Tag Archives: The Darwin Economy

The Butcher, the Baker, and Bain?

The Invisible Hand (courtesy of jeff-for-progress.blogspot.com)

The Invisible Hand (courtesy of jeff-for-progress.blogspot.com)

. Old adages die hard. Just consider the longevity of Adam’s Smith characterization of the self-regulating market as an invisible hand in his classic work, The Wealth of Nations. As Smith opined, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

This sentiment, a persistent trope reverberating from one generation to the next, has become a center-piece of the American ethos as well as a mainstay of the Republican party. Nowhere is this more evident than in the on-going Republican electoral campaign. Thus, it is only by invoking the mantra of the invisible hand that Romney can criticize President Obama’s economic strategy, and get away with it, without having to lay out a strategy of his own. He claims to have the magic formula! So, instead of policy ideas, we hear the old refrain, “what’s good for business is good for the country,” or as updated by Romney, “What’s good for Bain is good for the economy.”

The Tooth Fairy  (courtesy of zazzle.com)

The Tooth Fairy (courtesy of zazzle.com)

Call me a skeptic, but having faith in the invisible hand today seems no different to me than believing in the Tooth Fairy. After all, no one can seriously claim that bankers, investors, and equity firms, such as Bain, were not pursuing their own interests when the economy went belly up. How else to explain that big business magnates increased their wealth dramatically in the wake of the 2008 recession, while those lower on the rung experienced calamitous losses. But this begs the question: if businesses were doing what they are wont to do, why then did the market fail to regulate itself? Might this be black magic?

Perhaps is is time to forego the rhetoric of the Republican Party and take a hard look at Smith’s long-standing dictum. To date, neo-classical economists offer little hope in this regard: Try as they might, they have yet to explain how individual actions at the level of the butcher or the baker translate into macro level outcomes, whether good or bad. Fortunately, some nontraditional economists, viewing the economy from evolutionary and complexity perspectives, have provided some promising new insights.

Robert H. Frank, in his book The Darwin Economy: Liberty, Competition, and the Common Good, addresses the issue of the invisible hand head on. As he contends, Darwin’s evolutionary theory, especially as it relates to the role of competition, is far more accurate about the nature of economic life than Adam Smith’s account’s in The Wealth of Nations. In Frank’s words:

When the ability to achieve important goals depends on relative consumption, as it clearly does in a host of domains, all bets regarding the efficacy of Adam Smith’s invisible hand are off. Notwithstanding the uncritically enthusiastic pronouncements of many of Smith’s modern disciples, unbridled market forces often fail to channel the behavior of self-interested individuals for the common good. On the contrary, as the pioneering naturalist Charles Darwin saw clearly, individual incentives often lead to wasteful arms races.

Combining the wisdom of evolutionary and complexity thinking, economist, Erik Beinhocker points out that the equilibrium outcomes, associated with the invisible hand, are entirely unrealistic. As he notes in his pathbreaking book, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, the economy is not a static phenomena, but rather a dynamic, complex adaptive system, which is subject to oscillations, power laws, and phase transitions. Moreover, outcomes, as traditional economists would have us believe, are not the product of predictable linear processes; instead, they emerge from the bottom up as the result of the constant interactions and adaptations that take place at all levels of the system. Hence, policy interventions–be they Republican or Democratic–may play a role in determining outcomes, but they are only one factor in a myriad of influences on the economic system.

rough_seas (courtesy of adpulp.com)

rough_seas (courtesy of adpulp.com)

When the economy is conceived in complex, evolutionary terms, the present economic crisis makes a certain amount of sense, unpleasant though it may be. However, what makes no sense at all, given the complexity of the economy, is to blame Obama for the present state of affairs, as Romney so flagrantly does. To the contrary, in times such as these, when the seas are rough and the future uncertain, what’s needed is not someone like Romney, who flips and flops floundering with the waves in the hope that equilibrium will naturally follow, but rather a captain, such as Obama, who will be steady at the helm and stay the course.

What’s Fair is Fair

What's fair is far (courtesy of openlibrary.org) Life, of course, is full of ironies, but what strikes me most recently as such is the coincidence between FCC Chairman Julius Genachowski‘s decision on August 22, 2011 to eliminate the Fairness Doctrine and the raging debate about Super Pacs brought on in part by the Supreme Court’s decision in Citizens United vs. Federal Communication Commission. This game-changing Supreme Court decision allows groups of people, including corporations, to raise and spend unlimited amounts of money in support of a candidate, so long as there is no coordination with the candidate.

Free speech, it now seems, is no longer a constitutional right; but a matter of money. Those without, are in effect silenced. Scratching my head, I have to ask myself: What’s fair about that? Thanks to Stephen Colbert, the situation was brought into stark, as well as comic, relief when he parodied the new campaign finance rules, setting up his own Super Pac, Definitely Not Coordinated with Stephen Colbert Super Pac, and transferred it to his alter ego Jon Stewart.

Not that the Fairness Doctrine has been active over the past 20+ years. Put into place in 1949, the Doctrine was intended to assure that broadcasters not only made room for issues of public importance, but also aired contrasting perspectives. The rational behind the Government’s involvement in broadcasting–notwithstanding the Constitutional guarantee of free speech–was the industry’s use of scarce, public airwaves–a rationale that was upheld by the Supreme Court in its 1969 decision Red Lion Broadcasting Co. vs FCC.

Televisions are Not Toasters (courtesy of ancient jars.com)

Televisions are Not Toasters (courtesy of ancient jars.com)

The subsequent expansion of media venues gradually weakened this rationale. In 1987, FCC Chairman Mark Fowler--famous for equating televisions with toasters–repealed the Fairness Doctrine, although it remained on the books until Chairman Genachowski’s recent decision to effectively eliminate it.

Paradoxically, today, while media outlets are plentiful, opportunities to raise one’s voice and be heard are becoming increasingly scarce. For, as Tim Wu has argued in The Master Switch, growth in media has led, time and time again, to vertical integration and greater industry concentration. Likewise, in his book The Myth of Digital Democracy, Michael Hindman illustrates how, as the number of outlets on the Internet grow, they become more and more concentrated in accordance with a power law. Hence, to gain a platform for expression under these circumstances requires having money, and lots of it.

To appreciate the full impact of this situation, one need only consider the frantic scrambling in the Republican Primary, not so much for votes but for dollars. As the contest shifts from backyard barbecues to the national media, and from policy pronouncements to negative advertising, the candidates chances of success are measured increasingly by the size of their Super PAC’S war chests. In fact, pointing to the $30.2 million that his Super Pac, Restore our Future, has raised, Mitt Romney has triumphantly predicted his own final victory.

Fierce competition, they say, is good for democracy, not just the market. Recent events make me question whether this is always the case. At the very least, this spending spree is wasteful: I can’t help thinking that the amount of money raised by the SuperPacs to promote–what more often than not is–false information far exceeds the meagre $23 million annual budget of the former Office of Technology Assessment, a Congressional agency tasked to seek out the truth, and one that Newt Gringrich, when Speaker of the House, helped to destroy. In his thoroughly engaging bookThe Darwin Economy: Liberty, Competition and the Common Good, Robert H. Frank cautions against unbridled competition on more theoretical grounds. Employing Darwin as his frame of reference, he argues that such contests are likely to lead to an arms race, in which the winner may benefit in the short run, but the society will lose overall.

Sadly Frank’s scenario sounds all too familiar. With money now a proxy for speech, dialogue has become more and more vacuous, even as speech is no longer free. Could it be time for a new Fairness Doctrine?