Cornell economist Robert Frank is highly respected within his profession and well known to the general public though his books such as The Winner Take All Society and Luxury Fever. In his latest book The Darwin Economy, he predicts that 100 years from now Charles Darwin, and not Adam Smith, will be regarded as the father of economics. I interviewed Bob in his office on August 20, 2015. I began by asking him to explain his prediction and we ended by discussing how to cut 100 years to 10 years.
DSW: You have said that in 100 years, Charles Darwin and not Adam Smith will be considered the father of economics. Can you explain what you mean by that?
RF: Well, that was just a cheap marketing tactic. It was a claim I knew I wouldn’t be embarrassed to have made if it turned out to be wrong, because 100 years from now nobody will remember anything about it. But, it was a claim I thought I could defend if I had to. You know the famous association in the public mind between Adam Smith and the invisible hand theorem; the notion that if you just turn selfish people loose in the marketplace and have them seek their own narrow interests, you’ll get good results for society as a whole. Smith’s view was a little less pointed on that subject than his modern disciples’ view of what he said. They seem to think that he believed you would always get good results. He was far more circumspect. It was interesting to him that you often got good results when people pursued their own interest. I think it was Darwin who saw much more clearly the general relationship between the pursuit of individual advantage and the welfare of groups. In his theory of natural selection the emphasis is on how a trait or behavior helps the individual. If it promotes survival and reproduction of the individual that bears the trait, then generally it will be selected for. Often these traits are also good for the group, but not necessarily. So keen eyesight in the hawk—great for the individual animal, great for hawks generally.
Other traits, particularly those involved in sexual selection arms races, are typically harmful, for groups at least if not for the entire species. One of the vivid examples is the outsized rack of antlers on the bull elk. They span four feet, they weigh forty pounds, they are a horrible encumbrance. If a bull is chased into the woods by wolves he is easily surrounded and killed. He can’t maneuver. But those antlers are indispensible, since elk are a polygynous species, like most vertebrates. The bulls fight with each other for access to females and many of them don’t get any mates at all, which is the ultimate loser position in the Darwinian scheme. So having bigger antlers than your rivals was a huge advantage. That arms race doesn’t go on forever. We see four-foot antlers, not forty-foot antlers. They weigh 40, not 400 pounds. It’s true that natural selection imposes limits on the arms races, but the important point is that there is no presumption whatsoever that they are best from the perspective of the bulls involved. If they could each cut their antlers back by half, that would be a compellingly good deal for them. All fights would be decided as before, and all bulls would be less vulnerable to predators.
When we look at the marketplace, there are so many situations that are exactly analogous to arms races that led to big antlers in the bull elk. I think in time we will come to recognize—those who haven’t already—that there shouldn’t be any presumption at all that competition leads in general to good results for the group.
DSW: Let me generalize that. You’ve given a sexual selection example and I know from your book The Darwin Economy that there are many human counterparts to that—various forms of arms races. But another thing that Darwin discovered, I think somewhat to his dismay, is that if you look at all the traits associated with morality—what we do to benefit our group—those typically are not selectively advantageous within groups. So it’s not just a matter of striving for mates or striving to be top dog. Just about any behavior that is for the good of the group is going to cost time, energy, and risk for the individual, which places the solid citizen at a selective disadvantage within groups. So the problem is even worse than you say when you point to the bull elk example.
RF: Yes. I think that Smith and his modern disciples all recognize well enough that many people cheat and lie and steal when they think they can get away with it, and that’s not good for the system at a whole. I saw my contribution as pointing out that there is a whole suite of voluntary, legal, freely engaged in behaviors that have bad consequences for groups, even though individuals have no reason to second-guess themselves for engaging in them.
DSW: At the heart of this is that word relative. When I summarize what The Darwin Economy means compared to standard economic thinking, it is relative fitness vs. absolute fitness. In evolution, what evolves is that which does better than anything else. It’s always relative and can be relative at a number of scales; within groups, between groups, and so on. But economic theory, especially formal economic theory, appears to be founded on a concept of absolute utility. First let me check with you that I’m correct and second let me ask why economics developed that way and never saw anything wrong with it. Why did it take someone like you to point out that so many social processes are based on relative advantage, not absolute utilities?
RF: First of all, you are correct to say that the formal theoretical apparatus of economics today completely ignores the link between context and evaluation. Is my car OK? Is my suit OK? Is my house OK? According to standard economic theory, the answers to those questions all depend only on the absolute qualities of the things involved. It’s going to be a very strange thing 100 years from now, I think, when economists and others look back on the state of discourse in economics in our day. “Why weren’t they taking context into account?” will be the first question people will ask. I’ve thought about that question for decades. I have some tentative thoughts about it, but I’m still left with the feeling that I don’t fully know what the answer is. But on the question “Does context matter?” I think even economists, if you pressed them, wouldn’t argue that it doesn’t. So you want to look good when you go for your interview. What does that mean? Looking good is a quintessentially relative concept. It means looking better than other people who want the same investment banking job that you want. If the other canditates are wearing $500 dollar suits and you go in wearing a custom tailored $2000 suit, you’re still not going to get the job if you have bad grades and don’t speak well, but if everything else is equal—and we know this from experiments—you’re more likely to get a callback than the people wearing the cheap suits. The interviewer many not be able to say what color your suit was, or anything of that sort. It’s all operating out of conscious awareness, but looking good means looking relatively good and people are in subtle ways aware of who looks good. There is no absolute sense that we can define a standard for a suit to be OK. It’s always relative.
I lived in a two-room house with no plumbing or electricity when I was a Peace Corps volunteer in Nepal. It was not only OK but a great house, one of the best houses that any of the teachers in the school where I taught lived in. I was proud to invite people over. But it wouldn’t be an OK house in Ithaca. It would be a house that screamed out to the community that here is a person who didn’t do what was minimally expected of him.
DSW: There is a filter, I think, for who becomes an economist and then there is another filter for who succeeds after they start their training. You’ve worked on that. Economic training is a formative experience that molds how you think.
RF: Tom Gilovich and Dennis Regan and I did some experiments long ago in which we tried to determine whether studying economics made people behave in a more self-interested way. It would be strange if it didn’t have that effect, because the models we use in economics assume that people are self-interested in the narrow sense of the term. So, if you do experiments with prisoner’s dilemmas, a very popular game for exploring the interplay between community interest and self-interest, the prediction of the economics models is that everyone will defect (in a one-shot game). Our experiments sought to determine whether students who were studying economics were more likely than others to defect. The first thing to note is that many people do not defect, contrary to the prediction. They’ll never see their partners again; they interact only once. The theory is very clear that you’ll get a better payoff no matter what the other player does if you defect. Yet, a high proportion of people don’t defect. In those experiments, if you studied economics, you were substantially more likely to defect than if you were a major in some other subject. These were all Cornell undergraduate students. Was this a training effect or a selection effect? (Maybe the students who chose to major in economics were just more selfish to begin with.) We couldn’t tell from that result, so we also examined where you were in the pipeline. If you were a freshman or a sophomore, the difference between economics majors and others was much smaller than it was if you were a junior or a senior. The longer you studied economics, the more the difference was in defection rates. That’s the expected finding. If you teach that people will defect in prisoner’s dilemmas—we know from experiments that if you tell someone “look, we’ve seen the form; your partner has already defected. What do you want to do?”—everyone defects in that case. On what grounds might you expect that an economist wouldn’t be more likely to defect if all day long he teaches students that is what people do in that situation. So, it’s an interesting case of life imitating art. We become what we teach.
Vir: David Sloan Wilson, Evolution institute