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The Darwin Economy: Liberty, Competition, and the Common Good Hardcover – September 4, 2011
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Winner of the 2012 Bronze Medal Book Award in the Economics category, Axiom Business
Finalist for the 2011 Book of the Year Award in Business & Economics, ForeWord Reviews
"[Frank's] arguments are carefully crafted and artfully presented to make the case that since we're in the business of designing society from top down anyway we might as well go whole hog and do it right."--Michael Shermer, Journal of Bioeconomics
"Important."--Nicholas D. Kristof, New York Times
"Robert Frank's The Darwin Economy . . . provide(s) much-needed information and analysis to explain why so much of the nation's money is flowing upward. Frank, an economist at Cornell, draws on social psychology to shatter many myths about competition and compensation."--Andrew Hacker, New York Review of Books
"[An] excellent new book."--Jonathan Rothwell, New Republic's The Avenue blog
"The premise of economist Adam Smith's 'invisible hand'--a tenet of market economics--is that competitive self-interest shunts benefits to the community. But that is the exception rather than the rule, argues writer Robert H. Frank. Charles Darwin's idea of natural selection is a more accurate reflection of how economic competition works . . . because individual and species benefits do not always coincide. Highlighting reasons for market failure and the need to cut waste, Frank argues that we can domesticate our wild economy by taxing higher-end spending and harmful industrial emissions."--Nature
"[P]rovocative. . . . Frank is an economist for the rest of us. . . . [T]he Darwin Economy . . . focus[es] on one paradox of economic life: behavior which makes sense for a particular individual can harm the community as a whole."--Chrystia Freeland, Reuters
"Frank's worthy and unfashionable aim is to argue the economic case for some forms of government regulation, to defend taxation, and even to advocate certain forms of tax increase."--Howard Davies, Times Higher Education
"The Darwin Economy fundamentally challenges this theory of competition which, argues Frank, is a flawed way of understanding competitive forces throughout many aspects of economic life. . . . Frank adds something new to the debate. . . . [H]e offers a powerful theoretical insight into the nature of competitive economic forces and the free market. . . . [I]t is an insight we could all potentially benefit from."--Daniel Sage, LSE Politics & Policy blog
"[V]ery illuminating."--Matthew Shaffer, National Review Online's The Agenda
From the Inside Flap
"I've been reading Robert Frank's books for years, and he just gets better and better. I strongly recommendThe Darwin Economy: it's clear, persuasive, and cleverly entertaining, and it provides a new and original insight about a central issue in economics. Read and enjoy."--Thomas C. Schelling, Nobel Laureate in Economics
"The Darwin Economy debunks popular nostrums of both left and right, and takes particular aim at the notion that a well-functioning competitive market system will necessarily produce socially optimal results. Frank suggests novel approaches to America's problems that go well beyond the tired ideas of the present debate."--Francis Fukuyama, author ofThe Origins of Political Order
"Competition often serves the parts better than the whole. This is true for both species evolution and human society. Only a fool would count on the invisible hand. In his usual clearheaded and lively style, Robert Frank explains how Charles Darwin thought more deeply about these issues than most contemporary economists."--Frans de Waal, author ofThe Age of Empathy and Our Inner Ape
"Pointing to new ways of thinking about collective action and taxation, Robert Frank has given us a book that is as important as it is timely."--Dan Ariely, author ofPredictably Irrational
"The Darwin Economy's message is in my view the only hope for a rational economic future."--William J. Baumol, past president, American Economic Association
"This lucid, deeply engaging book provides the perfect antidote to the mindless sloganeering that dominates our current discussions about the role of government in a free society."--Dani Rodrik, author ofThe Globalization Paradox
"Robert Frank convincingly predicts that Darwin will eventually be recognized as the true intellectual father of economics. After you read The Darwin Economy, you'll want this prediction to come true as soon as possible."--David Sloan Wilson, author ofEvolution for Everyone: How Darwin's Theory Can Change the Way We Think About Our Lives
"Pondering the implications of Darwinian theory, and rejecting the received wisdom of libertarian and left-wing pundits alike, Robert Frank convincingly lays out economic policies that will benefit the rich, the poor, and the broader society."--Howard Gardner, author of Truth, Beauty, and Goodness Reframed
"Human beings cooperate. Markets help. That's Adam Smith. Human beings also compete: not just for resources, but for relative position in the mating game. That's Darwin. Add Darwin to Adam Smith, and you get Robert Frank, and a book full of dazzling insight."--Mark Kleiman, author of When Brute Force Fails
"Robert Frank is a national treasure in our discussions about public policy. He shows here that our understanding of economics needs to be informed more by a sophisticated interpretation of Charles Darwin than by a simplistic view of Adam Smith. Given the state of our politics, this latest dose of Frank advice deserves to be widely read."--Robert D. Putnam, author ofBowling Alone and American Grace
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This failure of individual selection happens when individuals compete, not to achieve an absolute standard of success, but success relative to others. Such a competition, as in an arms race, knows no bounds unless some force, such as an agreement or regulation intervenes to dampen the competition, to prevent a dangerous or wasteful use of resources. Since mainstream economics is based on the thesis that encouraging individual self interest ends up maximizing group welfare, Frank is mounting a direct challenge to economic orthodoxy.
So he develops several simple examples to illustrate how the overall welfare of two parties can be improved when each subjugates his or her immediate self-interest to process that involves rewards, or taxes, or cash transfers. A well known example is when an airline offers increasing compensation to passengers to wait for another flight when their flight is overbooked: a poorer passenger is well compensated for waiting and so does not resent richer passengers for getting the contested seats. In the same way the poorer members of society may be compensated by the provision of governments serviced financed by taxes on the richer members. Moreover Frank shows that this instinct for justice is well-founded: unequal societies simply do not function as well, either economically or socially, and the extravagant wealth of some in a winner-take-all society comes more from luck than superior talent or harder work.
A classical example of how taxes may outperform rigid regulation is Prohibition - better to tax and control liquor sales than totally outlaw them. In fact Frank has a strong preference for sin taxes of all sorts, as better than heavy handed ways to reduce harm, which puts him squarely in the camp of the rational libertarian. For Frank this includes not just hard liquor but also green house gas emissions. He would also institute a progressive tax on consumption (= income minus savings), noting that excessive luxury is harmful to society, as it diverts resources away from the many and toward the few. Better of course to define consumption as income minus charitable donations and investment, broadly conceived, and to add on a substantial estate tax. Yet this scheme is still troubling because vast fortunes could still be accummulated and these fortunes would likely be invested in activities that yield short term profits more than in activities that develop the long term welfare of society. This is another Darwinian example where individual self interest may not promote the overall welfare of the group, especially of future generations, who in today's world are already facing limits-to-growth and possible ecological overshoot and collapse.
Frank also misses the boat by citing with approval Adam Smith's mistaken claim that modern wealth is due to division of labor. Actually division of labor is natural to humanity, practiced even by the most primitive tribes, such as gender roles, and more so in all large-scale endeavors. What are more fundamental are the combinations of resources, especially energy, available to a society, the resilience of the ecosystems, and the technology and social structures that have been developed to exploit those resources in that environment. Without cheap fossil fuel energy there would have been no industrial revolution. Factory-like division of labor is just a social structure that works efficiently with the kind of reliable and high capacity supply and distribution networks that fossil fuels can support.
Another point: Most progressives would be as startled as I was by Frank's claim (p. 11) that "Critics on the left attribute market failure to insufficient competition". Actually today's progressives correctly point to inadequate regulation as a key cause of market failure, not competition. It was the deregulation of the financial industry that led directly and predictably to the financial meltdown of 2008. Without good regulation monopolists or swindlers soon take over, so regulation comes first. And a progressive would agree whole heartedly that a wasteful arms races or social competition should be constrained by good regulation, whether it be an international arms control agreement or higher taxes on expensive homes or other luxuries.
Overall an insightful book, yet with some gaps due to a lack of a comprehensive understanding of some key fundamentals. And most libertarians, who themselves lack such an understanding, will not be able to evaluate how well academic arguments apply to a very complicated world. Some on the left and in the middle may learn more from this book.
But many of Smith's modern disciples believe he made the much bolder claim that markets alwaysharness individual self-interest to produce the greatest good for society as a whole. Smith's own account, however, was far more circumspect. He wrote, for example, that the profit -seeking business owner "intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it [emphasis added].
Smith never believed that the invisible hand guaranteed good outcomes in all circumstances. His skepticism was on full display, for example, when he wrote, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. To him, what was remarkable was that self-interested actions often led to socially benign outcomes.
Like Smith, modern progressive critics of the market system tend to attribute its failings to conspiracies to restrain competition. But competition was much more easily restrained in Smith's day than it is now. The real challenge to the invisible hand is rooted in the very logic of the competitive process itself.
Charles Darwin was one of the first to perceive the underlying problem clearly. One of his central insights was that natural selection favors traits and behaviors primarily according to their effect on individual organisms, not larger groups.
Sometimes individual and group interests coincide, he recognized, and in such cases we often get invisible hand-like results. A mutation that codes for keener eyesight in one particular hawk, for example, serves the interests of that individual, but its inevitable spread also makes hawks as a species more successful. In other cases, however, mutations that help the individual prove quite harmful to the larger group.
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But I was quite puzzled by Robert Frank’s comments about Charles Darwin.Read more