Book Reviews: Rush and The Darwin EconomyPosted: December 14, 2011 | Author: Greg Linster | Filed under: Book Reviews | 4 Comments »
In this essay, I experiment with weaving the ideas from two different, but similar books together for one review.
A key insight from the work of Adam Smith is that specialization in an economy makes us all better off in absolute terms. While this is undoubtedly true in material terms, it ignores the psychological costs that can come from hyper-specialization. And Smith himself was well aware of these psychological costs. In fact, he believed that the division of labor taken to an extreme can turn people into savage creatures “as stupid and ignorant as it is possible for a human being to be”.
In absolute terms, it’s an amazing time to be alive. Virtually every measurement of progress we humans have concocted would seem to support this conclusion. Many poor Americans today live a more materially abundant life than the richest of the rich in other societies just a few centuries ago. Yet, as Gregg Easterbrook pointed out in the Progress Paradox back in 2004, things are getting objectively better on almost every level and people are feeling worse and more unhappy. And, in 2011, Matt Ridley reminded us in the Rational Optimist that there is damn good reason to be optimistic about the future too. So where does all the unhappiness and pessimism come from?
The answer, I think, stems from an insight that can be gleaned from Charles Darwin. In many domains, absolute terms don’t matter as much as relative terms. Consider the following example: Would you rather live in a house in a neighborhood that has 2,500 sq. ft. and the other houses in the neighborhood were all less than 2,000 sq. ft. or would you rather live in a 3,000 sq. ft. house in a neighborhood in which the other houses were all 4,000+ sq. ft.? Any rational agent should clearly choose the latter scenario because a 3,000 sq. ft. house is obviously better than a 2,500 sq. ft. house (assuming, of course, the houses are equal in all other respects). Yet, in study after study, most people show a preference for the former option.
Based on this hypothetical example and similar studies, it could be logically argued, then, that relative status is more important to our overall well-being than absolute status (once absolute status reaches a certain level anyway). I think much of our collective unhappiness can be explained by understanding this point. Since it’s simply not logically possible for everyone to be relatively better than their peers, no matter how good things get in absolute terms, some people will still be miserable.
Part of what it means to be human is to compete with other humans. Whether it’s sports, school, work, or social life, humans have a desire to try and be better at things than their fellow humans. It’s not necessarily always the most pleasant part of human nature, but to deny that it exists would be extremely naive. In order to combat the ugly side-effects that can stem from competition, many people on the Left seem to suggest that we should try to make outcomes more equal through social engineering.
Enter the self-esteem moment. In a competition with only 10 people some people want to give out special rewards to all the participants in order to avoid hurting any one participants feelings for not doing as well as the others. As such, we often give out 10 ribbons to all 10 participants. Obviously, the ribbons lose any sense of being special if everyone gets one. Although I think people on the Left do this with good intentions, they seem to think that everyone can be above-average (as the old saying goes, “the road to hell is paved with good intentions”). Put another way, many people on the Left would rather live in Lake Wobegon than in reality.
To willfully ignore that we evolved to compete with each other for relative status and that this competition (to a degree) is good for our psyche is the essiential theme of Todd Buchholz’s book Rush. He asserts, that trying to stifle our desire to compete with each other has the potential to cause more unhappiness than it alleviates.
On many levels, I do think that the rat race makes people miserable and I am no exception. On a personal level, I recall working many a long week in Chicago (60+ hours). I’d wake up early, ride a crowded train to work, spend a long stressful day in the office doing an unfulfilling job, ride a crowded train home, eat dinner, and then go to bed in order to do it all over again the next day. What’s the point? One doesn’t have to be a psychologist to realize that this routine will eventually make you a miserable human being, even if just on the inside.
Many self-help authors prey on people who become depressed from too much competing in life. They claim to the know the secret to escaping the rat race or the secret to transcending the desire to compete. This, however, is non-sense. Rat races exist wherever there are humans competing for scarce resources. There are even mini rat races within bigger rat races. Even activities like yoga that are supposedly immune to competition blossom with rat races. That’s right, people compete to be more Zen than thou (check out this video). Even those who have supposedly created enough wealth to escape the rat race still end up becoming stressed out competing against their elite peers (the competition is stiffer). There’s no escape!
So what if you actually need the rat race in order to be happy? That sounds like an audacious claim, but on some strange level, I think there is some truth to that claim. Vacations are wonderful, but I think I would be equally miserable spending my days drinking Corona on the beaches of Mexico for the rest of my life as I would working in an office in downtown Chicago. Overall, I think Buchholz makes a very valid point in Rush about the need for stress and competition in our lives. Without it, we may be equally as miserable as we would be with too much of it.
I think a reasonable person will agree with Robert Frank when he suggests in the Darwin Economy that we need some competition and stress in our lives, but not too much. If we can find ways to preserve relative status and remove destructive behaviors, then this would be a net benefit to society.
Suppose there were two employees who were competing for a promotion and let’s assume that in America, the norm is that people work 40 hours a week. Let’s further suppose that employee A is more productive and a better employee, however we choose to measure that. Employee B then has an incentive to work more than 40 hours a week to make up for his deficiencies in talent and skill, so he decides to work 45 hours a week in order to vie for the promotion. Employee A, however, isn’t just going to stand by and let her colleague appear better than her, so she too works 45 hours a week. Now, both employees will work an extra 10 hours (if they are salaried, then they did this for free financially); however, the relative status is still preserved. In his book, Luxury Fever, Frank dubbed this problem the “smart for one, dumb for all” principle. It is in employee B’s interest to work more, but if all other agents respond rationally, he ends up making everyone worse off (including himself) without changing his relative position in the slightest. This, in essence, is what creates the rat race.
The key to improving happiness and making sound public policy decisions is to find solutions that are beneficial to all parties without curtailing relative status. The solution to many problems that stem from relentless competition is to realize that relative status often matters more than absolute status. As such, we should find ways to curb destructive behaviors to the species that arise out of competing for relative status. Frank argues that Darwin will go down in history as the most important economist, since he was the first to realize that what appears beneficial to the individual of a species is often detrimental to the species as a whole. We humans are unique in that we can recognize this flaw in our nature.
I certainly agree with Buchholz that we do indeed need some stress and competition in our lives, just as we need some rest and relaxation. It’s simply a matter of a degree. However, I didn’t think he dealt with nuance of this point in the depth that it needed in Rush.
Darwin’s key insight was that relative position often matters more than absolute position and that what’s good for the individual is not always good for the group. Our economic activity is no exception. Libertarians who think government has no right to restrict their freedom to any degree, often fail to understand this point. Using an insight from the libertarian hero, Ronald Coase, Frank argues that government intervention is often beneficial for all parties in certain markets.
In the end, I enjoyed both books, but I think Frank makes a very compelling case that no rational libertarian will be able to ignore.