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Another Fatal Conceit

by Michael Shermer, Mar 13 2012

The lesson from evolutionary economics is bottom-up self-organization, not top-down government design

A review of The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank. Princeton University Press, 2011, 240 pages. This review appeared online in the Journal of Bioeconomics in March 2012.

When I entered the world of competitive bicycle racing in 1980 no serious cyclist wore a helmet in training, and the leather “hair net” required by some race organizations—thin bands of leather-wrapped cotton stuffing—did nothing more than prevent your hair from getting mussed upon impacting pavement. Bell Helmets already had the technology from their motorcycle division to make a viable crash-tested safety helmet for bicycling, but elite cyclists are an elitist cohort that follows the trends of what looks good as much as what works well. The perception at the time was that a helmet was delimiting on performance and made you look like a “Fred”—two-wheel-speak for geek. Even if an individual cyclist wanted to don protection, unless everyone else did as well the competitive choice was to race sans helmet. When I was sponsored by Bell to compete in the Race Across America—the 3,000-mile nonstop transcontinental bicycle race—they engaged me to help design a helmet that elite cyclists would wear that would, in marketing theory, inspire the masses of two-wheelers to follow in emulation. We came up with the V1-Pro, a model that aped the leather hair net in design but was made of the same compressed polystyrene foam utilized in motorcycle helmets for absorbing the energy of an impact. Nonetheless, it was shunned by the pros until the Union Cycliste International (UCI)—the governing body of professional cycling—mandated the use of safety helmets for all cyclists in all races. No helmet, no race. Period. I was relieved, as were many other cyclists I knew, because I wanted to wear a helmet but didn’t want to stand out or lose a slight competitive edge. In time, as helmet use grew in popularity market forces worked effectively to make them lighter, cooler, and colorfully trendy. Now everyone wears them and we are all better for it.

1 The collective action problem

According to the Cornell University economist Robert Frank, this is an example of a collective action problem that requires top-down government-like regulation.Without such mandated intervention, people will not do what is best for themselves or the group, and this leads to market inefficiencies and moral failures. In his latest book, The Darwin Economy: Liberty, Competition, and the Common Good, Frank uses such collective action problems to make the case for why governments must intervene in economic transactions. Financial exchanges in a free market carry externalities—benefits and costs not included in the price of the transaction that is incurred by one or more of the parties involved, with or without their knowledge or agreement. In my aforementioned example, the UCI had to intervene into and mandate the use of helmets for the collective good, because individual cyclists within the collective body known as the peloton will not have the motivation to do so otherwise (Frank uses NHL hockey helmet rules as his type specimen but the principle problem is the same). From governing bodies in sports, Frank extrapolates to government agencies in society, arguing that in order to correct for market inefficiencies and moral failures we need more government regulations and taxes.

Frank’s term for this collective action problem is the “Darwin Economy,” which he derives from his understanding of Darwinism and the mechanism of natural selection. The ornate and ostentatious tail of the peacock troubled Darwin for a spell because natural selection holds that animals should evolve characteristics that protect them from predation. The peacock’s radiantly colorful tail is not exactly a model of stealthy camouflage. “The sight of a feather in a peacock’s tail, whenever I gaze at it,” Darwin bemoaned in an 1860 letter to his colleague Asa Grey, “makes me sick.”1 Darwin resolved the paradox a decade later through his theory of sexual selection, presented in his two-volume work The Descent of Man, and Selection in Relation to Sex, in which he demonstrated how females select males based on certain characteristics they find attractive, and males compete with other males for status, hierarchy, and females.2 In Frank’s view, what is good for the individual peacock in attracting peahens by building a flamboyant tail is bad for the species in making everyone a greater target for predation; as well, building ever fancier tails is a waste of resources. If the peacocks could form a governing organization to establish and enforce rules to delimit tail design the species would be better off. In like manner, Frank continues by example, the Brobdingnagian rack of antlers on the North American bull elk may intimidate other males competing for status and mates, but it endangers the species by decreasing efficiency of escape from wolves and other predators through thickly branched forests in which said rack would become entangled. This principle of individual success versus collective failure is so important to Frank that he goes so far as to predict that his fellow economists will, in time, come to see Charles Darwin as the most important economist in history.

The human analogue of tails and antlers for Frank are McMansion homes, expensive business suits, high-heel shoes, and extravagant coming of age parties. Much of his thinking here is derived from research conducted by behavioral economists, who report that relative position on the economic ladder—“positional rank”—matters more than absolute value to most people. Once you have a roof over your head and three square meals a day, it doesn’t matter how much more money you make above basic needs as long as it is equal to or exceeds that of your neighbors. As H. L. Mencken quipped, “A wealthy man is one who earns $100 a year more than his wife’s sister’s husband.” Remarkably, research shows that given the choice between, say, a $500,000 home in a neighborhood of million-dollar mansions and a $400,000 home on a street surrounded by $300,000 dwellings, most people opt for the latter.3 They are apparently willing to pay $100,000 for the opportunity to be relatively richer even while being absolutely poorer. Economists call this the hedonic treadmill. Run as fast as you like, you’ll never get there because there is no there there, without a relative context that gives you a positional rank among your fellow consumers.4

In like manner, men competing for limited high-paying jobs will enter an arms-race with their competitors for ever nicer and more expensive suits. If everyonewore a $500 suit to the interview the playing field would be level, but when someone ups the ante and arrives in a $1000 suit, the rest of the field has to…well…follow suit. All are poorer because of it. Ever increasing height in the heels of women’s shoes is another example of a fashion arms race in which everyone would be better off in flats. Once a few start to inch up their heels, the fashion trend takes off forcing those who would not otherwise do so engage in an Achilles-tightening arms race. Coming-of-age parties suffer the same positional rank fate. When the mega rich produce a festival fit for a king for their 16-year old queen, the next economic tier down must up the catering bill to satisfy teenage wants that have been artificially adjusted upward. Money that should be spent on, say, food, clothes, health care, future college tuition, or mortgage payments, is being wasted on frivolous ceremonial one-upsmanship.

2 The hidden costs of market failures and moral hazards

Moving from examples to analysis, Frank employs a technical model developed by the economist Ronald Coase that shows precisely how economists can take into account such transaction costs in order to better understand macroeconomic phenomena and correct for market failures. Here Frank claims that the transaction costs of keeping up with the Joneses is not presently included in the price of homes, suits, shoes, and parties in terms of the real benefit to the owners, so this is an example of a market failure (and, he opines, a moral hazard) that he suggests can be remedied through a progressive consumption tax wherein these newfound liabilities would not only adjust the transaction costs to account for the hedonic treadmill while simultaneously curtailing needless consumptive behavior, it would also generate additional tax revenues from the rich that could be used to shore up our crumbling Social Security and Medicare accounts.

Once you concede the point that markets fail to correct for transaction costs and that individuals must be coerced to act in ways that benefit both themselves and the collective because they would have no economic incentive to do so otherwise, it’s Katie bar the door for adding rules and regulations, taxes and incentives right and left, and while we’re at it correct for the hedonic treadmill and the positional rank problems with some serious income redistribution from those who have it to those who don’t. So-called “sin taxes” on alcohol and tobacco are just a start. Frank would like to tax sugared soft drinks under the rubric that obesity leads directly to diabetes and heart disease and premature deaths from other causes as well. Although economists counter that such early deaths may save us money down the road had these folks lived long enough to incur massive end-of-life health care costs (in a straightforward amoral cost-benefit analysis), the sugared soft-drink consumers will be thankful in the long run that taxing their favorite sodas led them to consume less of the harmful substances. Frank admits that this could lead us down a slippery slope of taxing fried foods, ice cream, and candy, not to mention bad television sit-coms that rot the brain. “But,” he concludes, “we’re forced to go part way down slippery slopes all the time. It’s a concern we can set to one side until we have traveled further down this particular slope. Consuming large quantities of soda laced with high-fructose corn syrup clearly causes substantial harm. And as long as we’re continuing to tax saving, job creation, and other beneficial activities, the case for replacing such taxes with taxes on harmful activities is compelling.”5

3 Either way, we’re paying taxes

Libertarians and other critics of big government might counter that if, say, you don’t want to wear a helmet or pay taxes, you can go somewhere else. But where are you going to go? Just as there is only one National Hockey League and only one Union Cycliste International in which professional hockey players and cyclists can compete, so too are there no tax-free countries. As Frank notes: “Without mandatory taxation, there could be no government. With no government, there would be no army, and without an army, your country would eventually be invaded by some other country that has an army. And when the dust settled, you’d be paying mandatory taxes to that country’s government.”6 Either way, we’re paying taxes, so we might as well concede the point and get on with the business of determining with the best analytics available where, when and how much we should be taxing ourselves to solve these assorted market shortcomings.

Robert Frank is a gifted economist and a skilled rhetorician whose regular commentaries in the New York Times, coupled to his blogs, podcasts, radio and television interviews, and popular books, make him a formidable and influential public intellectual who well represents those who tend to favor top-down government solutions to social problems. Frank’s ideas therefore deserve thoughtful consideration and response, which I shall endeavor to do here from the perspective of someone who has also written extensively on evolutionary economics—what I called evonomics—in my book The Mind of the Market.7 I too start with Darwin, but with a very different outcome from Frank’s analysis.

4 Economics: the connection between Adam Smith
and Charles Darwin

Charles Darwin was not an economist and never penned a single statement or treatise on economics, so it is difficult to imagine how or why a century from now, in Frank’s words, “if a roster of professional economists is asked to identify the intellectual father of their discipline, a majority will name Charles Darwin.”8 Not likely. There is a connection between Darwin and economics, but it isn’t in the way Frank thinks it is.9 In October of 1825, Darwin matriculated at Edinburgh University where, as a matter of general course curricula, he studied the works of the great Enlightenment thinkers, including David Hume, Edward Gibbon, and Adam Smith. A decade later, upon his return home from the five-year voyage around the world on HMS Beagle, Darwin revisited these works, reconsidering their implications in light of the new theory he was developing.10 Although Darwin does not reference Smith directly, Darwin scholars are largely in agreement that he modeled his theory of natural selection after Smith’s theory of the invisible hand.11 Compare, by example, these two descriptions from Smith and Darwin:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. … He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

—Adam Smith, The Wealth of Nations, 1776, Book IV, Chapter II

It may be said that natural selection is daily and hourly scrutinising, throughout the world, every variation, even the slightest; rejecting that which is bad, preserving and adding up all that is good; silently and insensiblyworking, whenever and wherever opportunity offers, at the improvement of each organic being in relation to its organic and inorganic conditions of life.

—Charles Darwin, On the Origin of Species, 1859, p. 84

These descriptors—invisible hand and natural selection—are so powerful, and so deeply annealed into our thought and culture, that it is difficult not to think of them as forces of nature, such as gravity and electromagnetism, or as mechanical systems, such as gears and pulleys. But they are not forces or mechanisms, because there is nothing acting on the agents in the system in such a causal manner. Instead, Smith’s invisible hand and Darwin’s natural selection are descriptions of processes that naturally occur in the economies of nature and society. The causal mechanisms behind the invisible hand and natural selection lie elsewhere in the system—within the agents themselves—which is why Smith invested so much work on understanding the natural sympathies of people, and Darwin advanced so much effort toward comprehending the natural tendencies of organisms.

If there is a connection between evolution and economics—between Charles Darwin and Adam Smith—it is this: Life is intricate, complex, and looks designed, so our folk biology intuition leads us to infer that there must be an intelligent designer, a God. Analogously, economies are intricate, complex, and look designed, so our folk economic intuition is to infer that we need an intelligent designer, a Government. But as Smith and Darwin demonstrated, life and economies are not intelligently designed from the top down; they spontaneously arise out of simpler systems from the bottom up. Natural selection and the invisible hand explain precisely how individual organisms and people, pursuing their own self-interest in their struggle to survive and make a living, generate the emergent property of complex ecologies and economies. Charles Darwin and Adam Smith each in their unique way trying to solve a specific problem, independently stumbled across an elegant solution to what turns out to be a larger and overarching phenomenon of the emergence of complexity out of simplicity. Apparent design from the bottom up does not imply the necessity of intentional design from the top down.

5 Corporations as species

If there is a specific analogy to make between evolution and economics beyond a description of bottom-up self-organized emergence, it is that species are analogous to companies and corporations, not to societies and nations. In evolution, extinction is the rule, survival the exception. Most species go extinct because they fail to adapt to changing environments, and in their stead arise new species that are better adapted…for the time being anyway. The economist Joseph Schumpeter’s descriptor for this process in an economy was “creative destruction.”12 The term has been adopted by modern economists to describe the natural evolution of firms, companies, corporations, and even entire industries that go extinct and/or are replaced with new ventures better adopted to the ever-changing needs and wants of consumers.13

The meteor impact 65-million years ago that wiped out the dinosaurs opened up new niches to be filled by fledging mammals living in the nooks and crannies on the margins of ecosystems. A good case can be made that were it not for the demise of the dinosaurs we would not be here.14 That’s life. Ditto dinosaur corporations. In 1917 Bertie Forbes published his list of the top 100 U.S. corporations. By 1987, 61 of them were gone, and of the remaining 39, 21 were no longer in the top 100 and 18 underperformed the average growth in stock market value. The only company to both survive and outperform the market was General Electric. Similarly, of the 500 companies that made up the Standard & Poor’s original list in 1957, only 74 survived through 1997, at which point they had all underperformed the S&P 500 index by an average of 20%.15 In both natural ecosystems and economies, extinction is part of evolution. Think Kodak.

Kodak once so dominated the film and camera industry—at one point enjoying a 96% market share—that government bureaucrats were wringing their interventionistic hands in panic that such a monopoly could bring about market inefficiencies, or worse, Americans would get so hooked on capturing their “Kodak moments” that the film giant would force addicted consumers to pay artificially jacked-up prices. In response, the feds sued Kodak twice for antitrust violations in 1921 and 1954, opening the door for Fuji film to jump into the market. The result? Kodak and Fuji became a duopoly, and like most gargantuan organizations both grew sclerotic and failed to keep up with the digital revolution that, in the case of Kodak, saw their stock price collapse from $60 a share in 2000 to less than .50 cents a share at the time of this writing shortly after the story broke that the fearful giant was preparing to declare bankruptcy.16

Apple and Google are hot today, but who knows what a couple of grad students are dreaming up in their dorm rooms this year that in the near future will reconfigure the economic landscape? These giants—which the antitrust regulators are fretting about today—will almost assuredly turn into GM-like lumbering sloths unable to respond in time to the next shift in the economic ecology, and they too could go the way of Neanderthals. The Darwinian focus for economists should not be on societies and nations but on companies and corporations, and at this level of analysis top-down interventions are neither justified by the evolutionary analogy nor necessary for the long-term prospects of either societies or nations.

6 Peacocks and bull elk are doing just fine, thank you

In evolutionary theory, “good” and “bad” for a species is measured by “reproductive success.” The bottom line for organisms is getting their genes into the next generation. To that end entertain this thought experiment: If you were a gene what would you do to survive? First you create a means of reproduction, then you build a vehicle to house your self-replication machinery. You start with chromosomes as a template to hold your self-replicating molecules, then add a surrounding nucleus with a semi-permeable membrane for moving liquid nutrients in and out of the cell, then build yourself a multi-cellular vehicle with eyes for seeing and ears for hearing and legs for propulsion. You can greatly increase your reproductive success by reproducing sexually instead of asexually because this generates greater genetic diversity to adopt to ever-changing environments. You will also want to develop various mechanisms to avoid or prevent other vehicles that want to devour your vehicle, such as claws and teeth and wings and camouflage. You might also want to grow something on your body that will intimidate other members of your sex and to attract members of the opposite sex that is a proxy for your good genes, such as elaborate and colorful tail feathers if you are a peacock or a huge rack of antlers if you are a bull elk.

In such a thought experiment we can see that there are constant conflicts and trade offs in evolution. Heavy armor plating may be good for defending against claws but slows you up for escaping fast predators. Colorful feathers may grant you higher status and attract females, but predators will see you hiding in the bushes. Antlers may ward off challenging males and appeal to females, but you might win a Darwin Award for allowing yourself to be taken out of the gene pool by a predator. The value of such features to the species depends entirely on its overall reproductive success. If effervescent tail feathers leads to more matings with their resultant offspring than they lead to individuals being consumed by predators, then the overall reproductive success for peacocks and peahens is increased and we can say that the peacock’s tail is “good” for the species. Darwin explained such effects with his theory of sexual selection, of which there are at least two forms: (1) female selection of males based on characteristics that are proxies for good genes, (2) male v. male competition for females, status and hierarchy, and dominance. These sexual selection factors can increase the reproductive success of a species far more than natural selection through predation can decrease the reproductive success of the species. In fact, both types of selection go on simultaneously and so each case must be examined in detail to determine whether or not a feature is good or bad for a species.

This interaction of natural and sexual selection is further complicated by a mechanism described by the Israeli evolutionary biologists Amotz and Avishag Zahavi as Costly Signaling Theory (CST).17 Broadly speaking, in a CST model, people do things not just to help those related to them genetically (kin selection), and not just to help those who will return the favor (reciprocal altruism), but sometimes to send a signal that says, in essence, “my altruistic and charitable acts demonstrate that I am so successful that I can afford to make such sacrifices for others.” That is, altruistic acts are a form of information that carries a signal to others of trust and status—trust that I can be counted on to help others when they need it so that I can expect others to do the same for me; and status that I have the health, intelligence, and resources to afford to be so kind and generous. In the specific context here, CST allows us to see that a large rack of antlers or radiantly colorful tail signals to other members of the group that your genes are so good that you can afford the risk that such features may bring as a result of predation. As the UCLA evolutionary biologist Jared Diamond explained it to me in an email discussing Frank’s thesis, “animal signals have to demonstrate the validity of their intended message if they are to be believed. For example, if a male moose evolved to try to signal its superior genes to a female merely by growing a small tuft of red hair on top of the head, any scrawny lousy moose could afford to grow such a tuft, and the tuft would not be a reliable signal of individual quality. When a female sees a bull moose that is lugging around a huge set of antlers and has still survived despite that handicap, then the female can be sure that that really is a superior individual bull moose. More generally, the animal signals involved in sexual displays often or usually carry some disadvantage for natural selection, offset by an advantage for sexual selection. Thus, one can’t say that the peacock’s tail and moose’s antlers are bad for the species.”18

In point of fact, both peacocks and bull elk are doing just fine as species, contrary to what Frank suggests in his claim that such features are inefficient and therefore not good in the long run. In any case, whether or not something is good or bad for peacocks and bull elk has nothing whatsoever to do with what is good or bad for other species, including humans, especially the political economy of humans. As Diamond summarized the problem, “In addition, analogy is dangerous guidance: regardless of whether the peacock’s tail is good or bad for the peacock species, the merits of government regulation have to be assessed without reference to peacocks.”19

I would go even further. Taking Frank’s analogy seriously, not only are such features as the human equivalence of peacocks’ tails and bull elk antlers not a detriment to our species, sexual selection may very well account for most of characteristics that we so admire about our species: art, music, humor, literature, poetry, fashion, dance and, more generally, creativity and intelligence. Science itself may be a byproduct of the cognitive process of trying to impress others in order to gain status and mates by making breakthrough discoveries and formulating important new theories. The University of New Mexico evolutionary psychologist Geoffrey Miller makes a strong case for just such selective effects in his book The Mating Mind.20 Sexual selection, he argues, has driven organisms from Bowerbirds to brainy bohemians to engage in the creative production of magnificent works in order to attract mates—from big blue Bowerbird nests to big-brained orchestral music, epic poems, stirring literature and even scientific discoveries. Those organisms that do so most effectively leave behind more offspring and thus pass on their creative genes into future generations.

Thus, contrary to what Frank argues, a viable case can be made that the evolutionary arms races he so detests—men’s suits, women’s high heels, McMansion homes, and elaborate coming of age parties—are products of a larger system that drives our species to be so successful. By carrying out the biological analogy into political economy, if anything we should be rewarding the most ostentatious displays of power, prestige, wealth, creativity, health, vigor and intelligence with tax breaks and even subsidies! At the very least one could argue that a consumption tax on the rich could very well backfire and reduce the reproductive success of our species by attenuating the creative productivity that has given us so much of our culture that we cherish.

It may sound crude and unromantic to reduce the arts and sciences to little more than the product of organisms trying to impress others in order to gain status, resources and mates, but as the late Christopher Hitchens once advised me after we imbibed several doses of what he was fond of calling “Mr. Walker’s amber restorative,” once you’ve mastered the pen and the podium you need never dine or sleep alone.

7 Positional ranking, relative happiness, and individual liberty

One of Frank’s justifications for taxing the rich involves the matter of positional ranking and relative happiness. If research shows that the existence of wealthy neighbors puts me on a hedonic treadmill that I can never satisfy, legislated policy is therefore justified in forcing my neighbors to redistribute some of their wealth to me and others less fortunate. This, Frank argues, will not only adjust the positional ranking problem, it will help shore up the leaking budgets of Social Security and Medicare and Medicaid (which, with the defense budget, constitutes two-thirds of the overall budget). The problem with this argument is threefold: (1) Taxing the rich will do next to nothing for our debt crisis, (2) taxing the rich won’t make the poor any happier, and (3) positional ranking exists for a range of traits, not just for wealth.

  1. Taxing away the debt crisis. If, say, we followed Warren Buffett’s proposal for taxing the “super rich” who make between $1 million and $10 million a year at an effective rate of 50%, according to the nonpartisan Tax Foundation using figures from the IRS, this would reduce the national debt by a grand total of 1%. What about the “mega rich,” those making more than $10 million a year? If we taxed them at 100%—that is, we confiscated every last dollar made by every person in the country at this level, the national debt would be reduced by only 2%. Taxing the rich will not solve our debt crisis.21

  2. Taxing away unhappiness. In what way, exactly, will redistributing money from the rich to the poor increase the latter’s happiness or decrease their unhappiness? In fact, research shows that economic self-reliance makes people happier than economic dependency, and studies show that people are happier, healthier, and more generous when they voluntarily donate their money to causes they deem worthy, instead of having their money confiscated from them and given to causes that they may not have otherwise chosen to support. Evidence for this claim can be found in two sets of data: (A) studies on international happiness and freedom, (B) studies on national charitable giving.

    1. International happiness and freedom. Research on happiness and freedom internationally reveals that an increase in personal autonomy and self-control leads to greater happiness, and that people tend to be happier in societies with greater levels of individual autonomy and freedom compared to those in more totalitarian and collectivist regimes. The Erasmus University, Rotterdam social scientist Ruut Veenhoven, for example, conducted a comprehensive survey on happiness as a function of three social conditions: individualism, opportunity to choose, capability to choose. “The data show a clear positive relationship,” Veenhoven concludes, “the more individualized the nation, the more citizens enjoy their life.” Further, he found no “pattern of diminishing returns,” meaning that “individualization has not yet passed its optimum.”22 In other words, greater levels of individual freedom and autonomy could lead to even greater levels of happiness, and this could very well counter the alleged decline of happiness due to one’s lower positional rank.
    2. National Charitable Giving. Research on the difference between forced and volunteer giving reveals a counterintuitive finding on the differences between the political left and right. According to the Syracuse University professor of public administration Arthur C. Brooks, when it comes to charitable giving and volunteering, numerous quantitative measures debunk the myth of “bleeding heart liberals” and “heartless conservatives.” The opposite, in fact, appears to be true. Conservatives donate 30% more money than liberals (even when controlled for income), give more blood and log more volunteer hours. And it isn’t because conservatives have more expendable income that they are more generous. The working poor give a substantially higher percentage of their incomes to charity than any other income group, and three times more than those on public assistance of comparable income. In other words, poverty is not a barrier to charity, but welfare is. One explanation for these findings is that people who are skeptical of big government give more than those who believe that the government should take care of the poor. “For many people,” Brooks explains, “the desire to donate other people’s money displaces the act of giving one’s own.” In this sense, liberals feel that they already donated to the poor through their taxes, whereas conservatives believe that it is their duty, not the government’s, to assist those in need. The effects on happiness are measurable in terms of societal health: charitable givers are 43% more likely to say they are “very happy” than nongivers, and 25% more likely than nongivers to say their health is “excellent” or “very good.”23
  3. Positional ranking exists throughout life. The George Mason University economist Donald Boudreaux made an important observation about positional rank and relative happiness in responding to a New Yorker article in which the financial analyst John Cassidy argued for income redistribution because of the hypothesis that people’s health is harmed by relative (instead of absolute) positional rank. In a nature analogue Cassidy claimed that “dominant rhesus monkeys have lower rates of atherosclerosis (hardening of the arteries) than monkeys further down the social hierarchy.” Boudreaux showed how, in fact, income redistribution could have the opposite effect: “Because status among humans is determined not only by income but also by traits such as political power, athletic prowess, military heroics, intellectual success, and good looks, equalizing incomes will intensify the importance of these non-pecuniary traits as sources of status. And there’s no reason why persons with low status in these non-pecuniary categories will not suffer all the stress and envy now allegedly suffered by people with low incomes.”24

In the end, then, following Frank’s line of reasoning, the government should give tax breaks to conservatives, the wealthy, and the working poor in order to reward their pro-social behavior and encourage more giving, and the government should stimulate income inequality in order to attenuate status seeking in other non-pecuniary traits. All liberals in favor of such policies please raise your hands.

8 Other hidden costs: what is seen and what is not seen in government actions

Even if evolutionary psychologists are wrong in this analysis of sexual selection and CST, and it was determined that ostentatious displays of wealth, power, prestige, and creativity should be penalized through a consumption tax because of Frank’s analysis using Coase’s transaction models that reveal the hidden transaction costs of positional ranking and subsequent arms races, there are transaction costs of implementing such a tax. In fact, once you concede the point that at least some government services are necessary and must be paid for by taxes, then to the short list of services such as military, police, courts, and tax collectors, one can bolt on any number of additional services justified under the collective action problem rubric: fire departments, roads and bridges, schools, libraries, national parks and forests, postal service, social security, welfare, Medicare and Medicaid, foreign aid, and countless others embodied in the alphabet soup that this slippery slope line of reasoning has given us. Herewith are just a handful, and these only a select few from the letter A: Administration for Children and Families, Administration for Native Americans, Administration on Aging, Administration on Developmental Disabilities, Agricultural Marketing Service, Alcohol, Tobacco, Firearms, and Explosives Bureau, American Battle Monuments Commission, Animal and Plant Health Inspection Service, Architectural and Transportation Barriers Compliance Board, Archives and Records Administration, Armed Forces Retirement Home, Arms Control and International Security, Army Corps of Engineers, Arthritis and Musculoskeletal Interagency Coordinating Committee. Imagine how long this list grows when you start tossing in all the “Bureaus” “Committees” “Councils” and “Departments” in working your way through the alphabet.25

The not-so hidden costs include the fact that each of these government agencies must be located in an office rented or leased, running up monthly utility bills and staffed by people who must be paid, provided health benefits, retirement programs, and the like. As well, once such agencies are established they are almost impossible to terminate, not to mention that they are also subject to the usual bureaucratic inefficiencies, political favoritism, and corruption and graft that is part and parcel of what we have come to expect from the public sector. A day doesn’t go by that we do not read of politicians and government bureaucrats busted for something they should not have been doing with tax-payers’ money.

And these are not even the hidden costs to which I refer in my subhead. The French economist Frédéric Bastiat demonstrated the difference between what is seen and what is not seen when governments intervene in the marketplace. A public-works project, such as the infamous Alaskan “bridge to nowhere,” is seen by all, gloried by its producers, and appreciated by its few users. What is not seen, however, are all the products that would have been produced or the services provided by the monies that were taxed out of private hands in order to finance the public project. It is not just that individual liberties are violated whenever governments interfere with freedom of choice in the economic realm, but that, in fact, the net result is a loss not just for the individuals directly affected by the confiscation of their monies, but for the nation as a whole for which the government action was originally intended. “There is only one difference between a bad economist and a good one,” Bastiat explained, “the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”26 What is not seen when tax programs are implemented is what that money would have been used for in the private sector.

9 Fatal conceit redux

Robert Frank strikes me as an intelligent and thoughtful man who genuinely wants to employ science and reason to improve the design of society for the betterment of all. His arguments are carefully crafted and artfully presented to make the case that since we’re in the business of designing society from top down anyway we might as well go whole hog and do it right. It is this that worries me—the conceit that interventionists of all stripes hold that if a little interventionism is good then a lot must be great. Granted, we need a military to protect us from foreign invaders, but do we really need a defense budget that currently accounts for 43% of all military spending in the entire world, more than the next 14 largest defense budgets combined? Yes, we need some social services, but a century ago Americans somehow survived and thrived with a government that consumed only 8% of our GDP; today it is over 40% and climbing. Currently we spend $204 billion or 1.4% of GDP servicing the debt. The Congressional Budget Office is now projecting that in the next 70 years that figure will climb to $27.2 trillion, or a whopping 41.4% of GDP. What will happen when servicing the debt exceeds 50% of GDP? Agreed, we need some regulatory agencies, but according to the Small Business Administration we are presently spending $1.75 trillion annually on regulations, which is almost double the amount collected on all individual income taxes in 2010.27 Looking at the global picture, in 2011 government spending rose on average to 35.2% of world GDP, up from 33.5% in 2010. What will happen when that figure reaches half, when half the world is completely financed through taxes paid by the other half?

This is the consequence of the fatal conceit that we can design a society from the top down. “The curious task of economics,” observed the Nobel laureate economist Friedrich Hayek, “is to demonstrate to men how little they really know about what they imagine they can design.” Hayek understood (more than most economists) that Darwinian evolution is a self-organized bottom-up process of design without a designer. “To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.” Hayek called this the “extended order,” the result not of planning and design but of a system that “constitutes an information gathering process, able to call up, and put to use, widely dispersed information that no central planning agency, let alone any individual, could know as a whole, possess or control.”28 The fatal conceit of socialist planners was tested experimentally over the course of the twentieth century and it failed in every case. Presciently, Hayek’s The Fatal Conceit was published in 1988, just before the crumbling of the Berlin Wall and the collapse of Communism, so this was an experimentally verified prediction.

Robert Frank is not a socialist and yet the design conceit is there nonetheless. Even when gussied up in economic jargon with Darwinian overtones, hints of the totalitarian mind from millennia past creep into our thoughts and reach for the controls. Somebody should do something. Take command. Control our actions. Direct our thoughts. Dial our desires. The clan elder, the tribal leader, the chiefdom big man, the state king, the central planner, the apparatchik, the lord savior, the infallible pope, the chief rabbi, the dear leader. Someone somewhere somehow will save us by telling us what to do and how to live. The impulse is a deep one that harkens back to our Paleolithic ancestry. It’s counterintuitive to think bottom up instead of top down. It is why so many people struggle to truly grasp the deep meaning of evolutionary theory, and it is why so many people fail to see that economic order is the product not of human design but of human action.

References
  1. Darwin, C. (1860). Letter to Asa Gray. Darwin Correspondence Project, Cambridge, Letter 2742.
  2. Darwin, C. (1871). The Descent of Man, and Selection in Relation to Sex. London: John Murray.
  3. Solnick, S., & Hemenway, D. (1998). Is More Always Better? A Survey on Positional Concerns. Journal of Economic Behavior and Organization, 37, 373–383.
  4. Carlsson, F., Johansson-Stenman, O., & Martinsson, P. (2007). Do you enjoy having more than others? Survey evidence of positional goods. Economica (Online Early Articles). http://www.blackwell-synergy.com/doi/full/10.1111/j.1468-0335.2006.00571.x
  5. Frank, R. (2011). The Darwin Economy. Princeton, NJ: Princeton University Press. p. 193.
  6. Ibid., p. 6.
  7. Shermer, M. (2008). The Mind of the Market: How Biology and Psychology Shape Our Economic Lives. New York: Henry Holt/Times Books.
  8. Frank, R. (2011). The Darwin Economy. Princeton, NJ: Princeton University Press. p. 16.
  9. I outline some of these connections and illuminate why conservative should embrace the Darwinian view of human nature as parallel to their own in Shermer, M. (2006). Why Darwin Matters: The Case Against Intelligent Design. New York: Henry Holt/Times Books.
  10. Browne, J. (2000). Voyaging: Charles Darwin. A biography. New York: Knopf. pp. 36, 366.
  11. Carey, T. V. (1998). The Invisible Hand of Natural Selection, and Vice Versa. Biology & Philosophy, 13(3), 427–442. Ghiselin, M. T. (1974). The Economy of Nature and the Evolution of Sex. Berkeley, CA: University of California Press. Gould, S. J. (1980). Darwin’s Middle Road. In The Panda’s Thumb. New York: W. W. Norton. Gould, S. J. (1993). Darwin and Paley Meet the Invisible Hand. In Eight Little Piggies. New York: W.W. Norton. Khalil, E. L. (1997). Evolutionary Biology and Evolutionary Economics. Journal of Interdisciplinary Economics, 8(4), 221–244. Schweber, S. S. (1980). Darwin and the political economists: Divergence of character. Journal of the History of Biology, 13, 195–289. Ahmad, S. (1990). Adam Smith’s four invisible hands. History of Political Economy, 22(Spring, 1), 137–144. Walsh, D. (2001). Darwin Fallen Among Political Economists. Proceedings of the American Philosophical Society, 145(4), 415–437.
  12. Schumpeter, J. (1942). Capitalism, Socialism and Democracy. London: Routledge.
  13. Reinert, H., & Reinert, E. S. (2006). Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter. In J. G. Backhaus & W. Drechsler (Eds.), Friedrich Nietzsche: Economy and Society. New York: Springer.
  14. Gould, S. J. (1988). Wonderful life: The Burgess Shale and the Nature of History. New York: W. W. Norton. p. 318.
  15. Foster, R., & Kaplan, S. (2001). Creative Destruction: Why Companies That are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Crown Business.
  16. Gillespie, N., & Welch, M. (2011). Death of the Duopoly. Wall Street Journal, June 18. http://online.wsj.com/article/SB10001424052702303848104576385922449922958.html
  17. Zahavi, A., & Zahavi, A. (1997). The Handicap Principle: A Missing Piece of Darwin’S Puzzle. Oxford: Oxford University Press.
  18. Personal correspondence by email, December 21, 2011.
  19. Ibid.
  20. Miller, G. (2001). The Mating Mind: How Sexual Choice Shaped the Evolution of Human Nature. New York: Random House.
  21. http://www.taxfoundation.org/news/show/27556.html.

  22. Veenhoven, R. (1999). Quality-of-Life in Individualistic Society. Social Indicators Research, 48, 157–186. Veenhoven, R. (2000). The Four Qualities of Life. Journal of Happiness Studies, 1, 1–39.
  23. Brooks, A. (2006). Who Really Cares: The Surprising Truth About Compassionate Conservatism. New York: Basic Books.
  24. http://cafehayek.com/2011/10/the-better-you-understand-economics-the-more-you-realize-that-moneyisnt-all-that-matters.html
  25. An A–Z list of government departments and agencies can be found online at: http://www.usa.gov/directory/federal/index.shtml.
  26. Bastiat, F. (1995). What is Seen and What is Not Seen. In G. B. de Huszar (Ed.), Selected Essays on Political Economy. Irvington-on-Hudson, NY: Foundation for Economic Education. pp 1–2.
  27. Mackey, J. (2011). To Increase Jobs, Increase Economic Freedom. Wall Street Journal, November 16, p. A17.
  28. Hayek, F. (1988). The Fatal Conceipt. Chicago: University of Chicago Press.
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118 Responses to “Another Fatal Conceit”

  1. Nathaniel Brottingham says:

    TL;DR
    I am not normally opposed to reading long articles, but you have to convince me early on that it’s going to be worth my time.

  2. Canman says:

    Libertarians can portray markets verses government as evolution verses intelligent design. Liberals can portray it as evolution verses selective breeding.

  3. Bruce Murphy says:

    Did I miss it? Why didn’t Shermer explain how bicycle (or hockey) helmets would have become part of the sport by a bottom-up approach?

    Also, he seems to have missed the idea that evolution is a BRUTAL form of creating adaptations. Even Richard Dawkins has argued that our task as humans is to take control of evolutionary processes. If the ‘invisible hand’ of the market is truly analogous to natural selection then it’s the responsibility of humanity to control markets to avoid the painful losses that occur when companies thrive then die a suffering death (taking their employees with them).

    • Cdub says:

      Yeah, that was a huge omission. How can someone possibly be writing about evolution and not admit that part of our cultural evolution as humans has been to protect ourselves from the brutality of survival of the fittest?

    • MaikU says:

      That’s why self-ownership is logical conclusion. you and ONLY you have a right to control your body and action. No other person, or group of persons (governmet) can control you and force you to do things you do not appove of. Think about it. The only possible way to “control” markets is when everyone is controling it. Giving an arbitrary group of people (government) the monopoly on controling markets is similar to christians, giving their God a right to decide what is moral and what not.

      And if you still think, that only government can control markets… who will control government? We already have seen, that constitutions do not work, they are mere paper and minimal states always evolve into bigger states and then empires (US) and then collapse. Then repeat. So who will watch the watchers? People? Voting? Voting do not work, because it is forced association. No one asked me if I agree with such voting system, I was born into it. Again, nothing can control the governmet, that;s why it eventually becomes the greatest villain of humanity and must be abolished. Only individuals have a right and natural incentive to control their bodies, actions, property and what they do with it.

      • tmac57 says:

        What makes you think that the evolution of our (U.S.)system of government wasn’t done by market forces (i.e. what the people wanted and voted for)?

  4. Somite says:

    Darwin was The first one to recognize that natural selection is not a good model for human endeavors and relationships. Natural selection does not care about the suffering or well being of gene-carrying animals as long as the genes survive and reproduces. If gene survival means untold suffering and destruction of individuals, then so be it.

    Human endeavors need to accommodate ethics. It must be organized from the top down in an attempt to minimize suffering or increase individual well being.

    In short, genes are not ethical. Humans should be.

  5. Trimegistus says:

    It always puzzles me that the people who most loudly vilify religious opponents of Darwinian evolution are frequently the loudest proponents of top-down economic systems.

    • Max says:

      Does it puzzle you that the people who most loudly vilify AIDS deniers are frequently the loudest proponents of fighting AIDS?

      In fact, both the Social Darwinists and the Creationists commit the naturalistic fallacy. Social Darwinists say survival of the fittest is moral because it’s natural, and Creationists say it’s false because it’s immoral.

      • Trimegistus says:

        I’m sorry, your AIDS analogy doesn’t make a lick of sense. My whole point was that there’s a paradox in being a vocal “evolutionist” but still believing that top-down economics is the best system.

        You seem to be saying that evolution is true — and that it doesn’t work.

      • Bad Boy Scientist says:

        +Tri “… there’s a paradox in being a vocal “evolutionist” but still believing that top-down economics is the best system.”

        How so? To me a paradox is a self-contradiction and I cannot see any contradiction in vocally advocating particular biological principles while believe certain socio-political policies are best.

        The elephant in the room when it comes to *politics* is ultimately people base things more on emotion that reason – you cannot ‘reason’ a progressive into being a conservative or vice versa.

        Take the hue and cry over raising taxes on the ultra wealthy: It has been pointed out that tax rate is not that relevant for the 0.1% – especially when executive salaries have effectively no upper limit and they are free to negotiate their salaries (and bonuses). For example, if a CEO wants to take home $3 million per year and the tax rate is 75% he simply needs to go to the board (which for many companies, has a lot of his friends) and negotiate a $12 million per year gross salary. His ‘reward’ is the same whether he grosses $12M/yr with a 75% tax or $4M/yr with a 25% tax – the problem *really* is that in one case the government gets ‘rewarded too much’.
        Taxes boil down to ‘position rank’ – people care about take home pay vis-a-vis the government taxes more than in absolute terms. Even if government spending made it possible for the person to make that money they resent the government ‘taking too much.’

        People’s position on taxes are emotional – so you cannot expect them to be ‘reasonable’ or even self-consistent (I cannot count how many libertarian engineers I know who work for NASA or for the Defense Industry).

      • Max says:

        My point about AIDS is that arguing that something is true doesn’t mean you think it’s good.

        If you’re such a big fan of evolution, do you oppose GM food, modern medicine, and other intelligent designs?

  6. RL says:

    Very interesting article. Thank you.

  7. sBNY says:

    Great Article, worth reading!

  8. tmac57 says:

    In a country that cannot even manage to get most of it’s citizens to vote,how then can we motivate those same citizens to take back those functions of government that they will still want to maintain,to achieve a truly bottom up structure.That will demand much much more of people’s time and attention to do things that they now take for granted,and have delegated those functions to others gradually over the course of centuries.
    It’s easy to tear down the walls in your home,but much harder to rebuild them to suit you,especially if you don’t have a clue or clear plan how to do it,or what the end result will be.You and your family might just end up surrounded by, and living in, a pile of rubble for the rest of your life.

    • CountryGirl says:

      In all fairness to the system as it exists would you really want people who do not now vote out of laziness, ignorance or whatever their reason is to actually vote? I would prefer that citizens pay attention and even seek out more information then is available from our alphabet news channels or cable and only after becoming informed make the decision to vote.

      • Max says:

        Some economists don’t vote because they consider it a waste of time. You spend all this time becoming informed only to cast one vote that’s a drop in the ocean.
        http://www.nytimes.com/2005/11/06/magazine/06freak.html

      • tmac57 says:

        I would prefer that they pay attention and then participate,but that is beside the point that I was making.
        In order for a bottom up restructuring of society to be successful,and match the wants and needs of the whole rather than the few,then there will be much greater demands put upon the individual toward that end.Do we have the capacity and desire to fulfill that responsibility,or would we prefer to have a system where we delegate out responsibilities to others,thereby freeing us to pursue our personal responsibilities? To what degree can the ‘bottom’ handle what is now handled by government?I really don’t know the answer.

  9. John K. says:

    After initially showing moderate examples of top down regulation that work, Shermer then talks around them to illustrate his position.

    Taken to extremes, conservative policies are ludicrous as well. Shall we simply let cyclists and hockey players die from head injuries until only the best remain? Shall we judge a restaurant unsafe to eat at by its illness rate and death toll? Should we remove all traffic laws on the basis that those who crash were likely the poorest drivers? Why bother having rules for anything?

    When careful rules that benefit everyone are implemented they are a good idea. Surely this can be taken too far and require too few people to micromanage too many policies that they have no experience with, but that is no reason to abandon rules completely.

    I am curious as to what the economic loser’s position is in this conservative ideal. Go away and die off? That is, after all, what happens to the evolutionary “losers”. I suppose they deserve it for not managing to win?

    • Guerilla surgeon says:

      “cyclists and hockey players die from head injuries until only the best remain?”

      They wouldn’t even necessarily be the best at hocky or cycling, juat at protecting their heads :-). Do wonders for the game that.

    • Ernst Ghermann says:

      I don’t know how you could have read Shermer’s article and come away with the idea that he thought there should be no rules. I don’t think you can find anyone who believes that.

      • John K. says:

        All rules are in fact “top down” examples of implementing change, as Shermer demonstrated in his cycling example. No rules at all is a logical conclusion to reach if we are to accept the evolutionary economic model he presents. Also, I did my qualify the examples as extreme.

    • Alan Shaw says:

      “I am curious as to what the economic loser’s position is in this conservative ideal. Go away and die off?”

      The “economic loser” in Shermer’s article is a company, not an individual.

      • Cdub says:

        You’re joking, right?
        The whole subtext of the article is that the masses should vote conservative and award tax breaks to rich individuals and rich companies to reward them for their success.
        The funny part is is that there are some economic losers that agree with him.

      • Alan Shaw says:

        Deadly serious, but you have it backwards. A tax break is not an award. You sound as if the government already owns their income, and we all get to decide what to do with it.

      • John K. says:

        Fair enough, although I doubt that taxation for programs that protect the unsuccessful like bankruptcy, welfare, or unemployment is something Shermer would endorse.

  10. Cameron says:

    Am I missing something? I always thought the theory of evolution was strictly descriptive an not prescriptive. You can’t use this theory to say that either top-down or bottom-up is superior. It’s like using a a computer to cut wood. Or the Chewbacca defense; it just doesn’t make sense.

  11. oldebabe says:

    Equating evolution/natural selection with societal/cultural economics, and using them as comparable to make ones point, doesn’t make sense to me. Too opposite. One seems to be beyond our control, and the other is nothing but our control…

  12. Aidan Cauthorn says:

    The fatal conceit of libertarianism is the failure to realize that the costs assoicated with government do not dissappear merely because government is gone. Of course we could simply not replace government programs such as schools, fire departments, police, etc. and the costs would dissappear. Of course failure to replace these can result in even costlier social ills such as an uneducated population or uncontrolled fires. Not to mention that without government regulation the market does not make businesses behave morally. If you doubt this look at the supplement industry a perfect example of what happens when there is too little regulation.

    If we do wish to replace government programs with private business then we will pay private entities and once again face the same costs and possibly more if you insert a profit in on top of the base cost. Perhaps private business will be more efficient than government but if we look at private for profit schools that simply place all their energy on recruiting and put little energy into education we see that sometimes the profit motive creates worse products at higher costs. Its easy to look at the simplistic idea of a government as a single inefficient entity and say yes lets shrink it but first you have to prove that the private sector will provide a cheaper better product or that we will really be better off without the specific program.

    The one real difference between government and private business is that we can’t escape the costs of business, you have to pay the price charged by a business which gets set by market forces and those businesses that charge too low will dissappear. The problem is we can force government to set its price too low and then create excessive debt that would cause any other business to fail. Thats the reason we have excessive government debt. The government provides services that we refuse to pay fair value for.

    Perhaps a century ago the federal government only spent 8% of GDP. But now we have almost 200 million more people spanning the same amount of space, we treat diseases that used to kill but cost nothing, and we all consume much more than we used to. As society becomes more complex so must government and that is reflected in the costs.

    The real problem is not that government cost too much (though of course it could and should be made more efficient). Its that we have been living artificially high on the hog for too many years by paying too little in taxes to support the government that supports us.

  13. Dave Rockwell says:

    Too great an effort at creating order invariably results, eventually, in a great disorder, as the angle of repose rises to a certain degree of steepness. The invisible hand of natural selection is stronger than we, the semi-conscious entity called humanity. We will continue to lurch roughly along in a chaotic equilibrium; there is not the slightest guarantee that we will not end up burning in a ditch.

    But it’s fun to argue about, anyway.

    • Mark says:

      Thank you for the first laugh since in started reading this tract and the responses.

    • Ernst Ghermann says:

      There is no invisible hand. I wish Adam Smith had said “as if guided by an invisible hand.

  14. Christopher Smith says:

    That article has completely changed my mind about the economy and is a real eye-opener. Great reasoning. It’s early morning in Korea (where I am working) and I thank you for dispelling some beliefs that I had previously held. Great way to start the day!

  15. Loren Petrich says:

    I’d like to see how Michael Shermer would propose to run a business. As an anarchist free-for-all?

    He might also want to look at organized crime, a subculture that openly defies government regulation, and also at Somalia, where the de jure government is impotent. Albania passed through a similar phase in the late 1990’s, but it has become statist again.

    Or also the long history of quack medicines. Consider what many people used to believe about ionizing radiation, that it was very good for you. There used to be a quack medicine called Radithor, which had radium salts. But radium is a chemical analog of calcium, and it thus gets deposited in bones. When some Radithor users started getting bone cancer, did the makers of Radithor commit mass suicide in shame? No.

    • Guerilla surgeon says:

      I must say, that when Shermer gets on to his libertarian horse, my eyes glaze over. It’s just as much woo as psychics. Isn’t he a psychologist? It’s about time in fact that economists started taking a bit more notice of psychologists and apparently they have started doing so. Shermer obviously doesn’t believe that they should. People don’t necessarily behave the way classical economists believe they do. And given that physicists have shown that the physics equations that economists took over to use for their discipline are rubbish, there goes all of macroeconomics at least. Still, I guess Bill Maher doesn’t like vaccinations, so maybe it’s just a blind spot.

    • Alan Shaw says:

      And I must say that my eyes glaze over whenever anyone trots out Somalia as a supposed obvious critique of Libertarianism. Capitalism requires the rule of law. It would be difficult to run a business without property rights and enforceable contracts.

      • Loren Petrich says:

        In other words, government coercion. Governments protecting the property of people who are too lazy to defend it themselves, and enforcing the contracts of people who are too lazy to do it themselves.

      • Alan Shaw says:

        Well, we definitely have lots of unjust government coercion that I could do without, but I was trying to distinguish libertarianism from anarchism (since they are so often confused, especially with the Somalia comparison). Would you, perhaps, be of the latter persuasion?

  16. InvincibleIronyMan says:

    I have to say, I’m skeptical of your whole outlook on this issue.

    It’s not just the limitations on economic actors (such as legal regulations) which are defined by top-down thinking, it’s also the freedoms. Take corporate personhood, for instance: it was defined by lawyers, not by the laws of physics. So much of economics is like that, and you so often seem quite blind to it.

    Even if that wasn’t true, you’d still have to provide evidence that what is good for the economy is good for people. I’ve never seen such evidence, but I have seen what seems like a hell of a lot of magical thinking.

  17. InvincibleIronyMan says:

    Thinking about it more, corporate personhood is a fantastic example. It’s basically something that was snuck in by the back-door with a sly interpretation of the fourteenth amendment. Even the lawyers who put it into place never had to argue for it honestly and justify it as a public good.

  18. Phea says:

    Although I know you would never even consider responding, I must comment. You discuss a top down approach to moral and economic problems. For many years, I disapproved of, and actually found the policy of affirmative action to be wrong on many, if not all, levels. Job acquirement, and promotions should ALWAYS be the result of performance/qualifications… and race should not be considered, case closed. It took me many years, (I am now 60), to finally realize why affirmative action was not only a good thing, but a very necessary thing for us to have evolved to where and what we have become.

    Allow me to paint a fictional, but very real picture to explain why my view has evolved and changed.

    It’s 1960, Joe owns a hardware store in Mississippi, (or Alabama, or Ohio…). His good friend, Mark, is black, unemployed and hurting. Joe offers Mark a job as a clerk in his store. Mark, being intelligent, and a very good friend to Joe, refuses the job because he KNOWS that it will cost Joe a lot of business. He knows a large percentage of his customers will REFUSE to do business with a “nigger”, and he refuses the job, because he IS a friend. a GOOD friend, who won’t allow Joe to sacrifice his profits, even for a righteous “cause”. Is this scenario totally unbelievable? I don’t think so.

    Enter, affirmative action. The government now becomes the “bad guy”. Joe HAS to hire Mark, and his customers understand, and do business with him anyway, even though they’re being helped by a “nigger”.

    Affirmative action is a policy that I,(a 60 year-old), after a LOT of soul searching and thought, have done a total 180 on. It had to be a top down policy, or blacks would still be porters, red-caps, shoe shine boys, and school janitors… just like they were when I was a child. Now, because of affirmative action, blacks can be Doctors, Lawyers, CEO’s, hell… even POTUS! I cannot believe this would have been possible in my lifetime without affirmative action.

    • Ernst Ghermann says:

      A multitude of laws were passed, especially in the South, restricting and prohibiting activities by “negroes.” These laws came into existence to keep people like Joe from doing exactly what you proposed he would do. What other explanation is there? You don’t pass laws to prohibit what is not happening.

    • Max says:

      Here’s a nonfictional scenario. It’s 2011. Black firefighters score lower than white firefighters on a written exam, so they sue, the exam is thrown out, and the bar is lowered for everyone.
      http://www.chron.com/news/houston-texas/article/HFD-exam-lawsuit-settled-for-7-black-firefighters-1687065.php
      “Seven black city firefighters passed over for promotion because they did not score high enough on a written exam will rise to captains’ ranks and get cash payments if the Houston City Council approves a lawsuit settlement Wednesday…
      The Fire Department will begin using a new exam this year that has been validated by a testing firm to assure that it does not produce results related to the race or ethnicity of the test takers…
      Two years ago, the U.S. Supreme Court ruled that the New Haven Fire Department violated the civil rights of white and Hispanic firefighters by throwing out the results of a promotional exam after it was determined that no blacks had scored well enough to gain promotions. Fourteen of the plaintiffs were then promoted at the end of 2009.”

    • Nyar says:

      Affirmative action is just state sanctioned institutional racism. Bully for you being able to admit that you support racism though, that takes guts.

      • Phea says:

        Not sure if you even have a remote clue as to what real racism was. It is “white only” public drinking fountains, lunch counters, (blacks weren’t allowed to eat in Woolworths), and businesses, (there were quite a few that did NOT allow blacks). It was allowing blacks to only live in certain neighborhoods. It was not allowing black kids to go to school with white kids, or not not hiring a man just because he was black.

        I lived periods of my childhood in Oklahoma and Georgia and personally saw everything I’ve mentioned, and could list more, but I think you get the picture. I have not exaggerated, things really were that ugly.

        I personally believe that affirmative action, which FORCED people to change, was responsible in a large way, for the changes that have taken place in my lifetime. It wasn’t perfect, and I’m sure there have been many mistakes made and many abuses. However, I believing overall, that it was a good, successful, necessary program, and if that makes ME a racist, then I’m proud to be one.

        That being said, I also believe it has served it’s purpose and is no longer necessary as a policy.

      • tmac57 says:

        Growing up in Texas in the 60’s,I remember that the public swimming pools had a separate day set aside for blacks to swim,and the rest of the time it was whites only.Also the State Fair of Texas has segregated water fountains,and a day set aside for them to attend the fair.My entire time in public school was during segregation.It wasn’t until the 70’s that that started to change.
        There is to this day,effects of this kind of open racism,but it is slowly fading.It is not that unusual to see mixed race couples,here in Texas these days,and most people don’t pay much attention,or if they do,they keep it to themselves.That would never have happened in the 60’s.
        It’s too bad that it took affirmative action laws to force businesses to give black citizens a fair chance to succeed,but I have no doubt whatsoever,that if they hadn’t, that that sort of institutional racism would still be deeply embedded,especially in the south.

      • Phea says:

        Tmac,In some ways, it still is, especially in the deep south, but as each generation passes, racism seems to be shrinking. It was a situation where I firmly believe the government had to play the role of the bad guy to change deeply embedded attitudes and practices.

        Personally, I was lucky, having grown up an Army brat. The military was already integrated and I almost always had minority neighbors and classmates.

      • Nyar says:

        I am glad that you are a happy racist(I guess). To me all racism is ridiculous, doesn’t matter which flavor.

      • tmac57 says:

        How would you have dealt with the institutional racism that existed that led to affirmative action?

      • Nyar says:

        @tmac

        It doesn’t really matter does it? Affirmative action is institutional racism and no one has even tried to argue otherwise.

      • tmac57 says:

        I will take your dodge as “I don’t know,I just don’t like the answer that they came up with”.
        That’s giving you the benefit of the doubt,because otherwise it could have been interpreted as “Who gives a shit about institutional racism…of people other than me?”

      • Nyar says:

        It is true that I don’t like the idea of replacing one racist policy with another. The argument that it is ok for the government to do bad or evil things as long has good intentions is not one that I find convincing.

      • Max says:

        Nyar, what do you think about racial profiling?

      • Nyar says:

        I am against racial profiling.

  19. Dr_Paine says:

    I concur with Shermer on most occasions. However, I find his fondness for libertarian economics, as well as his admiration of Ayn Rand (He has written about her previously) to be a bit disconcerting. He assumes that Social Darwinism is inexorably implied by Darwinism. As another post has pointed out, he seems to commit a naturalistic fallacy. That which is (assuming that it “is,” in fact) is not necessarily that which should be. We as humans can impose a collective morality based upon a social contract that transcends our most base and primitive instincts. How would a notion like “fairness” hold any value in this worldview? Is it not permitted, even incumbent upon, players to use every tool to gain and maintain an advantage that excludes others from the game? This type of reasoning, I fear, plays into the hands of the religious, who accuse the non-religious of lacking ethical constraints and abiding by the “law of the jungle.” To be fair, Shermer’s arguments are more nuanced than my brief post my imply, but the implications are pernicious.

  20. Jim Hull says:

    In an economy, the losers generally don’t die; they simply get into another line of work. Their old jobs _do_ expire, though, and so the analogy properly refers to the job, not the person.

    Speaking of analogies, Dr. Frank misuses the helmet analogy because sports are _already_ top-down activities, subject to laws from above, unlike a theoretical free market.

    Were I a competitor, I might be extremely wary of adding to my gear even the small added weight and aerodynamic uncertainties of the very first racing helmet — not to mention the possibility of being disqualified should my new equipment be deemed unacceptable. It’s better, in that situation, to wait for a ruling from above that everyone must obey.

    As a recreational bicyclist, though, I’d have no such qualms and could adopt new headgear technologies as needed. It is precisely where there are no specific restrictions from above that adaptation happens quickly and effectively. Dr. Frank’s “cure” has no disease.

    Dr. Frank believes, by the way, that people can’t see the price of their competitive purchases. In fact, just because _he_ doesn’t see the agonizing that goes on inside these homes doesn’t mean those people aren’t fully aware of the opportunity costs of their Sweet Sixteen parties and fancy cars. They can perfectly well see the drain on their bank accounts. Dr. Frank seems to think they’re too stupid to choose for themselves and must be guided by wiser folk such as himself.

    • HumanistDad says:

      We have to realize that bottom-up organization eventually must lead to top-down regulation. In the case of helmets, it was riders, after seeing or experiencing accidents and under the advice of doctors, that the movement to have safe helmets began. A bottom-up, grassroots push eventually led to a regulation requiring it for all riders. In most cases, a regulation IS required to get people to do something that they PERCEIVE to be against their self-interest. While there was much bitching and complaining initially, almost no one advocates a return to a time before the helmet.

      What strict Libertarians seem to miss is that not everyone’s self-interest is reasonable or rational. In many cases an individual does not know what their self-interest is! Science already has discovered that our choices are made before we are aware of making them; in other words, we had no free will to decide. The point of regulation is to reprogram people to accept a new reality and data point to influence their behaviour in ways that it will preserve one’s self-interest.

      As a personal example, I didn’t bother to wear approved glasses at badminton because no one else did, I felt they interfered with my play and that the risk of eye injury was low. After hitting my wife in the eye with the shuttlecock causing some permanent damage, I now wear the glasses all the time. My level of play has not been affected and I’ve avoided at least one potential injury when a bird hit my glasses. Little did I know that NOT wearing glasses was actually working against my self-interest (and it only cost my wife a permanently enlarged pupil).

      • Jim Hull says:

        HumanistDad wrote: “In many cases an individual does not know what their self-interest is! . . . The point of regulation is to reprogram people . . .”

        And who should do this reprogramming? Other humans? But you insist people are generally flawed and can’t make good decisions. So how do we find those so competent that they can decide how we should behave? By a vote of humans?

        My original point was that bicycle racers _already_ rode under a top-down regime that limited their options. That doesn’t prove that everyone needs control from above — especially from bureaucrats who might be less wise than their subjects and certainly wouldn’t have the street-level knowledge of those closest to a given issue. Top-down commands, then, would (and do, to judge from the news) create much worse problems than bottom-up systems.

  21. Baluba says:

    “In point of fact, both peacocks and bull elk are doing just fine as species, contrary to what Frank suggests [...]”

    I wonder how many other similar animals joined the extinct and to what extent did their sexual display play a role in their extinction.

  22. Malcolm Goodson says:

    Top-Down VS Bottom-up seems to reflect the adversarial nature of US politics than it does reflect desirable or undesirable ways of dealing with harsh economic realities, which we all face; both large and small. Surely, all Mr S illustrates is how misguided it is to apply a theory which relates very well to one discipline, biology, to another, economics; social darwinism, eugenics, anyone?

    In any democracy, there is invariably a see-saw effect as bottom-up or top down, Little Govt VS Big Govt, compete against each other in the public consciencious. That is the nature of the beast and we should, in truth, not want it any other way.

    • Kurt Schaal says:

      Like stars in the universe existing only because of the violent interaction of nuclear forces and gravity, where would we be as a democratic society if it wasn’t “us versus them”?

      I very much agree with you. I feel like the “truth” is out in earnest when there is the greatest contention on a given topic.

  23. philip bryans says:

    The reference to “a bridge to nowhere” is a perpetuation of a political myth. The Bridge was proposed as a means for the people and visitors of Ketchikan Alaska (population 14,070) to access their international airport located on Gravina Island via highway instead of ferry. It is true that only 50 people live on Gravina Island, but anyone who wishes to travel by air to Ketchikan must do so via the island (unless of course they agree to parachute from their plane).

    Instead of a bridge, which was shot down as a “pork barrel” political spending, air travelers must continue to use the ferry service, which carries an ongoing and perpetual cost of travel time, labor, fuel, and equipment.

    If all of the costs of continuing to use the ferry service were taken into account, it’s very possible that the cost of the bridge would have been less. I don’t know this for a fact, but I can acknowledge the possibility that it is true.

  24. Dennis says:

    A couple technical points:
    1. Shermer’s point on the futility of taxing the rich is based on the assumption that those taxes will be a one-time deal instead of an ongoing process. It’s a pretty serious error. (for an analysis read here: http://baselinescenario.com/2011/10/11/bathtubs-for-beginners/)
    2. His suggestion that leveling the ecomonic field will intensify other forms of competition, and thus lead to less happiness, is belied by cross-national data. (Richard Wilkerson is eloquent on this point: http://www.ted.com/talks/richard_wilkinson.html)
    3. Shermer’s sneaky equation of any deliberate attempt to solve collective action problems as “top-down” design is a straw man. As the work of anthropologist Christopher Boehm (“Hierarchies in the Forest: The Evolution of Egalitarianism”) shows, collective action problems are normally solved by humans in political groups by consensus in a way that respects the autonomy of all the main political actors.
    Now, some more general points: As many commenters have pointed out, Shermer’s position is indistinquishable from Social Darwinism and suffers the same moral drawbacks–just letting things evolve may sound great, but the goal is the greatest good for the greatest number, not the continuing advancement of an elite subgroup.
    Also, conservatives and libertarians see government as a tribal other–a rival group seeking to control the lives of us otherwise free citizens. But government represents citizens–of the people, by the people, and for the people and all that.
    Free markets are good–but they’re not magic. A balance must be struck.

    • tmac57 says:

      This was a well thought out comment Dennis,and both links that you gave were interesting.Thanks.

  25. Dallas Weaver says:

    If we eliminate the economic status system, where people like the super rich creators of Apple, Google, Microsoft, Genentech, Synthetic Genomics etc. are considered “god” like in their social ranking, wouldn’t our nepotistic political class who would be defining what is “good” and “bad” for all people become the new social ranked “gods”?

    Frank and others who think like he does, seem to just want to shift the competition into a realm where they think that they can be on the top of the pecking order.

    From the point of view of an individual, I find the notion of the social ranking competition being who has the greatest ability to control other peoples decisions scary. It is an approach that N. Korea has shown doesn’t work very well, except for the political class.

  26. Serendipetey says:

    Shermer’s excessively lengthy diatribe smacks of zealous religious certainty. Like most defenses of religion, Shermer loads his argument with excess so that it appears to be complete when, in fact, it is selectively biased to prove a conclusion already reached. He totally ignores, for example, the absence of equal opportunity for all players and the moral objective of assuring that all players play on the same field and follow the same rules.

    • tmac57 says:

      Ironic isn’t it,for a writer who has written and spoken for years about cognitive mistakes such as confirmation bias.This whole post of Shermer’s struck me as a confused mess trying to make a vague point.

      • Markx says:

        Exactly. A vague point, which was in mind before he started.

      • tmac57 says:

        Yes,and I suspect that point was: “Libertarians good,statists bad”.
        He might even have been able to construct an argument that could have held some water,but this one resembled more of a sieve.

      • oldebabe says:

        It seemed that way to me, too.

  27. ROBERT ST. JOHN says:

    When the International cylclists Union adopts a resolution to require helmets it is not the dictates of a king it is done by the group and doesn’t really qualify as top down.

    • Bruce Murphy says:

      I’m not sure how you define top-down or bottom-up. It can be said that bottom-up movements eventually lead to a top-down rule but one could also argue that top-down rules are a result of bottom-up ideas.

      A true top-down approach would be the ruling class simply instituting a rule to solely benefiting the class and a true bottom-up approach would result in no rule but everyone abides by the idea anyway. In reality, you have to have rules.

  28. J. Gravelle says:

    The most entertaining big-government apologists (above) are those who insist that if we were NOT spending millions every year on, say, the U.S. Botanic Garden, it’d be anarchy. Hilarious.

    If pervasive (and IN-vasive) government programs are truly the panacea for our societal ills, then simply make the participation in, and funding OF them voluntary.

    Survival is instinctive, no neither the coercive collectivists nor their Uncle Sam should need to hold a gun to our heads for us to act in our own best interest…

    -jjg
    DailyScoff.com

  29. Bad Boy Scientist says:

    My reply:

    1) The welfare of my friends and family have a much higher priority to me than evolving Uber-corporations in this country. I’d rather America be set up so people I love can have at shot at succes than have it weed out corporations which are ‘unfit’ for current economic niche

    2) It isn’t just taxes and business regulations which have ‘side-effects’ *all actions* have side effects (prohibition financed the start of many mob syndicates – riding your bicycle to work to save gas increases your food expenses) if you are going to let fear of side effects paralyze you then you must pick inaction – oops that has side effects, too.

    3) The government is not the only institution which can trample freedom. Freedom isn’t just the ‘right’ to do something people must have ‘reasonable means’ to do them, too. Telling people they have the right to decide what they put into their bodies while allowing food industries to capture the markets and conceal the contents of the food they are selling effectively takes away that freedom (I suppose people could opt to starve to death in the name of exercising their freedom – but by the same token people can opt not to obey the government, e.g. engage in tax evasion if you don’t want to pay taxes)

    4) Schermer’s “Taxing and Debt Crisis” argument makes creationists looking like friggin’ Nobel Laureates. In essence he is saying that if you can only reduce debt by 1% per year you cannot reduce the debt at all. Huh? So if I cannot pay off my credit card in one month I can never pay it off ever? Given Schermer’s body of work, his proffering of this argument borders on hypocrisy.

    5) I love Michael Schermer – I really do. I only put in the effort to read his writing out of love for him, his sincerity and his interesting ideas. But, Dude, you need to change your writing style. You need to get to the point a *lot* quicker, express yourself much more clearly and drop all of the trappings of academic intellectualism. Writing should not be about you showing us how smart you are – it should be about you telling us things worth knowing. Academic writing is really off putting to all but the choir (we sad few in academia ;) and we need to adapt – not them. I have given at least a dozen copies of your books to friends and family and only one of them was read cover to cover – everyone had the same complaint: it was just to hard to read. Or to put it into terms you’d value: You’ll sell more books if you make the writing accessible to more people.

    After all that text above, the bottom line is this:

    Frank suggests some government actions to change some fundamental human behaviors and Schermer disagrees. The core of the disagreement has little to with the details – it mainly boils down to the difference between socialists and libertarians. [Having a libertarian review that book is almost as silly as having a Muslim review the Book of Mormon!]

    • BKsea says:

      Bad Boy Scientist: I was totally with you until the last sentence! Having Shermer as a libertarian review that book is incredibally instructive. That Shermer’s arguments are so full of holes, hypocrisy and strawmen reflects badly on his libertarian world view. I expect a Muslim’s review of the book of Mormon would be much the same and would be instructive not because of what it says about Mormonism, but what it says about Islam.

    • Fascination says:

      I don’t agree with all of Mr Shermer’s politics but the fourth item you listed (heavily taxing the wealthy) has more problems with it than just what you listed. When the rich are taxed too heavily they eventually take their wealth and businesses (and jobs!) elsewhere. This is a big problem that I have seen firsthand. I noticed Mr. Shermer didn’t mention it either.

  30. Carl Morano says:

    Shermer’s reasoning is solid. I don’t understand how you can understand evolution and the human species and still, in 2012, believe in top-down social engineering. Career politicians are the very least people we should trust to impose force on the individual. Facism for the ‘common good’ is still facism and exactly what Jesus, Mao and Hitler and others pleaded for.

  31. Don Byrd says:

    To suggest that top down intervention is somehow detrimental to society is somewhat analogous to suggesting that modern medicine interferes with the natural course of disease. This is of course true, however who among us would willingly forgo antibiotics when needed to save our child’s life, of the setting of a broken bone.

  32. T Payne says:

    Wow Michael, this is one of the most generally negative reviews of your reviews I have ever read.
    It seems that many otherwise rational, skeptical, and intelligent readers have put on the blinders when it comes to the fundamental of economics.
    Regardless the critical protestations in reply, the economic principals of the free market as espoused by Adam Smith and M. Shermer are testable. And economic history points toward the robustness of the theory, reinforced daily.
    Michael, you are right and you have your work cut out for you trying to create the environment where your economic critics can experience your enlightenment about the role of economics, freedom for the most, and liberty for the most.
    I suggest one of the foundation pieces for this environment should be “The Wealth Of Nations” by Adam Smith orig. pub.1776
    It is a powerful blueprint for a stable and peaceful society, immensely better than the one we live in now, because of it’s realistic assessment of humans and their nature.
    Even the ignorant want prosperity for their families.

  33. Janet Camp says:

    This is the last Shermer post I am going to read. I slogged through this opus only to find the same ranting I can find (only with a lot more spelling and grammar errors) on any old wing nut blog comment section, or even at HuffPo with its trolls. All the blathering about evolutionary theory only to end with right wing (Libertarian–whatever) talking points.

    Boring. But I did enjoy the comments! Excellent points made by many.

    One more thing, Shermer may have got drunk with Hitchens, and I don’t much care for Hitchens’ ideas on a lot of things, but the man could use language! Michael Shermer is no Christopher Hitchens.

  34. Nyar says:

    Excellent article. Long, but definitely worth the read.

  35. Kent McManigal says:

    When Frank says “Either way, we’re paying taxes, so we might as well concede the point…” he might as well be saying “There will always be murder so we might as well accept it”. Taxation is theft. Pure and simple. Just because it might always be around doesn’t mean you should pretend it is something other than theft. A theft by any other name… http://www.youtube.com/watch?v=H585nogZWpQ

    • tmac57 says:

      And every time you pay for something that you need at the store,food,clothing,medicine,they are stealing from you when they charge you for it.Roads,military defense,clean water,law enforcement,electric grid,sanitation should all be free.Why should anyone anywhere have to pay for anything?Right?

    • Bruce Murphy says:

      I thought the readers of this blog were skeptics? “Taxation is theft. Pure and simple.” is not something a skeptic usually writes.

    • Nyar says:

      There will always be slavery in America so we might as well…huh? Really? Well that’s good to hear, maybe now we can end government theft too!

  36. Canman says:

    One clear advantage that markets have over governments is an inherent method for dealing with incompetence. Companies can go out of business (when they don’t get government bailouts). While ineffective parts of government can be scaled back or eliminated, it doesn’t seem to happen all that often. And when it does, it usually involves cumbersome procedures and political posturing.

    Liberals like to point to Somalia as an example of extreme libertarianism. Libertarians prefer to point to Hong Kong. History is full of examples of countries where the government owns and runs everything. There don’t appear to be any stunning sucesses. Somalia was a communist country (Wikipedia), before it collapsed into its current state.

    There are certianly laudable things that governments can and probably need to do, but just having governments do things is not an end in itself. I beleive government is a tradeoff with progress.

    • Max says:

      Somalia is an example of extreme libertarianism like North Korea is an example of extreme socialism.
      Libertarians prefer Hong Kong, and socialists prefer Sweden.
      The latest libertarian experiment is the Republic of Georgia. I hear it’s going ok.

  37. Markx says:

    1. The economy we have (with all its faults) only works to the extent it does because of a myriad array of ‘rules’. (think currency, debt, banking etc)

    2. The natural end point of an unregulated ‘free market’ is that one person ends up owning everything:

    My favourite Lassez Faire capitalist fable summarized

    In a small, isolated town there exist some businesses; three supermarkets, two butchers, two bakers. Competition keeps prices down.

    But, the owner of Growing Supermarket is a popular man, he belongs to all the clubs, has a good sense of design and business. He has connections, and is able to present convincing business plans. His business booms.

    Almost Supermarket and MomPops Supermarket lower prices, and claw back some customers. But, Mr Growing is man of ambition. He incorporates a butcher shop in his supermarket. He uses surplus cash to advertise. One stop shopping.

    Now MomPops, and both butchers are losing business.
    MomPops follows by starting a bakery in the operation, but are not cash rich and are unable to borrow on as favourable terms as Mr Growing.

    Growings adds a bakery. He buys out a butcher and baker and shuts them down. He buys Almost, and replicates his supermarket there.
    Eventually, MomPops, and the remaining butcher and baker shut down.
    Growings is hiring, so they all get jobs. The mayor tries to enact laws to stimulate competition, but Growing tells him that is against economic theory, and helps fund the mayor’s next election campaign.
    Occasionally, somebody sees the opportunity and competition starts up. Growing cuts prices, ups advertising, and watches for innovations to copy. The competitors don’t last. Some force Growing to trade at a loss for months, but with his accumulated reserves Growing prevails.

    Everyone is happy to shop on one stop, and barely notice the gradual rise in prices.

    1. Does Growing deserve his success? (Answer: Yes, undoubtedly)
    2. Is this result good for the general community?
    3. Is it good that everyone ends up working for one employer?
    4. Will such a system ever regulate itself and provide competition?

    • Canman says:

      Is this guy planning to expand beyond his town and take down Walmart?

    • Phea says:

      You really don’t have to paint a fictional scenario. The factual history of the company town of Pullman, Illinois is a good example of how the “unregulated free market” can evolve into something very close to slavery.

      http://en.wikipedia.org/wiki/Pullman_Company

      • Markx says:

        Thanks Phea, you are correct. That is an amazing story, and precisely illustrates the point.

        Apparently the situation was quite clear to the government of the time, and corrective action was eventually taken.

      • Phea says:

        Another example I personally experienced when I was a young man involved working for a company that installed insulation in new homes. The company I worked for was large and had very little competition.

        When a new company started up,(usually, it was an ex-employee or two), and began bidding against him, the owner would underbid, (even if it meant losing a bit of short-term profit), until the new guy, was forced out of business.

        The owner was very open and even proud of the way he handled competition.

        I’ve also heard stories about Sears, back in the early days, and how they would give a contract to a manufacturer, (forcing him to go into debt to expand and meet the contract order), only to be forced to sell the company to Sears, or future contracts wouldn’t be forthcoming.

        The Tucker Automobile story is yet another example of how sleazy business practices are often used by those with power.

        Right now, we STILL have a huge problem with CDS, (credit default swaps), which are basically UNREGULATED insurance policies, and unregulated derivatives, which will still wind up biting the worlds economy in the ass.

        To actually believe business needs no regulation, requires one to be extremely naive and to completely ignore history.

      • tmac57 says:

        Don’t forget ‘price fixing’,where,for example, two or more large competitors collude to set an artificial bottom on prices that they will not cross (gentlemen’s agreement?),thus keeping profits higher than what the actual market would allow.
        That is only one mode of price fixing,but all the others are equally intent on doing end runs around market forces,and another reason why governments find it necessary to rein in businesses that really do not want the level playing field that would be necessary for Libertarian theory to do it’s magic.
        http://en.wikipedia.org/wiki/Price_fixing

      • Canman says:

        Most of what I think I know about the credit default swap debacle comes from Michael Lewis’s two books, ‘The Big Short’ and ‘Boomerang’ (some of his chapters are available as articles on Vanity Fair’s website). What sticks out most is how incompetent the high rollers at the big firms were. What is most disturbing, is how banks would make crappy loans and sell them to big firms that would put them together in packages that would get high grades from rating agencies.

        Could the government have prevented this? It seems to me that they have some involvement in the crises. Two big quazi corporations (FrediMac and FannieMae) buy up mortgages to make homes easier to buy. This also makes it easier for banks to make loans (and undoubtedly includes bad ones). There was also the TARP bailout. This was not the first financial system bailout. In the late 80’s, there was the savings and loan crisis, which needed a bailout of “only” about $100 billion.

      • Markx says:

        Another example: High Frequency Trading, where a few companies in the world have computers doing thousands of trades per hour (that is on the one instrument/share/commodity) and are making millions of dollars a month profits.

        And there is actually a debate going on as to whether or not this should be made illegal.

        Well, it takes a normal person a few seconds (ie, about as long as some of these trading positions are held) to realize this absolutely should be banned, having nothing to do with free markets or transparency (everything a market is supposed to be). The very fact the companies that are doing it are always hugely profitable in either rising or falling markets should be enough of an indication in itself.

        Why are exchanges and governments still ‘considering’ the legality of this?

        Massive commissions for exchanges (every trade!) and I can only guess licensing fees and taxes for government (probably confounded by lobbying – ‘money doesn’t talk, it swears’ (Dylan) – and perhaps the fact the members of the US congress are NOT bound by insider trading laws.)

        Yep, we sure as hell need laws and regulations, those who oppose them surely just enjoy being robbed and exploited, or have been completely indoctrinated by the robbers and exploiters.

      • Canman says:

        I’m skeptical of program traders taking over the world. The more program trader’s there are, the less profitable it is for individual traders. I would geuss there is a limited amount of market inefficency for them to exploit and they do have transaction costs.

        When they are successful, they have to do somthing with their profits. Hopefully, it goes somewhere productive. I don’t think it all goes into yachts and mcmansions.

  38. Canman says:

    I often hear arguments about companies or rich guys getting so big or powerful that they will be invincable. I never see it pan out in the long run. IBM couldn’t keep control of the computer industry. The big three couldn’t keep control of the auto industry. I suppose some day Walmart could control the world with it’s mastery of economies of scale, but for now, I see lots of competiters like Krogers, Meijers, Staples, … Amazon.com.

    Whenever One person gains control over a country, it’s usually some place like Cuba or North Korea that is not very prosperous. They also don’t seem to have a gauranteed lock on the future. Look at Ferdinand Marcos or Momar Gadafi.

    Whenever any company or person gets too big or powerful, they create a market or political vacuum.

    • Nyar says:

      “Whenever any company or person gets too big or powerful, they create a market or political vacuum.”

      And they become a target, the one that everyone else wants to knock of their perch.

      • T Payne says:

        I agree with John Stossel.
        And Michael Shermer.

      • Markx says:

        Re John Stossel article:

        I too agree we need simple laws.

        But, some of those laws had better be countering the “free market faith” which has been foist upon us all, preached since our birth and ingrained into our collective belief by those who would own us.

      • Markx says:

        Re John Stossel article:

        I too agree we need simple laws.

        But, some of those laws had better be countering the “free market faith” which has been foist upon us all, preached since our birth and ingrained into our collective belief and by those who would own us.

    • Markx says:

      Canman said: “Whenever any company or person gets too big or powerful, they create a market or political vacuum.”

      Yes, true, it seems eventually to self regulate, by cumulative management error (within) or economic policy error (without ie gov’t) but in the meantime the lives of a generation or two of consumers and suppliers are adversely affected. Is that desirable?

      (And, eventually organisations will arise which avoid these pitfalls, learning from the mistakes of the past).

      Australian Market concentration:

      Fairfax and News Limited 86% of newspapers in Australia (25% and 61% respectively).

      Mining – BHP, RIO, Woodside Petroleum, Newcrest Mining and Fortescue Metals hold 75% of the Australian mining industry… not too bad? …BUT … 67 shareholders own 68% of Rio Tinto and 78 shareholders own 59% of BHP.

      Woolworths and Coles between them hold >75% of the retail grocery market in Australia, including 89% of retail fuel (Chevron/Caltex (Woolworths) and Shell (Coles)).

      • Canman says:

        You got some oligopolies. I think this is an inevitable result of economies of scale, and each member of an oligopoly wants to be the biggest member.

  39. Victor Belmar says:

    Great article Michael. I want to point a few things
    1) Socialism is not the same as communism. Ask Germans, Swedish, Swiss. They have economies much more successful than the american (by successful y mean very little levels of poverty and great levels of life quality)and they mix the most intelligent things of socialism and capitalism to have societies much more just and egalitarian than the american.

    2)You don’t mention what happens with the politicians that have been elected by God. I mean Bush and his gang are given to us by god, so we should do what they say right? Bush and Palin are curated samples of god’s intellect.

    3)Not really convinced by your arguments Michael. I mean, we have tools and intelligence to design a better society. Again, look at the Scandinavians. I’m not saying they are perfect but things that in america would be considered pure satanic communism as free high quality education have made their countries to prosper much more. What we need is the people whom make the regulations not being wall street bitches. What are u gonna say to the family that losses their house every minute in USA “Sorry people, it’s evolution, u know” or to the kid from the “hood” trying to fight his way up trough education “sorry Tirone, it’s not democratic to give you good education….. scholarships? bitch please…”

  40. T Payne says:

    Let me make a guess.
    I guess;
    Those of you who think free market economics might be the problem, are employees and not entrepreneurs.
    Discuss?

    • Jim Hull says:

      One of the biggest blind spots is the notion that our group’s beliefs are universal truths while the other group’s beliefs are false and evil. Liberals — who, on average, make less money — tend to think the rich steal from others; conservatives — who, on average, make more dough — tend to think the poor are moochers. Each side constructs elaborate arguments to defend their interests as benefitting all humankind, but when it comes down to it, it’s really our DNA — struggling for supremacy in the gene pool — that’s doing the shouting.

      There was a recent study (sorry, can’t locate the reference!) that described how researchers did brain scans of people while they were answering political questions, and though several parts of their brains lit up, the pre-frontal cortex wasn’t one of them.

      We’re supposed to be conducting a dispassionate discourse among skeptics, but in fact there’s not a lot of thinking. Instead, we’re using a library of verbal weapons — much like a chess master opens with a library of memorized chess moves — and firing them off at each other. Dr. Shermer’s efforts to bring rationality to political questions may be Sisyphian.

      Anyway, when somebody says, “I have the universal answer,” check your wallet.

    • Markx says:

      T Payne March 17, 2012 at 4:18 am

      “…Those of you who think free market economics might be the problem ….”.

      Markets are not the problem; they are probably the best way we have to date to regulate prices and supply and demand.

      But, they are NEVER free, there are ALWAYS rules (otherwise the biggest gang in the market would just load everything up without paying and leave with it).

      The problem is with those who wish to selectively remove the rules (in the name of ‘free’ markets) to benefit themselves. (…..so they can just load everything up and ….)

  41. Markx says:

    Jim Hull March 17, 2012 at 5:36 pm

    “our group’s beliefs” or indeed out own beliefs are just that, something we believe to be correct.

    ”Liberals — who, on average, make less money — tend to think the rich steal from others; conservatives — who, on average, make more dough — tend to think the poor are moochers.”

    Not necessarily so – there are plenty of ‘poor conservatives’ in the world, arguing to the last and willing to fight for the rights of the rich to rob them (ie, fighting for laissez-faire capitalism) Just look at the volunteers of the armed forces of the good old USA.

    ”Each side constructs elaborate arguments to defend their interests as benefitting all humankind, but when it comes down to it, it’s really our DNA — struggling for supremacy in the gene pool — that’s doing the shouting”.

    I’m sure the arguments are not so elaborate, the details are simple enough, it really just depends on how our experience to date has ‘programmed’ us to think about those details. And I’m awfully afraid some out there have become very adept at programming us – eg – how ingrained the basic free market concepts are in many western minds, but these ‘basic concepts’ don’t include the fact that what we have and what is (almost) working in fact functions because of a myriad of laws and regulations.

    Where does the DNA come into this? Only inasmuch as our brains have developed in such a way to make us bond into communities, thereby accepting beliefs and customs somewhat unthinkingly (groupthink!) and making us a little too vulnerable to programming. Evolution as a parallel of markets functioning is pretty poor really, because markets are a place where you’d better make sure there is really some “intelligent design” behind the scenes!

    “We’re supposed to be conducting a dispassionate discourse among skeptics, but in fact there’s not a lot of thinking. Instead, we’re using a library of verbal weapons — much like a chess master opens with a library of memorized chess moves — and firing them off at each other. Dr. Shermer’s efforts to bring rationality to political questions may be Sisyphian.

    I don’t think that is the case. The arguments put forward are interesting and varied, and really, do you propose we just give up debate on the topic? I’m a good example of someone who has changed from being an out and out believer in free markets, to realizing there are other , and probably better ways to do things, (and no, extreme versions socialism ain’t very high on my list!). My own change of viewpoint came from debate, and having experienced slightly different approaches to things living in several different countries.
    My belief? We NEED to allow markets to set prices and regulate supply, but we’d better have a very clear idea of what we need now (as a country) and where we want to be going. Then fine tune it (the market) with laws to give the desired result. And note, I mean this for INDIVIDUAL countries. It is my belief that the wonderful concept of ‘International Free Trade’ is badly flawed and great sham to allow economic hegemony by rich developed countries. (and the fact that that plan probably as not quite panned out as hoped does NOT mean Free Trade is a good thing).

    And I’m personally not sure Dr Shermer even attempted to bring rationality to the debate. He just had a very complicated build up before he trotted out HIS beliefs (somewhat confounded by details on evolution).

    And ….“sisyphian” – perhaps an example of using something from the library of verbal weapons?

    “Anyway, when somebody says, “I have the universal answer,” check your wallet.”

    Anyway, when someone tells you the markets will regulate themselves better with fewer rules, he’s probably already manipulating your shares, currencies, and commodity prices, and likely already has a near-monopoly on all of your basic requirements for life. And, he sure as hell doesn’t want to let go of all that.

    • Jim Hull says:

      Markx: “I’m sure the arguments are not so elaborate . . . . The arguments put forward are interesting and varied, and really, do you propose we just give up debate on the topic?” — No, of course not. But note that you’re having it both ways.

      We’re emotional beings with thinking caps on top. This makes it very, very, very, very tricky not to fool ourselves into believing we’re the ones being rational while everyone else is biased. As Franklin put it: “So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do.”

      Discussing these topics isn’t impossible by any means, but it’s tricky to do without hardening our positions and then taking potshots at each other. My test for my own biases: if I’m irritated, I’m no longer thinking dispassionately.

      You invited a debate: “Those of you who think free market economics might be the problem, are employees and not entrepreneurs. Discuss?” It’s a question a conservative might ask. And I replied with my take on our general biases in political discussions, to which you replied that we’re not really being biased! Then you proposed what sounds like a left-wing view of economics, i.e.: “fine tune it (the market) with laws to give the desired result. . . . the wonderful concept of ‘International Free Trade’ is badly flawed . . . when someone tells you the markets will regulate themselves better with fewer rules, he’s probably already manipulating your shares . . . ” Did you lay a debating trap for free market proponents to fall into?

      This reminds me of my father, an attorney, who used to like to stir up debates by taking arbitrary positions, then arguing opposite views to keep things going. It could be great fun, and I loved my father dearly, but I’d often get the feeling I’d been had.

      Anyway, are we having a skeptical discussion? Or is it a case of bait-and-switch? I’m all for a sense of playfulness in conversation, but I kind of feel whipsawed.

      As for my use of “Sisyphian”: I thought long and hard about that because it’s a snob word but it got the point across. And then I misspelled it.

      • Markx says:

        Hi Jim, thanks for the reply – just a point – the original question re ‘free market economics/employees etc’ came from T Payne, not me.

        That was just me jumping into the discussion (interrupting, as usual!) Yeah, personally I’m usually up for a discussion, but right now, I have to jump on a plane and head to Vietnam for the week, so it might be a bit quiet from my end.

        And well, sisyphean was certainly a new word for me, (but I do like it).

      • Jim Hull says:

        Markx: Apologies — I misread the threading. Now I feel foolish; I must withdraw my “bait and switch” concern. (At least T Payne might be amused by all this…!)

        By the way, I mentioned DNA because I’ve been thinking that most politics is tribal, and probably tribal attitudes have deep genetic roots which tend to pull us away from rational perspectives. (As in: “There’s no time to ponder this stuff carefully! We’re under attack! Get out there and fight!”) I didn’t make that very clear.

  42. Beelzebud says:

    Mr. Shermer, I have a book suggestion for you. It’s called “Why People Believe Weird Things”. You should read it, and apply it to your libertarian economic models/views.

  43. J.H. says:

    I apologize for making this comment as long as it is.

    Not having read the Robert Frank book, I can’t comment on that, but Michael Shermer has written an interesting piece, and the commentary that has followed is certainly, for the most part, informative, and of really good quality.

    Shermer has a fatal flaw in logic that, of course, pushes a lot of emotional buttons. And, of course, again, that is what easily sways a non critically thinking crowd of readers or listeners. What is that fatal flaw? “The government is going to confiscate _my_ money, and hand it directly to someone who is lazy, and does not deserve it.” Is this, in full truth, what happens? But it’s an easy argument to buy into as we hate to see (or perceive that we see) someone getting something for nothing as we toil away for our share.

    Being a psychologist, I would have thought Shermer would not have fallen into the trap of the technique seen in most of the entertainment shown in the U.S. As a psychologist, I would have thought that he might police himself against that either/or (only two states exist) mentality that is so often portrayed in popular “entertainment.” But I was certainly left with that impression from his piece: there is this, or there is that. No grey areas; no middle ground, or “third way” to consider.

    Let’s also go into, and consider the cell biology analogy. Cell biology seems to work on a continuum, but there are states at either end that elicit consideration, and would seem to apply to Shermer’s argument. At the one end there is unrestrained growth of the cells. At the other end is something called apoptosis. The first example is usually called cancer. If all that exists is the second, then nothing gets rolling at all for it means cell death. In either case, the result?… The patient dies (or at least gets very ill). But the conditions of growth, and death co-exist, and actually help each other.

    So it’s not an either/or scenario. Both are necessary for health. We need cell renewal and growth to live, but we also need cell death so the old worn out cells will not clog the system, and targeted cell death will also inhibit that unrestrained growth leading to a cancer. If we transfer that to an economic model we need those who think entrepreneurially to stimulate the new ideas, and give us new opportunities. On the other hand there needs to be a regulatory regime to keep those who would go wild in check; inject some sober thought, and oversight toward the _common_ good if things start to run away. Remember, as for the corporeal body, society is a system.

    Getting back to the original paragraph: do we, _as a society_, benefit from slave plantations? Can the society survive, or will it progress if all the innovation is claimed by the state, and there is no reward for those with the moxie to delve into new ideas, and see them to fruition? We’ve seen communist states fail, and we’ve seen unrestrained capitalism (Wall St., and unregulated financial dealings) bring the world’s economy to its knees (and it’s not over yet). Remember we are not dealing with forces of nature here, but created systems over which we do have control, and can bring them back into balance when they start to get out of whack (no matter who that out of whack favours at a particular time).

    And another fatal flaw that I find in Shermer’s argument is that all those without extreme wealth are lazy, and more than ready and willing to suck off another’s mammary. Anecdotal perhaps, but I’ve found that most people are more than willing to earn their keep given a chance to do so. Always going to be a few that are there to leech, but I don’t think that they should be held up as the norm. There are times when conditions dictate that people need help, and usually when that is granted, and their lot recovers, they are more than willing to pay their good fortune forward.

    We might take a look at Canada as an example of industry/regulatory balance. Contrary to Pat Buchanan’s “Soviet Canuckistan” comment, it seems, though very much a capitalist system, that it has been overseen by reasonable regulation, and has survived the worldwide economic downturn reasonably well. The Scandinavian countries have also done not badly with much more in the way of a leaning toward intense social democracy than Canada, and in rather stark contrast to the U.S. So… instead of sticking to singular ideology (on either side), where does the evidence take us? What can be learned from these countries, and these economies?

    We have to keep in mind, in nature, that there are always losses to “friction.” There are no systems that are “perfect.” There will always be corrupt politicians, and if not corrupt, there are those that will evolve into having their own agenda, and wind up wasting precious taxpayer dollars – even if initially well-meaning. That is what has to be guarded against within the “regulatory” body. So let’s not be persuaded by slick promises that have false premises (and promises) attached. Ah… the syllogism – we should, each of us, be better at running campaign promises through that process. But within that we have to listen to what a politician – a realistic one – is saying when they say “this will not be solved overnight.” Again, the entertainment industry has conditioned us for the “instant” victory. That’s not real world reality.

    It’s all about context. We have to let the entrepreneurial individual thrive within the societal context. On the other side, for anyone thinking along such lines, money for nothing is ultimately not productive; but failing, as a society, to renew through reasonable taxation the societal infrastructure is just as debilitating. It’s not either/or; it’s both… and a balance. And it’s like balancing on a unicycle: it takes a lot of work, and it never ends.

    Saving small amounts of taxes for certain well-to-do individuals at the expense of making sure there is a widely, and broadly educated populace (and workforce) who are healthy is false economy. The very high income individual’s lifestyle won’t suffer through good times or recession/depression, and no one is talking about confiscating their wealth. But that’s not an endorsement of, or giving licence to reckless spending. And the thought of any spending that is not one’s own being nothing but state sanctioned charity is very much a straw man argument. As we’ve seen, co-operative (not commanded) collectives usually thrive rather better through better productivity than lone individuals. But that’s not without some cost to all involved. Reward entrepreneurship, but realize that comes with societal responsibility as one’s fortunes fare better.

    The U.S. is suffering from a debt crisis (wow… this is news…). Everyone buying into the idea of “I want it, and I want it not now, but right now” has led to national deficits, and accumulated debt. As we know on a personal basis, there are two ways to get out of debt (leaving out selling assets, or declaring bankruptcy): reduce the spending, or get another job to add to the income which, if we are smart, goes to paying down that debt. As to taxing the wealthy (again, no one’s trying to confiscate the existing wealth), as with the extra job, we hope it won’t last forever, but, in combination with spending restraint, it will eventually get the debt levels down so that we can quit entertaining the thoughts of bankruptcy. And we hope that the whole family is willing to contribute to being… a family.

    One thing that I so often see left out of these discussions is the fact that there are two components to an economy. There is wealth, but there is also circulation of the wealth. Wealth, whether it be in natural or human capital, is the base, but circulation is like the blood through a body. Without the circulation there is no flourishing. Too little circulation and we suffer stagnation, and unemployment; too much and we see runaway inflation. Neither is, obviously, desirable. In that context one has to ask: do the wealthy circulate the wealth at the same rate as the poor, and the middle class? We circulate, generally, for everyday life. There are more people in the working (blue, or white collar) classes than the extremely wealthy. Right now we see the wealthy individuals, and especially corporations who were given extensive tax breaks just sitting on the cash that they’ve accumulated via the tax breaks. The body, without good circulation, is not flourishing. It may take a transfusion from one patient to another to get things healthy again as the patient in trouble can’t just pull themselves up by the bootstraps. But when returned to health, they return to productivity. Everyone benefits.

    How often do the collected taxes go to the undeserving, and how often do they go to the promotion of, overall, a better society for all… yes, even to the entrepreneurs who need good infrastructure to do better for themselves? Again… it’s about that elusive balance. Polarized ideology won’t work; goal oriented practicality might. The wealthy usually have power, and, as it is said, with power comes responsibility.

    This is what being a skeptic is all about, isn’t it? Trying to not get caught up in the emotion so that our egos don’t take a hit when we have to admit that what we’ve championed is not correct (or at least has argumentative flaws). When we search, and base our actions on truth, and go where the constantly incoming information leads us as it changes, then we don’t have to let our egos be bruised. We were, after all, in it for evidence based truth, not to be right.

    So, in writing this blog post, and with the position that he has taken, is Michael Shermer suffering from a Believing Brain?

  44. rob says:

    With every paean to libertarianism, Shermer handicaps Skepticblog’s credibility as a source for rational comment. It’s a naive fantasy and no Randian wall of text is going to change that.