Prima facie the notion of applying ecological theory to challenge our understanding of the national economy sounds intensely intriguing. So it was with great expectations that I read economist Robert Frank’s recent NYT piece based on his new book, “The Darwin Economy.” He presents the same idea in precis, here. Unfortunately the results did not live up to the promise of such an innovative idea.
Frank’s stated ambition is to use Darwin to critique Adam Smith on the basis of their different understandings of competition. In “The Wealth of Nations” (1776), Smith argued that as an individual pursues his or her own self-interest the outcome, without the individual ever intending to do so, can be beneficial to all of society. For example, as merchants compete with each other in their efforts to win customers the result is technological innovation, a collective good.
As a counterpoint Frank offers an example from the animal kingdom that he argues illustrates how Darwin’s theory better explains market behavior. Bull elk have enormous antlers that they use to compete with other males for access to mates. As the bull with the largest rack of antlers typically wins, competition has encouraged an “arms race” resulting in ever larger racks of antlers. Truthfully, the antlers are much bigger than they need to be. Consequently when bull elk flee from predators such as wolves they often get their racks tangled in trees, slowing them down and making them susceptible to predation. Thus, Frank concludes with Darwin contra Smith, in a competition things that are beneficial to the individual can result in an outcome that is detrimental to the group.
I’ll pause here for you to snort derisively.
Frank continues, if the elk could “vote” they might decide to start growing their antlers to only half their size. They could continue to compete among themselves, in fact the scale of the individual competition would remain exactly the same if everyone’s antlers were 50% smaller. At the same time such a deal would expedite their retreat into the forest when pursued by wolves, an increase in the public good. Simply put, the elk’s antlers are bigger than they need to be so cutting down on excess antler growth would eliminate the waste generated by the arms race of competition.
In turning his attention to the American economy, Frank observes a similar pattern of arms race-like competition in the quest to obtain social status through luxury purchases. As the wealthiest acquire status symbols so too do the middle and lower classes race to keep up by spending money in a never ending competition for prestige. The result is a society living beyond its means. Whereas elk “voting” to change their antler size is a fantasy, we can use policy to alter wasteful spending patterns and increase savings by replacing our progressive income tax with a progressive consumption tax. This is not to be confused with a valued added tax, national sales tax or flat tax endorsed by some libertarians, which he recognizes is rightly decried as regressive. Frank’s formula goes like this:
Taxes Paid = (Adjusted Gross Income – Annual Savings) * (Progressive Rate Structure)
The result of implanting this tax structure, Frank writes, would be that the wealthiest would reign in excessive spending on status goods to avoid the consumption tax. This would relax the pressure to “keep up with the Jones,” prompting the middle and lower classes to follow suit. Of course, there would still be competition for prestige expressed in consumer goods, cars, and real estate, but everything would be scaled back. The progressive consumption tax would generate an economic surplus at the household level. It is the tax structure Charles Darwin would have endorsed and Adam Smith never would have thought of.
Something’s wrong here and it begins with Frank’s misreading of Darwin. The example of elk’s antlers is, properly speaking, one of sexual selection. In “On the Origin of the Species” (1859) Darwin presented his theory of evolution by natural selection, which wonderfully explained why all polar bears have thick coats and all giraffes have long necks. Over time any trait beneficial to the individual will spread through the population if it helps them adapt to selective pressures in their environment. But Darwin struggled to explain things like the ornate patterns of butterfly wings, which don’t seem to have anything to do with the environmental pressures, or the peacock’s tail which, frankly, seems to be detrimental to the individual’s survival.
It wasn’t until “The Descent of Man” (1871) that Darwin hit upon the theory of sexual selection. These things are not to enhance the survival of the individual or help them adapt to the environment but to advertize their fitness as a mate. Frank’s elk example fails because he only considers the male’s point view. Males compete, but females choose. It is female choice that has led to spread of large antlers through the elk population not male competition.
Males and females have different reproductive strategies stemming from the fact that they invest different amounts of energy into the reproductive process. Females have a limited number of eggs, when they are pregnant they cannot take another mate, and after giving birth spend time and energy caring for the young. In terms of reproductive success, females do best when they are choosy and pick a male endowed with the best genes. Males can produce sperm by the millions and after taking one mate can increase their fitness by quickly taking another. Males improve their reproductive success by competing with other males in an effort to increase the quantity of females they mate with.
If you can take that and apply it to economics, great. But that’s not what Frank does. To him Darwin’s theory is just a handy metaphor.
Nowhere does Darwin say that competition among individuals does not always produce results beneficial to the group. That is a conclusion Frank comes to because he’s reading through this lens that forwards agenda for new tax policy. Natural selection doesn’t care about groups, it only ever acts on individuals. It doesn’t really care about survival either, rather “winning” at natural selection means reproductive success. Evolution is the aggregate result of natural selection shaping the frequency of variations within a population. Therefore, no bull elk would have a huge and unwieldy rack of antlers if the benefits of having them did not outweigh the costs.
This is to say nothing of Frank’s weird ideas about social prestige. Maybe this is explained better in the book length work? I’d be interested to see if he sees himself as engaging with Thurston Veblen, another economist who had a misguided understanding of evolution.
The prospect of applying ecological theory to contemporary economic policy is stimulating. That kernel of Frank’s argument is brilliant. Economics, of course, gave rise to modern ecology. After all Darwin had his “Eureka!” moment when he finally got around to reading Thomas Malthus’s “Essay on the Principle of Population” (1798). Malthus, an economist, argued that as the human population continues to grow so too will the pool of available laborers, the multitude of unemployed will depress wages resulting in widespread poverty. Existence is a struggle because resources will always be limited and individuals must compete to access them. When populations exceed their available resources the result is famine, disease, and war.
Ecology grew directly out of economics, epitomized in this historic moment when Darwin incorporates Malthus. My wife, a fisheries ecologist, teaches an evolution class for biology majors using a textbook titled, “The Economy of Nature.” At a very fundamental level ecology and economics are about understanding similar things. What if you could take the insights of ecology and formulate them into a critique of economy? I would be excited to see the results! Too bad Frank failed to follow through.
Frank’s usage of Darwin does not go beyond analogy. Essentially it amounts to little more than a rhetorical move whereby the economist seeks to borrow Darwin’s authority to sell his idea of a progressive consumption tax. Incidentally, I had never heard of such a thing before and maybe it’s a worthwhile policy to consider. But it has nothing to do with Darwin or natural selection.