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Evolutionary Economics and Darwin’s Wedge

The views expressed are those of the author and are not necessarily those of Scientific American.


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Economics is in our nature. But not the narrowly self-interested kind. We evolved to survive collaboratively. Models of us that exclude our interdependence are fatally flawed. “Darwin’s wedge” can provide fitter models.

Evolution gave us a rich set of traits, tools, and rules for organizing collaborative production as our means of survival. And for solving the allocative problems it brings. Nowadays, we call that economics.

Our hunter-gatherer ancestors, likely 10,000 generations ago, evolved to use division of labor. And the sustainable division of profits it requires. Today’s hunter-gatherers still practice egalitarian economics. They’re eternally vigilant against free riding and exploitation, threats as dangerous as any predator. They universally use “counter-dominant coalitions” to prevent the strong from overexploiting their status.

Evolutionary economist Ulrich Witt notes that we face the same basic issue of coordination in today’s economies. Further complicated by the (evolutionarily recent) rise of agriculture, cities and industrialization, which created opportunities for un-egalitarian accumulation of assets. But as Robert Frank points out, Darwin understood that “individual incentives often lead to wasteful arms races,” where relative rather than absolute wealth is what matters.

Frank coined the term “Darwin’s wedge” to describe how individual and collective incentives can diverge, driving added costs in competing for rank. However much is spent, (e.g. for larger antlers or fancier cars) 50% end up above the median. Though economists have long preached that competition creates efficiency, as if it were a law of nature, nature’s competitions regularly create waste. For example tree trunks are standing monuments to futile competition.

Competitive overheads could be minimized by coordinating for mutual benefit. Such coordination of joint interests is rational. We can set intelligent limits on unfruitful competition. Markets needn’t be as dumb as trees. Uncoordinated individualistic reasoning often creates poor collective results, as in Prisoner’s Dilemma or the tragedy of the commons.

Our survival has long required a mix of self-interest and cooperation, balanced by the interests of others, and by collective goals. Faith in the ethical alchemy of free-markets to automatically transmute base self-interest into the golden “greatest good for all” is misplaced utopianism (though “fewtopian” seems more apt). Even ardent free-marketeers like Alan Greenspan have been “shocked” by “flaws“in their model. Our ancestors understood that excessive self-interest can become self-harming. As Hillel put it being “only for myself” is un-human.

The “laws” of economics are not generally like those of physics. They’re bylaws, behavioral rules and norms that we can change. It’s irrational to ignore the foreseeably undesirable effects of current economic rules. We must reconnect rational self-interest to collective self-preservation. Delegating responsibility for our interdependent futures to mindless “market forces,” and their dumb coordination, isn’t rational. We can coordinate better than the invisible hand’s invisible brain.

Illustration by Julia Suits, The New Yorker Cartoonist & author of The Extraordinary Catalog of Peculiar Inventions.

Previously in this series:

It Is in Our Nature to Be Self-Deficient
Inheriting Second Natures
Our Ruly Nature
It Is in Our Nature to Need Stories
Tools Are in Our Nature
We Fit Nature To Us: Evolutions two way street
Justice Is In Our Nature
Behavioral Telescope Shows How Cooperation Works
Selfish Genes Also Must Cooperate
Game Theory And The Golden Punishment Rule
Revolutionizing Economics by Evolutionizing it.
Science’s Mobile Army of Metaphors
Greek Myths About Human Origins

Jag Bhalla About the Author: Jag Bhalla is an entrepreneur and writer. His current project is Errors We Live By, a series of short exoteric essays exposing errors in the big ideas running our lives, details at www.errorsweliveby.comwww.errorsweliveby.com. His last book was I'm Not Hanging Noodles On Your Ears, a surreptitious science gift book from National Geographic Books, details at www.hangingnoodles.comwww.hangingnoodles.com. It explains his twitter handle @hangingnoodles Follow on Twitter @hangingnoodles.

The views expressed are those of the author and are not necessarily those of Scientific American.






Comments 49 Comments

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  1. 1. marclevesque 7:13 pm 08/1/2013

    I really enjoy your articles and find them a breath of fresh air.

    Just a little objection, correct me if I’m wrong. I don’t think tree trunks represent futile competition. For example, if I consider a rain forest, the whole universe between the canopy and the ground is alive with life that participates in the trees’ sustenance. In other words, the tree trunck co-evolved with other species.

    Link to this
  2. 2. David Cummings 7:25 pm 08/1/2013

    I agree, marclevesque. The whole idea that tall trees are a waste of energy is just plain silly. It’s an example of agenda-driven “science”. The “scientist” (Dawkins) has an agenda that is outside of science and he’s trying to pull in proof from an anthropomorphism of trees.

    Link to this
  3. 3. RSchmidt 9:17 pm 08/1/2013

    @marclevesque, the problem is, the tree trunk does not photosynthesize so they take energy but contribute none. They exist to make it possible for the tree to reach above the trees around it. But since all trees are fighting the same race they all tend to grow to the same height as their neighbors including related trees. So they are wasting tremendous energy to get the same result. The same can be said for cheetah and gazelle. They are all fighting a race to see who’s fastest. So both have evolved strategies to make them faster. At the end of the day, the odds of a cheetah taking down a gazelle are probably not much better. The would probably all be better off if they could come to an agreement, give us your old and sick and we will leave the rest of you alone.

    Link to this
  4. 4. RSchmidt 9:50 pm 08/1/2013

    Anyone who has even taken a cursory look at human evolution would see that many of our greatest traits, language and tool use are as a result of the benefits of cooperation with each other to help us win the competitions with other species. The right wing fanatics that troll sciam would try to convince you that helping your fellow human being is the greatest economic evil humanity has devised, that is unless you are helping them pick your pocket. Certainly there is such a thing as healthy competition but there are other things we shouldn’t need to compete with each other to earn. Some of those things are defined in constitutions as human rights. It is difficult to argue that access to legal representation, health care, education, basic nutrition, clothing and shelter are things our children should be forced to compete for. Yet that is exactly what republicans and tea partiers demand. While we spend tax dollars protecting their wealth, creating infrastructure that allows them to create wealth, providing them with educated employees, they demand that they contribute nothing back to society. The money they made off the backs of their employees, from the resources provided from their country, with the protections provided by the law, is apparently money they made on their own without help from anyone. It’s just greed pure and simple, and now they can’t even fall back on the naturalist fallacy to explain why greed is good.

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  5. 5. Eggnogstic 9:55 pm 08/1/2013

    “We must reconnect rational self-interest to collective self-preservation.” Reconnect? When were they connected? What’s “rational” self-interest, that possessed by others which corresponds to your own? Sounds like religious wishful thinking to me.

    Link to this
  6. 6. rkipling 12:34 am 08/2/2013

    All this Evolutionary Economics talk sounds swell. Make changes to minimize overhead for the mutual benefit to achieve collective goals. “We can coordinate better than the invisible hand’s invisible brain.” Who exactly is this “We” in that sentence? You?

    Fellow Babies, this is not a new concept. Karl Marx had this idea some time back if memory serves. It all sounds great until you come down to the question of who exactly decides how much coordinating goes on and what the intelligent limits on unfruitful competition are. What jag has described, maybe without realizing it, is a type of command economy.

    There are at least a couple of problems with a command economy. The economy of any nation state is too complex to operate with any efficiency from the top down even if those in charge have the most benevolent of intentions (and they usually don’t.) No examples exist where egalitarian economics have been successful at scale. Then there is the problem of who exactly is in command. The power to command an economy, at least in every case so far, leads to those in power being more equal than everyone else. The extreme example of command economy failure is North Korea. North Koreans are starving. Even more would starve if China didn’t subsidize them. The USSR failed itself into the dirt. I don’t need to go on about Zimbabwe, Cuba, etc. You get the idea.

    This is the old saw from faculty lounges that communism just hasn’t been tried properly. The folks in the lounge are sure they would get it right. People are free (at least in this country) to talk about this concept all they want. It doesn’t concern me in the slightest. Free markets actually are unfair. Some people outcompete others and have more stuff. Even so, almost all people in free market economies have a higher standard of living than those in command economies (except the leadership of course.)

    Jag, ask yourself how you would feel if some bureaucrat decided that proceeds from your book sales should be spread around to less successful authors? That’s really what you are suggesting.

    “Let us group together, and tomorrow
    The Internationale
    Will be the human race.”

    I don’t think so. But you have a really nice day.

    Link to this
  7. 7. Cramer 12:52 am 08/2/2013

    rkipling seems to think only in black and white as if there is not an economic system in between communism and libertarian laissez-faire capitalism. What an idiotic anecdote about a bureaucrat deciding that proceeds from Jag’s book sales should be spread around to less successful authors. I guess that means taxes should be eliminated.

    Libertarian laissez-faire capitalism is just as much of an utopian fantasy as was communism. Both are economic systems created for saints, which there are few. There are plenty of places in our world where laissez-faire free-market capitalism is in place (note: free-market here means free from government regulations). These places are failed states such as Somalia. If you’re a libertarian, go open a business in Somalia.

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  8. 8. rkipling 6:31 am 08/2/2013

    Some comments are sufficiently absurd so as not to warrant a reply. Thinking readers understand this. Readers who do not understand that are irrelevant to the conversation anyway.

    I mean, why would a lazy librarian go to Mogadishu?

    Link to this
  9. 9. sjfone 9:28 am 08/2/2013

    Makes me want to check the Dow Jones.

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  10. 10. David Cummings 10:44 am 08/2/2013

    Obviously humans cooperating with each other gave us a huge survival advantage during the last million years or so. The same could be said of wolves.

    But saying that (and it is obvious) doesn’t confer any special rights or abilities to the speaker in judging between different modes of economic organization of modern societies.

    People in a Jeffersonian Democracy cooperate with each other no less than in a Stalinist Dictatorship. In fact, probably more so.

    It’s silly to say, “humans used cooperation to advance their overall species fitness, therefore my view of modern economics is superior to yours”.

    But there are a lot of silly people out there, and such things get said.

    Link to this
  11. 11. JPGumby 11:35 am 08/2/2013

    Well, this got a little predictable. But to try to add an engineering viewpoint, a market is a complex, evolving system. By setting (and maintaining) rules and policing them, a government influence the directions markets take. Overly rigid controls, as in a command economy, often fail because the government either fails to fully understand the system (e.g. creates perverse incentives) or is not agile enough to adapt to changing circumstances. For example, when California’s highly regulated electric market went haywire due to shortages and manipulation, utilities that could raise their rates fared much better, and with less long term impact to their customers, then utilities that couldn’t, because people adapted to high rates by reducing consumption which minimized the rate spikes. That’s a simple example. Unregulated price is by far the most efficient way for an economy to allocate resources.

    The difficult trick is knowing how regulated the market should be, and how to regulate it. I would argue that market volatility, banking exposure to it, and the resulting economic damage over the last 15 years demonstrates that American financial markets *may* be under-regulated. Prior to the Reagan administration, by contrast, they were similarly over-regulated.

    That didn’t really seem to be the point of this article, though. The opening reference to “counterdominant coalitions” implies the point is more about economic inequality, and it’s negative impacts. Unlike the author, I don’t necessarily feel an aesthetic aversion to the very rich, but I do think that from a practical point of view, and this is more difficult I think for most Americans, some outcomes are economically damaging and may need controlling. The classic example is the monopoly. But excessive inequality of wealth can also damage the economy, since that accumulated wealth has a tendency to turn into fixed assets that neither produce demand nor fund new products or innovation.

    At that point I guess you have to figure out what you fear more, the power of the barons, or the power of the king that keeps the barons in check.

    Link to this
  12. 12. rkipling 11:42 am 08/2/2013

    Mr. Cummings,

    You make some good points. And yes, there are lots of silly people saying all sorts of things. At the root of their silly speech in this case is ignorance of how complex systems function. Or more specifically, ignorance of the fact that such complexity is beyond central management. Since they can’t or don’t understand how an economy works, they assume it must be simple. And if egalitarians like them were in control, things would be better for all.

    Take community organizers …… please (apologies to the late Henny Youngman), they seem to believe that the wealthy, businesses, and government are cornucopias of money. And beyond a certain point a person has made enough money anyway. (Now I don’t know any community organizers. And no community organizers are friends of mine. So, this is only my speculation of how they think based of my observations of their actions.) Community organizers see their job as taking stuff from the Haves and giving it to the Have Nots. It’s fundamentally unfair that everyone doesn’t have equal amounts of stuff. No matter that some can’t read, write, hold a job, or make any contribution to society. They need to spread the wealth around. It’s only right you know.

    We have been led by down this road by a community organizer since January of 2009. And what has been the result? The evil rich are richer (Okay, some of them are evil. But I doubt the evil/good ratio is much different than the general population.) and everyone else is poorer according to government statistics. Even with almost a doubling food stamps and giving out free phones, the poor are poorer. If you, Dear Reader, believe Obama’s policies just have not had time to work, keep watching through 2016. This is what you get from someone with no clue how economies work. See for yourself how it turns out.

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  13. 13. rkipling 11:46 am 08/2/2013

    JPGumby,

    Yes. At least engineers understand some of the questions.

    Link to this
  14. 14. hangingnoodles 2:07 pm 08/2/2013

    Thanks for your comments. It’s good to see folks jumping to include “political” and “religious” ideas. Many such ideas, and their embedded assumptions, are empirically and logically testable. It’s empirically undeniable that we survive interdependently. And logically incoherent not to take that into account. Especially in defining what counts as “rational” self-interest.

    @marclevesque, @David_Cummings, @Rschmit
    Re Tree trunks: though other species make use of them, Dawkins considers this irrelevant (to tree genes).
    My goal (see embedded link for more details) was to highlight how intelligently coordinated and guided competition in markets can do better than unintelligent “free” competition in nature. We evolved foresight & the capacity to socially coordinate our actions. Delegating all social coordination to free and mindless markets, foreseeably, and empirically leads to some sub-optimal results.

    @RSchmidt Agree “healthy competition” exists. But many competitions have unhealthy effects. Guiding and regulating competition to avoid measurable problems can improve market performance. George Washington said “Government is…Like fire…a dangerous servant and a fearful master.” Markets are also like fire: ungoverned and unguided they will consume everything in their path.

    @Eggnogstic It is an odd form of “rational” self-interest that damages what it depends on. Re “religious wishful thinking” – some religious ideas are more productive than ill-defined “rational” self-interest.
    See http://blogs.scientificamerican.com/guest-blog/2013/06/18/game-theory-and-the-golden-punishment-rule/
    That an idea comes from a religious source does not disqualify it from being useful.

    @rkipling The “we” is humans, with our evolved capacities for foresight and social coordination. The same “we” that approves the laws under which we live. Laws are intelligent limits “we” set on all sorts of activities, and economic activity gets no exemption. I don’t advocate a command economy. But “free” market competition creates problems that are avoidable.
    Re redistributing proceeds from my book sales, taxation is unavoidable. There’s no such thing as a free infrastructure. I’m happy to do my part.

    @Cramer – the idea that “free-markets” create the best possible overall equilibrium is one the last un-laughed at Utopian ideas. Also agree those who dislike government should enjoy Somali. Though it’s likely they’d find it taxing in other ways.

    @David Cummings: Our only options are about how we cooperate (no cooperation = no survival). The economy and social organization of wolves is likely largely genetically determined. Ours isn’t. We’ve in effect experimented with different ways to organize our collective means of survival. Somehow what is often called rational, has lost sight of what all surviving hunter gathers know, activities that threaten group survival have to be strictly regulate. Groups that don’t learn and practice that don’t survive. We’ve built ignoring that into some aspects of our economics. Nature eliminates all that damages what it depends on.

    @JPGumby – like the use of engineering analogy, see below for more on un-centrally planned airplanes. And by the way I have no aversion of any kind to the rich. Providing they also don’t free-ride on the infrastructure their wealth creating activities rest on.

    @rkipling TO Mr. Cummings: agree the key is “how complex systems function.” I’m guessing you wouldn’t want to fly in an un-intelligently designed airplane? Or have your country have an army that has no element of central planning? We must use the best of each kind of organization to fit particular situations. And continue to seek smarter ways to match means to ends. Too many now stick to their “one true.” Even in the face of evidence it can be bettered.

    @JPGumby re “Yes. At least engineers understand some of the questions”. Agree that engineers often are the best model. They build things that work. Our economy is currently run by people who have physics envy, it’d be better is they had engineering-envy. Too many economists have universal theories that ignore the practical problems. The point of this post was that the theory of free-competition in markets as avoidable side-effects.

    Link to this
  15. 15. rkipling 3:03 pm 08/2/2013

    Jag,

    You propose no workable mechanisms for the modifications you seek. Can you name a country where that practices your suggested economic policies? Look at the results from Obama’s march in your direction. Watch what happens over the next few years and see if that changes your mind.

    Link to this
  16. 16. Cramer 3:11 pm 08/2/2013

    hangingnoodles (Jag?),

    I did not see anyone discuss religious ideas. [I did see one commenter use religion as a metaphor].

    I believe “religion” is at the heart of “evolutionary economics.” Religion can be seen as the first attempts by humans at scientific thought in economics. Early religion was an attempt to put forward rules from empirical observations of what works and doesn’t work.

    Taking care of weaker adults was an insurance policy. People were very aware that they could very easily become sick or wounded (meaning death if nobody cares for you). From this came the golden rule. Infants, young children, and the elderly also require to be cared for (many species do not do this).

    If we had evolved from frogs that lay thousands of eggs, then maybe the survival-of-the-fittest ideology of Ayn Rand might have arisen rather than ideas of Jesus of Nazareth (now there was a person who really despised rich people).

    Link to this
  17. 17. Cramer 3:24 pm 08/2/2013

    JPGrumpy,

    I agree with everything you wrote except maybe that the author has an “aesthetic aversion to the very rich.” It’s possible, but there is reasonable doubt that is not the case. You touched on many things and I am interested in expounding the intricacies of those ideas.

    There are many different types of regulations and many motivations for creating them. There is a difference between price controls and regulations that mitigate externalities or increase information. The EPA and DOT create many regulations to do this. Many citizens in our democracy want these rules to limit the dumping of waste and to limit traffic accidents. The FDA has brought us away from a time of “The Jungle” of the meatpacking industry and “The Great American Fraud” of the patent medicine industry.

    I do not like price controls. Price controls usually arise because the market is deemed non-competitive. There is no question that Enron and others created the California brownouts in the summers of 2000 and 2001. I would prefer to find transparent mechanisms to ensure a competitive market than to use price controls to solve this problem. Sometimes that may not be feasible.

    You definitely understand that this is about power. You mentioned fearing the power of barons or the power of the king to keep the barons in check. That’s why democracy arose because the king was always in bed with the barons. We find the same thing can happen with a democracy. Does that mean we get rid of the democracy? When people realized that the Chicago Police Dept was bought by Al Capone, was the solution to get rid of the police department? [No, but that could be because we need a police force to protect wealthy people from poor people.]

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  18. 18. rkipling 4:35 pm 08/2/2013

    Jag,
    I thought of a homework assignment for you. You wrote:
    “Competitive overheads could be minimized by coordinating for mutual benefit. Such coordination of joint interests is rational. We can set intelligent limits on unfruitful competition.”

    Okay, please give us a general outline of a bill that lawmakers could enact to accomplish the above. Show us specifically how that would work. While you are doing that, try to think of those little things called unintended consequences that may arise from your law/regulation. Those sorts of details tend to be important.

    Of course the rule of law is necessary. Of course the environment should be protected. The debate is about what level of regulation is required for the common good and what level of regulation is even feasible. I’ll give you a couple of examples.

    First, airfares adjusted for inflation have fallen about 50% in the last thirty years. Deregulation of airlines dropped prices so that people who would have traveled by bus thirty years ago can now go by air. This is an example of an improvement.

    The second example is Obamacare. The effects of this law are just beginning to be realized. The 30 hour/week trigger for employee health coverage will reach into areas the Democrats never imagined such as education and government workers in addition to private businesses. This will negatively affect millions of people by pushing them into part time status. Just one unintended consequence of many to come.

    Obama should have listened to Dirty Harry’s advice. “A good man always knows his limitations.” A lot of people tried to point out the problems before this was passed. Hide and watch what happens as they try to implement it. It’s a shame so many will pay for progressive hubris.

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  19. 19. Cramer 4:50 pm 08/2/2013

    A good fix to Obamacare:
    Healthcare insurance should not be provided by employers. Shouldn’t anyone who believes in free-markets and competition prefer to have an employer pay it’s employees in cash rather than in benefits? Should the employer also provide housing and food as payments rather than cash (like the military or slavery)? Should we all live in company apartments and buy groceries from company stores using work accounts. Then why should we continue to have employer-provided healthcare insurance?

    Getting rid of employer-provide healthcare insurance would solve the problem with the 30 hour/week trigger.

    Link to this
  20. 20. David Cummings 5:16 pm 08/2/2013

    Cramer, the health care issue is incredibly complex but your single point about employer-tethered health benefits is a good pint to make.

    What started out like a good idea decades ago has evolved into one huge problem-prone mess (which another even bigger problem-prone mess has been designed to replace).

    I agree that the linkage of healthcare with a specific employer is a very bad idea. I don’t know the best way to cut that linkage (and I think some of Romney’s ideas had merit, though he was such a total loser in general that is good ideas were lost in the shuffle) but one of the reasons that Obamacare gained the support that it did was that it promised to break the healthcare-employer link. It is a bad link. The problem is, once we break it, what are we replacing it with?

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  21. 21. David Cummings 5:19 pm 08/2/2013

    Jag, thanks for your long thoughtful comment. Very well written. As well written as the article itself.

    On the minor issue of tree height, I would like to ask Dawkins this: if trees saved all that energy instead of spending it on trunks, what would they do with it? Buy T-bills? Invest in their seeds education? I know I sound flip, but seriously, growing tall is what trees do. If you take that away from them you have shrubbery. I understand the point he’s trying to make, but as I said, I believe its a silly anthropomorphism in service to a hidden agenda and illustrates that even the best scientists (and I consider Dawkins one of the best around) can be just plain silly sometimes.

    Link to this
  22. 22. Cramer 5:45 pm 08/2/2013

    David Cummings,

    Yes, I agree there is no single solution to all our healthcare problems. Eliminating the employer-link was not meant to be the solution to all problems. I thought I made that clear in my last sentence.

    Some do not understand how the market breaks down with healthcare INSURANCE.

    The biggest expenses come at the end of a person’s life. Is it rational for a person to buy $10k/yr health insurance in their 20s, 30s, and 40s when they are healthy (especially if they are only making $40k/yr)? Rational people would understand that if you pay premiums all your life to a private provider, that you will probably be dropped when you reach your 60s by a free-market private provider (hence, Medicare). And just think if one would save that $10k/yr in an account — that’s a lot of money over 30 yrs. This is also not a solution because an individual account is not insurance.

    Substituting defined-benefit plans with defined-contributions plans is not the answer (it lacks the risk sharing component of insurance).

    Link to this
  23. 23. Cramer 6:00 pm 08/2/2013

    David Cummings,

    I forgot to say that employer-paid health insurance never began as a good idea for a healthcare system. It started as a response to government price controls on employee wages. Employers created healthcare insurance to attract employees because they could not pay higher wages during WWII.

    That is why I do not like price controls where they are not needed. A good place for price controls is roads. Roads should be government-owned and mostly free (which is what we have). Does anyone want all our roads to be private? Should Detroit sell its streets? Most would say that is ridiculous.

    Link to this
  24. 24. marclevesque 8:14 pm 08/2/2013

    @hangingnoodles
    “We evolved foresight & the capacity to socially coordinate our actions. Delegating all social coordination to free and mindless markets, foreseeably, and empirically leads to some sub-optimal results”

    Complete agreement there. My problem is with Dawkins. I think he is oversimplfiying and disregarding a whole world of externalities when he generally characterises trees’ height as a product of futile competition.

    “Tree trunks: though other species make use of them, Dawkins considers this irrelevant (to tree genes)”

    Other species profit from trees and trees profit from other species. Various species, from plants to animals, live in the multiple micro climates, or niches, that exist at various levels from the ground up to the canopy. These species profit from and are the main providers of the “extra energy” needed for the trees’ trunks growth. These species individually evolve, and, each are part of the environment of the other, therefore the genes of one are partly determined by the expression of the genes of the others, in an ongoing fashion, and overtime. That is what I meant by co-evolve.

    @RSchmidt
    As I mentionned above, a tree species, its genes, don’t evolve independently of other species, and cheetahs and gazelles also didn’t evolve independently of other species. And though I feel that in the case of cheetahs and gazelles they may be somewhat more involved in some form of mutual ‘futile’ competition, I doubt it is the, or even a, main factor behind their speeds.

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  25. 25. rkipling 9:05 pm 08/2/2013

    In what self medicated stupor would someone argue with trees that their trunks were “standing monuments to futile competition”?? And then people want to take advice on economic systems from someone like that? Madness.

    You tree folk enjoy your irrelevant conversation.

    Link to this
  26. 26. hangingnoodles 12:14 pm 08/6/2013

    @rkipling – Thanks for the homework assignment. I’ll address elements of it in future posts. But I’m trying to keep posts to 500 words, so it’ll be piecemeal. But generally not having solved a problem is not an excuse for ignoring clear and present dangers/issues.

    @Cramer – yes @hangingnoodles = author of this post. Re “religious ideas” we have arrived at a point where some ideas that scientists are using have the character of religious faith. For example Richard Dawkins’ axiomatic faith in what “selfish genes” can and can’t do.

    @David Cummings – Thanks for kind words. Agree Dawkins is guilty of unhelpful anthropomorphizing. I was trying to use arbormorphization to make the point that humans are not, and should not be, bound by the limitations of trees. The patterns of behavior that dominate species that have no foresight or capacity for social coordination, don’t apply to us. We’re the giraffes of cooperation.

    @marclevesque – Agree – Dawkins ignores a great deal of interdependently relational aspects of biology. Both evolution and economics can benefit from being re-conceived of as having more categories than self and other, with a richer set of relationships. I have upcoming posts on that.

    Link to this
  27. 27. Squish 8:45 am 08/7/2013

    Thanks for this piece. I always find your work to be conceptually challenging/refreshing, Jag. As evidenced above, it certainly stirs debate; great.

    @rkipling… I would have to agree with your last post: if someone is arguing *with* trees they are possibly in a medicated stupor! Otherwise I find your tone too strident to be conducive to an efficient reason-based debate. Saying that, I also believe you have many good points.

    I think the issue with the trees can be instructive without being right or wrong in such a binary fashion. For example, a tree that leans far out over a cliff is harvesting energy that it could not if it had less trunk; same with many diagonally-growing palm species on many beaches around the world.

    On the other hand, a terrific amount of energy is spent on material that only has a function of competing – think of all stalks of all plants that grow straight up for the sun. This isn’t purposeless, but you cannot deny that they don’t contribute much to photosynthesis, so are lower on the value-chain of survival. In terms of evolution however, tall stalks or trunks are good demonstrations of fitness. The high bar that evolution sets (pun intended) does result in a more strenuous weeding out process (and again).

    But for human evolution, and in particular our cultural evolution – which economics is part of – things are different. We have a choice. We choose how we evolve now. If you dislike the tree analogy, think about the peacocks’ feathers analogy that is an example used to explain Signal Theory. The males compete by maintaining something that does not directly help their health. But only if they are healthy can they display a beautiful fan of feathers, so the signal is strong.

    Humans strictly do not have to do that in economics (I understand here that cosmetic surgery is ever-more-popular!). We are awash in an expensive pool of inaccurate signals. Instead of regulations from above that some people will fume about we could change the culture to eliminate some waste. We have an increasing amount of information available for our analyses. With Google Finance, web reviews etc., we may come to rely on advertising to provide us with information; advertising is already struggling on hand-held devices, it may evolve over the coming years. People may soon be able to differentiate between products that are hyped and ones that have more every-day value.

    A quick example: Unilever owns both Axe and Dove. The latter has a campaign about girls accepting non-traditional beauty; Axe advertises its product as one that can attract beautiful women. Clearly Unilever has no strict policy on consistency of message across its subsidiaries in regards to the objectification of women. Knowing this, women do not need to invest much into their marketing programs. They can wait until a truer signal arises.

    I do mean changing the culture through better teaching of business, economics and critical thinking, and a public that is more deeply engaged than the veneer of advertising. I understand this is a progressive idea (the 2012 Texan Republican Platform promised to eliminate critical thinking as it would challenge traditional dogma that families cherish). With a scarcity of resources isn’t it best to use them wisely for the sake of collective fitness?

    To the libertarians who cringe at the idea of taxing anything, get over it. No roads? No bridges? No shared military or police? That is a fantasy world that would get crushed from a more organized and rule-bound entity. Society functions with rules and all people chipping in taxes; the rules and taxes are like insurance that we will not become a failed state. The citizens simply need more control of where this money ends up and to make sure the government has less which it has in large volumes; people need to be informed and trained to think in the first place. This article/dialogue helps with the latter.

    Link to this
  28. 28. Squish 8:48 am 08/7/2013

    *government has less which… = government has less waste which….

    Link to this
  29. 29. marclevesque 7:59 pm 08/7/2013

    Again on the non-futility of less height challenged tree trunks:

    - They get the canopy further away from colder or hot temperatures near the ground – They get the canopy further away from humidity and fungi – They create more room for larger animals to defecate providing nutrition for the tree – They create more room for more plants to grow and die and create nutrition for the tree – When a tree dies its rotting trunk contributes energy to its descendent’s growth – And so on

    For sure trunks also have costs. But though there are always gripping examples of height seeking, like a sprouting seed looking for light or a “canopy emergent” white pine poking its head up, and related analogies like the Red Queen and Fisher hypotheses –I believe that in general considering tree trunks, abstracted from the tree itself and the greater ecological environment they evolved and evolve in, on the measure of their sugar production does not tell us much of anything.

    That said my comments have been muddled, vague, and rambling. And I have not done the subject of tree trunks and genetic futility justice.

    Link to this
  30. 30. marclevesque 8:01 pm 08/7/2013

    @hangingnoodles

    “We’re the giraffes of cooperation”

    I love that analogy !

    Link to this
  31. 31. rkipling 11:19 pm 08/7/2013

    Squish,

    You want to have an efficient reason-based debate about using plant life as a model for an economic system? What next? Model air traffic control on a bee hive because you never hear about bee collisions on the news? I wasn’t being strident. I was just saying this is barking mad.

    In your example of Unilever owning both Axe and Dove, are you suggesting some governmental panel should decide if that is redundant? How would that work exactly? Do you really think the government could pick someone who would make better decisions? Think about that for a moment. If Unilever can’t decide how to allocate its own resources, isn’t that a government takeover? How about manufacturing the products? Would a government agent decide how best to organize the factories? Who then is responsible if the company fails? I would really like to know just how you think this could work. This sure sounds like something the USSR tried. Didn’t work out so well for them, but maybe I don’t understand what you are proposing? Please enlighten me.

    Link to this
  32. 32. rkipling 11:45 pm 08/7/2013

    hangingnoodles,

    You say you are not for a command economy, but that free markets are inefficient. Okay, here is a really simple question for you that should not require homework. Tell us just ONE STEP that would make markets more efficient?

    Do you think you can devise laws/regulations that force efficiency? Somebody has to decide how a business is run. And don’t tell me, “We the people.” Someone or some group has to make hourly and daily decisions on running a business. Who would that be? How are they selected? And how do you know they would do it better?

    I’m just asking for one example of a way to make markets more efficient. One little example should be easy as pie.

    Link to this
  33. 33. Cramer 1:32 am 08/8/2013

    rkipling,

    Your second paragraph has nothing to do with market efficiency and shows that that you are confusing market efficiency with economic efficiency. I would guess that you studied economics at Beck University.

    Hint: market efficiency is about information.

    Link to this
  34. 34. Cramer 1:36 am 08/8/2013

    correction: you are confusing market efficiency with MICROeconomic efficiency.

    Link to this
  35. 35. rkipling 3:31 am 08/8/2013

    Cramer,

    The author made the statement that free markets are inefficient. I’m just curious to know how he would make them more efficient by whatever definition he uses. He says, “We can set intelligent limits on unfruitful competition.” Who defines what unfruitful competition is? What is an example of an intelligent limit? And who sets the limit?

    Those don’t seem like unreasonable questions to me. If you are an expert in this field, perhaps you can educate us all?

    Link to this
  36. 36. rkipling 4:34 am 08/8/2013

    Cramer, hangingnoodles, anybody who wants to weigh in,

    The author says, “Competitive overheads could be minimized by coordinating for mutual benefit.” Which overheads are those exactly? And again, who decides what is in the mutual benefit? Who does the coordinating?

    If I invent a process (and I did) that can produce a product with higher quality at a lower price, find investors, build a factory, and beat the existing manufacturers by taking their customers, the consumers of the product benefit from that innovation (Well I do too, of course.) The more inefficient producers either match my price and quality or eventually go out of business. Does the author suggest it would be more efficient for me to share my technology with the existing companies? (That actually happens after 20 years when the patents run out.) What coordination would be to whose mutual benefit in this case?

    Please try to write in simple sentences so your points aren’t beyond my comprehension.

    And for future reference, my self-image isn’t affected by insults. Anne Meara, Ben Stiller’s mother, delivered this line well in character as a cleaning woman some 35 years ago, “I don’t give a rat’s bee-hind what anybody thinks about me.” I am interested in answers to my questions. Sometimes I learn things here.

    Link to this
  37. 37. Cramer 5:43 pm 08/8/2013

    rkipling,

    Definitions matter. We have to agree on definitions or communication breaks down. The author said nothing about free markets being inefficient. Market efficiency is about information. This is different than efficiency as a synonym for productivity. Key word is market. Here’s what he said:

    “Though economists have long preached that competition creates efficiency, as if it were a law of nature, nature’s competitions regularly create waste.”

    Unfruitful competition is competition where efficiency (i.e. productivity) is destroyed in the overall economy. This occurs when production costs or risks are transferred to someone else without compensation or without the knowledge of the 3rd party. And these costs are typically much more to the 3rd party than what the freeloading manufacturer actually saved. More specifically, this can be the destruction of property or theft of property. Examples are dumping waste that destroys property (this property could be Ayn Rand’s private land, but it could also be public health). Fraud is the theft of property.

    Unfruitful competition is a company that out competes its competitor because it’s dumping its waste in a river while its competitor is not. Markets tend not to figure this out until it too late. And even then buyers might not care (NIMBY). The competition went out of business, people have cancer, etc. We could handle the rules of the road in the same fashion — no speed limits (who has the right to determine how fast I can safely drive in a school zone? And then even blame the accident on the kid who runs out into the road to get his ball).

    Or we could have government monitor the river and check how factories are being operated (look at what they do with waste). Is this more expensive than all the police officers sitting on the side of the road with radar guns? Driving at slower speeds is also less efficient (i.e. productive) — time is money.

    Link to this
  38. 38. Cramer 6:13 pm 08/8/2013

    rkipling (4:34 am 08/8/2013),

    Patents only exist because of the government. You invent something without patent laws and anyone can rip off your idea. You keep creating straw man arguments (as if the author does not believe in patent laws).

    I agree with a lot of what you are saying. However, you seem to be viewing economics as if this was the Little House on the Prairie or Mayberry RFD. I believe in capitalism. Even Paul Krugman and Elizabeth Warren believe in capitalism. Fighting the bogeyman of communism is no different than enacting laws to ban sharia law. The threat of communism no more exists than does the threat of sharia law overtaking America.

    PTO sets rules for issuing patents.
    SEC sets rules for accounting.
    FDA sets rules for labeling.
    EPA sets rules for disposing waste.
    Fraud is a crime.

    The regulations and laws already exist, but they must be enforced (at least for large corporations). Many of these regulations are screwed up because they are onerous for small companies because that’s how the large corporations wrote the regulations (yes, lobbyists for large corporations write many of the regulations). This is what needs to change (not getting rid of all laws and regulations — is that a straw man?). I see little difference in enforcing Rules of the Road vs enforcing accounting rules and environmental rules.

    Enron and Worldcom committed accounting fraud a decade ago (and Microsoft too). This meant there was asymmetric information. Wall Street banks under marked the risk of their assets and over marked the value of their assets which led to their collapse. These crimes result from moral hazard (reward is taken; risk goes to someone else). Asymmetric info can last for a long time (see Bernie Madoff).

    Do you want to bring back the patent medicine era where medicines do not require any labeling including info on the safety and efficacy of the components?

    Is it fair for one company to dump its waste in a river while another company spends money to treat its waste? Which company will be the first to go out of business?

    There’s a claim that the free market is efficient in reducing externalities. I.e. people will learn that a company is dumping its waste and choose not to do business with that company (and before their competitors go out of business). This has never been shown to work. If this worked, failed states would be booming. This doesn’t even work too well when there are regulations (but it works better). If so, BP would be out of business (in principle, gulf spill was not much different than a drunk driver killing someone).

    Completely “free” markets tend to break down when the market learns not to trust anyone (good or bad). Patent medicines were mostly of three classes: 1) addictive drugs such as cocaine or opium, 2) placebos, and 3) poisons. The market will eventually learn this and not trust that any of the products are legitimate medicines that will cure their illness. After trust breaks down the markets for goods and services tend toward what’s needed to survive (food and shelter). Entertainment (song and dance) can be free in the community. And that’s the typical outcome for a failed state.

    Link to this
  39. 39. Cramer 6:32 pm 08/8/2013

    Who in the government gets to decide if your idea deserves a patent? It comes down primarily to two people: a patent clerk and a judge (if the patent infringement goes to court).

    Shouldn’t the market decide what gets patented? How would that work? Easy. Wouldn’t the market know who came up with the idea first? Wouldn’t the market know it is wrong to buy the product from the person who stole the idea?

    Seems to be the same standards regarding environmental laws. Wouldn’t the market know that a manufacturer is dumping waste on someone else’s property? Wouldn’t the market know this destruction of property is wrong? Believe it or not, that is the actual argument from libertarians.

    Link to this
  40. 40. rkipling 6:41 pm 08/8/2013

    Cramer,

    If your examples are all the author is talking about then I’ll do an Emily Litella and say, “Never mind.”

    I have never favored a situation where business can do whatever it wants to workers or the environment. I’ve manufactured chemicals all my working life. Decades ago, I was forced out of management of a chemical company because I refused to allow a toxic raw material into one of my plants until corporate funded the installation of equipment (very expensive) necessary for safe operation. I refuse to put workers at risk to make money for myself. The same goes for exposing the general public to toxins. And I believe that is how all but a tiny fraction in the industry see it. There are criminals to be found in every endeavor. We have made great strides in cleaning up manufacturing. We need progress to continue. No sane person would have us go backward.

    So, I think there is unanimity regarding not giving people cancer and not mowing down babies in the street. I didn’t get the impression that was what the author was talking about here. Let us discuss the part where he says, “Competitive overheads could be minimized by coordinating for mutual benefit.” My take on that statement was that he had something in mind far beyond product, workplace, environmental, and street safety. If you have the time, help me out on this one with your interpretation of what that statement means. I would like to hear more detail from the author as well.

    Link to this
  41. 41. rkipling 6:51 pm 08/8/2013

    Cramer,

    You have set up many examples to knock down that have nothing to do with anything I have said.

    And I’m sorry, but you know better than that on patents. The USPTO is set up to promote invention.

    Let’s have a reasonable discussion. You can still call me names if that makes the exercise more enjoyable for you.

    Link to this
  42. 42. rkipling 6:55 pm 08/8/2013

    Cramer,

    Your turn to say, “Never mind.”

    Link to this
  43. 43. Cramer 10:33 pm 08/8/2013

    rkipling said, “And I’m sorry, but you know better than that on patents. The USPTO is set up to promote invention.”

    And the EPA (created by a Republican) was not set up to protect the environment? I was using satire to point out how ludicrous it is that markets are the solution for everything. This included two points (1) the markets know all public and inside information and (2) the markets know right from wrong. Is the market solution for dumping waste any less ludicrous than the market solution for patents? They are equivalent to me.

    People do make these ludicrous arguments.

    According to Brooksley Born, Alan Greenspan believed markets were all that is needed to combat fraud. First, the market has to know fraud is happening and react instantly (strong-form efficient-market hypothesis). Second, the market must make a moral judgement that fraud is wrong and thereby send the price to zero or at least low enough that the fraudster can make no profit. Why must the market act instantly? If it didn’t the fraudster could easily make money by setting up new frauds. (e.g. fly-by-night companies).

    http://alumni.stanford.edu/get/page/magazine/article/?article_id=30885

    rkipling said, “So, I think there is unanimity regarding not giving people cancer and not mowing down babies in the street.”

    No, there is not. There is always the idea that people should move if they don’t want cancer (or whatever the externality might be). Or the cancers are worth the economic gain. These people would be living in poverty if it were not for the factories (as if dumping waste is necessary to make the factory profitable). “Mowed down babys” are acceptable risks or are collateral damage. The needs of the many outweigh the needs of the few.

    rkipling said, “My take on that statement was that he had something in mind far beyond product, workplace, environmental, and street safety.”

    I see little reason to speculate what Jag Bhalla had in mind. In the exact same paragraph he gave prisoner’s dilemma and the tragedy of the commons as resulting from “competitive overheads.” Environmental regulations protect against the tragedy of the commons. Group think and bubbles on Wall Street is a type of prisoner’s dilemma. Nobody wanted to stop first. It turned into a game of musical chairs. Except on Wall Street is was much worse to take a seat before the music stops than to not get a seat when the music stops. This is because the taxpayer or the bank shareholder will provide that seat (moral hazard). Communism is not required to solve these problems, nor did Jag Bhalla state that. I did not see the article as a communist manifesto.

    Link to this
  44. 44. rkipling 10:46 pm 08/8/2013

    Cramer,

    Fine. No point in further discussions with you. You have no interest in a real discussion of issues You seem only interested in using replies to other commenters as a street corner soapbox.

    Link to this
  45. 45. Cramer 10:47 pm 08/8/2013

    Oh, I forgot the most important excuse about environmental regulations and public health: The public health problem in question (e.g. cancer) is not being caused by the externality is question (e.g. toxic waste contamination of water). Therefore, no need to regulate.

    Link to this
  46. 46. Cramer 10:58 pm 08/8/2013

    rkipling said, “You seem only interested in using replies to other commenters as a street corner soapbox.”

    I am not sure that I know what you mean. Are you offended in my use of “rkipling said?” My apologies. I meant no offense. I haven’t thought of a better way to use quotes. Should I have wrote “you said?” Many people mix up who said what. In the SciAm blogs there is no “reply to” option. This is a public forum, not a private email.

    Link to this
  47. 47. rkipling 12:14 am 08/9/2013

    Cramer,

    No,No. Not offended at all. We just seem to be talking past one another. I take no personal offense at anything anyone says here. You seem to be well educated. So, I was trying to get your thoughts about a specific part of the article. I guess I’m not asking my question in an effective way. Having tried several different approaches, I give up. It seems unlikely I will be able to phrase my questions clearly enough.

    The point I was trying to get at is that I suspect the author doesn’t really understand the implications of what he proposes. That’s okay. Perhaps he will come back to discuss it further himself?

    But no need for apologies. I actually agree with many of your points. The positions you objected to just never were my positions. That’s fine.

    I don’t think you need to change your method of reply. I can’t see how anyone would be offended by it.

    I’m pretty sure I made no personal attack. I meant no offense from this side.

    Link to this
  48. 48. Cramer 1:49 am 08/9/2013

    rkipling,

    You asked me for my interpretation of Jag’s statement, “Competitive overheads could be minimized by coordinating for mutual benefit.”

    Jag said the “competitive overheads” resulted from problems such as prisoner’s dilemma or the tragedy of the commons. I gave examples of these problems as pollution and Wall Street corruption.

    “Coordinating for mutual benefit” and “we can set intelligent limits” is simply making laws and regulation to address things like pollution and Wall Street corruption. We also must enforce those laws.

    I am NOT seeing this as a command economy.

    Here’s what Jag said in reply to you:

    “The same ‘we’ that approves the laws under which we live. Laws are intelligent limits ‘we’ set on all sorts of activities, and economic activity gets no exemption. I don’t advocate a command economy. But ‘free’ market competition creates problems that are avoidable.”

    Free market simply means markets free from government regulation.

    LOADED WORDS???
    Jag may have used the wording to create controversy. Political commentators do this all the time. Check out this MSNBC ad by Melissa Harris-Perry:

    http://www.youtube.com/watch?v=N3qtpdSQox0

    It can be interpreted as both good and bad. Collective implies communism. Belong implies ownership, etc. She must be a commie.

    She is simply advocating for investment in public education. Those kids are going to grow up and either be assets or liabilities to our society. Is someone spending life in prison an asset or liability to our society? The US incarcerates more of its population than any other nation (and so many are for non-violent drug offenses). These children are our future. Build schools or build prisons.

    Loaded words get attention and can make people think.

    Link to this
  49. 49. rkipling 2:50 am 08/9/2013

    Nope. Not interested.

    Link to this

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