Via Scoop.it – Invest In the News
KINDLE EDITION ONLY: $14.82 “Amazon.com: The Darwin Economy: Liberty, Competition, and the Common Good eBook: Robert H. Customer Review: While our ideological sensibilities are not closely aligned, I find the ideas of Robert Frank to be novel, thought provoking and challenging. “The Darwin Economy” is no exception. The book is intended as a critique of libertarian ideas and he likes to drop the “libertarian evangelist” bomb throughout the book to describe those with whom he disagrees. However, he appears to have almost as much intolerance for some of the worst arguments of the progressive movement – sans the ad hominems – and does not hesitate to point them out. In a basic sense, the book is about the rising inequality of the last 30 years and the resulting negative consequences. Without oversimplifying too much, his arguments can be summarized as follows: 1) The market economy articulated by Adam Smith has failures that many libertarians and those on the right fail to recognize or acknowledge. While self-interest can be channelled to serve the common good via compeition, it can often lead to results that diminish the overall economic pie. Frank refers to the latter as the Darwin Economy and provides some interesting examples from nature to demonstrate this. For example, while the beautiful feathers of an individual peacock might increase its reproductive success with peahens, overall the large feathers are a net detriment to the species as it makes peahens more vulnerable to predation. Likewise, the larger the antlers of an individual deer, the more likely it will successfully breed with females and pass its genes on to the next generation. However, other than individual reproductive competition within the species, antlers provide no other benefit and are a cumbersome genetic quirk. 2) In order to alleviate Darwinian failures in market contexts, we need more government regulations and income redistribution. The transaction costs, in a Coasean sense, are too high for individuals to correct these market failures without some larger intervening force. As an example, while each NHL hockey player has an advantage by not wearing a helmet versus those that do, overall the group is worse off without helmets due to the increased safety risks. Without top down regulations from the NHL, no reasonable means exists for each player to wear a helmet even though it is in everyone’s overall self interest to use one. 3) Relative position matters and the wealthy produce significant Darwinian failures through the consumption of ever larger houses, more luxurious cars and ever larger galas. This consumption has increased over the past 30 years as a significant portion of the productivity gains have been concentrated in the upper tiers of society. The result is an expenditure cascade whereby those in lower classes feel the need to consume ever more resources to maintain a standard of living on par with the wealthy. Overall, this process leads to overconsumption and a decrease in overall welfare for each individual who finds himself in deeper debt and less satisfied with his well being. 4) The transaction costs are too high for each individual to decide to consume less. Keeping up with the Joneses is just too tempting. The least intrusive remedy is to transition from an income tax to a progressive consumption tax whereby tax liabilities are determined based on consumption and not income. 5) The result of a consumption tax would be a win-win. Individuals would have more incentive to save rather than to consume and the resulting increase in tax revenues could help to fund much needed infrastructure improvements and shore up shortfalls in social security and medicare. 6) If you disagree with Frank’s conclusions, then you are probably a “libertarian evangelist.” I strongly agree with Frank that we tend to consume beyond our means, which leads us to be much less happy on net. Expenditure cascades and the introduction of Darwinian examples helps to explain our shortcomings in our quest for ever more goods and services. In addition, due to the transaction costs, this market deficiency is difficult to cure via individual action. However, one can accept these premises without agreeing with Frank’s overall conclusion regarding a Piguvian consumption tax. Here is where I start to disagree: 1) Darwinian failures in government contexts. I would feel much more obligated to accept Frank’s conclusions if voters were rational, government regulators were reasonably omniscient and politicians were honest. But they aren’t. If we drop these assumptions and instead focus on what regulations or redistribution will be politically profitable to make, we begin to see a very large divergence between Frank’s preferred remedies and the common good. I am reluctant to provide ever more powers to a government monopoly provider who tends to provide its services ineffectively and efficiently. Medicare, Freddie and Fannie Mac, and the decision to go to war in Iraq are just a couple of examples of government failures over the past 30+ years. 2) Is the beast starved? A central part of the book is the assumption that the government is starved for resources and is forced to manage a decaying infrastructure. I do not believe that this is accurate in either a microeconomic or macroeconomic sense. The government’s share of GDP has increased, not decreased over the past 30 years. In addition, infrastructure spending as a percentage of GDP has remained relatively stable since the 1960s, a time period that Frank seems to remember with great fondness. Before I feel the obligation to send the government ever more tax funds, it would need to demonstrate its ability to do a better job with its current share of GDP. 3) Darwinian failures among the non-wealthy. In order to make Frank’s arguments work, he would need to incorporate negative externalities produced by a significant portion of the poor. This would include the inability for many (but certainly not all) of the poor to produce labor that people find valuable, an inability to support themselves and a propensity to over produce offspring who have very little chance of providing a net benefit to the common good or themselves. Through welfare and public education, we are already providing a large portion of the social surplus to them. Do we really need to increase their social status relative to the wealthy in addition to the benefits already being provided? (I am not suggesting that these programs be cut) At the end of the day, the most important aspect for me is whether the people who have lots of things have acquired them justly. I tend to believe that the negative externalities produced by the wealthy are much smaller than Frank assumes and that government solutions are not very likely to alleviate them once government failures are included in the mix. While Steve Jobs, Sam Walton and Jeff Bezos have become extremely wealthy, the spillover effects of better and cheaper consumer goods that they have produced for the average consumer like myself have been quite large and miraculous in a historical context. I suppose that this makes me a “libertarian evangelist.” What Frank does not seem to realize is that this probably makes him a “governmental evangelist” by extension.
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