Sunday, February 03, 2008

Evolution and Economics

A few weeks ago, I posted the following on my other blog, theConverted:

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Dr. Michael Shermer, of the Skeptics Society, has a fascinating article at Scientific American entitled 'Evonomics'. He postulates that evolution and economics are both part and parcel of the same phenomenon - complex adaptive systems.
In biological evolution, nature selects from the variation produced by random genetic mutations and the mixing of parental genes. Out of that process of cumulative selection emerges complexity and diversity. In economic evolution, our material economy proceeds through the production and selection of numerous permutations of countless products.

Quoting both Mises ("Socialism") and Basitat, Shermer shows that top-down government "design" of the economy is a ludicrous as "design" in evolution.
As with living organisms and ecosystems, the economy looks designed—so just as humans naturally deduce the existence of a top-down intelligent designer, humans also (understandably) infer that a top-down government designer is needed in nearly every aspect of the economy. But just as living organisms are shaped from the bottom up by natural selection, the economy is molded from the bottom up by the invisible hand. [emphasis mine]

He still thinks (sadly) some interference is necessary to ensure "free and fair trade", but he is, at least headed in the right direction.

But what this really points to is yet another example of hypocrisy that seems to plague both the 'left' and the 'right', both so-called liberals and conservatives. Each has their own cognitive dissonance here. The conservative right, staunchly defends the idea (for the most part) that the economy is molded "from the bottom up by the invisible hand" of the market, while denying the identical process that occurs in biology. Of course, the liberal left seems to have the opposite problem - while rightly defending the process of evolution and natural selection, they fail to see this exact same process in the field of economics and claim that the government is needed to manage the market.

One cannot support true free market economics and deny evolution nor can one deny the power of the true free market while vehemently supporting evolution. Interference in the market causes unexpected distortions and unintended consequences just as interfering with evolution does.

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Since then, Dr. Shermer has appeared on Skepticality and on ReasonTV, explaining in greater detail his thesis outlined above.

In that time I have also bought and read the book The Mind of the Market. It is, of course, brilliant. Dr. Shermer also takes his thesis one step further, in explaining how a free market has an evolutionary basis, how a truly free market and truly free trade are the best ways to foster both peace and human happiness. He touches on the evolutionary basis of morality, as well as good and evil. In his chapter on it and through ongoing discussion, Dr. Shermer points to the evolution-driven biological basis for "folk economics" - why people want the egalitarian, fairness and cooperative model of society as well as the accumulation and consumer based market society; why they hate the rich but also strive to be them. And in dispelling the myth that evolution is about "survival of the fittest" and "red in tooth and claw", he not only demonstrates that cooperation and altruism are the dominant, most effective strategy for the survival of one's genes, but that this is not incompatible with a free market.

He does not, thankfully, fall into the "vulgar libertarian mode". He does not become an apologist for corporate greed. His chapter entitled "Don't be evil" dissects all that was wrong with Enron (no transperancy, destruction of team work, micromanagement, divide and conquer mentality - sound familiar CPC supporters?) and all that is right with Google (the opposite of everything that is wrong with Enron). He rightly identifies the kind of KBR-Haliburton-Enron kind of capitalism as properly corporatism and mercantilism, not true free market capitalism that Adam Smith envisioned.

All in all, he makes an excellent arguement in favour of actual freed markets and trade, based on evolution-driven human nature and behaviour. The science is solid, and Dr. Shermer provides copious endnotes to primary sources, so you can check it out for yourself.

So here is the challenge, to both those on the left and the right. Read the article, listen to the podcast, watch the video and read the book. Discuss the ideas, but keep an open mind and try to reconcile how you can believe in a bottom-up, emergent system in one area, but not in another, nearly identical area.

Consider new approaches and different solutions with these ideas in mind.

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16 Comments:

At 10:51 PM, Blogger Ron said...

Great post Mike. I am always amazed how so many folks think they're better off (or even just that it's more natural or realistic) to accept and/or support/promote "someone up there running things", whether it's a religious, economic or political discussion.

 
At 7:01 AM, Blogger Nastyboy said...

God created economics 6000 years ago.

 
At 8:03 AM, Blogger Mike said...

Ron,

Thanks. The book really shed some light on why we believe some things we believe too - basically a species evolved to living in groups of 10s or hundreds of hunter gatherers suddenly living in groups of millions as traders and consumers.

Nasty,

Was that on the 5th day or the 6th?

 
At 7:39 PM, Blogger Charles Anthony said...

I doubt Shermer has studied anything more than the dust-jacket summaries of any of von Mises' books. He certainly does not understand the whole premise behind Human Action. I will say this: economics deals with human action whereas evolution deals with at most, animal action. A human differs from every other living organism by virtue of the fact that he can not survive on instincts alone.


Shermer's connection between evolution and economics is quite thin, if it exists at all. Maybe I am missing something but all he says is that they are both complicated systems therefore, golly gee! they must operate in the same way. Hell, he must figure apples and oranges are the same seeing how they are both round! and they are both fruit!!

I read that article and I find it quite stupid. I can not imagine anybody who has studied any level of economics -- Austrian or otherwise -- to accept his thesis. I would suggest that everybody read some of the comments associated with that article too. A few of those comments illustrate the naivety of Shermer's understanding of economics. Some examples are the domestication of animals, genetic engineering and the entire field of medicine -- these are all counter-evolutionary top-down mechanisms.

I will be so bold as to say that this Evonomics-shit is an insult to von Mises.

 
At 8:03 AM, Blogger Mike said...

Charles with all do respect, you haven't the slightest idea what you are talking about.

"I will say this: economics deals with human action whereas evolution deals with at most, animal action."

Then you don't understand evolution - humans ARE animals. Shermer goes into great details, quoting numerous studies that show the evolutionary basis of human behaviour, including economic behaviours, and demonstrates how this is shared with our primate relatives - chimps, bonobos, even Reeses monekeys. They all display trading behaviours and response to price, supply and demand.

Some examples are the domestication of animals, genetic engineering and the entire field of medicine -- these are all counter-evolutionary top-down mechanisms.

How does that disprove the thesis. Does having a domesticated dog disprove evolution? Does having a government program disprove market economics? What does medicine have to do with evolution?

The point is that both evolution and the market are bottom up - no one creates them. Shermer himself admits the parallel is not perfect, but he demonstrated the relationship between the two and provides an compelling, science based argument for a free market being the best mechanism for human relations and human happiness.

"I will be so bold as to say that this Evonomics-shit is an insult to von Mises.

I will be so bold as to say perhaps you ought to actually read the book before you make idiotic comments like that. I would posit to you that Shermer uses the science discussed in the book to support and prove that Mises Human Action is correct. As well, he devotes and entire chapter to showing that Frederic Bastiat was also right.

I think instead of judging by its cover or by the comments on a Sciam article, you really ought to read it first.

 
At 2:47 PM, Blogger Josh Gould said...

I suppose evolution is a nice metaphor for the economy writ-large, but it tells us nothing about how to deal with the Real World (TM). For example, what are the necessary ingredients for a stable banking system? Or for mitigating currency instability? What are the implications for theories of development? And does any of this square with the historical experience of industrialization throughout the world? (Answer: No. It sidesteps the clear successes of import-substitution industrialization, tariff strategies, and national industrial policies. Of course, the right mix of policies will "evolve" over time through a mixture of planning ahead and incremental adjustments.)

 
At 3:32 PM, Blogger Mike said...

Josh,

First I'm going to recommend, as I will to everyone, that they read the entire book. As I have stated, Shermer provides lots of data and studies to back up his hypotheses.

Second, I will point out this line from the article:

"Evolution and economics are not just analogous to each other, but they are actually two forms of a larger phenomenon called complex adaptive systems, in which individual elements, parts or agents interact, then process information and adapt their behavior to changing conditions. Immune systems, ecosystems, language, the law and the Internet are all examples of complex adaptive systems."(emphasis mine)

They are not identical, but based on the same principals of individual agents interacting with each other and reacting to their environment to create an emergent system that seems designed and created and isn't. The process is the same.

"And does any of this square with the historical experience of industrialization throughout the world? "

Actually yes, it does. Most of the entire last chapter is giving historical examples of development, based on the work of Jared Diamond (Guns,Germs and Steel).

Part of his point is that messing with (or trying to mess with) the bottom-up emergent process of evolution is possible, but not desirable as it can result in all kinds of unintended consequences. The same can be said from attempting to control the same process in a free market economy (a true free market, not the kind of neo-mercantilism we currently enjoy).

The so-called success of our current stable banking system isn't something to shout about - fiat money and the externalization of risk via regulation are major ingredients in the US sub-prime mortgage fiasco. That sure isn't "free market".

"Of course, the right mix of policies will "evolve" over time through a mixture of planning ahead and incremental adjustments"

You can no sooner plan and control the economy as you can evolution. You can try, but you end up with state socialism, crony capitalism or other forms of economic eugenics.

"tariff strategies, and national industrial policies"

Like our current "free-trade" agreements (which aren't) tariff strategies? Like nationalizing industries that are deemed important? I never bought the utility of these things even when I was in the NDP.

"the clear successes of import-substitution industrialization"

Well, the best example of that I have read was the import substitution economic boom that occured in Toronto,Missisagua and Bramptoon a few years back (as referenced by Jane Jacobs in The Dark Age Ahead). It was not planned and occurred spontaneously. It also shows the folly of national strategies for economies that are local in nature.

I suggest that you read the book - Shermer covers much of this in it (and I don't have it handy to dig for the parts to quote to you).

 
At 3:57 PM, Blogger Ron said...

It sidesteps the clear successes of import-substitution industrialization, tariff strategies, and national industrial policies.

ftfy version: it sidesteps the ability of bureaucrats to ensure different marketplace winners than those that would have won had interventions not taken place.

 
At 10:48 PM, Blogger Josh Gould said...

They are not identical, but based on the same principals of individual agents interacting with each other and reacting to their environment to create an emergent system that seems designed and created and isn't. The process is the same.

Yet it is a fallacy to argue that organisms seem designed - there are umpteen examples of the suboptimal construction of the human body, for example, but it is a wholly different thing to describe the economy as a "complex adaptive system" akin to evolutionary processes and then go on to prescribe how it should be left to operate "on its own" in some manner.

Actually yes, it does. Most of the entire last chapter is giving historical examples of development, based on the work of Jared Diamond (Guns,Germs and Steel).

I don't recall anything in GGS concerning recent industrial development in Europe, North America, and Asia. What does this have to do with post-war economic policies pursued in Japan and South Korea (which is what I was referring to - should have been clearer)?

Part of his point is that messing with (or trying to mess with) the bottom-up emergent process of evolution is possible, but not desirable as it can result in all kinds of unintended consequences. The same can be said from attempting to control the same process in a free market economy (a true free market, not the kind of neo-mercantilism we currently enjoy).

This argument begs the question - since we are all subject to evolution, how can there exist any kind of outside actor which can impose its will upon such a "bottom-up emergent" process? For that matter, human beings are experts at manipulating (in a planned or unplanned fashion) their environment - including other organisms - for their own purposes. Other social animals do the same. And when has a "true free market" ever existed?

The so-called success of our current stable banking system isn't something to shout about - fiat money and the externalization of risk via regulation are major ingredients in the US sub-prime mortgage fiasco. That sure isn't "free market".

And yet Canadian banks have enjoyed decades of stability while the US has had a savings-and-loan failure and, of course, the whole sub-prime fiasco, which affected said Canadian banks only insofar as they'd dallied in the US market. It is just as reasonable to argue that an economy (or a polity, even) will "evolve" a particular banking system which, by its nature, may be centrally controlled. Nothing in evolutionary processes presupposes the success of adaptations that emerge, and it is fundamentally inappropriate to attempt to separate "evolution" in the economy from wider societal and political trends, such as institutional development. In short, if you want to posit a sort of evolutionary explanation for the economy, you have little choice but to take that lens to the widest scope.

You can no sooner plan and control the economy as you can evolution. You can try, but you end up with state socialism, crony capitalism or other forms of economic eugenics.

Humans have been quite successful at "controlling evolution" via selective breeding programs for livestock and crops. While planning - in the sense of Soviet-style control (or putative control) of all prices, wages, and production levels - does not work when mere mortals try to plan everything, this is a far cry from evidence that "planning" fails in all sectors at all times and at all levels. That's patently absurd.

Of course, the more complex a system is, the less you can be sure of, and the hallmark of any complex system is unforeseen Really Bad Events. To use an analogy, the role of the planners (be they in government or in boardrooms) is to steer the ship of the economy (or their piece of it) away from rough waters as much as possible, while looking out for storms on the horizon. There isn't an exact science to it, and they aren't always up the task, but someone needs to man the wheel.

Like our current "free-trade" agreements (which aren't) tariff strategies? Like nationalizing industries that are deemed important? I never bought the utility of these things even when I was in the NDP.

I was thinking more along the lines of the very well documented policies of various states when they were in their industrial infancy. Post-war Japan, for example.

Well, the best example of that I have read was the import substitution economic boom that occured in Toronto,Missisagua and Bramptoon a few years back (as referenced by Jane Jacobs in The Dark Age Ahead). It was not planned and occurred spontaneously. It also shows the folly of national strategies for economies that are local in nature.

And yet the influence of centrally-set immigration and trade policies cannot be discounted from such successes. The ISI examples I mentioned refer to those listed here.

I suggest that you read the book - Shermer covers much of this in it (and I don't have it handy to dig for the parts to quote to you).

I'll see if the UW library has it.

 
At 3:41 PM, Blogger Charles Anthony said...

"Charles with all do respect, you haven't the slightest idea what you are talking about."
Yeah, I must have been sleeping through a full honors degree in economics and a separate full honors degree in biological science.

"Then you don't understand evolution - humans ARE animals."
You have have selective reading.
This is what I wrote: A human differs from every other living organism by virtue of the fact that he can not survive on instincts alone.

"Shermer goes into great details, quoting numerous studies that show the evolutionary basis of human behaviour, including economic behaviours, and demonstrates how this is shared with our primate relatives - chimps, bonobos, even Reeses monekeys. They all display trading behaviours and response to price, supply and demand."
He may go into as much detail as he wants but the social behavior of monkeys is irrelevant because evolution deals with more than just animals -- it deals with other organisms too. That is why I said "at most, animal action." in the part that you quoted above.

Mike, here is a challenge for you: How do plants or fungi or microbes behave?
Answer: they do not! however, they can not be excluded from any discussion of evolution.

"How does that disprove the thesis. Does having a domesticated dog disprove evolution?"
No but his thesis is not to prove evolution.

"Does having a government program disprove market economics?"
No but his thesis is not to prove market economics.


" What does medicine have to do with evolution?"
Nothing but his thesis is not to prove evolution.


"The point is that both evolution and the market are bottom up - no one creates them."
So.... you actually do know what his thesis is. Good.
Therefore, all of those examples are situations that are NOT bottom up.

" Shermer himself admits the parallel is not perfect,"
Correct and I find his parallel to be as sophisticated as saying: "Both apples and oranges are round. Therefore, they both must be fruit."

"but he demonstrated the relationship between the two and provides an compelling, science based argument for a free market being the best mechanism for human relations and human happiness."
I just do not find his argument compelling because it depends to heavily on examples and there are also other examples which run counter to his thesis.

"I will be so bold as to say perhaps you ought to actually read the book before you make idiotic comments like that. I would posit to you that Shermer uses the science discussed in the book to support and prove that Mises Human Action is correct. As well, he devotes and entire chapter to showing that Frederic Bastiat was also right."
Why??
Mises's book "Human Action" stands on its own.

"I think instead of judging by its cover or by the comments on a Sciam article, you really ought to read it first."
Why should I read his book?
I certainly do not need somebody to prove the supremacy and virtue of the free market -- I already know that.
I certainly do not need somebody to prove evolution to me -- I already know that too.

What contribution does Shermer make?

 
At 11:32 PM, Blogger Mike said...

Yeah, I must have been sleeping through a full honors degree in economics and a separate full honors degree in biological science.

Well then you are just being purposefully obtuse or genuinely not getting it - that evolution and free market economics are both examples of bottom up complex adaptive systems. The processes are similar, in that it is the actions of the agents which produce the results, not that of a designer. They are both spontaneous emergent systems, not created ones.

He may go into as much detail as he wants but the social behavior of monkeys is irrelevant because evolution deals with more than just animals -- it deals with other organisms too. That is why I said "at most, animal action." in the part that you quoted above.

Well except he was discussing the process similarities between the two. And how our human evolution affects our action and choices in the market, what creates our preferences and our subjective values. He uses various human behavioral studies as well as primate studies and fMRI scans to show that these actions and preferences are based in part on our biology as a result of our evolution going back, at times, millions of years. It is not base instinct which we cannot control, but emotion and preference that acts upon us when we make choices.

Mike, here is a challenge for you: How do plants or fungi or microbes behave?
Answer: they do not! however, they can not be excluded from any discussion of evolution.


Irrelevant to what Shermer or I wrote. But even fungi and plants still evolved in a bottom up fashion.

Therefore, all of those examples are situations that are NOT bottom up.

Huh? What does that even mean? Just what "examples" are you even talking about?

I just do not find his argument compelling because it depends to heavily on examples and there are also other examples which run counter to his thesis.

Gleaned from a Sciam article? Perhaps you ought to read the book and get the details. His thesis depends heavily on actual scientific research. But you would have to read the book, something you arrogantly seem unwilling to do. Yet you are certain he is wrong.

Why??
Mises's book "Human Action" stands on its own.


Yes I supposed to true believers who have taken the time to read it (I'm not done yet). But Shermer provides more scientific evidence and tweaks to Mises based on data Mises simply could not have had in 1938 or even n 1963 when the 4th edition was written . I would think also that you would be in favour of additional evidence supporting Mises that one could use to give Mises and Austrian economics a wider audience and acceptance than they currently have. Or maybe Human Action is the holy of holies and cannot be expanded upon or supported - or, god forbid, shown to be wrong in places.

Why should I read his book?
I certainly do not need somebody to prove the supremacy and virtue of the free market -- I already know that.
I certainly do not need somebody to prove evolution to me -- I already know that too.


Your right, why would you need to read the book about a thesis you are so vehemently criticizing? You must be right.

I thought it was a good book that has the possibility of opening the free market AND evolution to people who currently only subscribe to one or another but not both. I learned quite a bit about human behaviour and why we are not so rational when it comes to market choices and behavior. I guess someone with a "full honors degree in economics and a separate full honors degree in biological science" doesn't need to learn this stuff.

Of course, maybe people with your qualifications aren't the target audience.

What contribution does Shermer make?

He brings together two concepts that many people don't see as related and shows they are, and that they are intertwined with human action. Mises brought the idea of human action and subjective value to economics, Shermer brings the idea of how this is similar to evolutionary process and how our evolution is the basis for our human actions and subjective values. Mises had the 'how', Shermer has the 'why'.

Of course, in order to really see what his contribution is (or to determine if he is a quack) you might have to read the book.

 
At 1:10 AM, Blogger Josh Gould said...

Well then you are just being purposefully obtuse or genuinely not getting it - that evolution and free market economics are both examples of bottom up complex adaptive systems. The processes are similar, in that it is the actions of the agents which produce the results, not that of a designer. They are both spontaneous emergent systems, not created ones.

Except the "actors" of evolution are not rational (or even irrational) agents, but genes and biochemical processes. Without having read the book, it seems strange to liken evolution and the economy on the grounds of being "spontaneous emergent systems" when the definition of "spontaneity" in one is wholly unlike the other.

Evolution is "spontaneous" only in the sense that is thermodynamically favourable. It is further more accurate to say that life is an emergent process deriving from ordered systems of organic molecules - evolution is simply a feature of this "spontaneous emergent system", namely that life forms undergo constant and continual change and adaptation in response to stimuli and biochemical processes.

On the other hand, the (human) economy could perhaps best be defined as consisting of "those social (and political) systems characteristic of all human societies and groups which provide for the production and distribution of material goods and services". Now, it is reasonable to say that humans have developed certain habits, customs, and institutions to define the "economy" as such, but it is teleological and fallacious to define a certain model of an economy as somehow more consistent with our "evolution". That's just a value judgement, and if that is indeed Shermer's conclusion, it displays nothing more than a normative bias.

To go in another direction, an evidently inherent feature of honey bees is their highly and rigidly stratified hive societies, which vividly characterize both their social and "economic" structure. Now, it would be a stretch to argue that the worker bees are being "oppressed" by the queen bee. They've simply evolved that way, right?

One could easily argue that, for humans, our evolution has sent us in the direction of varying degrees of social and economic stratification, which have in turn been directly related to our organization into sociopolitical groups, namely state societies of one sort of another, which have been the hallmark of every enduring civilization since the rise of agriculture 8,000-10,000 years ago. If one is to interpret a certain set of socioeconomic arrangements as more "natural" in light of evolution, then you'd be hard pressed to show that libertarian (much less anarchist!) ideas have much suppport at the observational level. Of course, that would still be confusing the debate about what "is" with that about what "should be". These debates may inform each other, but they certainly don't determine one another. And nor should they, though I suppose that's a prescription in itself.

 
At 1:17 AM, Blogger Josh Gould said...

I realised I forgot to define "spontaneous" in the economic sense. Since humans and social animals who almost invariably live in groups ranging from small tribes to nation-states, it stands to reason that every human society must have some sort of economy. It will be "spontaneous" only in the sense that, humans not being individually self-sufficient, some degree of a division of labour requires decisions or processes to allocate food and other goods and resources. The features of an economy will of course be directly related to the nature of the society in question and its particular needs, scale, and environment. So the economy will "adapt" as many people make decisions about how to produce and distribute things, each informed by some type of information and, of course, their own desires. And then they may succeed and be highly successful (the Ancient Egyptians) or they may fail entirely (the Norse in Greenland). Yes, it's "complex" and "adaptive" and it's a "system", but there's a great deal of variation within "economies" worldwide and historically (of course).

 
At 11:05 AM, Blogger Boris said...

Just to let y'all know there's a whole body of theory devoted to studying the nature of complex adaptive systems.

Start here: http://www.resalliance.org/1.php

 
At 11:08 AM, Blogger Mike said...

Thanks Boris. I'll check it out.

 
At 3:03 AM, Blogger Declan said...

"One cannot support true free market economics and deny evolution nor can one deny the power of the true free market while vehemently supporting evolution."

You're confusing different things here.

One is a question of origins. Where did this complex system come from? With respect to the human body there is a dispute between creationists who believe that it was designed by God and people who believe that it evolved from less complex beings through a process of natural selection.

With respect to the economy there is pretty much universal agreement that the economy is a creation of various people's actions over time. Nobody on the left wing believes (as far as I know!), for example, that Microsoft was designed by God rather than Bill Gates.

The second thing, is how best to achieve our goals. With respect to evolution there is pretty widespread, although hardly universal, agreement that we should modify evolution to our advantage with respect to fighting disease, improving crop yields, preserving endangered species, doing research, and generally in messing with anything not human. There is less agreement about messing with human evolution, regardless of the aims.

With respect to the economy, there is disagreement (albeit within a smaller band than most likely realize) over the extent to which
people should 'interfere' with the 'evolution' of the economy in order to achieve our goals. Generally, there isn't the same moral dimension to the question that applies when talking about modifying human evolution, it is, rather, a question of effectiveness - what level of interference will work the best.

The 20th century gave us a vast proliferation in 'interference' with the free market - and at the same time huge advances in both the size of the economy and in general measures of human wellbeing.

To take just a few examples, out of millions, places with centralized garbage pickup and sewage treatment do better than those without, places which enforce number portability for cellphones do better than those that don't, places with public schools do better than those without. Of course there are issues where differences of opinion remain. How much vacation time, if any, should government mandate? Is a publicly run pension plan beneficial? Is public health insurance more effective than private health insurance? Is private car insurance more effective than public car insurance? Etc. Etc. To be honest, I'm not sure how noting that evolution and economics are both complex adaptive systems really helps us answer any of these questions vs. analyzing our experience with variants of the options which have been tried and making a fair assessment of the results to see what works best.

--
Unless the point was, 'communism sucks because it's too hard to plan everything out from the top down', in which case my response would have been, 'well no shit, but there's only a marginalized handful of people who still argue for communism, so what's your point?'

Finally, it's not clear to me why government and the laws and regulations it writes wouldn't be considered part of the adaptive system making up the economy rather than an external agent to it.

 

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