Robert Frank: "The Darwin Economy: Liberty, Competition, and the Common Good"
http://thedianerehmshow.org/shows/2011-10-27/robert-frank-darwin-economy-liberty-competition-and-common-good
Robert Frank
Courtesy Princeton University Press
For centuries, economists have believed in the power of Adam Smith’s “invisible hand” to steer the markets. But the global financial crisis and a rising income gap has many reconsidering Smith’s theory: that competition channels self-interest for the common good. One economist proposes a new intellectual giant of economics – Charles Darwin. He argues the naturalist’s understanding of competition describes economic reality far more accurately than Adam Smith . And he warns that failing to recognize that we live in Darwin’s world is putting our economy at risk. What Charles Darwin can teach us about economics.
Guests
Robert Frank
economics professor at Cornell's Johnson Graduate School of Management, regular "Economic View" columnist for the "New York Times" and author of many books, including, "Principles of Economics" (with Ben Bernanke).
Read an Excerpt
Excerpted from "The Darwin Economy" by Robert Frank. Copyright 2011 by Robert Frank. Excerpted here by permission of Princeton University Press:
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Thomas Franks is way closer to the truth than Robert Frank.
I could go with Darwin's darker assessment if human beings were getting better, but they're actually devolving under corporate capitalism and destroying the environment. It's like when alpha-male chimps start eating the babies.
This out-of-discipline hucksterism is merely another attempt to relocate the causes of human suffering into our gene pool while ignoring the effects of polarized privileged socioeconomic power and elite enforced quiescence. (see Steven Lukes) Dickens illustrated how the fascist fish rots from the head. Adam Smith is too weak a medicine to build totalitarian zombieism in these times. He never said most of what they claim, nor did Darwin.
It is a crime against public radio members to air this piffle. Frank has a dim imagination for a person in his professional position.
Who will pay our government dept and prop up deficit spending when no one will lend us anymore money? Looks like were in for some survival of the fittest on a grand scale unless we quickly come to terms with reality. Economic Darwinism has brought us fantastic personal wealth and healthy living, we only need to defend our economic system from those who seek to destroy it, like the fools involved with Occupy Wall Street and the Federal and local Government.
We shop for food and find the shelves overflowing with excellent choices. We turn on the light switch and find reliable sources of electricity. We want to go somewhere, we walk out into the garage and find a reliable car to take us anywhere we want to go. The list of modern conveniences and safe foods at a reasonable cost to assist us throughout our daily lives would be inconceivable to the people of only a couple generations before us, thanks to corporations and Darwinian economics.
Witch hunt!
Occupy Wall Street, or more accurately parasites on freedom. It's ironic the people who benefited the most feel the most cheated. Tapping out meaningless messages on their corporate made competitively priced devices protesting for "FREE" health-care, education and loan nullification. Yea boy those evil wall street fat cats really have it coming.
Meanwhile in a city not too far away there are people working hard to steal what wealth we do have with monetary devaluation schemes. Working diligently to prove their worthiness and competence by adding on to an already stifling list rules and regulations. Borrowing money from people who really don't like us to prop up an out of control prostitute government that seeks through it's benevolence to right every wrong, scratch every itch and to put us to bed with a warm bottle every night.
If one claims to be a "life-pro" but is obsesses with the polite fiction of money's precedence over life, you are in some deep mental doo-doo.
Take the Greek krafafle for instance: Citizens of Greece had no part in the contracting of enormous debts for which their property and future labor were obligated. It was a variation on the Third World debt game under which a co-opted elite get mucho cash and then the peons pay. Right now Greek homeowners are receiving electric bills with a gigantic property tax added on. First their electricity will be cut and then they will be evicted so foreigners can speculate on their homes if they can't find the funds to pay, in an increasingly depressed economy. Boiling frogs in America should notice this situation which may soon be applied here. Only large blocks of property and great fortunes remain sacred. The Supreme Court has already begun making this increased discipline plain.
Now it would seem to me that if only certain powerful people (whose money is not yours and not your concern) remain secure in ownership, that the days of the property rights obsession are ended for the 99%.
The false dream of jackpot success remains only among zombies. Witches need not fear the zombies they create I suppose. But it is funny reading the scriptures zombies write in protection of their witches. "Life-pros" are not for real. They're a dollar a dozen.
Codex question (final Jeopardy): Does Bob Franks really claim Charles Darwin was the Steve Jobs of the 19th Century? (So place your bets and write your answer in the form of a question- for the host.) de-da de-da doo-de-da,
doo-de-de-da, de-te-de-de-da.....
monte sounds suspiciously like a creditor. Is your full name monte Morgan, namesake of Morgan Chase, the biggest bank in town? Get out there and collect your own debts! We ain't helping you.
Grady Lee Howard wrote: "Right now Greek homeowners are receiving electric bills with a gigantic property tax added on. First their electricity will be cut and then they will be evicted so foreigners can speculate on their homes if they can't find the funds to pay, in an increasingly depressed economy. Boiling frogs in America should notice this situation which may soon be applied here."
So Grady are you saying the American homeowner is in a frighteningly similar situation at the hands of state public labor unions? if not you should be.
Monte:
From yesterdays posts you posited:
"Question corporation haters? what do you propose we do to corporations to make them to your liking without destroying them."
Okay, here's a fair answer:
I suggest that we don't destroy them, we simply make them small enough to drown them in a bathtub.
Sounds like a damn good start to me....
Monte,
I mostly agree with your criticism of the OWS 'movement'. As I listened to Diane's excellent (as always) program and others on various other media outlets, I am still unclear as to what it is that those participants are REALLY after. As a Tea Party 'sympathizer' and Republican leaning Libertarian, I 'get' the core message of the Tea Party and think this OWS is of a 'similar' ilk- a populist-type message that recognized that something is very wrong. Like the Tea Party, they have had success at starting a conversation, albeit in a much more entitled and whinny narative. I am interested in seeing just how their movement might progress, but from what I see so far, it seems more like Don Quixote than Arab Spring. The Tea Party's core message of 'government gone wild' is far easier to identify and support. Sure, Wall St. is not always pretty, and fair is still for games, but when OWS says that something is rotten, I too can smell what they are describing.
I enjoy reading your posts.
Eric
Grady,
I wish more people had your sense. This American, for one (like the Greeks), has no desire or feeling of obligation to repay the TRILLIONS borrowed in our country's name by a scant few thousand scoundrels (members of the house, senate and presidents since WWII). What have they done with all this money? Waged several wars of choice, all begun with NO possibility of winning or gaining (if that is indeed possible). A dozen members of Doctors Without Borders can in weeks achieve more good-will for America than a milliion soldiers could in a lifetime.
America's leaders (on both sides of the aisle) have seen our balance of payments and trade deficits balloon for decades. In that time, have they encouraged in a meaningful way the construction of sustainable energy from Solar, Wind, Tidal, Geothermal to stem the billions that we throw away on imported energy every year (to enrich those who don't like our choice of friends and politics). No!!! All we get is the same old tired wrong answers to the questions that we never have the guts to ask or pay for. Our own leadership (used loosely) should be listening to the Greek people, for that is what our people will do/say when they try to force (even more) austerity on us.
I'm impressed with Frank's intelligence and ethical approach.
Bravo to the suggestion on progressive taxes on consumption and on civilly harmful choices. Stipulations on estate/inheritance come to mind too.
The principles of Natural Selection are more elegant and broad than individualists suspect. Peoples' individual needs and capabilities remain mostly the same regardless of the disparities in privilege and opportunity. The hungry 12-year-old could be tomorrow's Einstein; but do we need more selfish overconsumers?
When big fish eat all the little fish, the big fish eventually starve. Sustainable ecology = sustainable economy.
Larry
Interesting topic, especially the statment that Adam Smith's "invisible hand" is a special case of Darwinian economics. Question: How would the work of two other giants of modern economics fit in the Darwinian framework - J. M. Keynes and Milton Friedman?
How would we moniter each taxpayer's spending in order to enforce a progressive spending tax?
A lot of people adopt Darwin's concept of evolution and incorrectly use it as an explanation for a natural progress, from a very western point of view. Darwin's theory only explains how living things fit their niches so well, but it should be noted (as the author has) this does not imply this is the most efficient and more importantly the best way things should be.
A classic product example is the Sony Betamax which by all accounts was the superior product, but failed to meet two consumer points, price (which I recall was a minimal difference) and recording length. People wanted more recording time, if at the cost of a crummy image.
Even today, the scandalous state of pedigree dogs who are being selected out of existence by their owners who want irrational and unhealthy features which breeders claim are correct illustrates this. Society can be driven by propaganda, advertising, fallacies, and short sightedness to not do what is best. Of course, there are some who count on this for their own benefit. That's Darwinism.
It's not so much that the middle class tries to keep up with the rich in size of houses, etc.
It's more that the increasingly lavish spending by the rich, and their speculation in various markets (like housing and land) drive up prices. Those in the middle class who are frugal, fiscally responsible, and live within their means often have trouble finding decent housing or quality goods and services in their price range.
I guess it's a "gentrification" of the entire marketplace.
Darwin didn't actually say that evolution favored the individual. He said it favored the survival of the species. Many species survive when individuals cooperate with each other. Indeed, some species survive because individuals sacrifice themselves for the common good of the species.
Also, it should be noted that Smith didn't believe in public corporations because he didn't think that the owners would be able to keep the managers interest aligned with them. The managers would take excessive risks or worse, steal from the till. Many of the problems with corporations involve executives who run it for their own short term interest. Their interests are not aligned with the owners because if the company fails they still have gotten huge outsize salaries. Indeed, since they largely pick the directors, even bad performance doesn't usually result in elimination. Witness the present situation where Banks that would have otherwise failed without government intervention still reward the executives that drove them into the ground.
Lack of oversight of managers lobbied for through politics further separates manager's interest from stockowners.
I find Robert Frank a bit squishy, he seems only to offer another way to soft peddle a liberal agenda using observational Darwinian science to put forward his personal opinions as something more than what they are, his personal opinions.
How does the Matthew (25:29) Effect of the rich getting richer and the poor struggling even more relate to Darwin economics?
Environmental damage is pretty consensus, as holding up traffic, as investment... I think if he showed an agenda, most would call it a civil one (though that's certainly closer to liberal than libertarian). In any case walked some fine lines..
the show w Mr. Frank?
and you never once mentioned Karl Marx?
the word that comes to mind to describe this level of intelligence is _____________(i'll let you fill it in- (i like to be nice)
david eberhardt
baltimore, md
I was admiring the eye glasses Mr. Franks is wearing in the photo posted here. My vision is failing and I need glasses but I can't afford them. I wondered if Mr. Franks would donate just one of his lenses to me and chalk it up to the common good.
Your progressive flat tax may be a way of offsetting what I refer to as the grind stone effect of big box retail on our economy where investment seems to be flowing toward enrichment of those at the top of the economic scale except that the same effect is achieved by encouraging saving over consumption. Any form of consumption tax policy is regressive. Any economic system, (systems in general) break down when the governor is artificial intervention.
This was the exact point of Smith and has proven true in the case of intervention in the natural system of the environment. As an example: While medicine has enabled people to live longer by controlling pathogens that once limited human population, it has brought the population to a size that is unsustainable and expanding exponentially in an environment of finite resources. Ultimately the system will correct itself simply because the container is finite, but just what will be the result is anyone's guess. Historical evidence supports mass extinction.
A good test for any proposal to correct a perceived flaw in system is whether that solution works in all known or conceivable permutations of the system you are planning to apply it to to desirable outcome. Your proposal of a regressive consumption tax, without a solution to population growth, falls flat simply because it will not satisfy the needs of our present dilemma.
What is needed is correction of the progressive income tax and a method of disabling the strangle hold the banking industry has on capital. I thing Occupy may be, despite your apparent ignorance of that fact be doing just that by encouraging people to pull their savings out of teh big centralized banks toward local investment. I believe that the answer lies in allowing the system to correct itself by removing the unfair constraints that favor the few at the top at the expense of the many.
H S. Patton
Robert Franks wants to be a go-between with OWS and help them set an agenda. He has thus proven himself a superfluous individual (as posited by Chomsky). He reminded me of a Seinfeld episode where Jason Alexander as George is fabricating a job search to keep his unemployment going. As he goes to the bathroom he asks Jerry to answer the phone "Van Delay Industries" and to claim George has applied for a job. Kramer (confused) answers instead and George topples from the toilet, pants down screaming and collapses on the floor. Seinfeld's punchline, "And you wanted to be my latex salesman!"
When a columnist/professor jumps into the fray this late with dishwater solutions I'd say he is probably "latex salesman material." FDR preserved the class system that defends crony capitalism way beyond its "sell by date."
Frank proposes to reanimate a corpse to preserve the perks of his upper liberal class. That's perverted when a new reality is being born. (See Chris Hedges, see Adbusters)
Short and long term solutions are not mutually exclusive. For instance:
Trillions of dollars of investment capital sit idle on the books of industrial corporations, financial institutions and private portfolios, much of it overseas. Holders of those assets have no incentive to employ them while demand for goods remains weak, or to subject foreign profits to existing tax rates by repatriating them.
I propose an Infrastructure Renewal and Modernization Act (IRMA) to form a government-owned corporation whose purposes are, first, to rebuild and expand the nation's infrastructure; second, to reward investors for releasing their funds in service to the first purpose; and third, to reemploy millions of jobless in public works as well as construction, heavy equipment and high-tech industries. The sole federal financial obligation would be an interim sinking fund to cover bond interest and overhead until heavy user-fee revenue kicked in.
In operation, the corporation would sell IRMA bonds to finance the program, rewarding contracts for transportation and other projects in all regions. Completed projects would generate user-fees to service tax exempt bond interest, repay the sinking fund and distribute the remainder to federal, state and proximate local jurisdictions.
As with emission control requirements, vehicle registration would be subject to verification of a functional signal transmitter and on-time payments of user fees. Unit cost of transmitters (employed for all facilities subject to user-fees) should be extremely low, given the scale of production. User fees—a form of tax— would be compensated by offsets—reduced fuel taxes and other adjustments.
Harnessing the powers of finance and industry has always been key in meeting great challenges.
15 million jobs by following John McCain, proposal to make illegal Mexicans in this country guest workers and pay their taxes etc. but cannot vote until they get in line for becoming American citizens.
Millions of jobs by adopting my proposal of the Defense Dept fighting disease and not wars for oil as President Bush did.
Just imagine how many electric cars we would have and how much safer our planet would have been if we stopped sending billions to burn fossil fuels that are the cause of global warming. Al Gore said last month that if you asked the top 100 heart surgeons if you needed an immediate bypass and 98 said yes and 2 said its just a pain, take an asprin. Well if you ask the top 100 scientists studying global warming, 98 will say burning fossil fuels and 2 would say it is just a natural cycle.
Both Sarah Palin and Rick Perry say they are not sure of global warming and are not telling what they truly believe both their oil producing states love it while Texas burns and the climate disturbance is al over the world due to the intense water evaporating from the oceans and descending upon us.
Part One:
I am very skeptical about applying theories from one discipline (Biology) to another (Economics). As Mr. Frank correctly points out, the Social Darwinists tried it and made a mess of both! (By the way, much of what passes for “new” conservative ideas these days is simply “warmed over” Social Darwinism.)
In order to assess anyone’s ideas (Adam Smith’s or Darwin’s) one should consider their entire body of work, not just isolated portions favorable to your views.
Smith, as Frank points out, was very concerned with monopolistic power, much of it granted through government charters. Part of why he favored the marketplace was because he saw the distorting power monopolies (or oligarchies) had. We should also remember that the modern corporations, with their concentration of economic power, arose after Smith. Finally, again as Frank points out, there is much in the The Wealth of Nations that condemns what today’s conservatives support, and supports much of what they condemn (a progressive income tax for example). Finally, Smith’s moral philosophy was even more important to him than his economic theories. He understood the excesses and abuses that even the “free market” produced, and felt it had to be balanced by morality, which he thought rested on the ability to feel sympathy for another’s plight. (Read his Theory of Moral Sentiments.) I wonder how the Koch Brothers would deal with that!
TO BE CONTINUED
Part Two:
As for Darwin, it’s important to remember that while humans are subject to biological evolution, our culture is based on a decidedly Lamarckian rather than a Darwinian process (the “acquired characteristics” of one generation are passed on to the next - it’s called “education”). This allows our culture to outstrip biological evolution by many orders of magnitude, and economics is a cultural phenomenon.
But even in strict Darwinian terms, the “rise of Man” did not come about purely through “rugged individualism” and laissez-faire competition triumphant within our species. To the contrary, it was the capacity to work together for the common good that helped put us “at the top of the food chain”. Consider the giant Mammoth: one hunter, even armed with a spear, wouldn’t stand a chance. But a group of hunters, working together cooperating for the sake of the tribe were able to drive those great beasts to extinction.
This is not an argument either for or against capitalism (which has many forms, not just “laissez-faire”), or for or against Darwinian Evolution. It’s simply a reminder of something our Founders knew: there must be “checks and balances”. Even in the realm of ideas, no one view is always correct, and therefore shouldn’t be allowed to dominate to the exclusion of all others.
monte on October 24, 2011 - 1:59 pm wrote: “We shop for food and find the shelves overflowing with excellent choices. We turn on the light switch and find reliable sources of electricity. We want to go somewhere, we walk out into the garage and find a reliable car to take us anywhere we want to go. The list of modern conveniences and safe foods at a reasonable cost to assist us throughout our daily lives would be inconceivable to the people of only a couple generations before us, thanks to corporations and Darwinian economics.”
PART ONE:
Ah, monte, so busy composing your hymn to “corporations and Darwinian economics”, and your tirade against government (and anyone who dares challenge your simplistic notions) that there are a few facts you’ve ignored.
Where did most of that food come from, and how did it get to “the shelves”? Well, some of it was due not only to government farm subsidies (which I agree may have outlived their purpose, but were of great value once), but also due to non-monetary government assistance to farmers (including the creation of agricultural colleges, and government backed research).
We have “reliable source of electricity” because of many government programs and projects: the Hoover Dam, the Tennessee Valley Authority, and the Rural Electrification programs - to name just three.
TO BE CONTINUED
PART TWO:
And just what do you think your “reliable car” travels on? The most massive public works project in American history: the Interstate Highway System. (That’s also how the food gets to those overflowing shelves.)
On the other hand, let’s not forget such corporate “miracles” as Enron, Lehman Brothers, AIG, and the continuing scandal of the Massey Mines - which clearly sought to “make a buck” by endangering its employees.
I do not hold that all corporations are evil, and must be destroyed. But neither am I a blind worshipper of laissez-faire, as you are. The lessons of history teach us that humans will almost always seek to accumulate power to the detriment of everyone else. That’s true in politics and economics! “Checks and balances” keeps government from getting abusive, the same remedy is needed for corporations. Why not try being a little more skeptical of the claims of the right, and less cynical of the claims of the left?
P.S. - You do know why that food is safe? Largely because of the “evil” Pure Food and Drug Act passed by those dastardly “Progressives”.
I and my family consider ourselves to be in the middle class and I have a few things to say about the doom and gloom from Mr. Frank.
Unlike Nature where Mr. Darwin studied survival of the fittest. We in the economy can choose where we sit on the food chain. We can make ourselves more fit by getting education, getting better at what we do and finding inovative ways to use our resources. My wife and I both came from humble beginnings but invested in our education and continue to learn and grow every day. I do NOT feel like an Antelope that always has to look over my shoulder for the Lion that is looking to eat the slowest Antelope because I'm not the slowest Antelope. But I do resent guys like Mr. Frank that want to cripple me (through confiscatory taxes and a liberal dole outs from the government to those who can get politically connected) and bring me down to the speed of those other Antelopes to make it more fair for everyone else in the herd.
I also resent that Mr. Frank was allowed to say unchallenged that we can't fix the budget without raising taxes on the rich. I contend that if they would just do away with all those exemptions that allow 48% of the population to entirely avoid paying Federal Income tax we would have all those levers that he wanted to rev up the economy.
If a corporation or business is creating wealth by selling an honest product to an uncoerrced customer then what they are doing is GOOD for society. I don't distrust most corporations because unlike monopolies or the government they have competition and if it can be done better it eventually will be. But I do distrust a government that thinks it should be the final arbiter in the market.