Michael Shermer (the well known author and publisher of Skeptic magazine) and I usually see eye to eye on all things skeptical. On matters of economics, however, we seem to depart rather sharply. He is a former Randian (as in Ayn Rand) and current moderate libertarian. I am an unmitigated progressive liberal (yup, I like very progressive taxes -- that is, steep on the rich -- welfare, universal health care, free education -- including college -- and a tiny military).During the summer my lab at Stony Brook University reads a couple of books for fun and intellectual enrichment. One of them this year is Shermer’s The Mind of the Market. I will take issue here with the arguments he deploys in chapter 3 in particular, entitled “Bottom-up capitalism.”
One of the central ideas of the book is to build a parallel between Darwin’s natural selection and Adam Smith’s “invisible hand.” It isn’t that Shermer is trying to go back to so-called social Darwinism (which Darwin himself vehemently rejected), but rather to make the case that both biological systems and economies are “complex adaptive systems with emergent properties.” The conclusion to be drawn from this is that, just like natural selection yields results without the intervention of an intelligent designer, so we should let markets work their magic without government tampering (I simplify somewhat, you should read the book if you want the full treatment).
There are problems with the natural selection-economic markets analogy, of course. To begin with, it is not clear what markets maximize, if anything. Natural selection maximizes local fitness (of a particular population in response to a specific set of environmental circumstances). Free markets may maximize trade volume, for instance; or perhaps they minimize prices; or they augment per capita income, but it is hard to see why exactly any of these things would be necessarily good, since according to several studies published over the last few years they are all only loosely correlated with quality of life, or with other important priorities, like justice, equality, or environmental preservation.
Even assuming that letting markets operate on their own is a good idea in terms of the goals to be accomplished, the parallel with natural selection is rather apt in a way that libertarians won’t like: not only does natural selection not yield optimal outcomes (just whatever happens to work well enough), but it is extremely and painfully wasteful. Let us not forget that the overwhelming majority of species that ever existed went extinct, and that any improvement in the adaptation of a population of organisms happens at the cost of countless deaths and suffering among the less fortunate members of that population. Just like unbridled capitalism, essentially a pyramid scheme, makes a very small number of people very rich, but is built on the sweat and lack of a social net for the majority.
Even Michael, however, has limits (unlike many libertarians I know). After having extolled the virtues of Microsoft’s quasi-monopoly and having told us that Walmart is the best thing that could happen to small America and the world at large, he ends the chapter on a more moderate note. “There are extremists,” Shermer writes on p. 42 of the book, “who embrace the ideology of anarcho-capitalism. ... [But] in order to keep the free market both free and fair, we need political states based on the rule of law, with property rights, a secure and trustworthy banking and monetary system, economic stability, a reliable infrastructure, protection of civil liberties, a clean and safe environment, and various freedoms of movement, of the press, of association, and of education. We need a robust military for protection of our liberties from attacks by other states. We need a potent police force for protection of our freedoms from attacks by other people within the state. We need a viable legislative system for establishing fair and just laws. We need an effective judicial system for the equitable enforcement of those fair and just laws.”
In other words, we need a pretty pervasive government to both facilitate and control social activities, including economic ones! This is the classic libertarian version of wanting the cake and trying to eat it too. Whatever happened to leaving the markets alone to do their magic (something, incidentally, that Smith himself never advocated, aware as he was of human wickedness and crookery, well before Exxon Valdez and Enron)? Natural selection doesn’t require our or anyone else’s intervention to work, it truly does function “from the bottom up.” Not so economies, even by Shermer’s own account. Natural selection does work without the need for an intelligent designer, but it just seems perverse to ask human beings not to use their intelligence to improve on the workings of whatever invisible hand may blindly guide the markets.
There is one aspect in the Natural Selection/ Free Market analogy that does not hold. That is the aspect of heredity. Sure there is competition in the free market, but the benefits are not passed on to a new generation, unless you use the term in the loosest way possible way. It is not the grandchildren of Microsoft that benefit from the success of Microsoft, it is Microsoft itself. This is the main problem with unbridled capitalism, it tends inevitably to oligopoly, then monopoly.
ReplyDeleteP.S. There is a work of fiction that describes this whole process very well in concrete terms. In Emile Zola's Au Bonheur des Dames, a megastore is established in a Paris neighbourhood, and inevitably eats up all the small businesses in the neighbourhood. This affects the family of a young lady who comes to Paris to seek her fortune. Admittedly, it is true that Au Bonheur des Dames is, in a sense, the best thing that happened to the neighbourhood. The heroine eventually does find her fortune by seeking employment at Au Bonheur des Dames, and eventually rising in the organization. Zola does not deny the power of this department store, and its economic benefits, but he also describes the negative consequences quite clearly.
You describe Shermer as a moderate libertarian, but from what I've read of this book, he seems rather more doctrinaire than other obvious candidates for moderate libertarianism: The Economist magazine, or Andrew Sullivan. It's one thing to think Shermer's arguments show free markets are very good to have, but another to think that they set clear, a priori limits on what sort of government interventions are a good idea.
ReplyDeleteI think the capitalism act like natural selection in the sense the apt enterprise win the money ant the no apt enterprise die. If there was a limitated number of bussines, at the end only one would survive. But fortunately, new bussines and enterprises are created and they fight, too.
ReplyDeleteBut on the whole, this economic systems is good only when economy is growing. For example, in Spain we have had a strike very "amazing", because carries complain about the high price of the gas, because they have less profit and asked a solution to the goverment.
P.D. Sorry by my bad english and the gramar mistakes.
Lately I have been choosing which book to read based on the ad hominen fallacy: only read non fiction books wrote by skeptics.
ReplyDeleteWhy? Well maybe because I have lots of things to do and I don’t have a better criteria, and I don’t like when authors go around and divagate in something they got no actual evidence on ( which may go to from straight supernatural to pseudo Buddhist-atheism) .
Sadly this doesn’t work at all, for it seems even skeptics tend to fall from time to time into crazy speculation every time they got the chance. So it goes more or less like this:
Me-I WANT THE TRUTH!!
Authors- YOU CANT HANDLE THE TRUTH!
I wanted to read a nice book of economics which wont fall into superstitious mumbo jumbo. I want an author that will tell me straight when he doesn’t now and he’s just making things up. Shermer looked like a good candidate. Now it seems he is just like everyone else.
Any one got a better criteria for choosing what to read? Or shall I expect no more than this and just spend the rest of life reading Wikipedia?
The problem with skeptics writing about the political economy is that even if they did have a perfect handle on the evidence, which no one does, it wouldn't matter because much of their arguments are over ethics, not facts. So, for example, much of economic theory focuses on maximizing economic efficiency. Because such models do well at describing people's behavior in free markets, they are useful scientific tools. However, economic efficiency is only one of many potential political goals, and it's primacy depends on one's ethical priorities, not necessarily evidence. Consequently, the reason that Shermer and other skeptics slip up on such issues is that they are making ethical arguments for which they have no special expertise.
ReplyDeleteBesides, I think the analogy between natural selection and economics is highly misleading. All that they really share is optimization. After that, the similarities break down rapidly.
Bottom-up organization is a pretty powerful force, but centralized control can sometimes outdo it. Evolution has produced a lot of stupidly inefficient systems, due to things like evolutionary arms races. In the human world, there are situations like the prisoner's dilemma, road traffic management, and so on where the maximally-libertarian situation of independent actors leads to disaster, where an intelligent decision with less freedom has a much better outcome.
ReplyDeleteThere are a lot of other areas where liberal subsidizing can lead to a better long-term outcome (including economic outcomes) than libertarian "maximizing". Preventative public health care and public education are examples. In those cases, a libertarian society would suffer from the free-rider problem, whereas a liberal society could simply force people to pay, and everyone would be better off in the end.
“Natural selection does work without the need for an intelligent designer, but it just seems perverse to ask human beings not to use their intelligence to improve on the workings of whatever invisible hand may blindly guide the markets.”
ReplyDeleteProgressives have been making precisely this same deliberately misleading remark for decades. But obviously, nobody suggests not using our intelligence to improve on the workings of the market. On the contrary, the point is rather that our mind tells us something which progressives have never learned: that attempting to improve on the market in the way recommended by progressives is like trying to improve upon the human body through the application of leeches. The specific policies and interventions recommended by progressives are naïve and uninformed. What we need to do, rather, is to use our minds, i.e., to absorb what has been learned in the last 100 years to bring about a healthy and vibrant economy. When we do that, what we find quite often is that typically progressive policy recommendations have unintended and unwanted consequences, and that in many cases we are better off to let the market do what it does best: to marshal knowledge of particular facts and circumstances and to express that knowledge through the mechanism of market prices, and to thereby solve as well as we can the problem of economic coordination. That is the intelligent course of action.