Two Books

Today we’re talking about books.

Specifically, Robert Frank’s The Darwin Economy and David Rose’s The Moral Foundation of Economic Behavior.  I believe the first–far better known–is a failure and the second–while too drily academic to gain a wide popular audience–is a success.

Frank is a widely published and well-know economics professor at Cornell’s Johnson Graduate School of Management, and definitely hails from the liberal side of the fence.  The book’s claim to fame is that Frank’s thesis that a hundred years hence Charles Darwin and not Adam Smith will be seen as the greater economist.  From the Amazon description:

Who was the greater economist–Adam Smith or Charles Darwin? The question seems absurd. Darwin, after all, was a naturalist, not an economist. But Robert Frank, New York Timeseconomics columnist and best-selling author of The Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics. The reason, Frank argues, is that Darwin’s understanding of competition describes economic reality far more accurately than Smith’s. And the consequences of this fact are profound. Indeed, the failure to recognize that we live in Darwin’s world rather than Smith’s is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.

Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself. But what if Smith’s idea was almost an exception to the general rule of competition? That’s what Frank argues, resting his case on Darwin’s insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to “arms races,” encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.

Frank’s argument moves along these lines:

• While admitting that self-interest can be channeled through competition to advance the common good, Frank thinks the more important phenomenon is its ability to diminish the overall welfare by elevating individual benefits above societal.  To make the Darwinian analogy stick, he points to the outsized antlers bull elk have developed, which help each individual male compete against others for the favors of females but which decrease the overall fitness of the species by being so unwieldy–imagine trying to escape some pursuing wolves in a dense forest with 40 pounds of wide, bony foliage on top of your  head.  Frankly, if you accept that analogy, you can thank me now; you don’t really need to read the book.
• The bull elk antler phenomenon is emblematic of a larger and systemic economic failing, to wit that relative not absolute position matters in many areas:  Think McMansions, fast cars, impossibly complex wristwatches, CEO compensation, and trophy wives. 
• As with any arms race, it’s extremely difficult for individuals, households, or companies for that matter, to unilaterally drop out.  The transaction costs (Coasean sense) of negotiating a collective-action solution to the spiraling demand for expenditures (which, much like everyone in a stadium standing up to get a “better” view, leave no one better off) are insurmountable.
• The solution government intervention in the form of regulation and in come redistribution.  And the “proof” of this is anecdotal as, for example, in Frank’s observation that while one individual hockey player might gain an advantage by doffing his helmet (presumably to see and hear more acutely), the NHL has rightly decreed that helmets are universally required.

So far so good, you might be thinking, and you will be relieved to know that if you are on Frank’s side to this point you are not–one of his unfortunate but favorite ad hominem phrases–a “libertarian evangelist.”  My problem is that I fear Frank is a “government evangelist.”  Consider:

• If the private sector is subject to Darwinian failures, why is the government immune?  Of course it’s not, and rather than omniscient and benevolent politicians and regulators we have “regulatory capture,” unprecedentedly intense lobbying efforts, and the decided (and yes, rationally defensible in the precise sense of Darwinian failure) preference for altogether too many economic actors to seek politically-bestowed “rents” rather than competing openly and fairly.
• About a third of the book is devoted to Frank’s view that the government “beast” has been “starved,” and is being forced to manage on fewer resources than ever.  This is demonstrable nonsense.  Government spending as a share of GDP has remained steady or risen throughout the western world virtually throughout the post-World War II period; if our infrastructure, say (as Frank says) is decaying, or if our public schools are doing a deplorable job, it’s not for lack of resources.  (New York spends about 170% of the national average per public school student per year, so I find it hard to believe the handwringing over schools here can be laid at the door of “starving the beast.”)
• Most importantly for me is another question altogether:  Did the people “overspending” on their McMansions and their Rolexes come by their wherewithal in a fair and just fashion?   If they did, I’m extremely skeptical of governmental efforts to second-guess what they spend their money on.

And this is the real problem with Frank’s book:  He’s talking about fringe or “edge” phenomena in modern economies.  Can competitive consumption fail to advance the common good?  Sure.  Are people who engage in those games doing so voluntarily and with their eyes open.  Same answer:  Sure.   No one is conscripted into these gladiator jousts.  Sam Walton, one of the richest people on the planet, famously drove a rattletrap pickup truck everywhere, and Warren Buffett has lived in the same unprepossessing house in Omaha for decades–not was Steve Jobs’ Palo Alto home anything grander than a once-upon-a-time California tract home in a nice enough neighborhood–but no gated community.

On reflection, the real problem with The Darwin Economy is that it smells suspicioiusly like an extended argument written in support of a pre-ordained and thinly veiled ideological conclusion and not a case of following where the data leads you.   This smacks of tendentiousness and creates an aura of pandering to, or attempting to lead by the nose, the reader.

[Trivia fact, extra points:  Charles Darwin and Abraham Lincoln were both born on February 12, 1809:  The most important single day in the 19th Century?   History “what-if” buffs, have at it.]

Book #2 is, in contrast to Frank, clearly a product of deep thought, nuanced, insightful, and one strongly suspects the result an author who started out by asking deep questions because he genuinely wanted to see if he could figure out the answers–blessedly without presuppositions.

Here’s the question Rose opens the book with:

If a society’s sole objective is to maximize general prosperity, and it can choose its own moral beliefs, what kind of moral beliefs would it choose?

This is reminiscent, of course, of John Rawls’ “veil of ignorance” (although Rawls is squarely a topic for another day, if ever).

Rose’s basic answer?

• Opportunism is the fundamental impediment to development and maximizing general prosperity;
• But humans’ natural reluctance to indulge in opportunistic behavior weakens the larger the group we interact with (the famous “Dunbar number” positing that the maximum group size we can effectively keep in our consciousness is about 150 people), yet maximizing economic growth and complexity depends on vastly increasing the scale of the economy;
• Trustworthiness thus becomes the value most antithetical to opportunism;
• Trust can ultimately be based only on moral beliefs;
• Since these moral beliefs, if they’re to be embraced on a large scale, cannot depend on membership in a specific religion or group, they have to emerge across a society based on a combined embrace of abstract ideas that are learned;
• Thus becoming matters of culture–which truly matters.

Now, before I tell you more about this book, a caveat: It’s over 220 pages of fine print with 30 pages of notes and bibliography, and it’s full of sentences such as: “Batterjee, Bowie and Pavone (2006, p. 303) summarize much of the theoretical literature nicely: A growing literature of trust underscores its importance to economic life (e.g., Gambetta, 1988; Misztal, 1996; Rousseau et al. 1998; Smith et al. 1995).”

You get the picture.

But all that said, Rose comes across as sincere and questing, pretty much the opposite of Frank, who comes across as sanctimonious and incurious.

Better yet, speaking here for the home team, Rose affirms that “Adam Smith was a moral philosopher” (p. 7).

If you’re interested in Rose’s basic argument, here it is:

• The key to prosperity is specialization;
• But this requires large groups;
• Which invite opportunism;
• Opportunism in itself can be perfectly rational to each individual actor;
• The only antidote to which is moral constraints enforced through feelings of guilt;
• But guilt only gets its “teeth” if people can sympathize with others and, more importantly, empathize with them by envisioning the consequences of the harm that indulging in opportunistic behavior would visit upon others;
• Which is enough of a deterrent to eschew opportunistic behavior.

Whew. That’s a cook’s tour of the first five chapters of the book, but Rose is one of the most thoughtful and truly innovative thinkers I’ve come across in quite some time.

Rose explicitly stipulates that the “moral constraints” and feelings of guilt he’s advocating do not arise from and aren’t tied to any religion, creed, or historic legacy; they are imbued in the culture of the few fortunate “high trust” societies.  (This implies to me that they can also be lost.)  All in all, it’s a fascinating take on the preconditions for high growth, high prosperity economic performance.  No wonder we haven’t been able to force-graft it onto places like Iraq or Afghanistan.   

You don’t need to read either book.

You don’t need to read Frank because it’s disappointingly tendentious, and based on a few catchy anecdotes (the bull elk antlers) that don’t age well. I can only predict it will have little staying power.

You don’t need to read Rose because it’s hard going and written in fundamentally academic prose. But you will read and read and read about the fallout from his thoughts.