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The Darwin Economy: Liberty, Competition, and the Common Good
Who was the greater economist--Adam Smith or Charles Darwin? The question seems absurd. Darwin, after all, was a naturalist, not an economist. But Robert Frank, New York Times economics columnist and best-selling author of The Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics. The reason, Frank argues, is that Darwin's understanding of competition describes economic reality far more accurately than Smith's. And the consequences of this fact are profound. Indeed, the failure to recognize that we live in Darwin's world rather than Smith's is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.Smith's theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition--and against regulation, taxation, and even government itse
240 pages, Hardcover
First published August 11, 2011
About the author
Robert H. Frank
91 books170 followersRobert H. Frank is the Henrietta Johnson Louis Professor of Management and a Professor of Economics at Cornell University's S.C. Johnson Graduate School of Management. He contributes to the "Economic View" column, which appears every fifth Sunday in The New York Times.
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Displaying 1 - 30 of 62 reviews
October 1, 2014
This book was a total bait and switch. After reading the back cover, I found myself quite excited to read about Frank's contention that Charles Darwin will be the economic father of economics as we move forward as a research field. Frank has a long list of accolades, so naturally I respect his opinion on economic research.
UNFORTUNATELY, this book rarely even mentions Darwin. Instead, it contains complaints on complaints regarding what Frank deems libertarian ideas. I find his straw man arguments fascinating simply because he clearly argues with such a poor understanding of the politics he disdains. Not once does Frank cite Mises, Hayek, or any living libertarian economists.
All in all, if you are looking for a concise connection between Darwinism and economic theory, this definitely NOT your book.
UNFORTUNATELY, this book rarely even mentions Darwin. Instead, it contains complaints on complaints regarding what Frank deems libertarian ideas. I find his straw man arguments fascinating simply because he clearly argues with such a poor understanding of the politics he disdains. Not once does Frank cite Mises, Hayek, or any living libertarian economists.
All in all, if you are looking for a concise connection between Darwinism and economic theory, this definitely NOT your book.
April 2, 2012
A key insight from the work of Adam Smith is that specialization in an economy makes us all better off in absolute terms. While this is undoubtedly true in material terms, it ignores the psychological costs that can come from hyper-specialization. And Smith himself was well aware of these psychological costs. In fact, he believed that the division of labor taken to an extreme can turn people into savage creatures “as stupid and ignorant as it is possible for a human being to be”.
Read the rest of my review of The Darwin Economy here.
Read the rest of my review of The Darwin Economy here.
April 10, 2013
The Darwin Economy is an intellectual page-turner. It is one of the few thoughtful challenges to libertarian ideas I have read. The book is structured as a logical argument about positional goods--those things that are only beneficial relative to what others have. For example, running a fast time in a race is only important in relation to the other runners--were you the fastest? Did you win the race? Similarly, many things related to status and power that humans pursue are only valued relative to others. These goods fall into a strange trap whereby the traditional invisible hand of Adam Smith actually causes poorer outcomes than a well-regulated outcome.
I recommend this book to anyone who is interested in liberal or libertarian ideas, because it deals with them fairly and explores a potential pitfall of libertarianism. The text itself is rather short (about 180 pages), and once you have grasped the core argument, Frank doesn't introduce a ton of corollaries but just continues to flesh out his idea. However, reading his argument deeply does give a sense of how carefully he has reasoned. What is interesting about this book is that it specifies an instance where the invisible hand of the market does not work. Anyone who can raise a legitimate critique of Adam Smith deserves our attention.
I recommend this book to anyone who is interested in liberal or libertarian ideas, because it deals with them fairly and explores a potential pitfall of libertarianism. The text itself is rather short (about 180 pages), and once you have grasped the core argument, Frank doesn't introduce a ton of corollaries but just continues to flesh out his idea. However, reading his argument deeply does give a sense of how carefully he has reasoned. What is interesting about this book is that it specifies an instance where the invisible hand of the market does not work. Anyone who can raise a legitimate critique of Adam Smith deserves our attention.
May 29, 2013
The fallacies of the libertarian economic philosophy can be very attractive -- but they are still fallacies.
Author Robert H. Frank clearly points out many of the libertarian errors of reasoning...
An excerpt from the book:
-> "The difficult question is how to eliminate wasteful government spending without inflicting even more costly collateral damage. Experience suggests that the 'starve-the-beast' [Grover Norquist] strategy is NOT the answer."
"Starve-the-beast proponents might be likened to a doctor who treats a patient suffering from intestinal parasites by ordering him to stop eating. The patient's food intake, he explains, is the very lifeblood of the parasites! Cut that off, and the parasites will eventually die!
Well, yes.
But the patient himself may die first..."
Author Robert H. Frank clearly points out many of the libertarian errors of reasoning...
An excerpt from the book:
-> "The difficult question is how to eliminate wasteful government spending without inflicting even more costly collateral damage. Experience suggests that the 'starve-the-beast' [Grover Norquist] strategy is NOT the answer."
"Starve-the-beast proponents might be likened to a doctor who treats a patient suffering from intestinal parasites by ordering him to stop eating. The patient's food intake, he explains, is the very lifeblood of the parasites! Cut that off, and the parasites will eventually die!
Well, yes.
But the patient himself may die first..."
April 27, 2015
Great book on relative consumption, collective action problems, market failures, and libertarianism. Notes below:
> A rational libertarian who reflects carefully about the traditional libertarian position will find it difficult to defend. I have granted every traditional libertarian assumption—that markets are perfectly competitive, that consumers are essentially rational, and that government may not restrict behavior except to prevent undue harm to others. To this list I have added only one substantive element—namely the completely uncontroversial observation that many important aspects of life are graded on the curve.
This books discusses market failures. Mostly those that spawn from positional consumption. Positional consumption happens when the value of a good depends on other people's consumption. Status symbols are an obvious example.
# Positional Goods
> Rewards that depend on relative performance spawn collective action problems that can cause markets to fail.
Other examples where consumption can be relative include:
- Acquiring a house in a neighborhood with good schools
- Getting a car or a house that impresses the friends or neighbors
- Spending a lot of money on marketing
- Arms races
- Wearing a helmet
- Wearing an expensive suit at an interview
In these situations, it might be rational for individuals to consume as much as they can afford (and get an expensive suit for an interview). But when most people make that decision, then no one gains (the expensive suits are no longer impressive). The benefits of the consumption are relative. Therefore, the optimal level of consumption will be smaller than the current one. This leads to a collective action problem: everyone would be better off if they could tamper the overall consumption (for instance if suit prices were capped) but each individual gains by consuming as much as possible.
Frank likes to say that the value of these goods is "graded on the curve".
> The fatal flaw in that framework stems from an observation that is itself completely uncontroversial—namely that in many important domains of life, performance is graded on the curve.
# Competition
Frank assumes the usual things:
- consumers are rational
- consumer are informed
- competition makes markets competitive
But even given these standard assumptions, he goes on to point out market failures and collective action problems that stem from the fact that much consumption is relative.
> attribute market failure to insufficient competition. But the problem is in fact a fundamental property of competition itself. Markets are more competitive now than they've ever been, yet that fact has done little to narrow the scope of market failure and much to exaggerate it.
> But it's a vacuous complaint, because virtually every law and regulation constitutes social engineering.
> The libertarian's faith in unregulated markets rests on several premises. Two of the most important are that consumers are well informed and that markets are competitive.
> One is that people are rationally attentive to all relevant costs and benefits of the various options they consider. Another is that, to the extent that material resources matter for well-being, it's absolute income that counts, not relative income.
> Our task in the next three chapters will be to explore how explicit recognition of the importance of context alters our understanding of how markets function. As we'll see, adding this simple feature is the key to understanding why the invisible hand breaks down, even when consumers are fully informed and interact with employers and sellers under conditions of perfect competition.
> But the real reason we regulate is to protect ourselves from the consequences of excessive competition with one another.
> Over the years I have urged my students to disengage their ideological leanings as completely as possible when thinking about questions of market failure. If they have a hypothesis about why a market has failed in some particular way, the first and most important test of that hypothesis is whether it implies that people have been leaving cash on the table.
Relative consumption can be used to undermine the concept of revealed preference:
> The fact that individual and collective incentives diverge when relative income matters also calls into question the traditional economic doctrine of revealed preference.
The doctrine of revealed preference states that it is better to look at consumers' behavior to figure out what they like and prefer, as opposed to asking them. Relative consumption undermines this concept because consumers caught in excessive relative consumption are over-spending.
> Antigovernment activists insist that the best way to deal with revenue shortfalls is to eliminate wasteful government spending. Who, other than the direct beneficiaries of a wasteful program, could possibly object? The difficult question is how to eliminate wasteful spending without inflicting even more costly collateral damage. Experience suggests that the starve-the-beast strategy is not the answer.
> collateral damage to their host. It’s instructive to push the parasite-host analogy a step further, by noting that no complex organism is ever completely free of parasites.
> A good place for opponents of waste to focus might thus be on legislation that could reduce legislators’ dependence on large
> boondoggles are less likely to survive politically when more voters learn about them. The information revolution has greatly reduced the cost of putting information in front of voters, so we might make some progress there. But the same revolution has also caused explosive growth in the total amount of information that bombards us each day. Thus it may be just as hard as ever to draw voters’ attention to any particular wasteful program.
> Families up and down the income ladder are spending more each year to celebrate special occasions for loved ones. The average cost of an American wedding in 2009 was $28,082.20 The corresponding figure in 1980 (also in 2009 dollars) was $11,213.21 The collective effect of all this extra spending has been largely just to raise the bar that defines special occasions. The events end up costing substantially more than they used to, but no one walks away feeling any more special than before.
> Today’s median earners don’t build bigger houses and spend more to celebrate special occasions because they have more money. The incomes of families in the middle have actually grown very little during the past three
> They’re building bigger and spending more because other people like them are also building bigger and spending more, and that, in turn, is happening because of the changing pattern of income growth. Similar expenditure cascades have been taking place not just in housing and parties for special occasions, but in a host of other domains as well.
> If we add to that observation the fact that total consumer spending is more than twice as large as total government spending, my assertion that there is more waste in the private sector than in the public sector should not strike any reasonable observer as implausible.
> context matters more for weaponry than for consumption goods generally.
> If housing is positional and safety is nonpositional, as evidence consistently suggests, unregulated markets will serve up houses that are too big and jobs that are too dangerous.
# The Notion of Harm
Mill's harm principle states that preventing harm to others is the only legitimate reason to restrict anyone's liberty.
Libertarians often cite this principle approvingly, but the list of restrictions that it endorses is bigger than they let on.
Indirect harm must count. And harm caused by relative consumption must count. A sprinter taking drugs bids up the race times and other sprinters will have to take drugs in order to compete. The drug consumption of the first sprinter causes indirect harm: the other sprinters no longer are at liberty to escape the harm done by the drugs if they want to keep competing.
> performance-enhancing drugs. If libertarians want to stick with their current mix of policy prescriptions, then, they must confront some difficult choices. To continue to reject Mill's harm principle when it suits them, they must assert that they have the right to take actions that impose substantial, easily measured harm on others even when the actions are of little benefit to themselves.
> impossible to defend within the Coase framework, that choice would require them to reject Coase outright. But think what a difficult position that would be for an honest libertarian to defend! If you really care about freedom, how can you reject a framework that defines rights for the explicit purpose of mimicking as closely as possible the outcomes completely free people would have agreed to among themselves?
## Willingness To Pay
Frank endorses willingness to pay as a good way to measure what people want. It's probably the best we can do in many circumstances.
Willingness to pay can account for progressive tax systems. Asking everyone to contribute the same amount of money will mean a lot of projects won't be built, to the detriment of all.
Willingness to pay is often criticized as morally tone-deaf. Why should rich people, willing to pay more, get what they want at the detriment of the poor?
This argument sounds intuitive but is wrong. First off, willingness to pay determines who gets goods in private markets. Refusing willingness to pay on principles is like denying the usefulness of all markets.
But also, willingness to pay can be used to reach outcomes that are better, for both rich and poor:
> But despite the intuitively compelling attraction of this statement, it's misguided. As we'll see, it accounts for our repeated failure to implement policies that would benefit all citizens, rich and poor alike.
> But willingness to pay also depends heavily on income. Holding all else constant, the more people earn, the more they're willing to pay to have their way. The upshot is that Coase's approach to solving the noise problem will tend to tilt heavily in favor of the solutions preferred by those who have the most money.
Cost-benefit analysis using willingness to pay should be used to make policy decisions. Even there is something troubling about having the preferences of rich people having more sway than the ones of poor people. But the imbalances can be rectified through redistribution. Also, the right question is: can we reach better outcomes than the ones recommended by cost-benefit analyses and willingness to pay? There's no real alternative. And preventing cost-benefit analysis to dictate policy decisions just leads to suboptimal outcomes, for both rich and poor.
> But although this objection is commonly attacked on equity grounds, it's perhaps more transparently vulnerable on efficiency grounds.
> With careful attention to design details, virtually every public policy decision that does not reflect what people are willing to pay for the alternatives at issue can be transformed to produce a better outcome for everyone involved.
> As the preceding discussion suggests, there seem to be at least two barriers to achieving efficient solutions through the use of cost-benefit analysis in the public domain. One is that many people—movement libertarians most prominently among them—are opposed to government redistribution as a matter of principle. The other is that, given the myriad of cases that must be decided on an almost daily basis, case-by-case
> distributional remedies may simply be impractical to administer. As compelling as each of these two barriers may seem, neither can withstand careful scrutiny. Consider first the claim that income transfers are illegitimate as a matter of principle (“It's your money…”). The principle at stake here is the claim that since the individual has earned her income through fair, voluntary exchange in the marketplace, she is entitled to do with it as she pleases. Taken literally, however, this argument is unpersuasive, for it implies that the government ought to have no power to tax at all. As noted in chapter 1, such a government would be unable to field an army, and its citizens would sooner or later find themselves paying taxes to a foreign invader's government. The “It's your money…” principle
> fails for another important practical reason. Proponents of this principle presumably favor it because they believe that it would be better for people to have direct control over the largest possible share of the resources that they themselves have helped to produce. Yet this principle hardly seems worth fighting for if, as I have argued, its implementation actually reduces the amount of resources over which people have control. Again, democracies must choose between transferring resources to low-income people directly or responding to their interests in other, more costly ways. What about the second barrier to efficiency, the fact that it may just not be possible to work out case-by-case compensating transfers for each of the myriad public policy decisions we confront every day? The answer
> is that we can employ cost-benefit analysis without taking this cumbersome step at all. My point is not that compensation is unnecessary, but rather that it need not occur on a case-by-case basis. Critics of cost-benefit analysis are correct that using willingness-to-pay measures virtually assures a mix of public programs that are slanted in favor of the preferences of high-income persons—for the simple reason that high-income persons are able to pay more. But rather than abandon cost-benefit analysis, we have a better alternative. We can employ willingness-to-pay measures without apology, and use the welfare and tax systems to compensate low-income families for the resulting injury. Again, this compensation need not—indeed cannot—occur on a
> case-by-case basis. Rather, low-income persons could simply be granted concessions through the tax system reflecting their expected loss from the implementation of cost-benefit analysis based on willingness to pay. Such concessions would be in addition to the welfare and tax breaks required by other factors, which are our subject in the next chapter
> The absurdity of demanding that every citizen contribute an equal absolute amount, or even an equal proportion of his income, to pay for collectively consumed goods is cast into even sharper relief by imagining what would happen if married couples were subject to similar constraints. Suppose, for example, that Julie earns $2 million a year while her husband Bruce earns only $20,000. Given her income, Julie as an individual would want to spend much more than Bruce on housing, travel, entertainment, and the many other items they consume jointly. But if each member of the couple were forced to contribute an equal amount toward the purchase of such items, they'd be constrained to live in a small house; send their children
> to substandard schools; skimp on vacations, entertainment, and dining out; and so on. It's therefore easy to see why Julie might find it attractive to pay considerably more than 50 percent for things that she and Bruce consume jointly.
# Solutions
In general, we should tax harmful behavior and unburden good behavior.
> But mature adults understand that we must tax something. Right now we tax savings, which discourages productive investment. We tax payrolls, which discourages job creation. Instead, why not tax things that we would otherwise have too much of?
For example:
- Decrease payroll tax
- Increase taxes on positional items
- Increase pollution taxes including gas tax
- Instigate a progressive general consumption tax
## Progressive General Consumption Tax
> In earlier work I have argued that a simpler, more promising, approach would be to abandon the current progressive income tax in favor of a much more steeply progressive general consumption tax.
> Implementing a progressive consumption tax would be straightforward. Taxpayers would report their incomes to the tax authorities just as they do now. They'd also report how much they had saved during the year, much as they do now for IRAs and other tax-exempt retirement accounts. People would then pay tax on their “taxable consumption,” which is just the difference between their income and their annual savings, less a standard deduction.9 Rates at the margin would rise with taxable consumption.
> For decades, liberals and conservatives alike have agreed that we would all be better off if we all spent less and saved and invested more. But no individual has the power to alter the aggregate savings rate. If we want to increase it, we must act collectively. A progressive consumption tax would be the perfect policy instrument for that purpose.
> Alternatively, it could scale back, building only a $1 million addition. It would then pay $1 million in additional tax and could deposit $2 million more in savings than if it had built the original plan. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth. Either way, no real sacrifice would be required of the wealthy family, because if all wealthy families had gone ahead with their original plans, the result would have been merely to redefine what constitutes acceptable housing.
> Tending to a big mansion is a hassle.
> In the long run, a progressive consumption tax would gradually shift the composition of final spending away from consumption toward investment, causing productivity to grow more rapidly. In the event of an economic downturn, a temporary suspension or reduction of the tax would be a powerful stimulus tool, since consumers would benefit only if they increased their spending right away.
> A rational libertarian who reflects carefully about the traditional libertarian position will find it difficult to defend. I have granted every traditional libertarian assumption—that markets are perfectly competitive, that consumers are essentially rational, and that government may not restrict behavior except to prevent undue harm to others. To this list I have added only one substantive element—namely the completely uncontroversial observation that many important aspects of life are graded on the curve.
This books discusses market failures. Mostly those that spawn from positional consumption. Positional consumption happens when the value of a good depends on other people's consumption. Status symbols are an obvious example.
# Positional Goods
> Rewards that depend on relative performance spawn collective action problems that can cause markets to fail.
Other examples where consumption can be relative include:
- Acquiring a house in a neighborhood with good schools
- Getting a car or a house that impresses the friends or neighbors
- Spending a lot of money on marketing
- Arms races
- Wearing a helmet
- Wearing an expensive suit at an interview
In these situations, it might be rational for individuals to consume as much as they can afford (and get an expensive suit for an interview). But when most people make that decision, then no one gains (the expensive suits are no longer impressive). The benefits of the consumption are relative. Therefore, the optimal level of consumption will be smaller than the current one. This leads to a collective action problem: everyone would be better off if they could tamper the overall consumption (for instance if suit prices were capped) but each individual gains by consuming as much as possible.
Frank likes to say that the value of these goods is "graded on the curve".
> The fatal flaw in that framework stems from an observation that is itself completely uncontroversial—namely that in many important domains of life, performance is graded on the curve.
# Competition
Frank assumes the usual things:
- consumers are rational
- consumer are informed
- competition makes markets competitive
But even given these standard assumptions, he goes on to point out market failures and collective action problems that stem from the fact that much consumption is relative.
> attribute market failure to insufficient competition. But the problem is in fact a fundamental property of competition itself. Markets are more competitive now than they've ever been, yet that fact has done little to narrow the scope of market failure and much to exaggerate it.
> But it's a vacuous complaint, because virtually every law and regulation constitutes social engineering.
> The libertarian's faith in unregulated markets rests on several premises. Two of the most important are that consumers are well informed and that markets are competitive.
> One is that people are rationally attentive to all relevant costs and benefits of the various options they consider. Another is that, to the extent that material resources matter for well-being, it's absolute income that counts, not relative income.
> Our task in the next three chapters will be to explore how explicit recognition of the importance of context alters our understanding of how markets function. As we'll see, adding this simple feature is the key to understanding why the invisible hand breaks down, even when consumers are fully informed and interact with employers and sellers under conditions of perfect competition.
> But the real reason we regulate is to protect ourselves from the consequences of excessive competition with one another.
> Over the years I have urged my students to disengage their ideological leanings as completely as possible when thinking about questions of market failure. If they have a hypothesis about why a market has failed in some particular way, the first and most important test of that hypothesis is whether it implies that people have been leaving cash on the table.
Relative consumption can be used to undermine the concept of revealed preference:
> The fact that individual and collective incentives diverge when relative income matters also calls into question the traditional economic doctrine of revealed preference.
The doctrine of revealed preference states that it is better to look at consumers' behavior to figure out what they like and prefer, as opposed to asking them. Relative consumption undermines this concept because consumers caught in excessive relative consumption are over-spending.
> Antigovernment activists insist that the best way to deal with revenue shortfalls is to eliminate wasteful government spending. Who, other than the direct beneficiaries of a wasteful program, could possibly object? The difficult question is how to eliminate wasteful spending without inflicting even more costly collateral damage. Experience suggests that the starve-the-beast strategy is not the answer.
> collateral damage to their host. It’s instructive to push the parasite-host analogy a step further, by noting that no complex organism is ever completely free of parasites.
> A good place for opponents of waste to focus might thus be on legislation that could reduce legislators’ dependence on large
> boondoggles are less likely to survive politically when more voters learn about them. The information revolution has greatly reduced the cost of putting information in front of voters, so we might make some progress there. But the same revolution has also caused explosive growth in the total amount of information that bombards us each day. Thus it may be just as hard as ever to draw voters’ attention to any particular wasteful program.
> Families up and down the income ladder are spending more each year to celebrate special occasions for loved ones. The average cost of an American wedding in 2009 was $28,082.20 The corresponding figure in 1980 (also in 2009 dollars) was $11,213.21 The collective effect of all this extra spending has been largely just to raise the bar that defines special occasions. The events end up costing substantially more than they used to, but no one walks away feeling any more special than before.
> Today’s median earners don’t build bigger houses and spend more to celebrate special occasions because they have more money. The incomes of families in the middle have actually grown very little during the past three
> They’re building bigger and spending more because other people like them are also building bigger and spending more, and that, in turn, is happening because of the changing pattern of income growth. Similar expenditure cascades have been taking place not just in housing and parties for special occasions, but in a host of other domains as well.
> If we add to that observation the fact that total consumer spending is more than twice as large as total government spending, my assertion that there is more waste in the private sector than in the public sector should not strike any reasonable observer as implausible.
> context matters more for weaponry than for consumption goods generally.
> If housing is positional and safety is nonpositional, as evidence consistently suggests, unregulated markets will serve up houses that are too big and jobs that are too dangerous.
# The Notion of Harm
Mill's harm principle states that preventing harm to others is the only legitimate reason to restrict anyone's liberty.
Libertarians often cite this principle approvingly, but the list of restrictions that it endorses is bigger than they let on.
Indirect harm must count. And harm caused by relative consumption must count. A sprinter taking drugs bids up the race times and other sprinters will have to take drugs in order to compete. The drug consumption of the first sprinter causes indirect harm: the other sprinters no longer are at liberty to escape the harm done by the drugs if they want to keep competing.
> performance-enhancing drugs. If libertarians want to stick with their current mix of policy prescriptions, then, they must confront some difficult choices. To continue to reject Mill's harm principle when it suits them, they must assert that they have the right to take actions that impose substantial, easily measured harm on others even when the actions are of little benefit to themselves.
> impossible to defend within the Coase framework, that choice would require them to reject Coase outright. But think what a difficult position that would be for an honest libertarian to defend! If you really care about freedom, how can you reject a framework that defines rights for the explicit purpose of mimicking as closely as possible the outcomes completely free people would have agreed to among themselves?
## Willingness To Pay
Frank endorses willingness to pay as a good way to measure what people want. It's probably the best we can do in many circumstances.
Willingness to pay can account for progressive tax systems. Asking everyone to contribute the same amount of money will mean a lot of projects won't be built, to the detriment of all.
Willingness to pay is often criticized as morally tone-deaf. Why should rich people, willing to pay more, get what they want at the detriment of the poor?
This argument sounds intuitive but is wrong. First off, willingness to pay determines who gets goods in private markets. Refusing willingness to pay on principles is like denying the usefulness of all markets.
But also, willingness to pay can be used to reach outcomes that are better, for both rich and poor:
> But despite the intuitively compelling attraction of this statement, it's misguided. As we'll see, it accounts for our repeated failure to implement policies that would benefit all citizens, rich and poor alike.
> But willingness to pay also depends heavily on income. Holding all else constant, the more people earn, the more they're willing to pay to have their way. The upshot is that Coase's approach to solving the noise problem will tend to tilt heavily in favor of the solutions preferred by those who have the most money.
Cost-benefit analysis using willingness to pay should be used to make policy decisions. Even there is something troubling about having the preferences of rich people having more sway than the ones of poor people. But the imbalances can be rectified through redistribution. Also, the right question is: can we reach better outcomes than the ones recommended by cost-benefit analyses and willingness to pay? There's no real alternative. And preventing cost-benefit analysis to dictate policy decisions just leads to suboptimal outcomes, for both rich and poor.
> But although this objection is commonly attacked on equity grounds, it's perhaps more transparently vulnerable on efficiency grounds.
> With careful attention to design details, virtually every public policy decision that does not reflect what people are willing to pay for the alternatives at issue can be transformed to produce a better outcome for everyone involved.
> As the preceding discussion suggests, there seem to be at least two barriers to achieving efficient solutions through the use of cost-benefit analysis in the public domain. One is that many people—movement libertarians most prominently among them—are opposed to government redistribution as a matter of principle. The other is that, given the myriad of cases that must be decided on an almost daily basis, case-by-case
> distributional remedies may simply be impractical to administer. As compelling as each of these two barriers may seem, neither can withstand careful scrutiny. Consider first the claim that income transfers are illegitimate as a matter of principle (“It's your money…”). The principle at stake here is the claim that since the individual has earned her income through fair, voluntary exchange in the marketplace, she is entitled to do with it as she pleases. Taken literally, however, this argument is unpersuasive, for it implies that the government ought to have no power to tax at all. As noted in chapter 1, such a government would be unable to field an army, and its citizens would sooner or later find themselves paying taxes to a foreign invader's government. The “It's your money…” principle
> fails for another important practical reason. Proponents of this principle presumably favor it because they believe that it would be better for people to have direct control over the largest possible share of the resources that they themselves have helped to produce. Yet this principle hardly seems worth fighting for if, as I have argued, its implementation actually reduces the amount of resources over which people have control. Again, democracies must choose between transferring resources to low-income people directly or responding to their interests in other, more costly ways. What about the second barrier to efficiency, the fact that it may just not be possible to work out case-by-case compensating transfers for each of the myriad public policy decisions we confront every day? The answer
> is that we can employ cost-benefit analysis without taking this cumbersome step at all. My point is not that compensation is unnecessary, but rather that it need not occur on a case-by-case basis. Critics of cost-benefit analysis are correct that using willingness-to-pay measures virtually assures a mix of public programs that are slanted in favor of the preferences of high-income persons—for the simple reason that high-income persons are able to pay more. But rather than abandon cost-benefit analysis, we have a better alternative. We can employ willingness-to-pay measures without apology, and use the welfare and tax systems to compensate low-income families for the resulting injury. Again, this compensation need not—indeed cannot—occur on a
> case-by-case basis. Rather, low-income persons could simply be granted concessions through the tax system reflecting their expected loss from the implementation of cost-benefit analysis based on willingness to pay. Such concessions would be in addition to the welfare and tax breaks required by other factors, which are our subject in the next chapter
> The absurdity of demanding that every citizen contribute an equal absolute amount, or even an equal proportion of his income, to pay for collectively consumed goods is cast into even sharper relief by imagining what would happen if married couples were subject to similar constraints. Suppose, for example, that Julie earns $2 million a year while her husband Bruce earns only $20,000. Given her income, Julie as an individual would want to spend much more than Bruce on housing, travel, entertainment, and the many other items they consume jointly. But if each member of the couple were forced to contribute an equal amount toward the purchase of such items, they'd be constrained to live in a small house; send their children
> to substandard schools; skimp on vacations, entertainment, and dining out; and so on. It's therefore easy to see why Julie might find it attractive to pay considerably more than 50 percent for things that she and Bruce consume jointly.
# Solutions
In general, we should tax harmful behavior and unburden good behavior.
> But mature adults understand that we must tax something. Right now we tax savings, which discourages productive investment. We tax payrolls, which discourages job creation. Instead, why not tax things that we would otherwise have too much of?
For example:
- Decrease payroll tax
- Increase taxes on positional items
- Increase pollution taxes including gas tax
- Instigate a progressive general consumption tax
## Progressive General Consumption Tax
> In earlier work I have argued that a simpler, more promising, approach would be to abandon the current progressive income tax in favor of a much more steeply progressive general consumption tax.
> Implementing a progressive consumption tax would be straightforward. Taxpayers would report their incomes to the tax authorities just as they do now. They'd also report how much they had saved during the year, much as they do now for IRAs and other tax-exempt retirement accounts. People would then pay tax on their “taxable consumption,” which is just the difference between their income and their annual savings, less a standard deduction.9 Rates at the margin would rise with taxable consumption.
> For decades, liberals and conservatives alike have agreed that we would all be better off if we all spent less and saved and invested more. But no individual has the power to alter the aggregate savings rate. If we want to increase it, we must act collectively. A progressive consumption tax would be the perfect policy instrument for that purpose.
> Alternatively, it could scale back, building only a $1 million addition. It would then pay $1 million in additional tax and could deposit $2 million more in savings than if it had built the original plan. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth. Either way, no real sacrifice would be required of the wealthy family, because if all wealthy families had gone ahead with their original plans, the result would have been merely to redefine what constitutes acceptable housing.
> Tending to a big mansion is a hassle.
> In the long run, a progressive consumption tax would gradually shift the composition of final spending away from consumption toward investment, causing productivity to grow more rapidly. In the event of an economic downturn, a temporary suspension or reduction of the tax would be a powerful stimulus tool, since consumers would benefit only if they increased their spending right away.
December 5, 2011
A well-written and persuasive argument for more rational thought in how society approaches the question of free markets vs regulation. The author's recommendation falls squarely on the side of more regulation, based on the concept of maximizing total benefit across all members of society. Too bad no one that makes US policy is likely to read it and take it seriously, since there's no incentive in our political system to actually maximize the total benefit to society over the narrow interests of a particular law-maker's re-election constituency.
August 20, 2015
Several reviews have found Frank's tone condescending toward movement Libertarians, but I didn't pick that up as much. Frank came across to me like a typical academic: follow my reasoning and obviously you will find that I am correct, and it will thus be absurd if you don't agree with me. And that tone didn't bother all that much, probably because I found Frank's logic thorough and compelling sound, even where I harbored my disagreements with his conclusions. His thesis is fairly straightforward: Adam Smith's invisible hand theory fails in cases where the value of a good is relative, rather than absolute. In such cases, individuals seeking their own self-interest leads to an "arms race" that leaves the group collectively worse off. In other words, group interests do not always coincide with individual interests, an insight Frank credits to Charles Darwin. For the next link in Frank's chain of logic, he turns to Ronald Coase, whose key relevant insight is that in situations where one party's actions harm another, the parties will always negotiate their way to the most efficient solution, assuming costless negotiations. However, given that transactions have costs in the real world, Coase posited that a third party -- the government -- should seek the efficient solution that the private actors would have arrived at given the opportunity to negotiate without costs. This then leads to Frank's central contention: taxes are an effective means of curbing harmful behavior and encouraging efficient solutions to hard problems. Heavy-handed government regulation is not.
Again, I found Frank's logic and arguments convincing, clear, and well-articulated. I couldn't quite give five stars, however, simply because I found Frank's thought experiments to be an oversimplificaton of the complex world in which we live. True, tought experiments encapsulate complex ideas in simple, easy-to-follow imagination exercises, but they also, in my opinion, fail to capture the myriad currents flowing through any given society, influencing people's decisions, influencing markets, influencing policymakers. Frank thinks like an economist -- and a good one at that -- but I couldn't help but feel that there is more to the debate than Frank is willing to concede in his A+B clearly equals C, can't you see? type of arguments.
Again, I found Frank's logic and arguments convincing, clear, and well-articulated. I couldn't quite give five stars, however, simply because I found Frank's thought experiments to be an oversimplificaton of the complex world in which we live. True, tought experiments encapsulate complex ideas in simple, easy-to-follow imagination exercises, but they also, in my opinion, fail to capture the myriad currents flowing through any given society, influencing people's decisions, influencing markets, influencing policymakers. Frank thinks like an economist -- and a good one at that -- but I couldn't help but feel that there is more to the debate than Frank is willing to concede in his A+B clearly equals C, can't you see? type of arguments.
October 27, 2023
Is This An Overview?
Competition is usually thought of as favorable, as the better competitor will be rewarded while worse competitors will be removed. Making the system better for everyone. But, competition is not always beneficial, and can lead to harmful consequences for the group. A consequent that occurs through the process of competition. An insight that comes from Charles Darwin. Evolution by natural selection favors the fittest, those who have favorable traits for survival and reproduction. Traits such as behaviors and physical features. Those who are fittest, pass on their favorable traits which become broadly shared with the group. While there are traits that enhance the group, there are also traits that hurt the group. The individual’s traits can make the individual more competitive within the species or group, but also make the individual more vulnerable to predators or other groups. Leading to traits being passed on that are better for the individual but worse for the group, reducing the groups intergenerational fitness. Traits that are to the detriment of the species.
The effect that competition has on a group depends on whether the individual and group interests are aligned. If the interests are aligned, everyone benefits. If they are not alighted, everyone loses. Interests tend not to align when the competition is among members of the same group. Another feature of harmful competition, is that fitness depends on conferring a relative advantage, rather than an absolute advantage. The competitor just needs to be more helpful than the competition.
In this way do individuals within various fields and industries, escalate their claims and change their behavior to appear relatively better while imposing costs on society. Sparking collective action problems. Within politics, political competition to maintain political independence depends on defending the state from opposition. This can lead to an arms race, in which every state builds armaments to make sure they are secure from their opposition. But the opposition does the same, build more armaments. As every state builds armaments, creates a situation in which every state pays more for armaments without greater security.
Are There More Examples Of Problems Caused By competition?
There are various examples of competition creating collective action problems, one is about hockey. Hockey players have an advantage when they play without a helmet, but that is risky. But if everyone does not wear a helmet, then there is no advantage. This incentivizes the collective restriction on behavior by imposing a policy of wearing a helmet.
How Does Government Effect Behavior?
Neither markets nor government are perfect. There are tasks that government does better, such as collective actions tasks that include national defense and pubic infrastructure. Favorable opinions of government occur when there are good public services. Weakest governments that provide little public benefits are deemed ineffective and corrupt. As government is needed, especially to resolve collective action, better to have an effective government.
To operate and resolve the collective action problems, government needs to be funded by tax revenue. Without a tax, there would be no government to resolve collective action problems. Taxes generate revenue and discourage the activity being taxed. Taxes are problematic when they discourage useful activities such as job creation, but taxes can be helpful when discouraging activities that are harmful to others. Taxes on harmful activity produce revenue while discouraging harmful behavior.
Caveats?
This book is mired in group polarization. Within politics and economics. The oppositions claims are simplified, and appear to have only one or a few explanations and reasons to provide. The author is ready with chapters filled with explanations to prove the opposition’s few ideas wrong. Much of the author’s argument is about defending the value of government, and about the role of taxes. That taxes can be used to discourage the detrimental competition while providing tax revenue.
The author repeats the simplified claims about an opposing political framework, as if the opponents make the same claims that the author can counter using various arguments. Making much of the disagreement, a one-sided argument against political claims that are not represented in the book. The attacks become contradictory, for the author attacks a political claim but recognizes that in practice the opposite happens, but still blames those making the disapproved political claim.
The author proposes that Charles Darwin takes precedence as foundational for economics. But, the author acknowledges that Darwin learned from economists such as Thomas Malthus and David Ricardo. The main reason for favoring Darwin is due to the concept of relative advantage, which is superior to the absolute advantage of Adam Smith. The author’s favor is contradictory, for two reasons. First, Ricardo identified relative advantage, in what economists call comparative advantage. The author keeps claiming that economists failed to recognize context and relative position, even though they do and the ideas are not original to Darwin. Second, for a book about evolution, the author implies that ideas do not evolve. The author keeps referencing all economic opposition as claiming favor for a single term from Adam Smith, the invisible hand. Besides the fact that Adam Smith’s work was not limited a single term which was not central to Smith’s work, and that economists do not use that term to explain all their views. The ideas of Smith were also improved, changed, and transformed. Economic ideas evolved. The views about competition have evolved.
There are also plenty of contradictory economic arguments being made. In a chapter, the author claims that safety is costly and that it does not make sense to be completely safe. This claim was made in a chapter about private firms. In another chapter, arguing that safety is beneficial because it prevents more expensive harm. This claim was made in a chapter about public funds. The reason the claims are contradictory is because the author does not consider the same variable when making the claims. As in, the author chooses the variables that support the author’s claims, but dismisses the other variables.
In chapters about taxes, there is a claim that those hurt by the tax system, specifically those who lack appropriate income, can be monetarily compensated. Many economists make the claim about compensating those who are losing due to economic policy or activity. The problem is that historically, claims about potential compensation did not materialize into actual compensation.
Competition is usually thought of as favorable, as the better competitor will be rewarded while worse competitors will be removed. Making the system better for everyone. But, competition is not always beneficial, and can lead to harmful consequences for the group. A consequent that occurs through the process of competition. An insight that comes from Charles Darwin. Evolution by natural selection favors the fittest, those who have favorable traits for survival and reproduction. Traits such as behaviors and physical features. Those who are fittest, pass on their favorable traits which become broadly shared with the group. While there are traits that enhance the group, there are also traits that hurt the group. The individual’s traits can make the individual more competitive within the species or group, but also make the individual more vulnerable to predators or other groups. Leading to traits being passed on that are better for the individual but worse for the group, reducing the groups intergenerational fitness. Traits that are to the detriment of the species.
The effect that competition has on a group depends on whether the individual and group interests are aligned. If the interests are aligned, everyone benefits. If they are not alighted, everyone loses. Interests tend not to align when the competition is among members of the same group. Another feature of harmful competition, is that fitness depends on conferring a relative advantage, rather than an absolute advantage. The competitor just needs to be more helpful than the competition.
In this way do individuals within various fields and industries, escalate their claims and change their behavior to appear relatively better while imposing costs on society. Sparking collective action problems. Within politics, political competition to maintain political independence depends on defending the state from opposition. This can lead to an arms race, in which every state builds armaments to make sure they are secure from their opposition. But the opposition does the same, build more armaments. As every state builds armaments, creates a situation in which every state pays more for armaments without greater security.
Are There More Examples Of Problems Caused By competition?
There are various examples of competition creating collective action problems, one is about hockey. Hockey players have an advantage when they play without a helmet, but that is risky. But if everyone does not wear a helmet, then there is no advantage. This incentivizes the collective restriction on behavior by imposing a policy of wearing a helmet.
How Does Government Effect Behavior?
Neither markets nor government are perfect. There are tasks that government does better, such as collective actions tasks that include national defense and pubic infrastructure. Favorable opinions of government occur when there are good public services. Weakest governments that provide little public benefits are deemed ineffective and corrupt. As government is needed, especially to resolve collective action, better to have an effective government.
To operate and resolve the collective action problems, government needs to be funded by tax revenue. Without a tax, there would be no government to resolve collective action problems. Taxes generate revenue and discourage the activity being taxed. Taxes are problematic when they discourage useful activities such as job creation, but taxes can be helpful when discouraging activities that are harmful to others. Taxes on harmful activity produce revenue while discouraging harmful behavior.
Caveats?
This book is mired in group polarization. Within politics and economics. The oppositions claims are simplified, and appear to have only one or a few explanations and reasons to provide. The author is ready with chapters filled with explanations to prove the opposition’s few ideas wrong. Much of the author’s argument is about defending the value of government, and about the role of taxes. That taxes can be used to discourage the detrimental competition while providing tax revenue.
The author repeats the simplified claims about an opposing political framework, as if the opponents make the same claims that the author can counter using various arguments. Making much of the disagreement, a one-sided argument against political claims that are not represented in the book. The attacks become contradictory, for the author attacks a political claim but recognizes that in practice the opposite happens, but still blames those making the disapproved political claim.
The author proposes that Charles Darwin takes precedence as foundational for economics. But, the author acknowledges that Darwin learned from economists such as Thomas Malthus and David Ricardo. The main reason for favoring Darwin is due to the concept of relative advantage, which is superior to the absolute advantage of Adam Smith. The author’s favor is contradictory, for two reasons. First, Ricardo identified relative advantage, in what economists call comparative advantage. The author keeps claiming that economists failed to recognize context and relative position, even though they do and the ideas are not original to Darwin. Second, for a book about evolution, the author implies that ideas do not evolve. The author keeps referencing all economic opposition as claiming favor for a single term from Adam Smith, the invisible hand. Besides the fact that Adam Smith’s work was not limited a single term which was not central to Smith’s work, and that economists do not use that term to explain all their views. The ideas of Smith were also improved, changed, and transformed. Economic ideas evolved. The views about competition have evolved.
There are also plenty of contradictory economic arguments being made. In a chapter, the author claims that safety is costly and that it does not make sense to be completely safe. This claim was made in a chapter about private firms. In another chapter, arguing that safety is beneficial because it prevents more expensive harm. This claim was made in a chapter about public funds. The reason the claims are contradictory is because the author does not consider the same variable when making the claims. As in, the author chooses the variables that support the author’s claims, but dismisses the other variables.
In chapters about taxes, there is a claim that those hurt by the tax system, specifically those who lack appropriate income, can be monetarily compensated. Many economists make the claim about compensating those who are losing due to economic policy or activity. The problem is that historically, claims about potential compensation did not materialize into actual compensation.
September 17, 2017
In view of the recent economic meltdown, I am sure it’s no secret to anyone that unregulated or poorly-regulated economic competition can run wild — to the detriment of society as well as individuals. But this outcome is hardly surprising to those who paid attention to Darwin’s ideas about competition in the natural world — ideas inspired by the extravagance of the peacock’s tail or by the sheer size of a stag’s rack of antlers.
This is the main argument made by New York Times economics columnist, Robert H. Frank, in his recent book, The Darwin Economy: Liberty, Competition, and the Common Good [Princeton University Press; 2011] — a book that pushes back — hard — against Libertarianism. The author is so sure of his argument that he predicts that 100 years from now, Charles Darwin will be recognised as the greatest intellectual contributor to modern economic theory, replacing Adam Smith as the intellectual founder of economics. Frank writes;
In this book, Frank argues that Smith’s invisible-hand idea is actually a special case within the general rule of competition based on Darwin’s observation that the “survival of the fittest” individuals is not always best for the group. This leads to “arms races” where behaviours that provide short-term gains for particular individuals can lead to enormous harm to the group. For example, male peacocks with the largest and most colourful tails or stags with the largest rack of antlers attract the most females and thus, father the most offspring, which possess the trait for big colourful tails or large antlers. But even though these traits benefit individual peacocks and deer by getting their genes into the next generation, these traits are detrimental to the group because they make these animals more vulnerable to predators. These observations relate to the economic concept known as a “positional good” where an object or trait is only valued by its possessor because it’s not possessed by others (who also value it) — a concept that I often think of as the “I got mine, tough shit for you!” policy.
If you think about it, the financial meltdown of 2008 was at least partially the result of the predatory financial sector cynically taking advantage of the average American family’s “positional” manoeuvring where they sought to purchase bigger homes in better neighborhoods because of the accompanying educational and social advantages that accrued to their children. Similar to male peacocks’ extravagant tails and stags’ huge antlers, these homes came with a number of disadvantages, such as greater size, which translates into greater energy consumption and bigger mortgage debt, which then diverts home owners’ limited resources away from being invested in other, more practical ways.
These arguments also explain historical “tragedy of the commons” examples of winner-take-all markets, where society enjoyed benefits such as lower prices for goods and services but with the accompanying disadvantages of relying on slave labor, child labor, and the lack of environmental, safety, and health standards. Meanwhile, individual companies that invested in the long-term interests of their employees by improving their wages and working conditions lost business to competitors who produced their products more cheaply by avoiding these “unnecessary” expenses. It was only after the government placed constraints upon the freedoms of businesses so they all operated according to the same rules that societal economic improvement occurred. Workers earned more money and suffered fewer injuries. Workers’ increased wages and improved health allowed them to purchase more goods and services, which in turn, increased the profits of businesses.
Frank convincingly argues that returning to laissez-faire economics will not solve our economic woes. Throughout the book, Frank repeatedly demonstrates that an unregulated economy maximises individual benefits in the short-term whilst being detrimental to long-term interests and to the interests of the group.
How to address this disparity between individual and group interests? Frank argues that the best solution is to tax behaviours that harm group and long-term interests. These taxes should then be re-invested into the community. This would have the added benefit of eliminating government debt and would provide better public services without requiring painful sacrifices from anyone. Some people protest that these so-called “sin taxes” are social engineering — as if this is a Bad Thing. This objection conveniently ignores the fact that every law and regulation constitutes social engineering, and as Frank notes, “the only alternative to social engineering is complete anarchy. Taxes are a far cheaper and less coercive way to curtail harmful behavior than are laws or prescriptive regulations.” (p. 123.)
Indeed.
This is an intelligent and well-written book that will certainly inspire you think about economics in a different way to what you did before, whether or not you agree with the author’s conclusions. I think students of economics, evolutionary theory and anyone with interests in these areas will benefit greatly by reading and thinking about the arguments presented in this book.
NOTE: Originally published at The Guardian on 19 April 2012.
This is the main argument made by New York Times economics columnist, Robert H. Frank, in his recent book, The Darwin Economy: Liberty, Competition, and the Common Good [Princeton University Press; 2011] — a book that pushes back — hard — against Libertarianism. The author is so sure of his argument that he predicts that 100 years from now, Charles Darwin will be recognised as the greatest intellectual contributor to modern economic theory, replacing Adam Smith as the intellectual founder of economics. Frank writes;
I base my prediction on a subtle but extremely important distinction between Darwin’s view of the competitive process and Smith’s. Today Smith is best remembered for his invisible-hand theory, which, according to some of his modern disciples, holds that impersonal market forces channel the behavior of greedy individuals to produce the greatest good for all. […I]t’s fair to say that the invisible-hand theory’s optimistic portrayal of unregulated market outcomes has become the bedrock of the antigovernment activists’ worldview. They believe regulation is unnecessary because they believe unbridled market forces can take care of things quite nicely on their own.
Darwin’s view of the competitive process was fundamentally different. His observations persuaded him that the interests of individual animals were often profoundly in conflict with the broader interests of their own species. In time, I predict, the invisible hand will come to be seen as a special case of Darwin’s more general theory. Many of the libertarians’ most cherished beliefs, which are perfectly plausible within Smith’s framework, don’t survive at all in Darwin’s. (p. 17).
In this book, Frank argues that Smith’s invisible-hand idea is actually a special case within the general rule of competition based on Darwin’s observation that the “survival of the fittest” individuals is not always best for the group. This leads to “arms races” where behaviours that provide short-term gains for particular individuals can lead to enormous harm to the group. For example, male peacocks with the largest and most colourful tails or stags with the largest rack of antlers attract the most females and thus, father the most offspring, which possess the trait for big colourful tails or large antlers. But even though these traits benefit individual peacocks and deer by getting their genes into the next generation, these traits are detrimental to the group because they make these animals more vulnerable to predators. These observations relate to the economic concept known as a “positional good” where an object or trait is only valued by its possessor because it’s not possessed by others (who also value it) — a concept that I often think of as the “I got mine, tough shit for you!” policy.
If you think about it, the financial meltdown of 2008 was at least partially the result of the predatory financial sector cynically taking advantage of the average American family’s “positional” manoeuvring where they sought to purchase bigger homes in better neighborhoods because of the accompanying educational and social advantages that accrued to their children. Similar to male peacocks’ extravagant tails and stags’ huge antlers, these homes came with a number of disadvantages, such as greater size, which translates into greater energy consumption and bigger mortgage debt, which then diverts home owners’ limited resources away from being invested in other, more practical ways.
These arguments also explain historical “tragedy of the commons” examples of winner-take-all markets, where society enjoyed benefits such as lower prices for goods and services but with the accompanying disadvantages of relying on slave labor, child labor, and the lack of environmental, safety, and health standards. Meanwhile, individual companies that invested in the long-term interests of their employees by improving their wages and working conditions lost business to competitors who produced their products more cheaply by avoiding these “unnecessary” expenses. It was only after the government placed constraints upon the freedoms of businesses so they all operated according to the same rules that societal economic improvement occurred. Workers earned more money and suffered fewer injuries. Workers’ increased wages and improved health allowed them to purchase more goods and services, which in turn, increased the profits of businesses.
Frank convincingly argues that returning to laissez-faire economics will not solve our economic woes. Throughout the book, Frank repeatedly demonstrates that an unregulated economy maximises individual benefits in the short-term whilst being detrimental to long-term interests and to the interests of the group.
How to address this disparity between individual and group interests? Frank argues that the best solution is to tax behaviours that harm group and long-term interests. These taxes should then be re-invested into the community. This would have the added benefit of eliminating government debt and would provide better public services without requiring painful sacrifices from anyone. Some people protest that these so-called “sin taxes” are social engineering — as if this is a Bad Thing. This objection conveniently ignores the fact that every law and regulation constitutes social engineering, and as Frank notes, “the only alternative to social engineering is complete anarchy. Taxes are a far cheaper and less coercive way to curtail harmful behavior than are laws or prescriptive regulations.” (p. 123.)
Indeed.
This is an intelligent and well-written book that will certainly inspire you think about economics in a different way to what you did before, whether or not you agree with the author’s conclusions. I think students of economics, evolutionary theory and anyone with interests in these areas will benefit greatly by reading and thinking about the arguments presented in this book.
NOTE: Originally published at The Guardian on 19 April 2012.
January 30, 2012
A very intellectual book with some truly original and thought-provoking ideas about how individual interests and collective interests sometimes diverge and how such divergence could lead to wasteful outcomes especially in a competitive environment. It is definitely interesting to see the author pitting Adam Smith against Darwin Charles and arguing that Adam Smith's Invisible Hand Principle could be viewed as a special case of Darwin Charles more general Natural Selection/Sexual Selection hypothesis. The examples cited in the book and the thought experiments suggested by the author are all very illustrative, albeit a bit repetitive.
The major drawback is the way that the book is structured - or unstructured, for that matter. The entire book, when read from front to back, seems very fragmented. Ideas do not flow naturally and smoothly from one chapter to the next. The middle section of the book is devoted almost exclusively to the framework suggested by Ronald Coase, but it is not immediately clear how Coase's framework fits with rest of the book. The best way to read this book, on hindsight, might be starting from the last chapter, picking out the points that are of most interest to the reader and flipping back to the chapters that elaborate on these points.
The major drawback is the way that the book is structured - or unstructured, for that matter. The entire book, when read from front to back, seems very fragmented. Ideas do not flow naturally and smoothly from one chapter to the next. The middle section of the book is devoted almost exclusively to the framework suggested by Ronald Coase, but it is not immediately clear how Coase's framework fits with rest of the book. The best way to read this book, on hindsight, might be starting from the last chapter, picking out the points that are of most interest to the reader and flipping back to the chapters that elaborate on these points.
May 14, 2012
This COULD have been a really good book, because the basic ideas are very interesting, but the writing was so biassed that I kept getting completely turned off and non-receptive. For example, Frank repeatedly criticizes libertarians, Republicans, and other conservatives for their rhetoric (and I must agree with such valid criticisms) as well as their ideas, but then he says, "The logic they offer in support of their position would be comical if the stakes were not so high." I happen to agree with his opposition to the Republican position in this instance, but he is not endearing me to his side by being so disrespectful to those who disagree.
I also am concerned at what I preceive as sloppiness in detail. For example, he cites the case of hedge fund manager John Paulson, whose income one year was $4 billion. He mentions a type of income called "carried interest" that is taxed as capital gain,at a rate of 15 versus 35 percent, even though it would look like earned income to the average person. He then says it saved Paulson $800 milion. No, not unless ALL of his income came from carried interest and unless the very first dollr was taxed at 35%, etc. If I noticed it in this instance, how much can I trust other assertions he makes, where it is not so easy to see the error?
I also am concerned at what I preceive as sloppiness in detail. For example, he cites the case of hedge fund manager John Paulson, whose income one year was $4 billion. He mentions a type of income called "carried interest" that is taxed as capital gain,at a rate of 15 versus 35 percent, even though it would look like earned income to the average person. He then says it saved Paulson $800 milion. No, not unless ALL of his income came from carried interest and unless the very first dollr was taxed at 35%, etc. If I noticed it in this instance, how much can I trust other assertions he makes, where it is not so easy to see the error?
February 5, 2015
A strange title given the content. Should have instead be titled, "Why Libertarians are Wrong."
~215 pages about why Libertarian, anti-government, anti-tax economic ideology is suboptimal and often contradictory.
Biggest insight is around the idea that by *not* intervening, the government fails to correct externalities. Beyond just the common examples of externalities of noise, pollution, and the such, this book goes to claim that the marketplace, more particularly the demand, for certain goods and services create a negative externality. The example he uses throughout is the demand for real estate in good school districts. Aptly, the book recognizes that a good school is only defined by its relation to other school districts. Thus, there's an out of control demand for moving to districts with a better than average school system. This causes people to overspend on real estate....or at least overspend in relation to how else income could be spent...savings/insurance/leisure...products that aren't 'positional.'
Though I agree with the general premise, it wasn't a super enjoyable book to read. Does solidify my 'liberal' economic ideology, though.
~215 pages about why Libertarian, anti-government, anti-tax economic ideology is suboptimal and often contradictory.
Biggest insight is around the idea that by *not* intervening, the government fails to correct externalities. Beyond just the common examples of externalities of noise, pollution, and the such, this book goes to claim that the marketplace, more particularly the demand, for certain goods and services create a negative externality. The example he uses throughout is the demand for real estate in good school districts. Aptly, the book recognizes that a good school is only defined by its relation to other school districts. Thus, there's an out of control demand for moving to districts with a better than average school system. This causes people to overspend on real estate....or at least overspend in relation to how else income could be spent...savings/insurance/leisure...products that aren't 'positional.'
Though I agree with the general premise, it wasn't a super enjoyable book to read. Does solidify my 'liberal' economic ideology, though.
July 27, 2013
I enjoyed the main point of the book. Rational people should allow governments to tax or regulate undesirable activities so that taxes can be lowered on desirable activities. Doing so will result in a net benefit for a society. Many of the activities that should be taxed more heavily are not taxed at all.
The author spent too much time arguing against libertarians. A big problem in the states but not as much in Canada where we still don't have taxes on a lot of the negative activities. The point of the book drifted to an attack on libertarianism rather than an argument in support of a good idea.
Also a few too many case studies, which is a common complaint of mine for non-fiction.
The author spent too much time arguing against libertarians. A big problem in the states but not as much in Canada where we still don't have taxes on a lot of the negative activities. The point of the book drifted to an attack on libertarianism rather than an argument in support of a good idea.
Also a few too many case studies, which is a common complaint of mine for non-fiction.
May 29, 2012
A late-career repetition of previous academic work, combined with a grab bag of grievances with the cartoonish American right (right down to critiquing comments on conservative blogs). I find Frank's economic centrism very attractive, and I'm intrigued enough to dig into his back catalogue, but I felt like this book was pretty shallow on the whole and didn't really hang together in a coherent way.
January 2, 2016
I thought this book was really well written, and since I'm new to learning about the economy, this book helped me learn some terms and use examples related to Darwin's theories which I know a lot about. I recommend this book to anyone who wants to learn about the economy and doesn't know where to start. The author is obviously biased against libertarians especially when talking about tax reform. It's still a great read.
August 3, 2013
Excellent description of why so many economic assumptions are false. Explains why cost/benefit analyses are the best way to make communal decisions, but in the US both the left and the right are against them. Thus, American cities cannot implement London's excellent solution to traffic congestion.
February 25, 2019
It’s difficult to take someone seriously when they try to use evolution as their central metaphor if they don’t really get their facts right. There are two separate glaring issues. First, the “Winner gets all” is a very masculine view of evolution. It plays to the things that men most like to hear about themselves, sexual conquest and being the biggest and best. It almost suggests that there’s no such thing as pair bonding, queen dominant hives and female dominant species. It also completely fails to recognise that in mammalian species, the strategies employed to raise a child through infancy have every bit as much relevance to the spread of genes. Watch a nature program some time and it is 50/50 that the creature you see hunted down will be a child, childhood is really very dangerous in the wild. This is especially relevant in human species, we have incredibly long childhood and adolescence. Problem 2 is the account of relative wealth and security, the notion that there is some evolutionary basis for our wanting to increase our resources relative to others is nonsense. Evidence suggests inverse. There has been no noticeable evolution since the dawn of agriculture, to an extent it has removed humans from evolutionary pressures. For much of the period in which humans evolved, there is reason to ancestors were deeply intolerant of those who wanted to build themselves up at the expense of others, not due to the additional security it affords them, but because it made them less like us. Only with the dawn of agriculture, the ability to alienate the populace from their surplus and monopolise violence has inequality become a real force in society, and that was far too late to be of any evolutionary significance, especially given levels of global dispersion at the point of change.
OK. So the science is gash, lets be fair though, his job title is economist, did he do any better here? No. American books on Economics are very prone to think that only America exists. To an extent this is acceptable, in the diagnosis of problems, if you are an American writer addressing an American audience, you will focus on American problems. Tolerable, but annoying. It is unacceptable when proposing remedial solutions to have not looked at other countries to see if similar policies have been adopted and whether they work. That’s just blind. In particular, he advocates the use of green taxes over nudges to help tackle climate change and other social problems. Not once does he discuss the relative successfulness of these policies in other countries. A look, for example, at the UK’s escalator taxes introduced by Thatcher on Cigarettes and Fuel would be instructive, in particular cigarettes. Introducing this tax had no noticeable effect on smoking rates. No reduction in volume smoked. It may have helped create a climate ready for change, but it did not promote change. What did make a difference was banning smoking in pubs. It made the simple change of making the smokers seem antisocial. Before the ban, if you were a non smoker and didn’t like being around smoke, the only way to avoid it was to not go to the pub, so non smoker was equated with anti social. After, the person who couldn’t stand to go without their fix was the anti social person, the person so desperate for a cigarette that they would still go outside and huddle under the porch in bitter rainy conditions. So nudges were more effective here. On fuel, the result was more mixed, car ownership has not fallen at all and owning a car, due to the expense, retains a level of chic so tends to be considered a status item. That being said though, we don’t tend to drive gas guzzling SUVs. The key weakness in UK fuel taxes is that the cost of driving has been driven up without any improvement in the cost, availability or reliability of public transport, nor has there been any concerted marketing effort to undermine the appeal of driving. But of course, if he’d done the things I’ve just mentioned, he probably wouldn’t have written this book, because he’d have known it was nonsense.
OK. So the science is gash, lets be fair though, his job title is economist, did he do any better here? No. American books on Economics are very prone to think that only America exists. To an extent this is acceptable, in the diagnosis of problems, if you are an American writer addressing an American audience, you will focus on American problems. Tolerable, but annoying. It is unacceptable when proposing remedial solutions to have not looked at other countries to see if similar policies have been adopted and whether they work. That’s just blind. In particular, he advocates the use of green taxes over nudges to help tackle climate change and other social problems. Not once does he discuss the relative successfulness of these policies in other countries. A look, for example, at the UK’s escalator taxes introduced by Thatcher on Cigarettes and Fuel would be instructive, in particular cigarettes. Introducing this tax had no noticeable effect on smoking rates. No reduction in volume smoked. It may have helped create a climate ready for change, but it did not promote change. What did make a difference was banning smoking in pubs. It made the simple change of making the smokers seem antisocial. Before the ban, if you were a non smoker and didn’t like being around smoke, the only way to avoid it was to not go to the pub, so non smoker was equated with anti social. After, the person who couldn’t stand to go without their fix was the anti social person, the person so desperate for a cigarette that they would still go outside and huddle under the porch in bitter rainy conditions. So nudges were more effective here. On fuel, the result was more mixed, car ownership has not fallen at all and owning a car, due to the expense, retains a level of chic so tends to be considered a status item. That being said though, we don’t tend to drive gas guzzling SUVs. The key weakness in UK fuel taxes is that the cost of driving has been driven up without any improvement in the cost, availability or reliability of public transport, nor has there been any concerted marketing effort to undermine the appeal of driving. But of course, if he’d done the things I’ve just mentioned, he probably wouldn’t have written this book, because he’d have known it was nonsense.
August 2, 2022
A really fascinating look at negative externalities and how the individual pursuit of positional goods can lead to arms races that make everyone worse off.
I'm almost convinced that this approach is the way forward - what the author calls a "libertarian welfare state." The only issue I have is the general principle of applying Coase's theory about the reciprocity of social costs (how to settle a dispute between two potential roommates, where one smokes and the other doesn't want to live in a smokey apartment, for example) *everywhere*. So, instead of seeing the smoker as a perpetrator and the non-smoker as a victim, acknowledging that they need to find some solution - either the non-smoker subsidizing the smoker's rent in exchange for the smoker refraining from not smoking (this way the non-smoker doesn't have to put up with smoke, and the smoker enjoys lower rent), or agreeing to live apart.
I mean, he refers to the fact that governments also regulate behavior like murder, rape, and theft. Applying the idea of reciprocity to these areas seems really bizarre. Say I'm a murderer and I want to kill someone and I enter into negotiations with a potential target - Frank seems to think that we could solve this problem by calculating how much I would want to be paid to not kill them (to give up this action), versus how much they would pay not to be killed (to not have to suffer the consequences of my action), and trying to find some solution to this based on a willingness to pay basis, and which ever outcome produces the most efficient solution is accepted. And he asks us to believe there are no good guys or bad guys here, just two people whose preferences inconvenience each other. And then he keeps going on about how the idea of natural rights is kinda stupid and mostly irrelevant to the practical, day-to-day matters of running a government.
Maybe I am overgeneralizing his argument, but he seems to be saying that we can use Coase's theory to justify all kinds of taxes, like having a tax on consumption instead of on income, or a tax on the weight of vehicles, etc. Why not instead of having a punishment for committing murder, we could just have a tax on this behavior. After all, in a libertarian society, we don't want so many regulations, but maybe if we taxed it, that would still send the message that this kind of behavior is frowned upon...
But then some really rich guy might be willing to pay quite a bit in order to exercise this action...
Again, I'm convinced that there are significant insights to be found in this book, but there are a lot issues in deciding which areas should receive this kind of treatment and which are better served by a natural rights approach.
I'm almost convinced that this approach is the way forward - what the author calls a "libertarian welfare state." The only issue I have is the general principle of applying Coase's theory about the reciprocity of social costs (how to settle a dispute between two potential roommates, where one smokes and the other doesn't want to live in a smokey apartment, for example) *everywhere*. So, instead of seeing the smoker as a perpetrator and the non-smoker as a victim, acknowledging that they need to find some solution - either the non-smoker subsidizing the smoker's rent in exchange for the smoker refraining from not smoking (this way the non-smoker doesn't have to put up with smoke, and the smoker enjoys lower rent), or agreeing to live apart.
I mean, he refers to the fact that governments also regulate behavior like murder, rape, and theft. Applying the idea of reciprocity to these areas seems really bizarre. Say I'm a murderer and I want to kill someone and I enter into negotiations with a potential target - Frank seems to think that we could solve this problem by calculating how much I would want to be paid to not kill them (to give up this action), versus how much they would pay not to be killed (to not have to suffer the consequences of my action), and trying to find some solution to this based on a willingness to pay basis, and which ever outcome produces the most efficient solution is accepted. And he asks us to believe there are no good guys or bad guys here, just two people whose preferences inconvenience each other. And then he keeps going on about how the idea of natural rights is kinda stupid and mostly irrelevant to the practical, day-to-day matters of running a government.
Maybe I am overgeneralizing his argument, but he seems to be saying that we can use Coase's theory to justify all kinds of taxes, like having a tax on consumption instead of on income, or a tax on the weight of vehicles, etc. Why not instead of having a punishment for committing murder, we could just have a tax on this behavior. After all, in a libertarian society, we don't want so many regulations, but maybe if we taxed it, that would still send the message that this kind of behavior is frowned upon...
But then some really rich guy might be willing to pay quite a bit in order to exercise this action...
Again, I'm convinced that there are significant insights to be found in this book, but there are a lot issues in deciding which areas should receive this kind of treatment and which are better served by a natural rights approach.
March 15, 2020
This book is an argument for a political/economic point of view. For that reason, I have to begin by saying that my point of view is anarchist libertarian. The purpose of this book is to convince people like me that a moderately liberal approach is the one to take in the early 21st century United States.
The author states that the libertarian point of view is based largely upon Adam Smith's "Wealth of Nations". That book is predicated on rational decision making. People don't make decisions rationally. An important aspect of the irrational behavior is the fact that rather than focus on utility of goods and services from an objective point of view, Americans focus on having goods and services that are better than what their neighbors have so that their children have a better shot of passing on their genes than do the neighbor's children. So, like barnacles and finches, the fittest humans will reproduce and survive, hence the "Darwin" in the Darwin economy.
Generally speaking, I agree with the author so far. Given this, we should travel down the road to serfdom following the path we find least objectionable. For this, the author borrows liberally from Ronald Coase, an economist from the University of Chicago, starting with the UC mindset and then making alterations, that solve some of the problems that that mindset turns a blind eye to.
I agree with some of these suggestions, but not many. If this sounds interesting to you, check it out. Otherwise, read something else.
The author states that the libertarian point of view is based largely upon Adam Smith's "Wealth of Nations". That book is predicated on rational decision making. People don't make decisions rationally. An important aspect of the irrational behavior is the fact that rather than focus on utility of goods and services from an objective point of view, Americans focus on having goods and services that are better than what their neighbors have so that their children have a better shot of passing on their genes than do the neighbor's children. So, like barnacles and finches, the fittest humans will reproduce and survive, hence the "Darwin" in the Darwin economy.
Generally speaking, I agree with the author so far. Given this, we should travel down the road to serfdom following the path we find least objectionable. For this, the author borrows liberally from Ronald Coase, an economist from the University of Chicago, starting with the UC mindset and then making alterations, that solve some of the problems that that mindset turns a blind eye to.
I agree with some of these suggestions, but not many. If this sounds interesting to you, check it out. Otherwise, read something else.
September 4, 2018
A smart an well planned assault on the libertarian perspective of Economics theory and theur public policy ideas.
There is a lot of fun thought experiments in this book...... Frank makes the case that libertarians (and let's be honest, Republicans) crusade on government and taxes makes little sense. It results in a society where we are all worse off.
His book is also a rallying cry for others to take up the fight to oppose these same ideas.
Overall I'd say it's my kind of book, even if I'm not really it's intended audience (the book is essentially written to address libertarians and their ideas, not necessarily for people who have already rejected those ideas).
Their are a few policy recommendations here and there. I'm all for pigouvian taxes (in fact I believe them to one of the more useful tools the government has for regulating bad behavior). I'm less on board with replacing the income tax with his proposed consumption tax*. I believe it might be more efficient, but disliked it's complexity. I feel that we could just clean up our income tax (that is simplify it) and we would be better off.
Overall this is a fun read. It's something I really wish I could had sent to myself 5-6 years ago during my libertarian days. That might have changed my perspective on Economics sooner.
*My other reason for opposition to his plan is because it would get in the way of my own plans for a basic minimum Income, which relies of a VAT for a lot of it's funding.
There is a lot of fun thought experiments in this book...... Frank makes the case that libertarians (and let's be honest, Republicans) crusade on government and taxes makes little sense. It results in a society where we are all worse off.
His book is also a rallying cry for others to take up the fight to oppose these same ideas.
Overall I'd say it's my kind of book, even if I'm not really it's intended audience (the book is essentially written to address libertarians and their ideas, not necessarily for people who have already rejected those ideas).
Their are a few policy recommendations here and there. I'm all for pigouvian taxes (in fact I believe them to one of the more useful tools the government has for regulating bad behavior). I'm less on board with replacing the income tax with his proposed consumption tax*. I believe it might be more efficient, but disliked it's complexity. I feel that we could just clean up our income tax (that is simplify it) and we would be better off.
Overall this is a fun read. It's something I really wish I could had sent to myself 5-6 years ago during my libertarian days. That might have changed my perspective on Economics sooner.
*My other reason for opposition to his plan is because it would get in the way of my own plans for a basic minimum Income, which relies of a VAT for a lot of it's funding.
December 9, 2019
Adam Smith noted that [the rich, in some cases,] "without knowing it, advance the interest of the society". This book focuses on a couple cases where society suffers instead. Namely, the "winner take all" and the "positional good" cases. In such cases, an individual rational decision can result in a negative societal outcome (e.g. overspending on weapons since only the biggest military wins the war). The book has nothing at all to do with Darwin's theory except that "winner take all" transactions exist in evolution as they do in economics along with cooperative transactions conveniently ignored by this book. The Darwin reference lends these well studied economic concepts a facade of originality. Sadly, this book is no where near as good as other popular books on market failure such as "Misbehaving" and "Thinking Fast and Slow". The book reads like a dinner table argument. Overbroad generalizations, repetition, assertions without evidence and derision abound. While it is possible to argue the benefit of some regulations and taxes based on the economics of positional goods, this book just assumes its way from a helmet requirement for hockey players to the benefit of exempting all savings and investment from income tax. But, this massive decrease in tax base and progressiveness is okay because we are going to call it a consumption tax now. After the tax absurdity of chapter five, I stopped reading and started looking for better resources on this topic. Any suggestions would be appreciated.
September 15, 2018
I think the author falls into one of the biggest reasons Libertarians don’t want government regulation, he makes broad assumptions as to what people want. Not everyone cares about better school districts, nor does everyone use that as a sole reason to move. Lots of people with no kids move into areas that are known to have poor schools, hardly surprising. The individual is the best one to determine their own individual cost benefit analysis.
As some other reviewers have mentioned, the author uses thin analogies to Darwin and does a poor job explaining how they support his open disdain for libertarian and conservative views.
The other thing the author totally ignores is the scale of government. He argues that Libertarians should accept government as a part of life in a society, but ignores the fact that Libertarians generally accept some level of government, but at the most local level possible. That is where a lot of political argument is today, which level of government should handle and collect taxes for which issues.
I generally will finish books even if I am totally bored and disagree with them, mainly to expose myself to diverse views, it took a while to get through this one and now hat I’ve finished it quickly made it way to the garbage.
As some other reviewers have mentioned, the author uses thin analogies to Darwin and does a poor job explaining how they support his open disdain for libertarian and conservative views.
The other thing the author totally ignores is the scale of government. He argues that Libertarians should accept government as a part of life in a society, but ignores the fact that Libertarians generally accept some level of government, but at the most local level possible. That is where a lot of political argument is today, which level of government should handle and collect taxes for which issues.
I generally will finish books even if I am totally bored and disagree with them, mainly to expose myself to diverse views, it took a while to get through this one and now hat I’ve finished it quickly made it way to the garbage.
November 29, 2017
This book is as important as Capitalism in the 21st century if not more. While Capitalism in the 21st century is mostly an imperial finding about the distribution of wealth, this book has the full package. It's main theoretical underpinning is the superiority of evolutionary thinking about competition to the smith-style economic thinking "the invisible hand". It is well known that smith's idea that free self-interested agent interaction maximizes the social welfare (in the game-theoretic understanding of the terms). What the book establish convincingly is that libertarians should not oppose wealth transfer in many cases nor should they try to minimize governmental intervention in the economy in many cases but should struggle to make sure that these intervention and that transfer are well designed. I will make a much richer review of this book after the second or may be third read.
July 10, 2017
If I had to pick a research field, it would be complex economics. The human component in economics is as relevant as it is misunderstood. ("markets, which are human creations thus are not absolute"). Perfect decision making and the concept of the homo oeconomicus are overcome now, though they still remain ingrained in some ways, and much much more research has to be done. Drawing from Darwin and Smith, the theory that emerges is that personal and group interests can conflict and this is where government has to enter into the play (see also: Coase). Problem is that “The stranglehold of antitax, antigovernment rhetoric on American political discourse has made it difficult to discuss [infrastructure] investments.”
January 23, 2023
While this is an interesting analogy between Darwin's Natural Selection and the workings of the free market, Professor Frank doesn't really provide much in the line of real evidence for his theory. It would be nice, I suppose, to think that government could tax and spend to resolve climate change and other significant issues. However, when one looks at the record of what is put in those spending bills, it really doesn't demonstrate that capability.
To implement the kind of economy Professor Frank would like to see, we need a government without politicians who spend to get re-elected. While it is safe to go after what he sees as a "small number" of anti-tax libertarians, elections tend to show that people don't really believe government will spend in ways that benefit us all.
To implement the kind of economy Professor Frank would like to see, we need a government without politicians who spend to get re-elected. While it is safe to go after what he sees as a "small number" of anti-tax libertarians, elections tend to show that people don't really believe government will spend in ways that benefit us all.
February 1, 2020
I was mislead: the book is not about Darwin or even about evolutionary economics - and for two reasons. First, as a glance at the index indicates, the references to Darwin and evolution are very front-loaded, appearing in the first few tens of pages - the content is not thoroughly underpinned by what the book advertises as fundamental. Second, and much more important, the references that are there are simply misguided. Surely, it might be possible to make a powerful analogy between the way that competition in economics in fact resembles Darwinian evolution - but the case would have to be a great deal more sophisticated than anything in this book. For example: what is the genotype, and how does selection lead to differential reproductive success (indeed, what is "reproduction)? These, and other, questions could probably be answered with references to something like memetics - with reproduction being the copying (with variation) of innovations between economic actors and the differential survival of otherwise persistent actors that change their behaviours (rather than new actors that somehow inherit successful strategies). However, much easier, simpler, and better, would be to notice what others have noticed before (and something that in some sense underpins Darwinian evolution - which is perhaps why this books makes its Darwinian mistake) - that very simple game-theoretic considerations rudely contradict a purely individualistic account of competition. In a nutshell: what is best for two (collectively) is very often not best for each of the two individually - and that much comes from something as simple as the "prisoner's dilemma". Frank's early example (to wear or not wear hats when playing hockey) is easy to model game-theoretically in a similar fashion - no Darwinian account is needed at all.
The book, really, concerns some interesting ideas about tax, and how taxation can be used to create circumstances in which the common good (which is also optimal for the individuals that comprise that commons) are encouraged in contrast to sub-optimal solutions (collectively and individually) that would arise from separate assessments by the individuals. Even traffic lights at an otherwise dangerous junction are an example of a simple "tax" (on time) that ensures better outcomes for all that would not arise in their absence (the Nash equilibria otherwise involve drivers effectively incurring an infinite "tax" by waiting forever ... just in case - in practice, presumably, being very very tentative and incurring a high "tax") .
A good deal of what is argued is based on Coase's analysis of conflicts between parties involving harm and - assuming zero transaction costs - how the parties should always be able to resolve their own problems optimally without regulation. There is no question that there is a great deal to think about here and, despite feeling a little cheated by the title, I enjoyed the book - including the arguments in favour of a progressive consumption tax against taxes on income (the word "progressive" is absolutely vital here, to his argument).
Nevertheless, I ended up feeling quite suspicious of everything that sounded to me well argued: if the author can made such a dreadful mistake over Darwinism, can I really trust his arguments elsewhere? Not being an economist, I found the analyses that are based on the neo-classical habit of identifying price with value quite tough to swallow anyway - but I got used to that.
On the other hand, there are other statements and arguments that just seem wrong. His statements about market failures being - for liberals - matters of bad-faith actors, is clearly not correct: for most folks who are not free-market ideologues, even more important are (intrinsic) failures arising from externalities - whether present and negative or missing and positive - if something makes a profit it will be done whether or not there are negative externalities and, if it doesn't make a profit, it will not be done even if there are positive externalities.
The other examples he discusses that had my brow furrowed were the discussions about solving issues over interracial hand-holding using Coase's analysis. His conclusion that time dependent change of attitudes saves the day seems quite beside the point (p. 97). But there is something deeper wrong surely? Here we are negotiating between the value "price" (yuk!) placed on the activity by the hand-holders and the value of those who are offended. I think only someone who treats the value/price equivalence as entirely transparent could fail to see the moral dubiousness of this. And, am I making a schoolboy error in a subject I don't have any real expertise in or ... isn't the offended party just creating (their) "value" out of thin air?! The asymmetry here concerns free versus restricted expression - but dealing with this symmetrically (when the restrictive party creates their own value) seems to me to destroy the argument completely.
(Perhaps even more worrying is William Nordhaus and his Nobel who has described a 4 degree rise in the climate as "optimal" - which is clearly descriptive of his (faulty) model, based on similar notions of value, including nonsensical notions of future value/price discounting - which as anyone who understands even a little game theory knows, is a trick to get certain kinds of games to "work out" mathematically - i.e. has nothing to do with reality).
In the end I am glad I read this book because it really made me think hard. There may be some good ideas in it - but there are also some dodgy arguments - especially the one arising from the title itself.
The book, really, concerns some interesting ideas about tax, and how taxation can be used to create circumstances in which the common good (which is also optimal for the individuals that comprise that commons) are encouraged in contrast to sub-optimal solutions (collectively and individually) that would arise from separate assessments by the individuals. Even traffic lights at an otherwise dangerous junction are an example of a simple "tax" (on time) that ensures better outcomes for all that would not arise in their absence (the Nash equilibria otherwise involve drivers effectively incurring an infinite "tax" by waiting forever ... just in case - in practice, presumably, being very very tentative and incurring a high "tax") .
A good deal of what is argued is based on Coase's analysis of conflicts between parties involving harm and - assuming zero transaction costs - how the parties should always be able to resolve their own problems optimally without regulation. There is no question that there is a great deal to think about here and, despite feeling a little cheated by the title, I enjoyed the book - including the arguments in favour of a progressive consumption tax against taxes on income (the word "progressive" is absolutely vital here, to his argument).
Nevertheless, I ended up feeling quite suspicious of everything that sounded to me well argued: if the author can made such a dreadful mistake over Darwinism, can I really trust his arguments elsewhere? Not being an economist, I found the analyses that are based on the neo-classical habit of identifying price with value quite tough to swallow anyway - but I got used to that.
On the other hand, there are other statements and arguments that just seem wrong. His statements about market failures being - for liberals - matters of bad-faith actors, is clearly not correct: for most folks who are not free-market ideologues, even more important are (intrinsic) failures arising from externalities - whether present and negative or missing and positive - if something makes a profit it will be done whether or not there are negative externalities and, if it doesn't make a profit, it will not be done even if there are positive externalities.
The other examples he discusses that had my brow furrowed were the discussions about solving issues over interracial hand-holding using Coase's analysis. His conclusion that time dependent change of attitudes saves the day seems quite beside the point (p. 97). But there is something deeper wrong surely? Here we are negotiating between the value "price" (yuk!) placed on the activity by the hand-holders and the value of those who are offended. I think only someone who treats the value/price equivalence as entirely transparent could fail to see the moral dubiousness of this. And, am I making a schoolboy error in a subject I don't have any real expertise in or ... isn't the offended party just creating (their) "value" out of thin air?! The asymmetry here concerns free versus restricted expression - but dealing with this symmetrically (when the restrictive party creates their own value) seems to me to destroy the argument completely.
(Perhaps even more worrying is William Nordhaus and his Nobel who has described a 4 degree rise in the climate as "optimal" - which is clearly descriptive of his (faulty) model, based on similar notions of value, including nonsensical notions of future value/price discounting - which as anyone who understands even a little game theory knows, is a trick to get certain kinds of games to "work out" mathematically - i.e. has nothing to do with reality).
In the end I am glad I read this book because it really made me think hard. There may be some good ideas in it - but there are also some dodgy arguments - especially the one arising from the title itself.
December 29, 2022
Misguided conclusion and questionable reasoning.
Only real „insight“ that performance in a economy is relative to others … which even that is questionable because if not relative then what else? There is no objective „ total „ other then that.
Also the Author is clearly following a preset (political) outlook therefore heavily falls victim to multiple biases.
Only real „insight“ that performance in a economy is relative to others … which even that is questionable because if not relative then what else? There is no objective „ total „ other then that.
Also the Author is clearly following a preset (political) outlook therefore heavily falls victim to multiple biases.
October 22, 2017
Using the concept of "performance or quality being measured on the curve rather than absolute" to convince a libertarian how it is in his own best interest, and how it doesn't diminish his autonomy to support progressive taxation and a welfare state.
September 20, 2022
One of my favorite books. Re-reading it was a very different experience from when I first read it. I was surprised by the different takeaways I had this time. The concept of relative positioning in society and economics is a powerful idea that may have merit in overcoming obstacles.
November 4, 2022
Beetje in mispakt qua onderwerp. Ging over liberalen en hun zicht op economie en samenleving, met name belastingen. Waarschijnlijk wel een goed boek voor iemand die effectief van plan was zoiets te lezen.
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