Category: Economics

Voting, cheering, and exploitation

In his little book ‘Game Theory: A Very Short Introduction‘ Ken Binmore writes:

Real people seldom think rational thoughts about whether to vote or not. Even if they did, they might feel that going to the polling booth is a pleasure rather than a pain. But…the pundits who denounce the large minority of people who fail to vote in presidential elections as irrational are talking through their hats. If we want more people to vote, we need to move to a more decentralized system in which every vote really does count enough to outweigh the lack of enthusiasm for voting which so many people obviously feel. If we can’t persuade such folk that they like to vote and we don’t want to change our political system, we will just have to put up with their staying at home on election night. Simply repeating the slogan that ‘every vote counts’ isn’t ever going to work, because it isn’t true.

Later in the book Binmore returns to this topic when he discusses the “myth of the wasted vote”:

If a wasted vote is one that doesn’t affect the outcome of an election, then the only time that your vote can count is when only one vote separates the winner and the runner-up. If they are separated by two or more votes, then a change in your vote would make no difference at all to who is elected. However, an election for a seat in a national assembly is almost never settled by a margin of only one vote….Naive folk imagine that to accept this argument is to precipitate the downfall of democracy. We are therefore told that you are wrong to count only the effect of your vote alone – you should instead count the total number of votes cast by all those people who think and feel as you think and feel, and hence will vote as you vote…This argument is faulty for the same reason that the twins fallacy fails in the Prisoner’s Dilemma . There may be large numbers of people who think and feel like you, but their decisions on whether to go out and vote won’t change if you stay home and watch the television.

Faced with the criticism that game theorists who openly disseminate such observations lack “public spirit” he responds by drawing an analogy between voting and cheering at a football game.

“No single voice can make an appreciable difference to how much noise is being made when a crowd of people is cheering. But nobody cheers at a football game because they want to increase the general noise level. They shout words of wisdom  and advice at their team even when they are at home in front of a television set. The same goes for voting. You are kidding yourself if you vote because your vote has a significant chance of being pivotal. But it makes perfectly good sense to vote for the same reason that football fans yell advice at their teams.”

Whether this analogy is accurate or not, it is doubtful that such explanations of voting can salvage the idea that participation in an election is a meaningful public activity, let alone a civic duty. A recent Reason article, ‘Your Vote Doesn’t Count,’ is a good survey of this topic and the desperate attempts to rehabilitate the case for voting. With the exception of economist Gordon Tullock, few scholars are known for publicly admitting to the futility of voting, let alone admitting to not voting themselves.

One explanation why people vote is that many do not explicitly recognize that they are no longer deciding an issue in a small hunter gatherer tribe. The fact that the scale of our decision making has changed substantially throughout the history of mankind is increasingly being discussed though. For example,  one presentation at the 2012 Ancestral Health Symposium reads as follows:

Richard Nikoley, B.S. – Paleo Epistemology and Sociology

Primitive peoples evolved to account for the values and actions of a relatively small tribe of family and close acquaintances comprising of 30-60 members whereby, every individual had a critical role and opportunity to influence the behavior and actions of the group or tribe as a whole. This is far removed from the unhealthy social trends in modern society where individuals are fooled into believing that they have real power at the voting booth and other activism when in reality, their influence is insignificant and pales in comparison to the social power a primitive hunter-gatherer would have wielded.

A more sophisticated argument about conditions under which which it would be rational to vote was recently expressed by the social philosopher Anthony de Jasay in a 2011 interview:

It is in fact widely held that because millions vote, no voter can rationally expect to influence the result. Millions nevertheless keep on voting, which looks a bit strange. Many parapsychological stories have been written to explain why they do so. I am not sure that we need them. In a well-oiled democracy, the perfect election result yields a wafer-thin majority because that outcome maximizes the size of the losing coalition ready to be exploited and minimizes the size of the winning coalition whose members share the spoils. This idea, of course, is the well-known median voter theorem. When the majority is literally wafer thin, the displacement of a single vote turns the majority into a minority, and vice versa. Thus, the perfectly oiled democratic mechanism produces outcomes with a majority of one vote; a single vote is decisive; and, hence, the voter is quite rational to cast it. In a less perfectly oiled democracy, where the majority is thicker than a wafer, the probability of a single vote’s being decisive is less than unity (the median voter theorem does not quite hold), but it need not be negligible. Because voting is not very costly, to affirm that it is irrational to vote is much too strong a claim.

Jasay’s explanation why people vote, or under which conditions it would be rational to vote, deserves closer scrutiny because it aims to do more than coming up with a “feel-good” story about voting. What Jasay is saying here is that in elections that are purely distributive in nature, it can be rational to vote. Real-world elections, however, do not take place in such “well-oiled” democracies and virtually all large elections are decided by majorities much thicker than a wafer.

The problem with Jasay’s argument about the rationality of voting is not just that it has little relevance for actual existing democracies but it also raises questions about whether such a cynical form of democracy could be viable at all. Although most people recognize the redistributive component in politics, it is doubtful that a democracy in which politicians operate without any illusion about serving the general interest could persist. Just like it is doubtful whether voting would survive widespread recognition that it is just another form of cheering (or signalling), it is also doubtful that a democracy that would function in the way that Jasay describes it would be able to secure stable compliance, especially from its victims.

Public choice scholars often praise themselves as doing politics without romance by stripping the political process of all its lofty rhetoric and just analyzing it in terms of interest. But if people would actually recognize public institutions solely as vehicles to form coalitions to exploit others, the resulting governments would have little resemblance to the Western governments scholars and philosophers currently analyze. In other words, it may be a mistake to assume a distinctly different view of human nature and social interaction but keep political institutions unchanged.

While economists sometimes recognize the futility of voting in technical works, Bryan Caplan has been one of the few scholars who has developed this fact (and its implications for public policy) into a general theory about the microfoundations of political failure. In two excellent blog entries for EconLog he further reflects on the illusion of choice in American elections and how politics discourages self-correction (as opposed to markets).

15 book recommendations

One of the best ways to communicate the general outlook of a website is to recommend a set of books that embody its perspectives on a variety of topics. Since its inception the outlook of this website has undergone some changes but there are a number of core interests that have remained the same: empiricism, non-cognitivism in ethics, an interest in (Hobbesian) contractarianism, philosophical anarchism, sociobiology, and a critical perspective on (electoral) politics. The following books reflect these topics and can command the recommendation of the writer of this website.

1. Hans Reichenbach – The Rise of Scientific Philosophy

Hans Reichenbach was one of the greatest 20th century empiricist philosophers and his brand of empiricism is distinguished by a greater emphasis on the probabilistic nature of knowledge and pragmatism. A more rigorous statement of his views can be found in his seminal scholarly work Experience and Prediction: An Analysis of the Foundations and the Structure of Knowledge.

2. Nassim N. Taleb – Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Nassim N. Taleb is mostly known for his writings on Black Swan events, but of broader interest is his general skeptical outlook. In Fooled by Randomness Taleb documents how poorly we are equipped to deal with the probabilistic nature of the world and how our thirst for certainty and our tendency to see patterns everywhere leads us astray.

3. Edward Osborne Wilson – Consilience: The Unity of Knowledge

Edward Osborne Wilson is the godfather of sociobiology and in this work (review here) he aims to bridge the gap between the biological and social sciences and seeks to resuscitate a project held dear by the early logical empiricists; the unification of science. Wilson is not trained in philosophy or philosophy of science but this “disadvantage” is mostly offset by his sane outlook on human nature.

4. Paul H. Rubin – Darwinian Politics: The Evolutionary Origin of Freedom

‘Ought’ implies ‘can’ and Paul Rubin’s excellent book Darwinian Politics treats the topic of what we can reasonably expect in political and economic affairs based on our knowledge of human evolutionary biology.  Humans are poorly equipped to recognize the non-zero sum nature of capitalism and the futile nature of (electoral) politics.

5. Gregory Cochran and Henry Harpending – The 10,000 Year Explosion: How Civilization Accelerated Human Evolution

In this book (review here) Gregory Cochran & Henry Harpending drive another nail in the coffin of the idea that modern humans have not undergone meaningful genetic change. There is no reason to expect a “psychic unity of mankind” and social scientists who still embrace such notions do so at the cost of understanding human nature and human biodiversity. Also recommended is Nicholas Wade’s Before the Dawn: Recovering the Lost History of Our Ancestors (review here) who treats the deep history of humanity from a similar perspective.

6. L.A. Rollins – The Myth of Natural Rights and Other Essays

L.A. Rollins’ devastating critique of natural rights exposes the careless reasoning that has been employed by libertarians who argue that people have “rights” prior to any agreement or contract. As such, The Myth of Natural Rights (review here) is a sad reminder of how much time and effort libertarians (and conservatives) have wasted by arguing for nonsensical positions.

7. David Gauthier – Morals By Agreement

In what may constitute the most rigorous work in moral philosophy to date, David Gauthier uses decision- and game theory to develop a Hobbesian account of moral contractarianism. To prevent appeals to intuition and circular reasoning, Gauthier seeks to derive morality from a minimalist (instrumental) conception of rationality and shows how self-interested individuals seeking mutual advantage will accept moral constraints on their conduct.

8. Jan Narveson – The Libertarian Idea

Jan Narveson takes Occam’s razor to David Gauthier’s  moral contractarianism and aims to show that a general agreement to respect each other’s (negative) liberty is the only kind of agreement that can command general endorsement. Such an agreement excludes coercive income redistribution and raises questions about the legitimacy of government itself. This work presents the best introduction to libertarian philosophy that neither pursues natural rights nor utilitarianism.

9. Anthony de Jasay – Against Politics: On Government, Anarchy and Order

Anthony de Jasay is the most important social philosopher of our time and all his writings are highly recommended. Against Politics is a collection of essays on a variety of topics such as political contractarianism, constitutionalism, income redistribution, and the economics of ordered anarchy. One of the great virtues of Jasay’s writings is his ability to reconcile academic rigor and common sense.

10. Bryan Caplan – The Myth of the Rational Voter: Why Democracies Choose Bad Policies

In The Myth of the Rational Voter economist Bryan Caplan employs economic reasoning and empirical evidence to explain why democracy leads to poor public policy. The average voter has a strong incentive to be rationally irrational about politics and the economic ignorance of elected politicians is evidence of this. This book provides no less than the microfoundations of political failure. Also recommended is Randall Holcombe’s From Liberty to Democracy: The Transformation of American Government. Holcombe uses a public choice perspective to show how the rise of democracy leads to a decline of liberty.

11. David Friedman – The Machinery of Freedom: A Guide to a Radical Capitalism

David Friedman’s The Machinery of Freedom is a fine example of modern anarcho-capitalism. This informally written book presents classic economic arguments to argue that the market does not just excel in the production of ordinary consumer goods but that the market should be expected to excel in providing justice, police, and defense as well. David Friedman’s article A Positive Account of Property Rights is highly recommended, too.

12. Edward Stringham (ed.) – Anarchy and the Law: The Political Economy of Choice

Anarchy and the Law: The Political Economy of Choice is an ambitious collection of classic articles on anarcho-capitalism, public goods, polycentric law, and criticism of minimal government.

13. Gregory Clark – A Farewell to Alms: A Brief Economic History of the World

Gregory Clark’s book A Farewell to Alms: A Brief Economic History of the World is a Darwinian perspective on the rise of modern capitalism and the persistence of economic inequality between nations. The industrial revolution and rising living standards in the West are not explained by favorable geography or institutions but by natural selection (“survival of the richest”). An interview with Gregory Clark about his work is available here.

14. George A. Selgin – Less Than Zero: The Case for a Falling Price Level in a Growing Economy

George Selgin is one of the most interesting economists working in the classical liberal tradition and his small book Less than Zero (PDF) outlines the case for a productivity norm that permits prices to respond to rising productivity or negative supply shocks as a superior alternative to zero-inflation or positive-inflation norms. Selgin’s discussion of  monetary disequilibrium and nominal income targeting has also contributed to the rise of market monetarism. His treatment of free banking can be found in another great work,  The Theory of Free Banking: Money Supply under Competitive Note Issue.

15. Steven Pinker – The Better Angels of Our Nature: Why Violence Has Declined

One of the most ambitious contributions to social science ever written. Pinker makes a persuasive case that the rise of commerce, classical liberalism, and secular reason have greatly contributed to the decline in violence. Among the weaker points in the book are his treatment of the feasibility of ordered anarchy and his rather blasé attitude towards the violence and coercion that is associated with the normal operation of government. An extensive review essay of this book by this author is available here.

Richard von Mises: Positivism – A Study in Human Understanding

Unlike his rationalist brother Ludwig von Mises, Richard von Mises had strong empiricist leanings, which found expression in hisfrequency interpretation of probability and his qualified endorsement of logical positivism (or logical empiricism).  His Kleines Lehrbuch des Positivismus was published in 1939 and translated and revised in English in 1956 as  Positivism: A Study in Human Understanding and carried the following subtitle, “How the aims and attitudes of science apply to all the intellectual endeavors of mankind – whether in science, the arts, or ethics.” Sadly, the last edition of the book was published in 1968 and has long been out of print, a fate which sets him apart from other major 20th century empiricists such as Rudolf Carnap, Hans Reichenbach, and Alfred J. Ayer, whose major expositions of their views are still in print. The preface of the English edition of Positivism closes with a remembrance of Otto Neurath, one of the co-authors of the original Vienna Circle statement, The Scientific Conception of the World: The Vienna Circle, and one of the most passionate advocates of empiricism and the unity of the sciences.

Contrary to popular opinion, 20th century empiricism was not a rigid set of beliefs, and many of the original logical empiricists kept revising their views in response to the reception of their work and further investigations. What united the original logical positivists was an unwavering commitment to empiricism and a firm rejection of dualism in the scientific method. In a sense, one could argue that many of the core beliefs of the Vienna Circle have become so accepted among many scientific practitioners that there is no longer a need to argue for them. On the other hand, the worldviews of public opinion makers and public officials are still largely shaped by modes of thought and superstitions that have remained fairly immune to the rise of  the experimental method and the rejection of metaphysics. In the case of politics, there is little reason to be surprised about this, because politics encourages irrational thinking, conformism, and atavism. Interestingly, Richard von Mises also offers his views on economic methodology and political economy and it will be rewarding to return to these views at the end of this review.

Positivism starts with a discussion of language. According to von Mises, many philosophical mistakes reflect misunderstandings about the function and limitations of language. He writes, “many problems of school philosophy are of this type: expressions, referring in ordinary language to a very vague and varying content of experience, are supposed to have some “objective” meaning and then attempts are made to “disclose” this meaning by kind of a definition.” For example, there is no God-given definition of the word “rationality.” But when a group of academics (such as economists) converge on the use of the word, it is a misunderstanding of the function of language to insist on a different definition of the word because its current use is “wrong.” Of course, when science evolves there is often a recognition that the original  language is too crude and finer distinctions are being introduced to replace the older vocabulary. One of the defining characteristics of positivist philosophy is clarification of the use and abuse of language.

Like most authors in the positivist tradition, von Mises is interested in the question of what distinguishes true, false, and meaningless statements. He rejects the idea (which he attributes to Rudolf Carnap) that statements that do not satisfy the rules of logical grammar should be considered “meaningless” because it is not “possible to anticipate the rules of language in any exhaustive manner before knowing the sentences that will have to be tested by them in order to decide their admissibility or inadmissibility.” As an alternative, von Mises proposes the concept of “connectibility.”  A sentence is connectible if  it is compatible with a system of statements that regulate the use of language in that system. The statements of metaphysics, at best, only connect to each other in a very narrow range (they do not connect to the rules of formal logic, the natural sciences, ordinary language, etc.) and are of little practical use. Using this concept of connectibility makes it possibles to characterize the movement for a “unified science” in terms of connectibility of all scientific statements. Positivism concerns itself largely with the exposition of the concept of connectibility.

Von Mises then devotes two chapters to Mach’s elements and protocol sentences. Despite his own admission that “it is utopic to think that, starting from a given complex of element sentences, one could, by carefully following all the syntactic rules, arrive at an “encyclopedia of the sciences” which could command a validity of higher rank than that possessed by any of the existing  individual sciences” he seems quite occupied with identifying the nature and structure of such element sentences. Instead of looking for such an Archimedean point it might be more practical to decide in favor of the language of the sciences that have been successful in understanding and predicting the observable world. Statements of chemistry can be reduced to statements in physics, statements in biology can be reduced to statements in (bio)chemistry, statements about behavior and psychology can be reduced to statements in biology etc. The remaining (social) sciences contain either statements that are of little descriptive or predictive value, or contain statements that have been successful in understanding and predicting human behavior but still cannot be connected to the statements of the exact sciences. The use of game theory in both the biological and economical sciences is a good example of an attempt to bridge that gap. As von Mises himself notes, “All we can attempt to do is by analysis and continuous criticism of linguistic usage to further the connectibility.”

In the chapter about probability, von Mises introduces his frequency interpretation of probability and distinguishes it from the use of probability in ordinary language and alternative conceptions of probability (subjective probability, logical probability). In this chapter, von Mises is quite insistent upon the view that an exact theory of probability can only refer to mass phenomena and repetitive events. It does not make sense to use the probability calculus for future unique events or single cases probabilities. He takes issue with attempts of logical empiricists like Hans Reichenbach and Rudolf Carnap to apply probability far beyond its range of validity. Considering the generally hostile attitude of Austrian economists towards positivism and empiricism, it is interesting to note that prominent Austrian economists who work in the Misesean tradition have endorsed Richard von Mises’ strict frequency interpretation of probability. In an article called The Correct Theory of Probability Murray Rothbard writes:

“While probability theory is generally thought of as a branch of mathematics, its foundations are purely philosophic, and Richard von Mises, in his great work Probability, Statistics, and Truth, developed the correct, objective, or “frequency” theory of probability….if one holds to the objective Mises theory, it is unscientific and illegitimate to apply probability theory to any situations where the events (like the tossing of a die) are not strictly homogenous, and repeated a large number of times. And since, outside of die tossing or roulette, all the events of human action, economic or political or in daily life are clearly not homogeneous and therefore not repeatable, the Mises view demonstrates that all use of probability theory in social science is illegitimate.”

Along the same lines, Hans-Hermann Hoppe writes approvingly that for Ludwig von Mises “there is no such thing as a priori probability. Nor is there such a thing as the probability of a singular event. Probability statements refer to “objective” probabilities of collectives (classes). They are based on empirical observations. And they are corrigible by such observations.” Whether the positions of Mises, Rothbard and Hoppe constitute a partial endorsement of positivism in case of the probability is a complicated matter because it is not unambiguously clear what the proper empiricist interpretation of probability should be, and in this chapter Richard von Mises is too partial to his own views (and too dismissive of the works of other empiricists) to offer a more systematic treatment of the question of the relationship between probability and his general positivist outlook.

In the chapters about deterministic physics, statistical physics, and miracles von Mises argues quite persuasively that positivism should not be identified with a set of dogmatic prohibitions or should rule out certain observations about reality when they do not conform with materialism or a deterministic outlook. What we should require from extraordinary statements (or miracles) is that they are subjected to the same kind of scientific investigation and corroboration as we expect from other claims to knowledge. This approach harks back to von Mises’s concept of “connectibility.” His open mindedness in this chapter is reminiscent of a statement by Rudolf Carnap in his seminal article Empiricism, Semantics, and Ontology (1950):

The acceptance or rejection of abstract linguistic forms, just as the acceptance or rejection of any other linguistic forms in any branch of science, will finally be decided by their efficiency as instruments, the ratio of the results achieved to the amount and complexity of the efforts required. To decree dogmatic prohibitions of certain linguistic forms instead of testing them by their success or failure in practical use, is worse than futile; it is positively harmful because it may obstruct scientific progress.

Perhaps the most interesting chapters in Positivism deal with his positivist outlook on the social sciences and ethics. Von Mises rejects methodological dualism; the idea that the approach and methods that are used in the physical sciences are inappropriate for the sciences that study man: “We find in all fields  a progression from single observations to comprehensive generalization which corresponds to the essence of scientific work…”.  As other logical  positivists writing in the same period, von Mises recognized that one day human action could be analyzed and explained by “organic processes,” but the rather premature state of fields like neuroscience in his age prevented von Mises from stating his position much more strongly than is possible now.

Today, when we compare the progress in fields that study man from a biological perspective with fields that claim a unique approach for the humanities,  it is clear that the case for dualism has further weakened. Humans are not exempt from the laws of physics and disciplines that recognize that fact clearly such as biochemistry, evolutionary biology, and neuroscience, have made significant progress in understanding man. Von Mises notes that progress in the study of man is slower because of “retardations due to organized prejudices.” In many places in the world (including the United States) evolution is still widely contested and it is only quite recently that scholars who approach human psychology from an evolutionary perspective are no longer meeting major obstacles to disseminating their work.

Richard von Mises has a distinctly different perspective on social science and economics than his brother Ludwig von Mises.  He has little patience for the idea that economic theories are not subject to empirical testing: “mental reconstructions of observed facts must be tested to determine how far their consequences agree with continued observations.” Similarly, he does not reject the use of mathematics in economics and actually credits mathematical economics for offering “promising starting points for a rational treatment of economic problems.” In particular, von Mises praises John von Neumann and O. Morgenstern for introducing strategic behavior and expectations into economic theory. New Classical economists like Robert Lucas, Jr., later recognized that expectations cannot be ignored in macroeconomics either.

Von Mises closes his book with a number of chapters on morals, law, and religion. Not surprisingly, von Mises states that “…in spite of centuries of endeavor  one has so far not been successful in demonstrating any substantial ethical theorems that would enjoy unanimous recognition; and there is no hope that the goal of a “normative” ethic will be reached in in the future.” He argues against the idea that reason can discover objective normative rules and highlights the conventional and pragmatic nature of morals.  There is little in these chapters that could not have been written by contemporary authors. He ends his book by situating his perspective in the broader empiricist tradition and with a succinct summary of his own perspective.

It is fair to say that this book cannot compare with the rigorous writings of scholars like Rudolf Carnap or Hans Reichenbach, but it is doubtful that he aimed at such a work. His book is basically a plea for the scientific view of the world and how this approach applies to various topics. As such, his basic outlook on knowledge deserves study and recognition.

Richard von Mises has now been largely forgotten as a writer about knowledge but his general outlook is still alive. For example, despite the fact that the writings of his brother have seen multiple editions and reprints, there is a broad consensus that economics, or any social science, should be conducted as an empirical science. On matters of morality, serious scholars have become more interested in the evolutionary, psychological and social sources of moral conduct than the futile search for categorical imperatives. Most of all, much progress has been made in connecting the physical sciences and the humanities through modern evolutionary biology. In this sense, Richard’s perspective has clearly prevailed, albeit not to the degree that he would have preferred.

Darwinian Politics

Paul H. Rubin’s Darwinian Politics: The Evolutionary Origin of Freedom is a fine introduction to the sociobiology of politics. Rubin is a self-identified libertarian but he makes a serious attempt to avoid dogmatism and consider evidence that points in the opposite direction. For example, on the issue of personal freedom his research forced him to qualify his views about government regulation of personal behavior. In most other aspects, he believes that knowledge of evolutionary psychology can help us in recognizing irrational and wealth-destroying ancestral thinking and conduct. To what extent such recognition can alter our behavior is not a topic he discusses in much detail. In some cases, he seems to be of the opinion that there are general human traits that are so “hardwired” that it would be futile for politicians to go against them, but in other cases he seems to lament the persistence of other hardwired human traits in our modern society. I suspect that, ultimately, where one locates oneself in such debates is itself influenced by ideology, which presents some non-trivial challenges in drawing normative conclusions from sociobiology.

The main thesis of the book is that humans have spent most of their existence in small groups of hunter gatherers and our thinking and conduct concerning economical and political matters is greatly shaped (and constrained) by this.  Most of the chapters are aimed at working out the implications of this for various issues, ranging from conflicts between groups to the politics of envy.

Rubin is not a friend of social contract / state of nature theorizing. He not only believes that contractarianism provides little guidance about the State and politics in the real world, but that the social contract metaphor itself is harmful because it suggests that humans have more freedom in choosing the rules and institutions of their society than they actually have (and can have). He draws an interesting analogy to this view and the Standard Social Science Model (and its political offspring, Marxism) in which human psychology is basically a blank slate. He writes, “if real policies are based on false constructions, then real suffering may ensue.”

One of the strongest sections in the book is where Rubin explains why evolution is not incompatible with individual or group differences. His argument draws upon evolutionary game theory in demonstrating why we would expect individuals who employ different “strategies” to be present in varying proportions in the population, including a small proportion of sociopaths. It would be reasonable to conclude from this that different character traits give rise to different kinds of political beliefs, and that we should expect a permanent “war” between these various types of people. Rubin, however, does not pursue this line of thought and focuses on how general evolved human traits may conflict with rational decision making and welfare maximization.

He devotes a whole chapter to group conflict and this chapter is by far the least exciting because he rather uncritically adopts the outlook of progressive economists.  Rubin puts a lot of emphasis on the observation that individuals can be part of, and can identify with, all kinds of groups. There is little discussion, however, of the degree to which this behavior persists in decision making about personal and political matters. The author is correct that prejudiced consumers and producers decrease the economic gains available to them but he does not discuss cases where “discrimination” can contribute to economic welfare or safety. He also seems to treat the Western economy as a given and does not consider the possibility that (rapid) demographic changes can alter the popularity and functioning of a free market itself. This individualist position should be well known to libertarians (especially of the Objectivist variety) but the question of how a society of (secular) individualists should deal with internal and external threats of more collectivist groups of people is ignored in this context. He is a staunch opponent of affirmative action, however, because it strengthens ethnic identity politics and is extremely dangerous.

In the chapter on altruism, cooperation, and sharing I feel that the evolutionary perspective runs into limits. To some people, evolutionary psychology is just a bunch of just-so stories that allows for the (permanent) co-existence of competing theories and normative conclusions. Rubin thinks that a roughly utilitarian position is implied by human evolution, as opposed to Rawlsian income distribution or Marxism because the latter positions embrace views of human justice that are not compatible with human evolution. He counters the criticism that utilitarianism leads to undesirable implications if carried to its logical extremes by pointing out that such preferences would not have been fitness maximizing, which is an interesting evolutionary take on “rationalist” academic philosophy. This chapter is perhaps the most interesting for his exposition of the debate about the existence of altruism and whether it can be explained without resorting to group selection.

Rubin discusses the existence of envy in some detail and this is the topic where our evolved psychology seems to be highly incompatible with the characteristics of free market economies, in which economic transactions benefit both parties and the gains of the rich do not come at the expense of the poor. It should not be surprising, however, that most humans (including intellectuals) cannot distinguish between, what he calls, dominance hierarchies and productive hierarchies. As a consequence, people have a hard time wrapping their minds around the idea that the wealthy people do not exercise power. In his discussion of political power, he returns to this topic when he notes that this failure to distinguish between economic success and political power leads many people to believe that government can be a countervailing power instead of a substitution of coercion for mutual benefit.

The author attributes the existence of religion to a form of enlightened anthropomorphism that also allows humans to cooperate in prisoner’s dilemma situations. He attributes the popularity of religions like Christianity and Islam to their universal non-ethnic nature. Unfortunately, the author does not treat the topic of how rising secularism in the Western world will affect such conventions about cooperation and altruism in much detail. In the same chapter, he also discusses a form of competition called “handicap competition,” in which humans engage in self-harming behavior to signal their superior fitness. The author does not draw this link but it is intriguing to think that a lot of the obligatory self-loathing that progressive intellectuals display in discussions about multiculturalism is actually a means to signal their superiority instead of an actual attempt to reduce their own power.

The chapter about how humans make political decisions is quite interesting for libertarians, and those of the anti-political variety in particular, because it documents in some detail how our inherited political conduct is mostly irrelevant and ineffective in today’s world. In particular, we vastly overestimate the importance of our own political views and behavior. As the author notes, “given the vanishingly small probability that a single vote will influence the outcome of an election, there is no reason for people to vote at all.” One important consequence of this is that individuals have a much greater incentive to make rational decisions as consumers than as voters. In politics, ancient zero-sum views on economic issues and envy persist. As such, Rubin provides an evolutionary explanation for the economic populism and political failure that the economist Bryan Caplan identified in his groundbreaking book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. In a sense, this indictment of mass politics as such is more radical than the political anti-statism that informs contemporary rights-based libertarianism.

One of the most interesting and far-reaching discussions in the book concerns the contrast between the study of rationality by behavioral economists and cognitive psychologists on the one hand, and evolutionary psychologists on the other. It has become quite trendy to document and highlight all kinds of cognitive biases, but Rubin contrasts this field with the work of Gerd Gigerenzer, who has shown that if problems are presented in a way that tracks our evolved abilities, respondents are much more likely to give the right answer. Rubin then gives a number of examples of cognitive bias and explores their evolutionary basis. Sadly, it seems that no matter how one defines rationality, it looks like most political activity remains irrational, wasteful, and divisive in today’s world.

The book ends with some analytic and policy implications of the materials presented in the preceding chapters. He basically restates his preference for limited government, against confiscatory income redistribution, and for more liberal immigration policies. Aside from the fact that the author seems to take the orthodox rationale for government as the preferred provider of public goods for granted (at least in this book), one would expect an evolutionary utilitarian such as Rubin to end on a more critical note about democracy, universal suffrage, and its effects on welfare. Otherwise, Darwinian Politics is an important book that warrants careful study and contains a lot of interesting ideas and references.

Factory exploitation and mutual advantage

In 1970, The Individualist ran an article called The Factory Exploitation Myth by Rod Marris. This article not only sought to correct some widespread misconceptions about the conditions of factory workers in 19th century England but also mentions the role the declining English aristocracy played in disseminating incomplete information about working conditions in the factories and about the standard of living:

A review of the political struggles of the times offers an important insight into why the aristocracy was eagerly spreading the myth of factory oppression. At the time the factory-owning middle class was vigorously opposing the Corn Laws which worked to the advantage of the land-owning aristocracy.

He also mentions the rise of the Romantic movement as a contributing factor.

Critics of unfettered free markets may acknowledge some of Marris’s points but could still claim that factory workers were exploited in 19th century England because the workers were in an “unfair” bargaining position. In essence, such a claim boils down to the opinion that mutual advantage is neither a necessary, nor a sufficient condition for justice.

In his book Darwinian Politics: The Evolutionary Origin of Freedom , the economist Paul H. Rubin writes:

there is no reason to expect that an innate module to measure gains from trade has evolved. Rather, we are each selected to try to be sure that we gain from trade; gains to our trading partners are irrelevant. Moreover, mental mechanisms work against this recognition of mutual benefit.  Even in mutually beneficial trades, an aspect of competition is found.  Both sides want to engross for themselves as much as is possible of the gains…These modules focus on the zero-sum aspect of trade – that aspect dealing with the terms of the bargain, rather than with the gains.

As a consequence, the topic of “distributive justice” gets excessive attention in political philosophy. To many contemporary political philosophers, justice does not refer to conventions that incorporate mutual advantage but a set of principles that can be discovered by (impartial) reason and enforced by the State to alter the terms of agreements and to redistribute income. An excellent collection of articles about the widespread habit of treating justice as “something else” (fairness, equality, or moral intuition) is Anthony de Jasay’s Justice And Its Surroundings.

The ethics of debt default

One of James Buchanan’s most interesting papers is The Ethics of Debt Default (1987), first published in the book Deficits (a collection of public choice articles about public debt and debt financing), edited by James M. Buchanan, Charles Kershaw Rowley, Robert D. Tollison and reprinted in James Buchanan’s Collected Works, Volume 14.

As an individualist contractarian, Buchanan rejects the argument that we have a moral obligation to honor debt obligations that the government has created simply because the modern state is a ‘moral unit’ in the sense of an extended family. He has more sympathy for the conservative argument that government should not default on its debt because we all benefit from a government that honors its commitments. However, Buchanan notes that on a less abstract level of discussion “a collective decision to repudiate the debt need not, in itself, pull down the whole legal-political house of cards, especially if it is accompanied by a change in the rules designed to insure against recurrence of the necessity for repudiation.” As a contractarian, Buchanan can only endorse borrowing  to finance “genuine public capital investments” that also yield benefits to future taxpayers. After all, it would not be fair if the taxpayers that authorized public investments would have to assume the complete burden of the costs when future generations benefit from those investments, too. The situation is different in the case of ordinary public consumption expenses, which mostly accrue to the existing  generation and that push the tax burden to future generations.

In favor of the argument that there is not a persuasive moral argument against debt default in the case of debt-financed ordinary consumption he employs a Rawlsian argument that should persuade modern liberals and progressives as well. Behind a veil of ignorance where people will not know their generational position it would not be rational to endorse debt financing for the sole aim of favoring one generation over another. Or, as Buchanan puts it in welfare economics terms, “there is no multi-period Parato-superior move that can describe a shift to a regime of debt-financed public consumption.” Buchanan even characterizes debt financing for ordinary public consumption “immoral” by such contractarian criteria.

He also discusses the possibility that the risk premium for government bonds (which, in parallel with private borrowing, should be higher for consumption expenditures) attenuates the moral significance of defaulting on the debt. After all, the voluntary payment of the risk premium implies the recognition of the bond holders that such loans may not be paid back.

Buchanan’s contraction framework only allows for a moral obligation to honor debt that was issued for public investment and income-yielding assets. Incidentally, since a significant portion of debt-financing concerns ordinary consumption and special interests, the argument that Buchanan puts forward in this article could also support voting against raising the debt ceiling of the US government.

One could argue that Buchanan’s limited support of honoring debt payments rests on two controversial premisses about public goods and the binding force of hypothetical contracts.

(1) Buchanan’s argument only works if a social contract to produce public goods is necessitated by suboptimal production of public goods in “the state of nature.” But as Anthony de Jasay has so eloquently written, “People who live in states have as a rule never experienced the state of nature and vice versa, and have no practical possibility of moving from the one to the other. It is often a historical anachronism and an anthropological absurdity to suppose such movement. On what grounds, then, do people form hypotheses about the relative merits of state and state of nature?” Furthermore, a Rawlsian contractarian framework cannot apriori assume government production of public goods instead of some variant of ordered anarchy where redistribution is achieved by limiting property rights.

(2) Arguments that derive the legitimacy of  public institutions from hypothetical contracts are intrinsically unfalsifiable. Removing personal, circumstantial and generational elements from the contractarian framework may strengthen “fairness” but at the cost of reducing the possibility to arrive at objective and unambiguous results. As a consequence, hypothetical contractarianism in practice collapses into a situation of a government of experts claiming to know the alleged substance of such agreements, and citizens (understandably) objecting to the contents and terms of these “contracts.”

An alternative approach would be to only honor actual contracts. Such contracts may not be as “impartial” as hypothetical contracts but they have the distinct advantage of permitting objective verification and incorporating evolved conventions concerning person and property. It is doubtful, however, that such a strict contractarian framework can be reconciled with an obligation of all individuals to pay taxes to  “the government” to honor the debt obligations that it made. Moreover, many individuals (or groups of individuals) will have both self-interested and moral reasons to seek default on such debts.

There is therefore no persuasive moral argument why individuals are generally obliged to honor any kind of government debt. Buchanan recognizes that defaulting on the debt may close off prospects for further government financing through borrowing. But to those who believe that government lacks legitimacy, and is a dangerous imposition on the human race, that should be an additional argument in favor of debt default. Defaulting on the debt might also restore the balance of power between generations and provide an incentive to transition to less debt-driven (ans thus more robust) forms of economic interaction.

Arguments that claim that seeking repudiation of the debt will blow up the political and financial system, and produce a net-loss for all, rest on the unrealistic assumption that such views will have absolute instantaneous effects. In reality, it is more likely that as the arguments for debt repudiation will be gradually embraced, financial markets and government operations will gradually adjust as reflected by increased risk premiums and less emphasis on debt-financing of government operations.

Into the Darkness

In 1940 the American author Lothrop Stoddard published an account of wartime Nazi Germany called “Into the Darkness.” Although the book is supposed to be an objective account, it is not difficult to note the restraint the author needs to exercise to not be more critical, if not scathing, about many aspects of the Nazi regime. But with a few exceptions, the style of the book is clinical and dry, which make his descriptions of the effects of the Nazi economy even bleaker.

Because Stoddard devotes a lot of space to describe Germany as it is experienced by the average German family, we learn a lot about the  effects of the socialist war economy on the freedom and wealth of its citizens. Stoddard wrote his account in 1939 and one can only imagine the devastation the socialist war state was about to inflict on its citizens when the accumulated effects of socialism,  repression, war, and international isolation fully materialized. As such, Stoddard’s book makes a good empirical companion to Ludwig von Mises’ “Omnipotent Government: The Rise of the Total State and Total War. (1944),” a classical liberal critique of Nazi Germany.

The title of the book refers both to the perception of Nazi Germany in the US and the war imposed blackouts. The blackouts, the winter cold, and the shortages of even the most basic necessities (let alone luxury goods) do not always produce a content journalist. It is telling that when the author expresses sincere enthusiasm, it is when he leaves Nazi Germany for neutral Hungary:

“Until we reached the border, of course, the windows were kept tightly curtained. Then the train stopped, started, stopped once more. Cautiously I peeked past a corner of the curtain. We were in a brilliantly lighted station bearing the big neon sign Hegyeshalom. On the platform stood policemen and railway officials in strange uniforms. Through the uncurtained windows of the station I could see a restaurant with counters laden with foodstuffs. I was in Hungary–a land of peace and plenty! Standing up in my compartment, I gave three loud Ellyens! Which is Magyar for Hooray!

To enter Hungary from wartime Germany is literally to pass from darkness into light. The sense of this grew upon me with every kilometer the train made toward Budapest, the Hungarian capital….Another wonder was the approach to Budapest–a great city twinkling and sparkling with lights. To one fresh from blacked-out Germany, it seemed like fairyland.”

In the final chapter the author reflects:

There are so many genial aspects of American life which we thoughtlessly take for granted until we are suddenly deprived of them and are plunged into alien surroundings where we have to fuss and plan and almost fight to get the bare necessities of existence.

A positive-sum game against nature

Whenever there is a major economic event (a rapid decline of stock prices, a spike in the price of oil, high unemployment, etc.) the media can be counted on to feature a person who was predicting these events all along. This should not be surprising because there are so many professional economists and commentators who cannot restrain themselves from making economic predictions that a few of them will turn out to be correct. But what is surprising is that so few journalists seem to be able to distinguish between skill and luck. This is one of the major themes of Nassim Nicholas Taleb’s seminal Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life.

If you are an obscure, but aspiring, economist, what are your options? In the June 2009 issue of The Freeman, Anthony de Jasay writes (p.33-34):

What is left for the 250,000 other, less-distinguished economists to do to gain fame and fortune? They too can offer forecasts and might put them on some record. If they place them in the cluster and the actual outcome is in the cluster, they remain unremarked and neither gain nor lose anything. If they go way outside the cluster and the outcome is in the cluster, nobody will remember the wrong forecast made a year earlier. They will again gain nothing and lose nothing. If their forecast is in the cluster and the actual outcome is way outside it, they will be in the good company of their 500 more-distinguished fellows and will again remain unremarked.

The rational choice for such an undistinguished economist is to make extreme predictions, corroborated with pessimistic scenarios that make such forecasts plausible.  If the economist is wrong, nothing (or little) is lost; if he is right, great publicity and riches can be expected. In technical terms, “he has access to a positive-sum game against nature.” On a more serious note, Jasay writes that “such forecasts are the best method of deepening the gloom, frightening the credulous, and making the worst more probable.”

Anti-market bias, unemployment and immigration

Economist Bryan Caplan discusses the important topic of market-clearing wages. Why are wages not falling during the recession in order to establish equilibrium and full employment? Caplan gives an answer that seems common sense but receives little attention from professional economists and politicians.

Is labor market rigidity a market failure?  I’m afraid so.  But strangely enough, this market failure is largely caused by anti-market bias!  The main reason workers hate wage cuts is that they imagine that wage-cutting employers are satanically “unfair.”  If workers saw wage cuts for what they are – a full-employment mechanism – they’d sing a different tune.  While they wouldn’t be happy to see their wages cut, they’d grudgingly accept that a little wage variability is a fair price to pay for near-total employment security.  Once this economically enlightened perspective took hold, employers would eagerly cater to it – and the market failure would largely go away.

Bryan Caplan’s position may have implications that he may be reluctant to acknowledge. If the absence of widespread anti-market bias is a necessary condition for the proper function of the price mechanism, arguments that immigration can alter the cultural prerequisites for sustainable capitalism (let alone laissez faire) can no longer be dismissed as “nationalist” or “collectivist.” The potential for capitalism will become a function of the genetic and cultural traits of a population.

Carl Menger and the exact science of economics

In Significance and Basic Postulates of Economic Theory (1938) Terence W. Hutchison presents a logical-empiricist perspective on economic methodology and takes specific issue with Austrian economists who believe that economic theories cannot and should not be falsified through empirical testing. In the chapter “The Application of Pure Theory” Hutchison criticizes Carl Menger’s view of what constitutes an “exact” science:

Menger contributed a further precision to this concept of economic laws, emphasizing what he and subsequent writers called their exactness, exceptions to them being inconceivable, and that “it involved a misconception of the foundations and postulates of the exact method” to test them empirically…To-day one can hardly help concurring with Schmoller that any worker in a chemical laboratory who proclaimed Menger’s conception of exactness would be ejected forthwith.

He also quotes John Elliott Cairnes on the methodology of economics as saying, “The economist starts with a knowledge of ultimate causes. He is already, at the outset of his enterprise, in the position the physicist only attains after ages of laborious research…”

Hutchison responds to his claim as follows:

It is possibly very encouraging for the economist to hear that compared with the natural scientist the psychological method saves him “ages of laborious research”, but it is curious and a pity that this huge start has not enabled him to formulate any considerable body of reliable prognoses such as the natural sciences have managed to achieve.

Hutchison does not completely dismiss the role of  a-priori reasoning in economics but objects to the idea that such reasoning exhausts the subject of economics. He quotes Ernst Mach on “laws” being “a limitation of what is possible.” If a law does not exclude or forbid any conceivable type of empirical occurrence than it  is not telling us anything about the world and, therefore,  such a science should be considered a pseudo-science. A similar complaint has been raised by Karl Popper about the all-accommodating nature of Marxism. The logical positivist writer Otto Neurath was of the opinion that, historically, metaphysical and anti-positivist thinking go hand in hand with the justification of oppression.

Much ink has been spilled over the question of whether the methods of the natural sciences are suitable for the study of economics. But even after 70 years since the publication of  Hutchison’s classic, economists who  have completely rejected empirical testing have contributed little of substance to the science of economics.