The Darwin Economy

"The Darwin Economy", subtitled "Liberty, Competition, and the Common Good", is a 2011 book by Robert H. Frank, a Cornell economics professor. 272 pages. Frank has published several other books.

I found this book fairly disappointing, for reasons I will detail. So I won't do a Cliff Notes level summary.

Without trepidation, then, I offer the following prediction. One century hence, if a roster of professional economists is asked to identify the intellectual father of their discipline, a majority will name Charles Darwin.

If the same question were posed today, of course, more than 99 percent of my colleagues would name Adam Smith

The main idea of the book is that Adam Smith's Invisible Hand is completely unreliable as a means of assuring good outcomes in economies or societies. Darwin's idea that strategies that benefit the individual quite often harm the species as a whole is a much better way to look at things. Traits that are involved in sexual selection quite often turn into an arms race. For example, the antlers of a male elk have evolved to be larger and larger so that the elk can defeat rivals in battles for access to females for breeding. But the large antlers impede their movement through forests and make them more vulnerable to predators, so they are bad for species survival.

It seems to me that there are then 2 flavors of sexual selection:

1. As in the elk example, development of hardware that allows a male to defeat other males in combat for access to breeding females.
2. What I had thought of as sexual selection before: traits that don't aid species survival, but "chicks dig it": the peacock's tail, language and music in humans.

The 1st chapter of the book "Paralysis", talks about how our paralyzed government is unable to address the ever-increasing problem of wealth inequality. I found this statement, which he repeats later in the book, interesting.

Nor will business investment spark recovery, because most firms already have more than enough capacity to produce what people want to buy.

So maybe, no wonder corporations did nothing with their recent increased profits due to the 2018 tax cuts but stock buybacks - no point in building more factories if they already can produce more than they can sell. Can you say, post-scarcity economy?

Ha ha, here's an interesting new word to describe our current system of government: "ignoramitocracy—a country in which ignorance-driven political paralysis prevents us from grappling with even our most pressing problems".

The book seems to me to go off the rails in that it seems to be written as if the target audience is "rational libertarians" - libertarians who don't believe as a matter of dogma that all government and taxation is a violation of their liberties. From his Wikipedia article, Frank doesn't seem to be a libertarian. And he is clearly in favor of trying to fix the inequality problem. So why does he devote so much of the book with arguing with libertarians, as if they are the keepers of some worthwhile knowledge, rather than just selfish pricks?

I mean, the book's last chapter is titled "The Libertarian's Objections Reconsidered". With John Galt featured as a serious person to be discussed. Seriously? F#ck a bunch of libertarians. They are a fringe group at best, why is Frank so concerned about them?

And I was annoyed when he had the 2 participants in 1 of his thought experiments to be named "Rand" and "Paul". Our junior boy-senator continues to devolve into more and more sleazy behavior, as long as it gets him some attention. I really don't like to be reminded of him.

One principle Frank refers to frequently is that of John Stuart Mill: "preventing harm to others was the only legitimate reason for restricting individual liberty". He expands this principle to include indirect harm.

Frank also references John Kenneth Galbraith:

The late John Kenneth Galbraith, for example, stressed the contrast between the “traditional sequence” envisioned by Adam Smith's modern disciples and a “revised sequence” that Galbraith saw as a more accurate portrayal of the modern marketplace. In the traditional sequence, consumers enter the market with well-formed preferences, and firms struggle to meet their demands as well and cheaply as possible. But in Galbraith's revised sequence, powerful corporations first decide which products would be most convenient and profitable for them to produce, and then hire Madison Avenue hucksters to persuade consumers to want those products.

One good issue that Frank raises is relative vs absolute needs or position.

Reproductive fitness is thus a quintessentially relative concept.

...

Expenditure categories that are more easily observed—such as those for cars, clothing, and jewelry—should also tend to be more positional than those that cannot be observed, such as those for insurance.

...

On balance, then, the prediction is that savings is nonpositional

This reminds me of the old joke, that if you and a companion are being chased by a bear, you don't have to be faster than the bear, you just have to be faster than your companion.

[I was going to put this at the end, I'll go on and do it here. I decided to read this book after it was referenced by this blog post by David Brin, in this passage:

Robert Frank ... asserts that – as one supporter put it - there is a homeomorphism between, on the one hand, natural selection and economic competition for absolute goods, and, on the other hand, sexual selection and economic competition for relative (positional) goods.

I thought this was a great insight. But Frank actually never says this?!?!? In consultation with The Google, I was unable to determine who actually said this. And meanwhile, Brin, who seems to be wanting to found a cult of Adam Smith, takes offense at Frank wanting to displace his hero with Darwin.]

Frank talks about why there are not more worker-owned companies. I don't know that he really concluded anything.

He talks about misguided efforts to shrink government which wind up costing us all more $$$ in the long run.

He talks about "expenditure cascades" - consumerism and conspicuous consumption spreads from the upper income levels of society to lower levels as well.

He proposes to tame positional consumption by replacing income taxes with a progressive consumption tax. This would reward saving, but, so what? The world is already awash in capital. There is no mention of a Piketty/wealth tax.

In general, Frank wants to use taxes rather than regulation to control bad behavior. I'm not sure this is a good idea. This just makes bad behavior - pollution for example - a budget line item. If the bottom line is still in the black, corporations are fine with that, it's just part of the cost of business. Meanwhile, the rest of us get poisoned. As with the lack of jail sentences for Wall Street fraudsters after 2008, hefty fines won't stop corporate bad behavior. You need to attach personal peril, to put people in jail for transgressions. So we need laws and regulations, not just taxes.

Of course, and I think Frank says this, our current oligarch rulers and their GOP flunkies have no use for either regulations or taxes, so, for now, this is a moot point.

This is an interesting point: "opportunities for causing harm to others clearly increase with population density". Hence the need for more regulation and law in cities than in rural areas.

Frank also has a chapter on "Success and Luck", where he notes that luck is probably more important than hard work, creativity, anything, in being breakout successful. I think we have seen this meme before. I personally was the beneficiary of a very lucky business break. Hard work is a given, but it it is still more luck than anything that leads to a significant liquidity event. Studies have shown that there is no correlation between CEO salary and bonuses and CEO performance. Ha ha,

These managers also enjoy remarkably favorable tax treatment, for reasons that no one can seem to explain with a straight face.

Frank also mentions the mythical "Tragedy of the Commons". As we learned here, the Tragedy of the Commons is a myth promulgated by advocates of privatization. Managing a commons is not that hard a thing to do.

From the halfway point on, Frank leans heavily on Ronald Coase - "the world's foremost authority on behavior that causes harm to others". And we then partake in many examples in which all conflicts are resolved by computing how much different solutions will cost the participants, and then implementing the cheapest solution.

I have 3 problems with this:

1. We previously encountered Coase in "Misbehaving", and there found that behavioral economics had shot holes in the Coase theorem.

2. So many of the examples in this part of the books use homo economicus at the peak of his powers:

   the best available metric for assessing the strength of such feelings is the amount they'd be willing to pay for what they want.

   ...

   Talent and temperament are again assumed to be perfectly observable.

   For example, in a thought experiment with a smoker and a non-smoker rooming together, they are able to assign $800 as the value to the smoker to be able to smoke in the shared digs, and $1600 as the value to the non-smoker to be smoke-free. Seriously? This is just silly - the smoker would find another smoker for a roommate, ditto for the non-smoker.

   We learned in "Doughnut Economics" that getting rid of homo economicus was way #3 of 7 in thinking like a 21st century economist. So finding him so prominently featured here was definitely off-putting.

3. Frank says that liberals are offended by using cost-benefit analysis on everything. Yes, for some things that is true for me. Maybe cost-benefit analysis on providing adequate nutrition, education, etc to children who don't have it would show that we should feed, educate, etc all children. But, if it doesn't, then f#ck cost-benefit analysis.

   Meanwhile, as a scientist, I am indeed offended by invoking homo economicus, pulling meaningless numbers out of your ass, computing with them, and then pretending they have even the slightest worth.

In summary, I wish "The Darwin Economy" had had a lot more Darwin, and a lot less Coase, homo economicus, cost-benefit analysis, and libertarians, "rational" or otherwise. But here's a good quote from the last chapter:

We need good government because individual and societal goals are often squarely in conflict. When they are, it's naïve to expect an invisible hand to produce good outcomes.

This was my 1st economics book in almost a year, I'm really sad it was so disappointing - although I did get more out of it than I did "Value and Capital: An Inquiry Into Some Fundamental Principles of Economic Theory", J.R.Hicks, 1939 in 2015. Ha ha, I guess I better go read a bunch of science fiction!

ICYMI, here is the link to the blog post listing all of the economic books I have reviewed/summarized.