Issue #24, Spring 2012

Survival of the Richest

Is economic behavior best understood in Darwinian terms? Actually, no.

The Darwin Economy: Liberty, Competition, and the Common Good By Robert H. Frank • Princeton University Press • 2011 • 240 pages • $26.95

In the polarized debate over government’s proper role in the economy, Robert H. Frank wants to rally American citizens to one important home truth: that all patterns of consumption and taxation are relative. The way that we dispose of our incomes and nourish collective social goods is not the fixed zero-sum proposition that partisans of the libertarian right imagine such choices to be. Rather, Frank—a Cornell University professor of economics who also writes the “Economic View” column for The New York Times—argues in The Darwin Economy that all perceived economic gains and losses are relative to each individual’s comparative standing amid equivalently consuming peers. It thus stands to reason that the pains and gains we typically assign to decisions such as taxing a given socially harmful behavior, or permitting the Bush-era tax cuts on the highest class of earners to expire, are also relative deliberative propositions, and not the confiscatory government boondoggles of libertarian fancy. After all, as Frank explained in a 2010 Times piece outlining the irrational character of anti-tax rhetoric when it’s laid alongside the actual behavior of high-earning Americans springing for top-of-the-line sports cars or potlatch-style coming-out parties for their offspring, “When others in your circle spend a lot, you must spend accordingly or else live with the disappointment that results from unmet expectations.”

This might strike most readers as homiletic common sense—on the order of the childhood reminders from your parents that children are starving in Africa as you let leftovers languish on your own dinner plate. But Frank contends that the foundational appeal of what are known as “positional goods”—products defined principally by their broader social worth rather than their narrow rational utility—accounts for a good deal of the high-octane obfuscation in American economic debate. Indeed, he argues in The Darwin Economy, the battle for the optimal hoard of positional goods is at bottom a reflection of how economic behavior is principally shaped by the laws of natural selection, rather than by the suprational “invisible hand” hymned by Adam Smith’s libertarian faithful.

What’s ultimately most revealing about Frank’s monograph though, is not so much the particular case he makes against the austerity-addled libertarian consensus now taking shape in these United States; that is, alas, a weak and unconvincing brief. Rather, The Darwin Economy is noteworthy for its very acrobatic devotion to some—any—model that would seem well positioned to supplant the invisible hand as the prime mover of economic life in market societies. Instead of simply noting the abundant empirical failures of free-market theorizing for what they are—and thereby placing the burden of accountability on the small-government apostles of deregulation—Frank opts for the centrist dodge of trimming the differences between the excesses of libertarian dogma on the one hand and the reflexes of an allegedly Naderite, intervention-happy left cadre of government bureaucrats on the other.

In rhetorical terms, in other words, the book’s main event is a battle royale between a well-funded, intellectually ascendant ideological vanguard, and a pitiful battery of straw-man statist opponents who probably saw their pinnacle of influence in the last days of the Carter Administration. But even that isn’t the crowning irony of Frank’s curious tract; no, that laurel would have to go to the notion that Charles Darwin, of all people, is properly cast as the agent of a Hegelian synthesis, leading honest interlocutors out of the slogan-infested thickets of merely partisan disputations about America’s productive future.

Isay all this, believe me, more in sorrow than in anger. It’s painfully clear that the goal of drastically revising free-market fundamentalism is a sorely overdue project in the American economic academy. And as he warms to his subject, Frank supplies a suggestive initial contrast between the hard-won lessons of evolution and the resolutely “context free” platitudes of neoclassical economics:

When the ability to achieve certain goals depends on relative consumption, as it clearly does in a host of domains, all bets regarding the efficacy of Adam Smith’s invisible hand are off…. [U]nbridled market forces often fail to channel the behavior of self-interested individuals for the common good. On the contrary, as the pioneering naturalist Charles Darwin saw clearly, individual incentives often lead to wasteful arms races.

Darwin’s observation, Frank argues, allows us to grasp more clearly the situations where untrammeled competition generates social harm—or adverse externalities, as economists would put it. The bull elk, for instance, has, for the purpose of gaining a competitive advantage over other males, evolved an impressively ornate set of antlers to enhance his appeal to prospective mates. But those same antlers can entangle the bull elk as it seeks to navigate wooded areas, and make it fatally vulnerable to predators—a clear loss for the species’ overall chance of survival.

Similar trade-offs characterize human behavior in the economy and other competitive spheres, Frank notes. For instance, workers seeking to maximize their earning power may abjure workplace safety measures because, to pay for them, employers would have to reduce individual salaries. Such workers might prefer bigger paychecks and the various social emollients arising from them, such as the ability to buy a home in a desirable school district, over the more immediate but potentially costly benefit of a safer workplace.

Frank, who principally analyzes consumption markets, sees in such calculations the critical context—the woodland habitat, as it were—that drives real-world economic choices. He counterposes this to free-market doctrine, which holds that each individual worker has the unassailable right to choose better pay in conditions of higher risk, and seek out an employer who delivers the optimal terms of the trade-off. Far better, Frank suggests, to accept that decisions about social goods such as workplace safety “are perhaps better made collectively.”

In other words, Frank is seeking to lay the theoretical case for government intervention in the workplace. Yet in doing so, he is treating the issue purely as a technical matter of dispassionate difference trimming, with state overseers calibrating the correct regulation to the suitable working environment. And this is, among other things, an account entirely at odds with the history of agitation for workplace safety. For to the extent that governments have taken on the authority to regulate hazards to workers, they’ve done so at the behest of those workers themselves, who effectively organized and publicized their grievances via trade unions.

This was, to put things mildly, not a proposition of positional consumption, but rather a simple assertion of a political right, grounded in core conceptions of fairness and equity held to be self-evident virtues in industrial democracies. In the aftermath of the 1911 Triangle Shirtwaist fire, which claimed the lives of 146 garment workers, leaders of the International Ladies Garment Workers Union mobilized a march of more than 100,000 citizens in the streets of Manhattan to pressure New York legislators to enact meaningful laws to secure workplace safety.

Frank never once mentions unions in advancing his evolutionary model of economic behavior—and seemingly permits no affirmation of the prospect that the workers might themselves enter into the debate over public oversight of private-sector affairs. Instead, he largely envisions the whole issue as a quarrel between doctrinaire libertarians and soi-disant pragmatic advocates of regulation such as himself, Cass Sunstein—the law professor brought on as the Obama White House’s regulatory czar—and the law-and-economics scholar Ronald Coase. Frank frames his appeal to evolutionary ideas as an empirically advanced yet idealistic effort to win libertarians over to the cause of limited government regulation—and indeed, as the theoretical basis for something he calls the “libertarian welfare state.” But civilian participants in the real economy might rightfully ask just why and how the signature questions of economic policy have become mere debating fodder for Randian enthusiasts of free-market delusion and conflict-averse centrist technocrats.

At several key points in The Darwin Economy, it becomes evident that Frank’s view of the economic-policy playing field is badly skewed. Again and again, for instance, Frank portrays the case for state intervention as the need to “act collectively” to secure social goods in the face of depredations grounded in self-seeking individual behavior. But in the absence of any mention of unions, who or what exactly are these collectives, and how are they formed and represented in an economic system governed by the prime directive of maximizing shareholder profits? Frank won’t, and evidently can’t, say—beyond gesturing vaguely toward the power workers theoretically exercise in “electing legislators who enact regulations,” a ludicrously anemic brand of political legitimacy, especially in a system of representative government that, as Frank himself concedes, is dominated by a plutocratic campaign donor class.

At other times, Frank’s omission of the politicized labor movement becomes a blindingly obvious aporia. In contesting the trickle-down doctrines of the libertarian set, Frank notes that, contrary to what such theories would predict, greater income inequality does not in fact correlate to increased economic growth. Instead, he notes, “when researchers examine the data within individual countries over time, they find a negative correlation between growth rates and inequality.” Specifically, Frank marvels, “During the three decades immediately following World War II…income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large during the years since 1973, a period in which income and wealth inequality have been steadily rising in most countries.”

This same period of postwar prosperity, of course, corresponds to peak labor union membership in most industrial countries—just as the drop-off in growth in the early 1970s also marks in many instances the high point of postwar union clout in the West. Plenty of research has demonstrated the strong correlation between high levels of national union membership and comparatively low rates of inequality—a condition that, by Frank’s own analysis, should promote sturdy and comparatively equitable trends of economic growth. Yet Frank can give an account of the last four decades of inequality and unproductive patterns of growth without even mentioning the single most crucial institutional bulwark of economic equality: the trade-union movement. It’s a bit like trying to chronicle the devastation of the 2011 Japanese tsunami without ever bothering to describe the earthquake that preceded it.

In part, such oversights are a fairly typical function of academic parochialism. As a scholar of comparative consumption, Frank naturally focuses on the behavior of consumers and regulators rather than on the workers who are the producers of wealth. More fundamentally, though, the analytical blind spots in The Darwin Economy reflect the broader distemper of mainstream economics and policy prescription in America. For virtually since its incarnation as a professionalized academic discipline, economics has sought to treat historically contingent arrangements governing access to goods and services as immutable laws of human nature—or, in Frank’s case, as nature itself.

Things were not ever thus, of course; as recently as the late nineteenth century, the study of economics wasn’t in thrall to the invisible-hand model, the bull-elk model, or any scientific-sounding omni-theory at all. Rather, the explanation of how markets and trade and labor economies functioned was part of the larger discipline known as political economy—which necessarily encompassed a sizable dollop of history for good measure. The breadth of this field took in a good many activist-autodidacts, together with truly original economic thinkers on the order of Max Weber and John Maynard Keynes; but when political science and economics took on their present, highly credentialized incarnations, the traditions of critical discourse they had jointly harbored in the past withered and died. So it’s now a surpassingly strange spectacle, by contrast, to see theorists within a highly professionalized professoriat that has done so little good work (and a great deal of harm) in explaining the world of commerce reduced to borrowing intellectual credentials from the high Victorian grandfather of natural history.

Nor are the distortions entailed in this backward-tending worldview confined to our reigning intellectual division of labor. Take, for instance, an example that Frank dilates on throughout The Darwin Economy—the jockeying that parents go through to ensure their children have access to quality schools. It is simply a fact of life, Frank asserts, that

In virtually every country, the best schools tend to serve the most expensive neighborhoods. In some places, that’s because property taxes provide a large component of school budgets. But even when expenditure per pupil is the same in every school, the best schools tend to be those in the most expensive neighborhoods. One reason is that a major component is the quality of its students, and the children of the most successful parents enjoy significant learning advantages both before and after they begin school. The schools that serve these students would thus offer better learning environments, even if their budgets were the same as in other schools.

Got that? Students of richer families perform better academically…because rich students are better suited to perform academically, by some mysterious, unspecified property of inhabiting “the most expensive neighborhoods.” And in Frank’s account, such mystical cultural advantages—which defenders of unequal educational outcomes reverently call “social capital”—operate independently of actual school budget outlays.

Frank offers no evidence to support these tautological aphorisms—even though, once more, ample evidence exists to contradict them. Richard Wilkinson and Kate Pickett show in their groundbreaking international study The Spirit Level that, while the performance of schoolchildren can track closely to family background and a home life stressing the importance of learning, it’s also true that “[m]ore unequal countries and more unequal states [within the United States] have worse educational attainment—and these relationships are strong enough for us to be sure that they are not due to chance.” Citing comparative international research from University of New Brunswick education professor Douglas Willms on academic performance in Finland and Belgium (higher-equality societies) versus the UK and the United States (lower-equality ones), Wilkinson and Pickett note that “even if your parents are well educated—and so presumably of high social status—the country you live in makes some difference to your educational success. But for those lower down the social scale with less well-educated parents, it makes a very much larger difference.”

Issue #24, Spring 2012
 

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