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The Darwin Economy

The Darwin Economy: Liberty, Competition, and the Common Good

ROBERT H. FRANK With a new afterword by the author
Copyright Date: 2011
Pages: 272
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  • Book Info
    The Darwin Economy
    Book Description:

    Who was the greater economist--Adam Smith or Charles Darwin? The question seems absurd. Darwin, after all, was a naturalist, not an economist. But Robert Frank,New York Timeseconomics columnist and best-selling author ofThe Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics. The reason, Frank argues, is that Darwin's understanding of competition describes economic reality far more accurately than Smith's. And the consequences of this fact are profound. Indeed, the failure to recognize that we live in Darwin's world rather than Smith's is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.

    Smith's theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition--and against regulation, taxation, and even government itself. But what if Smith's idea was almost an exception to the general rule of competition? That's what Frank argues, resting his case on Darwin's insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to "arms races," encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.

    The good news is that we have the ability to tame the Darwin economy. The best solution is not to prohibit harmful behaviors but to tax them. By doing so, we could make the economic pie larger, eliminate government debt, and provide better public services, all without requiring painful sacrifices from anyone. That's a bold claim, Frank concedes, but it follows directly from logic and evidence that most people already accept.

    In a new afterword, Frank further explores how the themes of inequality and competition are driving today's public debate on how much government we need.

    eISBN: 978-1-4008-4498-2
    Subjects: Economics, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
    (pp. ix-xviii)
  4. ONE Paralysis
    (pp. 1-15)

    People often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days. During the three decades following World War II, for example, incomes were rising rapidly and at about the same rate—almost 3 percent a year—for people at all income levels. We had an economically vibrant middle class. Existing roads and bridges were well maintained, and impressive new infrastructure was being added each year. We cheered when President John F. Kennedy urged, “Ask not what your country can do for you, ask what you can do for your country.”...

  5. TWO Darwin’s Wedge
    (pp. 16-29)

    I was born in 1945. When someone my age makes a forecast about something that will happen a hundred years from now, he needn’t worry about being teased by friends if it doesn’t pan out. Without trepidation, then, I offer the following prediction. One century hence, if a roster of professional economists is asked to identify the intellectual father of their discipline, a majority will name Charles Darwin.

    If the same question were posed today, of course, more than 99 percent of my colleagues would name Adam Smith. My views about Darwin’s significance reflect no shortage of admiration for Smith...

  6. THREE No Cash on the Table
    (pp. 30-45)

    A dam smith’s concerns about the efficacy of the invisible hand focused on the ability of powerful actors to limit competition. Liberal skeptics of the marketplace were quick to embrace those concerns and continue to see limited competition as the most important cause of market failure. But as Charles Darwin saw clearly, even perfect competition will not always guide behavior in ways that promote the common good. Individual and group interests often diverge sharply, he realized, and in such cases individual interest generally carries the day.

    An important feature of Darwin’s narrative is that market failure can occur even when...

  7. FOUR Starve the Beast—But Which One?
    (pp. 46-63)

    By means of three separate congressional earmarks in 2005, a total of $320 million was proposed for the construction of a bridge linking the town of Ketchikan, Alaska, with its airport on Gravina Island. Dubbed “The Bridge to Nowhere,” the project quickly became a celebrated symbol of waste in government.¹

    This particular bridge was a terrible idea from the beginning. Ketchikan’s population at the time was less than 9,000 and Gravina’s was only 50. Ferry service provided transportation between the town and the island at a fee of $6, at fifteen- to thirty-minute intervals, depending on the time of day....

  8. FIVE Putting the Positional Consumption Beast on a Diet
    (pp. 64-83)

    Darwin’s insight that individual incentives often conflict sharply with those of larger groups is nowhere more clearly illustrated than in the context of military arms races. Yet, despite its familiarity, the parable of the military arms race remains imperfectly understood.

    In a stripped-down version of an arms race, one nation gains advantage over a rival by building additional armaments, which prompts the rival to build additional armaments of its own to restore the balance. The first nation then acquires still more weaponry, provoking yet another response from its rival, and so on. When the dust settles, neither side enjoys greater...

  9. SIX Perpetrators and Victims
    (pp. 84-99)

    In almost every country in europe, individual behavior is more heavily regulated than in the United States. And in the United States, behavior is more heavily regulated now than it was a century ago. Both comparisons are rooted in differences in population density. There have always been many more people per square mile in Europe than in the United States, where population density is much higher now than it was in frontier days. With higher density, people collide with one another more often.

    Society is not only more densely populated now, but also much more highly interactive, in part because...

  10. SEVEN Efficiency Rules
    (pp. 100-118)

    The development of money was a critical step that facilitated the division and specialization of labor, a process that enabled per-capita income to grow thousandsfold during the past several centuries. Money has also been indispensable as a unit of account for deciding which of two competing interests should prevail.

    Thus, in Ronald Coase’s example of the factory owner whose machinery disrupted the neighboring doctor’s practice, the best solution to the problem was easily identified by comparing the factory owner’s monetary cost of soundproofing his machines to the doctor’s monetary cost of moving to a quiet location. The incomes of the...

  11. EIGHT “It’s Your Money . . .”
    (pp. 119-139)

    In hisThe Second Treatise of Civil Government,the seventeenth-century British philosopher John Locke wrote that “every man has a property in his own person. This nobody has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.”

    These words made Locke an intellectual hero of movement libertarians, who continue to view all taxation as theft. Although more serious libertarians grudgingly concede the need for at least some taxation, there is no denying that Locke’s words have had enormous rhetorical force far beyond libertarian circles. If you make...

  12. NINE Success and Luck
    (pp. 140-156)

    People often speak about the emotional brain and the rational brain as if there really were two independent people housed within us—one driven by reason, the other by emotion. But neuroscientists stress that the brain’s emotional circuits and cognitive circuits are richly interdependent.¹

    In exceptional circumstances, strong emotional reactions can occur even in the absence of significant cognitive processing. This happens, for example, at the sight of a snake-like object, which can provoke fear before the image even reaches the cognitive circuits of the brain.² More generally, however, our emotional reactions to events depend critically on how we frame...

  13. TEN The Great Trade-Off?
    (pp. 157-171), a website that bills itself as “the ultimate guide to why socialism causes more poverty, inequality, and injustice,” greets visitors with the following version of Aesop’s sixth-century BC fable of the goose that laid the golden eggs:

    A man and his wife had the good fortune to possess a goose which laid a golden egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it. Then, they thought, they could obtain the whole store of precious...

  14. ELEVEN Taxing Harmful Activities
    (pp. 172-193)

    A tax on any activity not only generates revenue, it also discourages the activity. That simple observation constitutes welcome news indeed, for not only do we desperately need additional tax revenue right now, but our economy is also bedeviled by a host of harmful activities. Taxes levied on those activities would kill two birds with one stone, helping to bring government budgets into balance while discouraging activities that cause more harm than good.

    Before discussing specific examples, it will be useful to flesh out the economic logic behind the claim that the tax approach often leads to better results than...

  15. TWELVE The Libertarian’s Objections Reconsidered
    (pp. 194-216)

    Different people have different visions of the good life. Although almost everyone values personal autonomy, for example, libertarians value it far more than most. Even the staunchest libertarian, however, chooses to sacrifice many valuable options every day in pursuit of others. If you’re a salaried employee, you must adhere to someone else’s schedule and do many things you may not feel like doing. Even if you’re in business for yourself, your time is never completely your own. But you accept that fact, because the resulting income enables you to pursue a host of other valuable options.

    In short, complete autonomy...

    (pp. 217-222)

    In april 2011, as my manuscript deadline for the hardcover edition ofThe Darwin Economywas approaching, the U.S. economy was still in the doldrums. Many economists, myself included, had argued that the federal stimulus program enacted in 2009 was far too small for the problem at hand. In the face of a $2 trillion annual demand shortfall, it called for only $787 billion in stimulus measures spread out over three years. Even so, there were signs that the economy was slowly starting to recover.

    So in my passages describing our political system’s inadequate response to the recession, I chose...

  17. NOTES
    (pp. 223-234)
  18. INDEX
    (pp. 235-246)