Charles Darwin, not Adam Smith, will one day be considered the father of economics, says Cornell University professor and New York Times columnist Robert H. Frank in his new book, The Darwin Economy. He argues that Darwin's theory of evolution by natural selection gives a better description of how markets work, and fail, than Smith's theory of the invisible hand.
This insight reverses two centuries of intellectual traffic. Thomas Malthus' ideas shaped Darwin's, and many of the tools of modern evolutionary biology, such as game theory, are borrowed from economics. It leads Frank to many excellent suggestions for improving society by means of a fairer and more efficient tax system that takes the laws of biology into account.
The same insight also leads him to say some misleading things about how natural selection works. Frank's biological misfires aren't mere naivety; they touch on ideas at the leading edge of evolutionary thought and show what stands in the way of the reforms he advocates.
Frank bases his argument on the Darwinian notion that life is graded on a curve. How much is enough depends on what others have got. Most people, for example, would rather live in a 4,000-square-foot house that was bigger than their neighbor's than a 6,000-square-foot house that was the smallest on the street. Economists call these positional goods, and contrast them with things that aren't so relative, such as safety at work, where most people think it's better to be safe in absolute terms than the safest worker in a hazardous factory.
Positional goods lead to waste, says Frank, because people end up living in bigger houses than they need to, throwing lavish parties, and spending money on pool cleaners. This pressures other people to do the same, and so takes money from the better uses that might be predicted by Smith's rational model.
As a biological analogy, Frank suggests the difference between running speed and antler size. A faster gazelle is better equipped to outrun a cheetah, and so, he writes, "being faster conferred advantages for both the individual and the species." Antlers, on the other hand, are used for fighting with other males. The pressure to have bigger ones than your rivals leads to an arms race that consumes resources that could have been used more efficiently for other things, such as fighting off disease. As a result, every male ends up with a cumbersome and expensive pair of antlers, says Frank, and "life is more miserable for bull elk as a group."
This has a lot going for it as an economic metaphor. Sometimes competition results in cheaper, better products, like loft insulation or computer memory, and sometimes it results in Louis Vuitton luggage. (Often, of course, it delivers a combination of utility and status, like the iPad.) But evolutionarily speaking, the distinction is bogus.
Natural selection sees no difference between running speed and antler size: All evolution is positional. When one gazelle got faster, the slower ones got eaten (a point Frank relegates to a footnote). And when gazelles got fast, so did cheetahs. Cheetahs and gazelles would all be better off if they'd stayed slow, because running fast uses energy you might "better" invest in offspring, and legs that are built for speed are more prone to fracture. The lissome cheetah, meanwhile, is bullied and often killed by bigger carnivores such as lions.
Frank could just as well have reversed the analogy: Male gazelles happen to spend a lot of time and energy fighting over mates, and few predators will risk getting on the wrong end of a bull elk's antlers. If the latter's headgear turned out to be a burden, natural selection would make them smaller. That actually happened, thanks to human trophy hunting, to populations of bighorn sheep.
There's not nice evolution and nasty evolution, in other words. There's just evolution.
Frank's elk vs. gazelle example may not be so useful, but in exploring the tension between natural selection and the common good, he touches on the toughest question in evolutionary biology: How has natural selection, which drives individuals to compete with their own kind, nevertheless produced so many examples of cooperation and altruism?
Nature is full of better examples of public goods than the speedy gazelle. There are the prairie dogs that give alarm calls to warn others that a hawk is about, or the worker bee that kills herself stinging the bear that threatens the hive, or the bonobos that voluntarily share food. Unlike running fast, these things not only impose a cost on whoever does them, but they help another animal, who ought to be a competitor. No one is sure how natural selection can lead to such traits.
Or rather, no one agrees. The orthodox position holds that altruism somehow benefits either the altruist, perhaps through a system of reciprocity, or those who share its genes, as is the case between a worker bee and her hive-mates. Humans are more cooperative than any other species probably because we have many ways to do well by doing right. We trade favors and help our families, but we also keep track of individual reputations for good behavior and deter others' cheating through punishment.
This account takes the altruism out of altruism—whenever we see an animal doing something that looks costly, it says, we should look for some ultimate benefit. You could see this as being analogous to classical economics, which argues that people aid one another out of enlightened self-interest rather than benevolence.
But there is another way in which selection might preserve animals that do things to help others. It's called group selection, and it says that altruism can evolve because cooperative groups outcompete selfish ones. Most evolutionary biologists, however, think that examples of group selection are somewhere between rare and nonexistent, because the benefits of individual selfishness almost always outweigh those of group solidarity.
Frank's economics are implicitly group-selectionist. He wants to maximize the good of society as a whole by reforming the tax system so as to deter what he sees as antler-like arms races. To reduce positional spending, for example, he wants to replace income taxes with consumption taxes, calculated on the difference between what people make and what they save.
This is not bad economics: Government is an exercise in trying to make group selection work, doing the best for everyone within the borders while competing with other nations.
The best way to do this, though, is not just to work out what's best for everyone, but to align the public interest with individual self-interest. The more divided a society is, the harder this is to achieve. A recent comparison of the 26 cantons of Switzerland, for example, found that those with the highest proportion of foreigners among their population had the highest relative crime rates. Cultural polarization and economic inequality likewise split people into competing groups with differing interests. I'm looking at you, America, but the same goes for just about any country governed by globalization and neoliberalism, including my riotous homeland of the United Kingdom.
From Frank's book, you might conclude that what stands in the way of his reforms is not differing interests, but irrationality—an imperfect understanding of how competition works. He credits libertarians with a concern for the common good as great as his own. But what evolutionary biology teaches us is that it's not enough to assume, as Frank does, that everyone just wants to create the biggest economic pie. That's like saying a gazelle cares more about the average speed of its herd than whether it can outrun a hungry cheetah.
In fact, those leading and funding opposition to progressive taxation are rational enough—they're the one who do best if society becomes an arms race won by those with the biggest antlers and the priciest suitcases, with the lions getting anyone who can't keep up. What those opposing them need to show is not just how the common good can be maximized, but how it can be reconciled with the self-interest of enough people to vote it into being.
I agree with Frank's tax plan not so much because it maximizes the common good but because, as someone who relies on public services, I think it would be good for me. I also think that my country contains more people like me than it does plutocrats who have no need of a public realm and no desire to fund it. Evolution shows us how cooperation can come about despite the inescapable logic of selfishness.