Toward a More Fully Darwinian Economics

(Reposted from the Agenda. I haven’t found time to write the past couple of days.)

Robert Frank’s latest book, The Darwin Economy (compressed in the National Interest here) is getting a lot of buzz. I found it, like all of Frank’s work, very illuminating. But while Frank is a sharp, deep and serious economist, not all of his readers are. I want to push back not so much against Frank’s carefully chosen words as against the less-careful interpretations I’ve found on my progressive friends’ Facebooks and blogs, where The Darwin Economy is held as a revolutionary and devastating riposte to free-market economics. I’m skeptical.

Frank frames his argument around a “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,” rather than Adam Smith. Darwin, he says better understood competition, and how “positional goods” pit the interests of the individual against those of the species. (Consider the example of the ill-fated Irish elk: Each incremental advantage in antler size helped each Elk’s chances of mating and reproduction. But over time this produced a very unwieldy, and very extinct, species.) This, Frank says, refutes the Smithian belief that perfect competition channels private interests into public good.

Fair enough, but how serious is Frank’s prediction? Even if Darwin grasped aspects of competition that Smith missed, why would this make him economics’ founder in place of the man who (a) predated him, (b) still gave a pretty good take on competition, and (c) studied the economy itself, as opposed to giving us conceptual tools that could be applied later? If Darwin replaces Smith on that basis, then shouldn’t mathematical game theorists replace Darwin next?

But Frank’s prescriptions are more important than his predictions. Mainly, he argues for a more progressive tax schedule, based on his claim that high income is, like a great pair of antlers, largely a positional good. If the wealthy are mainly motivated by relative position (that is, status) rather than absolute income, raising taxes on all of the wealthy should leave their incentives to work, and even their happiness, unharmed. This should soothe the concern that tax hikes on the wealthy will sap productivity. And so, my progressive friends conclude, we can soak the rich without feeling guilty or hurting GDP. Maybe. But this ignores a much simpler and more persuasive argument against soaking the rich: If we don’t think the government is likely to use extra revenues wisely, we shouldn’t raise taxes even if the wealthy don’t really “need” their absolute levels of income.

And this is a pattern — Frank and his readers do a great job finding interesting ways to think about market failures, without thinking equally hard about the kinds of government failures involved in their alternatives.

To see what I mean, consider one of Frank’s own examples: In order to give their kids the advantage of going through a good school system, parents work longer hours to make higher incomes to afford the property needed to live in the best districts they can. But when all parents do this, no one’s kid gains an advantage, and all have greater stress and debts. I think this story has some truth, but — at the risk of coming off as jeering — it is strange indeed to point to public education as a paradigm for market failure. We jostle for high-price properties precisely because our choice of schools is constrained by law and determined by residence — that is, because education is not a fully competitive, open market. Frank’s market failure is at least in part a government failure.

And the fact that Frank didn’t put it that way may hint that he’s asymmetrically focused on the former at the expense of the latter. I can imagine a fuller Darwinian economics in which insights from evolutionary psychology could shed light on why legislators and regulators are rarely selfless and rational, or on how positional jostling might predictably bias and pervert the functioning of government agencies. That, more complete, Darwinian economics might not look so anti-market and pro-regulation.

A final note: it should be remembered that Frank’s focus is a Darwinian exception rather than the rule. The case of the gazelle — in which each gazelle’s evolutionary reward for outrunning a cheetah improves the fitness of the species as whole — is more common than the case of the Irish elk. And Darwin’s most basic insight was that species survive and flourish through variation and natural selection — in other words, innovation and the destruction of outdated models. An appreciation for that, I submit, hardly bolsters the case for an expanded public sector.


3 thoughts on “Toward a More Fully Darwinian Economics

  1. Natural selection and market selection don’t optimize in some moral sense; they optimize for whatever traits they particular constraints of the environment select for. That is, I think it’s naïve naturalism and totally ahistorical to think that there’s anything more “natural” in the government guaranteeing vastly information-assymetric contracts than there is in the government guaranteeing healthcare. This is why I don’t really like the term “free market” (whether it’s applied to some sort of vague approximation of gilded age capitalism or to a hypothetical Nozickian libertarian paradise). The only truly free market is the humanity-wide market in which not only are goods and services competitively and cooperatively exchanged, but exchange structures themselves are competitively and cooperatively modified and reshaped.

    Historically, that market does seem to have rewarded “freer” local markets. Hume and Smith were right that naïve anti-trade sentiment in Britain was holding Britain back from growth.

    So I agree that an argument that “Darwinian processes don’t always produce good outcomes for a species” is by itself a horrible argument for government intervention (government intervention just produces a new Darwinian process with different constraints), but “Darwinian processes usually produce good outcomes for a species” (if fitness = good) is likewise a bad argument against government intervention (for the same reason!).

    • Squelchtoad, this is a very sharp and compelling retort. I don’t think I can refute you, but just let me make two clarifying distinctions:

      1. There’s nothing normative about actual biological evolution, obviously. The fact that we have evolved and inclination or ability does not mean that it is good, just that it has been useful to us in our evolutionary history. And there’s no way in which evolutionary processes are necessarily ‘progressive’ in the sense that species that come later in time are ‘better’ than those in earlier periods. Definitely agreed. But I think there is something normative about what markets deliver through their evolutionary process. Why? What is selected for in non-coercive markets is the ability to meet and satisfy other people’s needs and wants. If we assume that, in general, satisfying needs and wants is a good thing, then, yes, evolutionary market processes select for ‘what works,’ but ‘what works’ happens to be a good thing.

      2. Your point that what we call a ‘free market’ takes place underneath an institutional structure that has not been selected through a competitive and cooperative evolutionary process is well taken. Here’s a half defense of still using the ‘markets are evolutionary’ argument to support freer markets: Markets are, in a very real sense, more democratic, and capable of quicker reform, than democratic politics. If a government guarantee of a particular product doesn’t satisfy people, they will be very limited in their ability to force reform — they’ll be stifled by the concentrated interests vs. dispersed costs thing, lobbyists, legislative gridlock, etc. If the government didn’t monopolize that product, people could force change more quickly — by making the inadequate private provider go bankrupt quickly. So while you’re right that I’m sort of postponing some really difficult questions about institutional structures, etc., I still think that, in the world as it actually more or less exists, the evolutionary approach to markets still does, all else equal, help the case for at least erring on the side of markets versus government control.

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