The alcohol consumption J-curve

People and governments love to simplify problems to a single issue - Speed kills, Helmets save lives, Stop the boats. It helps them appear to be ‘doing something’. But real life is not so simple.

Take alcohol. While heavy drinking has long been acknowledged as being socially disruptive, more recently, the fight against alcoholism has been partly driven by arguments around health impacts.  Yet their are both positve and negative health effects from alcohol, and the positive effects are usually overlooked.  The unintended consequences of policy are also rarely considered.

The alco-pops tax was one measure aimed at curbing binge drinking, but it was a fizzer. Sales of other alcoholic beverages increased significantly, offsetting much of the claimed benefits of the tax.

Additionally, no one considered that more expensive alcohol might encourage binge drinking at the expense of casual drinking. If your preferred alcohol is more expensive, there is less incentive to drink in a casual setting where you don’t end up drunk. Why spend the extra money on alcohol unless your intention is to get drunk?

It’s a thought that has crossed my mind when considering the drinking patterns around the world. Those countries with the most expensive alcohol, usually due to alcohol taxes, usually have the most extreme binge drinking culture (that's been my personal observation, and I have no hard evidence to back up the claim).

But alas, these considerations are a little too real for the average policy maker to consider.

The Australian government’s health message about alcohol follows the single issue simplification pattern precisely (their emphasis).

Due to the different ways that alcohol can affect people, there is no amount of alcohol that can be said to be safe for everyone. People choosing to drink must realise that there will always be some risk to their health and social well-being.

But alas, the evidence seems to strongly contradict this simplified message (although the alcohol consumption guidelines are a little more generous).

The overwhelming conclusion from large scale longitudinal studies is that moderate drinking improves longevity. The graph below illustrates.

Men who never drink are just as likely to live as long as men who average 4 drinks per day, with those who drink about one drink per day (or 7 per week) likely to live longest.

The results are partly attributed to the social interactions that are associated with alcohol consumption.

One important reason is that alcohol lubricates so many social interactions, and social interactions are vital for maintaining mental and physical health. (here)

Somewhat surprisingly there are no other plausible explanations at hand that I know of. The debate appears stuck on the ‘is this relationship real’ stage, without moving on to considering why it might be real.

So here is a suggestion.

Often our body has systems that work on a use-it-or-lose-it basis. We use muscles, they grow. We don’t, they atrophy. Our bodies have a built in system (ethanol metabolism) to break down alcohol. Perhaps the very act of digesting of excess alcohol keeps the system healthy for longer.

As my good friend Wikipedia says

If the body had no mechanism for catabolizing the alcohols, they would build up in the body and become toxic.

In any case, the health impacts of alcohol consumption are another example of how common understanding and resulting policy is often detached from the more rigorous academic research. It also highlights repeated failure of policy makers to consider the unintended consequences of well meaning policy.

HT: Eric Crampton at Offsetting Behaviour

Great Stagnation?

Tyler Cowen has an ebook that presents his hypothesis that America is undergoing a great stagnation. What he means is that teh rate technological change and economic growth has slowed since about 1973. You can get most of his message from the TEDx talk in the below video.

While Cowen acknowledges the great leaps in communication technology, I feel his presentation glosses over a lot of medical technology which is highly valuable and has continued to improve life expectancy.

He also glosses over a lot of other changes that people value but don't get recorded in the statistics (for example greater equality of genders and races or lower crime rates). The more effort society directs towards these social advances, the less effort it can direct towards technological marvels.

Overall it's a very interesting video for anyone curious about economics and modern history.

Learning to judge risk

No, this is not a post on financial risk. It is about child development and learning to judge risks yourself (a hot topic in my household).

As an economist parent this article, and the comments that follow, is very interesting. It begins...

Play equipment designed by  "safety nazis " doesn't allow children to learn from risk-taking, an expert has warned.

More kids aged two to seven were getting injured in playgrounds because they didn't know how to take calculated risks.

While it may seem obvious, learning to take risks involves... taking risks! There is an old saying that epitomises this attitude – if you want to learn to swim, jump in the water.

But it seems that Councils are not going to replace their plastic low velocity slippery slides and bouncy foam ground covers with splintered old wooden climbing frames in hurry. The experts still haven’t grasped the implications of their research. They conclude with the following advice.

To improve playgrounds, Ms Walsh suggested longer and bigger slides built into embankments to eliminate falls.

Also, smooth boulders for balancing, shallow ponds for exploring and plenty of vegetation to provide nooks and crannies for children to crawl around.

But if children learn from risk taking, shouldn’t they build high fast slides, with no ground protection and sharp jagged boulders for balancing and deep ponds for exploring?

In any case, the finger pointing at engineers and playground designers was thoroughly dismissed in the comments, with molly-coddling litigious parents copping a bit of heat.

Sin tax myths – why smokers reduce health costs

Smokers have been the target of Australia's latest sin tax. Meanwhile, debate continues over using sin taxes to reduce consumption of 'unhealthy' foods such as soft drinks and confectionary.

(The word unhealthy is used quite loosely due to the fact that there is sufficient uncertainty about health – Are eggs good or bad these days? Margarine? – and because it is typically not the food itself, but the quantity consumed of a single food that is unhealthy.  Almost any food item consumed in excess will be unhealthy).

The primary arguments in favour of sin taxes are that

1.      the taxes reduce ‘harmful’ or ‘unhealthy’ consumption, and

2.      the taxes raised offset likely health costs such behaviours incur on others.

Unfortunately neither argument is compelling.

The price elasticity of demand for a sin taxed good will determine the decline in consumption of the apparently harmful product.  If demand is highly elastic, meaning that quantity of the good people choose to consume is very sensitive to price, then a tax may significantly reduce consumption. 

However, demand is typically only highly elastic when there are many substitutes available.  For example, demand for petrol is inelastic because there are no alternatives, while demand for cornflakes is probably much more elastic because of the wide range of alternative breakfast cereals.

This means that if the tax is effective at reducing the ‘harmful’ taxed consumption, it is promoting consumption of some alternative.  So what alternatives are out there?  The following example is typical of the type of offsetting behaviour I would expect.

Research has shown that when the price of a "sinful" good increases, consumers often substitute an equally "bad" good in its place. For example, two studies found that teen marijuana consumption increased when states raised beer taxes or increased the minimum drinking age. Another study found that smokers in high-tax states are more likely to smoke cigarettes that are longer and higher in tar and nicotine than smokers in low-tax states. Specifically, they discovered that young adults aged 18–24 are much more responsive to tax changes than older smokers. For young smokers, the switch to cigarettes with higher tar and nicotine is so large that tax hikes actually increase average daily tar and nicotine consumption.

One could easily imagine how similar substitutions would occur with soft drinks, perhaps leading to increased consumption of alcohol (forget the Coke, give me a beer).

The second argument in favour of sin taxes is that people who consume in an ‘unhealthy’ manner cause a greater financial burden on society by forcing others to pay for medical treatment of conditions stemming from such consumption, especially in most first-world countries with government-funded healthcare, and should be taxed extra to pay for the costs of their treatment.

This is absurd for two reasons. 

First, the logical extension is that government should also tax other risk-taking behaviour, such as driving or lying on the couch all day, while subsidising healthy foods and ‘acceptable’ behaviours with the purpose of decreasing the financial burden of health care.  It is the greatest excuse for government fund raising discovered.

A line needs to be drawn between medical intervention and freedom of choice. I have noted before that when Queensland decided to add fluoride to the drinking water, that line was crossed – akin administering medical treatments without consent.

The second reason to oppose sin taxes is that health care costs are not typically reduced by living a ‘healthy’ life but are likely to be increased. This is best explained as follows (my emphasis):

It’s easiest to think of smoking as bringing forward a whole lot of end of life costs. Smokers die earlier than non-smokers. We know that. And the costs to the health budget of somebody who is dying are rather higher than the costs of somebody who is healthy. But everybody dies sometime and most of us will incur end of life costs that will be paid for by the public health system.

Suppose that a smoker will die at age 65 and a non-smoker will die at 75. Comparing 65 year old smokers to 65 year old non-smokers and calling the difference the cost of smoking then rather biases upwards the measured costs of smoking; we ought to be comparing the health costs of a smoker dying at age 65 with the health costs of a non-smoker dying at age 75. And, perversely, the deadlier cigarettes are, the greater will be this bias. The younger smokers are when they die of smoking-related illnesses, the greater will be the measured cost difference between smokers and non-smokers because a smaller proportion of comparable non-smokers would be incurring end of life costs.

The figures assume that in the absence of smoking, smokers would never have imposed end of life costs on the health system. But for their smoking, all smokers would have died of a sudden, and cheap, heart attack and would only have had average health costs up to that point. That’s clearly nonsense

So there you have it. Sin taxes are simply the latest revenue grab disguised as socially beneficial and fiscally responsible.

(No, I don’t smoke, and I eat a fairly ‘healthy’ diet, yet I don’t see why people need to be punished for the way they consume their calories, while being free to expend them in any risk taking manner)

WEIRD people: Western, Educated, Industrialised, Rich, Democratic... and unlike anyone else on the planet

The Ultimatum Game works like this: You are given $100 and asked to share it with someone else. You can offer that person any amount and if he accepts the offer, you each get to keep your share. If he rejects your offer, you both walk away empty-handed.

How much would you offer? If it's close to half the loot, you're a typical North American. Studies show educated Americans will make an average offer of $48, whether in the interest of fairness or in the knowledge that too low an offer to their counterpart could be rejected as unfair. If you're on the other side of the table, you're likely to reject offers right up to $40.

It seems most of humanity would play the game differently. Joseph Henrich of the University of British Columbia took the Ultimatum Game into the Peruvian Amazon as part of his work on understanding human co-operation in the mid-1990s and found that the Machiguenga considered the idea of offering half your money downright weird — and rejecting an insultingly low offer even weirder.

"I was inclined to believe that rejection in the Ultimatum Game would be widespread. With the Machiguenga, they felt rejecting was absurd, which is really what economists think about rejection," Dr. Henrich says. "It's completely irrational to turn down free money. Why would you do that?" (here)

A recent paper by Dr Henrich and colleagues from the University of British Columbia investigates the psychological differences between WEIRD societies and other societies. In a deep examination of the literature, Henrich shows that while many basic similarities remain common to Homo sapiens, cultural factors play a large role in determining many psychological dispositions. Such differences occur when examining fairness, individualism and cooperation.

For me one standout finding was that the income maximising offer for the ultimatum game (discussed in the introductory quote) was a mere 10% of the total sum for most cultures in the review, while in typical WEIRD cultures a 50% offer was income maximising (see graph below).

So what environmental factors contribute to the difference?

I have a few suggestions:

1. How many repeated games will be played? Comparisons across cultures need to be certain the whole game is identical, including the number of iterations.

2. Is there a prior relationship (individual or cultural) between the parties? In small societies where every individual is known to every other and may have a hierarchal relationship, the behaviour in the game may reflect this. For example, a younger person may never refuse an offer from an older person?

3. Is the aim of the game communicated properly? For example, if each party is told to ‘get the best result for themselves’ it may fail to acknowledge that sharing of income may later occur, so it is best to accept all offers and later share the spoils.

4. Was the wealth effect considered? If the sum of money at stake was relatively small, there is a very minor loss for risk of pursuing a ‘fair’ outcome. However, if the original sum to be share was extremely high, it may be opportune to accept a 10%, since it is still a substantial payout.

While it is difficult to be certain what factor explains the cultural variation, and whether the experiment itself is representative of normal social behaviour, the results suggests that perhaps societies commonly perceived as individual and self centred, actually have a greater sense of fairness and equality than the more remote tribal societies.

Henrich goes on to examine attitudes of collectiveness and individualism and finds the opposite result – that WEIRD societies are far more individualistic in their decision making whereby they make decisions with consideration of their own benefits and ignoring the broader social benefits.

This conflict between the ultimatum game and individualism is not reconciled in the study.

In all, this type of study highlights that social interactions and consumption and production decisions are far more complex than traditional economics reveals. No doubt the reaction from many economists will simply be that all these cultural variations are incorporated into peoples’ preferences, and that is how they enter economic decisions. Yet there must be a strong feedback between preferences, decisions, experience and back to preferences, which forms the basis of cultural variation, much of which cannot be explained in other ways.

Henrich’s study may very well mark the beginning of a new branch of ‘cultural economics’ that seeks to explain just this dilemma.

Is Australia the best place to raise children?

This HSBC report ranks Australia as the best place to raise children for expats. IN fact, the media release suggest that the Expatriate Survey reveals the expats ‘say Australia is the best place in the world to raise children’. What it doesn’t do is justify that claim.

The report is based on a sample of 30 respondents from each country and they are asked to compare the various factors about raising children, such as child care costs, amount of junk food eaten, and time spent playing outdoors, with what occurred in their home country.

This may be interesting, but it is no way to rank a country’s performance. Without knowing the country of origin of the expats it is impossible to make a controlled comparison. For example, if the majority of expats in the sample living in Australia are from the UK, and the majority of expats living in the US are from Australia, we get a nonsense conclusion that Australia is the best country (because the difference between the UK and Australia is highest), even if the US is ranked in preference to Australia.

The rankings are the result of the difference between the country of origin and the new country without knowing the country of origin. The way to be highest ranked is to have the most expats from much poorer countries so that the positive change experienced is greatest.

Don’t misunderstand me. Australia probably is one of the better countries to raise children and could easily be the ‘best’ out of the comparison countries (UK, US, Singapore, UAE, Hong Kong). But this report is a classic example of how conclusions do not match the facts presented.

You don’t have to look far to find other cross-country comparisons of family well-being with utterly unsurprising results.

Is it all about GDP and growth?

(Guest post from Christian)

So if you believe the numbers, in the recent downturn, Australia managed to avoid 2 consecutive quarters of negative GDP growth and therefore had no recession.  This is an often proudly quoted fact by various Australian politicians and economists as a sign of the strength and resilience of Australia's economy and its wise management.  But what exactly does it all mean for the people of Australia?

GDP is one of the most often used measures of the wealth of a nation.  Therefore wealth creation can be measured in terms of the growth rate of GDP, in either nominal or real terms. So in this sense, Australia avoided 2 consecutive quarters of diminishing wealth, and (again assuming you believe the numbers) is rolling along nicely with low inflation and a reasonable rate of growing wealth.

However, GDP is just one popular measure of a nation's wealth in dollar terms.  In my opinion, if we are looking to value national wealth then it will necessitate a subjective measure, since each person places their own value on a dollar, a good, or a service.  We also need to take into account the value each person places on social factors such as crime, or environmental factors such as air quality.   Anything that contributes to bringing an emotion – positive or negative - to a person would be valued by that person.  So, all these factors will contribute to national wealth.

When measuring a nations wealth on GDP growth some of these key elements of national wealth are  not captured.  So if a democratically elected government has a duty to maximise the wealth of its people then this definitely will cover factors which are not measured by GDP.

It looks like the French cottoned onto this a while ago, establishing establishing a commission to look at measures of progress with a wider scope.  

In the end it comes down to each individuals expectations and perspective.  And this means it is difficult, if not impossible, to measure a combined group of different people's values on all the above factors and arrive at an accurate aggregate.  Even if we assume that each individual within a country has the same values and use a subjective survey to make an average measure, then we can't even compare the result between 2 or more different countries as the measure is subjective to each country.  You can assume, but it is still just a plain false assumption that everyone has the same values.

So what is an alternative?

Quality of life is measured by the Human Development Index (HDI) published by the United Nations - but again it is using numbers which each person would value differently.  Life expectancy, literacy rate etc etc.  These measures miss what quality is all about.  For example we need to measure NOT how long a person lives (quantity) but how much they actually live or the enjoyment they get from it (quality).  I believe the HDI is a step in the right direction, but I fear that any statistical measure will continue to disregard the unquantifiable factors which really make up quality of life.

Recently, renowned economist Sir Partha Dasgupta put it like this -"As long as we rely on GDP and HDI, we will continue to paint a misleading picture of economic performance.  So successful has this enterprise been that if someone exclaims, 'Economic growth!', no one needs to ask, 'Growth in what?' -- we all know they mean growth in GDP."

At the moment there seems to be an intense focus throughout the world on GDP growth and inflation in macro economic comparisions.  The targets are maximum growth in a low inflation environment.  However I feel, firstly, we can still improve national wealth without necessarily meeting these targets. Secondly, we could actually be destroying national wealth whilst meeting these targets.  Any thoughts?

Friday quick links

1. Most findings of statistical research are false, and can be easily demonstrated to be so.  If I haven't convinced you to scrutinise statistics carefully, then this may. Warning: the linked paper is a little nerdy and mathematical.

2. Is prescribing a placebo a good idea?

3. One laptop per child and a computer on every student's desk - some evidence that computers help children learn computer skills, but detract from their learning of other more basic skills such as maths and English. 

4. My interest rate bet looks shaky - straight from the horse's mouth.

5. Moral self-licensing is when doing something good in one part of your life helps you justify doing something bad in another part.  This 'green' consumer experiment is a classic - ..green shoppers, however, earned on average 36¢ more, showing that they had lied to boost their income.

I must say that in moments of raw self-reflection I can see myself issuing a subconscious (sometimes conscious) moral licence.  'I've been good for a while, now I can justifiably do something bad" 

Maybe it has something to do with our upbringing.  I know that I often reward my son with otherwise 'bad' foods (he loves Jatz crackers) when he has behaved well.  It would be nice to conduct a cross-cultural comparison on this topic. 

It is also a example of actively reverting to the mean.  People think they are at the extremes of socially normal behaviour, so they do something that is at the other end of the spectrum to keep themselves in line with others.

Are economists cheapskates: A case study

Lately, economists have been copping it from all angles.  They have been widely acknowledged as cheapskates, following this Wall Street Journal article.


My personal view is that economists are either; (a) more aware of the satisfaction they derive from various goods, services and activities (they know their utility), or (b) studying economics makes us more aware of which choices provide more satisfaction.


I tend to agree with this point about economists, and myself in particular (from here):
They are cheap in the sense that they need to be convinced of an item's value—and be convinced of the fact that there is no cheaper way of getting that item—before paying up. They hate being wasteful, and they take a cold, scientific approach to maximizing efficiency.



When I consider any purchase I generally think in terms of opportunity cost - what else could I be doing with my time or money that would provide myself and my family greater satisfaction.  For example, when I consider a $10 purchase, I weigh up the new item against other things I could have for $10, such as a take away lunch, the ingredients for a home cooked dinner, a book from an online store, fuel for the car to travel about 80kms, and so on.  I am even aware that it takes me about 20mins of work to earn this amount after tax.  It's not like I think everything through in this way, but I am aware of it, and for items I am on the cusp of purchasing, this awareness helps me to be ruthless in culling unnecessary spending.


So it is with this attitude in mind that I bring your attention back to the photograph above.  Next weekend we are heading to Stradbroke Island for a holiday with some friends.  Both families are squeezing in to our car to reduce fuel and ferry costs (and you always get great conversation jammed in the car on road trips), so we will need some more space for a few things.  


Here's where the economist in me really shines through.  Ready made roofracks to suit the car cost between $300 and $400.   That's the almost the cost for the whole family holiday, about a weeks rent, a couple of days work, a return airfare to Melbourne and so on.  


The value to me is marginal.  We will probably only put surfboards up there, maybe a stroller, so the only real difference to the trip will be that I will swim in the mornings for a couple of hours instead of surfing, and may have to carry a child when they are tired. 


Instead, I bought some bolts with the correct thread and cut some timber to fit.  There you have a $9 roof rack, which in my mind, is equally as functional.  Of course there was a couple of hours work involved, but I actually enjoyed a bit of tinkering and couldn't have worked those hours anyway (I was home with my toddler).  


By the way, if you read the linked WSJ article, I would not have sent a friend money to hire removalists for a few reasons.  


1. I enjoy a bit of heavy lifting now and then.
2.  I enjoy the camaraderie when friends pull together to help out.
3.  I enjoy the hard earned beers afterwards.

Economics of work and leisure

Recently, I cut back work to 4 days a week with a surprising result. Rather than feeling like I am enduring marginally less of a bad thing, I am actually finding work more challenging and interesting – even though I am surrounded by the same public sector circus.

I feel like a 20% cut in work has resulted in an 80% improvement in my work satisfaction, rather than merely a 20% boost.

As an economist I really shouldn’t be surprised. Economic theory suggests an optimal work time – there are decreasing marginal benefits to work (in terms of pay), and increasing marginal costs (in terms of time, level of stress, level of frustration etc).

But this experience (and the popularity of this television show) has got me thinking about how the wellbeing of society at large can be improved by working less.

I want to start this analysis with a simple question. Why do so many different jobs, using different skills, different degrees of physical and mental effort, in different locations, all seem to require a single person for about 40hours per week from Monday to Friday, 9am to 5pm, with 4 weeks holiday per year?

My best explanation is that by standardising the work week and adjusting the number of workers to suit, we get two benefits. First, we have a coincidence of work time. Most jobs require interaction with others, whether as part of a manufacturing process, or as part of a service industry. The second benefit is that we have a coincidence of leisure time. We all know that most people will be available on weekends or evenings for shared leisure activities.

Once the five day week is standardised, we find industries which require workers on evenings and weekends having to pay more for labour. The social norm of higher valued time on weekends and evenings, due to coincidence of leisure, then became embodied in legislation.

Surely there is a loss to society from this standardisation? People will value leisure time differently, and value the coincidence of leisure differently? Thus any regulations enforcing a standard work week will be inefficient in the economic use of the term.

This is true. But as is often the case, there is a trade off between economic efficiency and social cohesion.  Too much work and leisure coordination can result in problems like in the photo above (see the source for more)

Maybe it is time to move away from the standard week, with more casual and part time positions, as a way to improve efficiency. This is already happening. To maintain social cohesion is a casualised workforce, coincidental leisure time can be achieved by declaring more public holidays (Australia currently has about 11 public holidays – 3 at Easter, 3 for the Christmas/New Year period, leaving just 5 for the rest of the year. Sweden has 16 for example, and Japan 15.) I’m sure there are plenty of politically attractive opportunities to declare more holidays – Sorry Day (13th Feb 2008) is one that stands out.

Given my experience moving to a part time job, the idea of a more flexible workforce and more public holidays stands out as a simple way to improve wellbeing in our society.

Those crazy French

The French have a reputation for pursuing the art of living. An appreciation of the finer things in life is a typically French quality. Their government reflects that pursuit back to the people through policies that reduce the hours of work of full time jobs, and that enable plentiful holidays. Their President, Nicolas Sarkosy, percieved as womaniser and playboy by some, embodies the French passion for life.

Sarkosy is now considering redirecting his government to use measures of happiness as a benchmark for progress; much like the quirky Kingdom of Bhutan, whose King Jigme Singye Wangchuck introduced Gross National Happiness as a measure of Bhutans progress in the 1970s.

It makes me wonder how subjective these measures might be, and how they will deal with the problem encountered by economists studying happiness - that after a shock to peoples happiness (death in the family, loss of job etc.), they return back to their equilibrium state rather quickly.  As a society, does this mean that this measure may lose validity, as the population has an equilibrium level of happiness that is not determined by external factors?  Poor government decisions would quickly drop from the radar as people returned to their previous happiness level. 

I can answer that one myself - no.  Because the measures being discussed are simply subjective weighted averages of external measures, such as air quality, income inequality etc.  The happiness measure therefore faces the problem of reconciling these subject external measurements with peoples actual self reported happiness.

Another interesting problem facing happiness researchers is that they can find very counterintuitive results.  For example, a new job actually decreases happiness, rather than increases it as would be expected.  An of course there is the Easterlin Paradox, which suggests that wealth is not an important factor in happiness.

But, in the end, what gets measured get managed.  If we as a society strive for progress of a kind that reflect our values of fairness, equality and our environmental concern, then maybe Gross Domestic Happiness is the tool for the job.  Maybe, it's simple another example of politicians playing politics.

Happiness, facebook style

Although spiritual leaders would suggest that happiness comes from within, recent research is suggesting it may also come from without.

You know the feeling, when someone laughs uncontrollably, you just start laughing as well for no reason – simply because they are laughing. Well this type of reaction is known as ‘emotional contagion’ and may describe why some groups of people always seem to throw a great party while others seem to be able to spoil the mood every time. A group of dominant and happy people can actually make others in the room happier.

Thinking of friends of mine I know there are some who are constantly happy, and probably part of bond between us is the mutual benefits of happy emotional contagion. And of course, this is likely to result in a feedback loop where one happy person makes others happy, and others who are now happy make the original superstar even happier.

Just throwing it out there, it probably happens in reverse as well. Unhappiness rubs off too. Maybe try whistling in the streets and see if you can rub off some happiness.

What does the economy produce? Hunger, humans or happiness?

It occurred to me recently that the economic system does not really produce anything. From our individual perspective it appears that many goods and services are produced... but what then? Adam Smith famously said that 'consumption is the sole end and purpose of all production', so everything we produce is subsequently consumed, leaving us with...?

We might think that this makes no sense. We produce goods to consume them - that is the purpose and the point. But what happens then? We consume goods and services and then we supply our labour to produce more goods and services, which are ultimately consumed and so one and so forth.

The economist would say that we produce utility. That is, some kind of happiness or satisfaction in each of us from the act of consumption. But much research suggests that happiness is determined internally once some basic human needs are met. So if all this production and consumption is not producing happiness, what is it producing?

From a physical perspective, some ecological economists have suggested that all the functions within an economy are interdependent. We think the production as a one way street, but the consumption of food, housing and entertainment is necessary for the supply of labour, which goes back into production. It could be imagined that there is no real production in the economy. It is simply a system that enables humans to fulfil their basic biological desire to reproduce and support a growing population. We could then say the economy produces people, but that again would be arbitrarily confining the system, since as suggested earlier, people are a functional part of the whole.

Maybe this is a strange way to view the world. A system without purpose that produces nothing. But in fact Darwin would suggest that is a good way to describe it. That is how he described biological systems - a system based on variation, inheritance and selection, with no forethought or purpose. We are just animals after all.

Anyway, for those out there who like to blame the political, economic or banking system for the world's ills, and think there must be some alternative, relax. There isn't. Many of the worlds problems, from poverty and human rights issues, to environmental issues stem not from our institutional systems, but from greater biological evolutionary systems that blindly created humanity in the first place. Any political or economic system will suffer the same fate.

So please relax and enjoy yourself - because happiness comes from within.