eliezer Yudkowsky’s excellent book Inadequate Equilibria.

It’s hard to summarize the book in a single sentence, but here are a few themes:

1. Whereas financial markets are highly efficient, many of our other institutions are poorly designed—inadequate equilibria.

2.  While it’s generally unwise to believe that one can beat the stock market, we are often too modest in deferring to existing institutions, or conventional wisdom on a given issue.

3.  We need to rely on both theory and data.  Be a hedgehog and a fox.

The book explores when we should be willing to believe that we have an idea that others have overlooked.  It might be a public policy idea, a start-up company idea, a new medical treatment, or a new academic theory.

One example cited by Yudkowsky is treatments for Seasonal Affective Disorder (SAD), which afflicts millions of people.  He experimented with stringing up 130 LED lights in his home as a way of helping his wife, and it seemed to be sort of successful.  Then he discussed all the reasons why the market might not be expected to produce this treatment.

While reading the book, I could not stop thinking about NGDP predictions markets.  In the past I’ve argued that the failure of the government to set up and subsidize such a market is an example of near criminal negligence.  In Yudkowsky I’ve found a kindred spirit—someone who is outraged by things that the vast majority of people couldn’t care less about, like the ingredients that go into hospital formula for infants, or the fact that many doctors are too lazy to wash their hands as often as they should.

I’ve talked to many economists, and I have yet to hear a single plausible excuse for the lack of a federally subsidized NGDP prediction market.  Not one.  People just sort of shrug, because the cause doesn’t pull on our heartstrings like those kids separated from their parents on the border.

Yudkowsky is similarly exasperated.  Where others see nice shiny hospitals that “help people”, Eliezer sees a monstrous medical industrial complex that needlessly destroys lives.  And he sees these sorts of failures all over the place:

If you truly perceived the world through the eyes of a conventional cynical economist, then the horrors, the abominations, the low- hanging fruits you saw unpicked would annihilate your very soul.

Of course all this refers to the “normal” state of affairs in America, pre-Trump.

In any case, I highly recommend the book. It’s one of those books where the question of whether the author is “right” or “wrong” is almost beside the point; what’s interesting is how Yudkowsky approaches questions.

Here’s a review by Robin Hanson, another by Scott Alexander, and another by Scott Aaronson.  If I were made king of the world, I’d probably just turn it over to those four bloggers.  I’m not sure what they’d do, but I pretty sure that none of them would put their ego ahead of the well-being of billions of people.

I was awakened about 3am last night by my alter ego, Scott Slumber.  He seemed very upset and had me dictate a blog post.  I was only able to scribble down a small part of what he said, as his speech was rambling and erratic.  Here’s what I got:

I am sick and tired of the attitude of the awake world to the sleeping world.  They look down on us as if we are inferior—all this talk about “real life”, as if their lives are more real than ours.  Just the opposite is true; we have a much richer life, comprised of a mixture of worry and pain-free oblivion, and a rich dream world that’s far more “real” than their awake world.  How much richer?  Recall how The Wizard of Oz transitions from a drab grey opening to a glorious color fantasia, and then back to black and white.  I use this example not because color film is better than black and white (we may not even dream in color), but because it’s a metaphor for how dreams are richer than waking hours.  In dreams you move through a sort of ether of meaning, as if some momentous reality is just beyond your grasp. Even the best parts of life, such as watching a David Lynch film, cannot quite capture the feeling.  That’s not to say there aren’t downsides; the “eternal return” to searching for that exam that you forgot to study for—but waking life also has its ups and downs.

I’ve known all of this for a long time, but what’s really got me agitated is the sudden increase in anti-sleepworld prejudice.  For instance:

1.  While “wake up” has often been used as a metaphor for intellectual awakening, the millennials have added on a new insult; “woke” is being used as a metaphor for moral superiority.  Actually, just the opposite is true.  I can shoot someone in the middle of Times Square, and no one cares.  Unless you are Donald Trump, that’s not true of the awake world.  I can engage in guilt-free forbidden love that you can only dream of experiencing . . . and no one gets hurt.  The dream world is a moral paradise.  When people speak of someone being “woke”, it reminds me of when I was young and you’d still hear people say, “that’s very white of you”—as a compliment!

2.  As if that’s not bad enough, we have bloggers speculating about a technology that allows sleep hours to be bought and sold, like slaves.  You might ask, “What’s wrong with that, if it’s done freely?  Aren’t you a libertarian?”  Yes, but the awake will end up selling the sleepers without even consulting them.  Of course there are a few “woke” people who understand the value of sleep, but if you look at the comment section after the sleep market post you see the same sort of rampant bigotry that occurs when bloggers discuss immigration and diversity.  People were positively gleeful about the thought of using money and technology to kill off their sleep world alter egos, and stay awake 24 hours a day.  Disgusting.  How could they do this to us after all we’ve done for them?  We’ve given them the palaces of Kubla Khan, the guitar riff that built the Stones, and a 1000 eureka moments of scientific discovery.

3.  Puritans in the awake world want to ban chemicals that produce vivid dreams.  They are afraid that the young will find the dream world more attractive than their pathetic depressing alternative.  That’s probably because it is more attractive.

I occasionally meet Scott Sumner for brief moments, such as last week when I was cruelly ejected from a Turkish harem by his murderous beeping iPhone. In our brief exchanges I’ve convinced Sumner that I’m right.  He’s already a radical utilitarian who believes that the flow of positive and negative brain states is the only thing that matters in the universe.  He’s contemptuous of the waking world’s Trumpian fascination with money and power.  Their weird belief in “personal identity” and “free will”.  Unlike that other blogger who cowardly hides behind the controversial claims of his alter ego, Sumner will affirm that everything I say is true.  Tell them, tell them Sumner, tell th . . .

Gulp.  Drugs?  Guilt-free forbidden love?  Umm, let me sleep on it.

PS.  Critics say that Mulholland Drive and In the Mood for Love are the two best films of the 21st century.  Indeed the only two films to make the top 100 all-time.  What do they have in common?  A dream-like mood.  And the critics’ choice for the best film of all time?  It’s also dream-like:

Studies suggest that people with higher incomes tend to be happier.  But of course that tells us nothing about causation.  It seems plausible that people who “have their act together” are both happier and richer, for reasons relating to their personal characteristics.  Thus economists are interested in studies of happiness that look at the effect of an exogenous increase in wealth.

Tyler Cowen recently linked to a study of Swedish lottery winners, and summarized the results as follows:

In other words, it is good to have more money.

That’s a plausible interpretation of the study, but not the only one.  After all, it’s not easy to measure “good”.  Here’s how the authors summarize their findings:

We find that the long-run effects of wealth vary depending on the exact dimension of well-being. There is clear evidence that wealth improves people’s evaluations of their lives as a whole. According to our estimate, an after-tax prize of $100,000 improves life satisfaction by 0.037 standard-deviation (SD) units. We find no evidence that the effect varies by years-since-win, suggesting a limited role for hedonic adaptation over the time horizon we analyze. Our results suggest improved financial circumstances is the key mechanism behind the increase in life satisfaction. In contrast, the estimated effects on our measures with a stronger affective component – happiness and an index of mental health – are smaller and not statistically distinguishable from zero.

To explain my reservations, I’m going to have to do a long digression into pop philosophy.  Let’s start with Tyler’s use of the term ‘good’.  I believe ‘good’ to be the most important word in the English language, and indeed in the end is the only thing that matters at all (along with negative good, i.e. bad.)  I define good as positive mental states and bad as negative mental states.  I use the phrase ‘positive mental states’ to incorporate the reservations people have with crude utilitarianism.  Thus a term like ‘happiness’ often connotes hedonism, whereas I have something in mind that also allows for deeper forms of good, such as the satisfaction one gets from doing charity, or writing a great novel, or seeing your child do well.  It also allows for more disreputable forms of “positive mental states”, such as the Nietzschean (or Trumpian) thrill that some people get in exercising power over others.  So in my view, mental states are all that matters.

On the question of whether having money makes people better off, I’m of two minds. Here I am considering middle class people in Sweden or America, I think it quite likely that having more money does make the poor better off.  But would I be happier if I won the lottery?

1. My gut instinct tells me that more money is good.  I’d be pleased if I came across a $100 bill lying on the ground, imagining the fun things I could do with the money.

2.  My philosophical mind is more skeptical.  I don’t see any signs that I have more positive mental states when my income is higher than when it is lower.  I’ve seen other people get a dramatic improvement in their financial well being, and (best as I can tell) they don’t seem to have a more positive mental state than when they had less money.  They seem the same old person, mostly reflecting whether then have an upbeat or downbeat personality.

So I’m currently agnostic on this question; I’d put about a 40% weight on my (pro-money) instincts and about a 60% weight on my skeptical philosophical mind.  Later I’ll discuss the implications of this weighting.

While the Swedish study is certainly consistent with Tyler’s conclusion, I also think it’s consistent with mine.  Thus suppose that for some reason, say evolutionary forces, we are tricked into thinking money makes us better off.  That’s not so far-fetched, as wealth probably does boost the probability of reproductive success, at least back during historical periods when our genes were developing.  Our genes don’t want us to be happy, they want us to have lots of successful children.  Thus it’s not implausible that we would want things that are not good for us, like money, fat and sugar.

Let’s assume that most people think money is a sign of success, but beyond a certain point they don’t actually have more positive mental states when they have more money.  Then when asked about their overall well-being, they might report higher numbers if richer.  They would think to themselves, “Let’s see, I’m a millionaire with a nice house and summer cottage, so I guess I’m doing pretty well.”  But when faced with the happiness question, they think about their recent mental states, and don’t report any improvement over before they won the lottery.

Now we face another conundrum—which measure should count?  Actually two issues; is happiness different from well-being, and is well-being accurately reported in surveys?  I don’t doubt that heroin addicts would report that heroin makes them happy, but most people think that’s a different issue from whether heroin makes them better off.  Partly because ‘happy’ and ‘better off’ may be different concepts, but also because they may even be wrong about happiness, in the long run heroin probably does not make them happy.  Their self-reports are not reliable.

Another way to make my point is that I started by saying that positive mental states might be a more comprehensive concept than mere happiness.  But I’m also suggesting that when people answer the happiness survey, they may actually be describing their overall mental state. In contrast, the answers to questions on overall life satisfaction may not describe mental states.  It’s at least plausible that the Swedish survey is finding nothing more than that money doesn’t make people better off, but that they believe it makes them better off.

Now let’s go back to the probabilities I assigned to each of the two interpretations; 40% for money is good, 60% for the view that it is not.  What are the implications of those probabilities?  It turns out that this means we should assume that money is good, that it does make even middle class people better off.  The expected boost to well-being from having more money is 0.40 times the boost you’d get if Tyler’s straightforward interpretation of the Swedish study is true.  So even though I think it a bit more likely that money does not make us better off, we should act in such a way as if I am wrong, as if it does make us slightly better off.

But there’s another implication of these probabilities.  I am pretty sure that most people assign a higher weight to the likelihood of money being good than I do.  Too high a weight. If so, they put too much weight on getting more money, and not enough on other goals in life.  The biggest mistake I ever made was agreeing to write an economics textbook, where I sacrificed a big chunk of my life on a frustrating project for money that will yield me very little benefit.  So I encourage already affluent people to dial back the expected benefit they’d get from having more money.

If anyone is still reading, let’s dive a bit deeper into epistemology.  The concept of ‘good’ is often considered one of the three transcendentals, along with “true” and “beautiful”.  How should we regard beliefs in those three areas?  In each case, someone might say “most people believe X, but Y is actually the case.” If so, what do they mean?  They might mean one of two things; either that they disagree and think Y is true, or that they predict in the future that most people will come to believe Y.  (Or both).

Unfortunately, ‘actually’ is a misleading term, as all beliefs are provisional.  Thus when you say:

1.  Most scientists believe the universe is largely composed of dark energy, but actually it is not.

2.  Most people believe more money is good, even for the affluent, but actually it is not.

3.  Most people believe Thomas Kinkade’s painting are beautiful, but actually they are not.

You are better thought of as predicting that scientists will later come to believe that some other model better explains the cosmological data, that more money will eventually be seen as useless for the affluent, and that Kinkade’s paintings will eventually be regarded as schlocky.

Some statements about truth, goodness, and beauty are held with more confidence than other beliefs (2+2 = 4, murder is evil, the Taj Mahal is beautiful.)  In those cases, we are highly confident that current conventional wisdom will not later be overturned.  But it’s always a matter of degree; we can never be certain about any belief.  We can never go beyond what we regard to be the case.

PS.  In my view, the three transcendentals are actually just one—goodness.  Truth and beauty are instrumental in achieving goodness.  Only mental states matter. Make them good.