|0:33||Intro. [Recording date: June 19, 2018.]|
Russ Roberts: My guest is economist and author Arnold Kling. His most recent appearance on EconTalk was earlier this year in March discussing economics for the 21st century. Our topic for today is a recent essay of Arnold's at Medium.com called "Human Beings are Social." Arnold, welcome back to EconTalk.... Now, the opening lines of your essay read "Human beings are social." But that does not invalidate economics or justify socialism. Now, I'm not so sure about the economics part of that statement. And I want to come back to that in a little bit. But I want to focus on where you turn next, which is to our tribal nature. Talk about what you mean by our tribalism and how it tells us something about the evolution of humanity and human cooperation.
Arnold Kling: Okay. So, we can talk about us being social in a couple of senses. And I want to get to both. But, the essay mostly talks about our kind of, our moral sense, and our moral world. And I claim that our moral world is basically tribal: That, if something--if we see something that sort of threatens or is a problem with somebody who we recognize as being, you know, a relative or very close friend, we react more strongly than if the same thing is happening to a stranger. So, I give the example--somebody says, 'Oh, I just lost my wallet. Can I borrow $100 to get through the day?' Well, if that's your cousin, you are probably willing to do that. If it's a total stranger, you are not. And there's--and I think the main reason for that--you could give a cognitive story, but I think the main reason is this--you just have a more, stronger, sense of feeling for someone that you are close to.
Russ Roberts: I have to say that, having been in New York recently and approached by someone that they needed money to buy a bus ticket and they had lost their wallet, a stranger, I--unfortunately, many of the times I've been approached that way, I hadn't the intense perception that it was a lie. They just wanted some money. Which is okay. I do give money occasionally to strangers on the street. But, the people who actually lose their wallet and really do need $20 or $40 to get home--it's been ruined for them.
Arnold Kling: Yeah. Right--
Russ Roberts: But people who free-ride, who have free-ridden on that emotional urge that I do occasionally have to help people--
Arnold Kling: Right. That may not be the best example to illustrate pure tribalism. Because, you are right. It's more of a cognitive issue. You don't really necessarily believe somebody who is a stranger. Although in some sense you could trace that to tribalism. But, my basic point is that we have very strong moral instincts, vis a vis a family. You know, maybe a better way to talk about this is: If I give special favoritism--If I'm willing to stay home and take care of my own child when the child is sick, but I'm not willing to do that for someone else's child, no one would begrudge me that. Everyone says that's a perfectly moral thing.
Russ Roberts: Normal.
Arnold Kling: If I'm in a business and I give a job to my child that I wouldn't give to somebody else--let's say, I'm in a big organization or I'm in government, that's very immoral. So there's a difference between how morality takes place that is appropriate at a tribal level, a family level, versus an organizational level.
Russ Roberts: And how did this tribalism--which I think everyone concedes is real--how did this tribalism limit human creativity and prosperity for most of human history?
Arnold Kling: Okay. So, my view is that for a very long time--sort of the first hundred thousand years that human beings walked the earth--we operated in tribes, and we learned how to cooperate in tribes. And humans cooperate much better at a group level, you know, 50 people or so, than I think any other animal. We're able to teach each other; we're able to train each other; we're able to communicate with each other. And just cooperate in much more sophisticated ways than other species. And so--but we learned how to do it at this tribal level, at a level we could recognize one another. So, that's how we developed such strong tribal moral instincts, which--it became much more of a challenge, and I think we started to solve this challenge only, let's say 15,000 years ago--to cooperate in much larger groups of people. And so, the first, you know, large states, the large organizations, whatever you'd call them, seem to emerge about 15,000 years ago. And they were very hierarchical. The way we cooperated was that somebody was in charge, and that person was in charge of highly armed, highly disciplined functionaries who then passed down the orders of the leader to the ordinary people in the state.
Russ Roberts: And what was wrong with that? Why did that--?
Arnold Kling: Well, nothing was wrong with that, compared to what happened before, in that it enabled large agricultural societies to emerge; it enabled empires to emerge. They accumulated probably more surplus wealth than the people who were doing[?] hunting and gathering. They were probably able to specialize more and achieve more--better economic outcomes--that way. But, around, you know, at least within the last few hundred years, we've discovered better ways than just sort of these hierarchical, you know, quasi-slave societies. We discovered market capitalism and limited government, democracy--these more modern institutions which allowed us to prosper much more and bring, and have a much more equal distribution of power and give individuals more autonomy.
Russ Roberts: I'm going to bring in Adam Smith, here. We're going to bring in a couple of insights of Smith in this conversation. But, one of them comes from the Wealth of Nations, where he said the division of labor is limited by the extent of the market. And, my version of that is, that if you take the 100 most talented people on the face of the earth--I'll let you choose them, and I'll put you on a desert island--but a desert island that has a lot of resources. It can have whatever you want as its endowment. It could have oil and steel and iron--
Arnold Kling: Well, probably not steel. Iron and coal--
Russ Roberts: Yeah, iron and coal; and aluminum; and forests. And you are going to be really poor. I don't care how talented those 100 people are. If you can only interact economically with 100 people, you cannot leverage the kinds of specialization that create a modern standard of living. And, you realize that when you start to think about who those 100 people would be. You know--you think of the hundred most successful people in the world--and you can measure that in different ways--
Arnold Kling: None of them knows how to plant wheat.
Russ Roberts: Right. Jeff Bezos, Lebron James, Adele, Tom Hanks, Warren Buffett. There might be one or two of those you'd put in your hundred. Elon Musk. I don't know who would be in that top 100. It almost doesn't matter, actually. Except it wouldn't be me. That's for sure. But, it's not--you don't have to give it a lot of thought, because the characteristics that make people successful in 2018 are not the characteristics that make people successful when they lived in these small bands of hunter gatherers. And I see the explosion of human prosperity as resulting from the enormous expansion in trading opportunities that takes place about 300 years ago, and that continues until--now we trade with 7 billion people rather than the people around the corner. Many of you have heard my joke before: 'We tried Buy Local once. It's called the Middle Ages.' When you were only trading with people nearby, you can't be rich. And, obviously, tribalism is a terrible barrier to trading with people beyond your group. Because, you don't trust them. And, without the State, or another mechanism to coerce trust, to enforce trust, to make people feel comfortable about investment--I'd say, delaying paying till--, or accepting payment in advance--that these things can't be achieved without either a fundamental trust or some enforcement mechanism--usually by the State, or through violence that could keep that going. And so that just--we just couldn't get off the ground in that way.
Arnold Kling: Yeah. And, so there's the sort of--you know, the title of "Human Beings are Social," so they are social morally. But what's sort of interesting and a bit disturbing is that a lot of these moral norms arise--arose--when we were still in small bands and we weren't in these big affluent societies. And so you develop some conflicts between the moral norms that develop as a tribe and what you would need in a modern society. But I would also say that in some sense we are cognitively social. And that's something that people forget a lot. I think people sort of think, 'Well, there's all this knowledge that's in my head. Therefore, you know, individual knowledge is really important.' But, just as your, sort of, trading example of , you know, the island of 100 people not being able to do much: We're not--we're not very good islands, cognitively, either. I want to recommend a couple of books, both of which I've reviewed on the Econlib website. One is The Secret of Our Success, by Joe Henrich, and the other is Darwin's Unfinished Symphony, by Kevin Laland. And maybe we'll put up links to those reviews.
Russ Roberts: We will.
Arnold Kling: Um. And then I want to throw a couple of metaphors out there, to sort of illustrate this sort of--that we're kind of cognitively social. One metaphor is you can imagine yourself--imagine each human being as having hardware--an operating system--and applications software. So, if you think about eating: Okay, your hardware is your digestive system. Your operating system would be kind of your natural cravings and instincts, some of which are very generic; some of which are specific to different people. Like, different people have, I think, a different genetic makeup that makes them dislike cilantro. For example. I've heard that. And, so that's your operating system--tells you sort when to eat and when you are hungry and so on. And what foods you are inclined to prefer. But, then, if you think about, most of your eating--like, where you look for food, how food is prepared for you, what to choose to eat--it's all cultural. I mean, there's just this huge cultural element in sort of the application layer of eating. And I think that's just true for a lot of your behaviors: that you are not born with a desire for pizza. Or a choice to eat pizza at certain times. That's not--you are not born with that. You learn it culturally. And you learn an awful lot, culturally. So, that's one metaphor. The other metaphor I want to use is sort of the--an archeological mound. When archeologists look at very old cities--it's like Jericho--what they see are mounds. So, at the top layer, they see the most recent people who are living there: the artifacts that they've left. And then below that are the artifacts that people who might have lived a couple hundred years earlier. And then below that artifacts from a few hundred years before that. And so on. That's a mound--an archeological mound. And we have this huge mound of cultural stuff. You know: artistic stuff, scientific stuff, religious stuff, social norms, political institutions. So just this gigantic mound that none of us can explore all of it. But, we're all--you sort of, what's in our heads is sort of what we've encountered in the parts of the mound that we've explored. And that--but it's very much not limited individuals. Really, it comes from everyone around us.
Russ Roberts: And, to take the counter-story--Tarzan. The concept of Edgar Rice Burroughs that--I think he's the author--that a human being could raised in the wild, into adulthood, without any of this cultural baggage. And instead be given the baggage of the wild, of nature, and how that person might be different: Could that person be acculturated? And how would they assimilate into a modern cultural society? And, as you point out: The number of things that we carry with us--those bags--the baggage that we have--and 'baggage' usually has a negative kind of connotation. Something you are "stuck with." But here, it certainly doesn't have that kind of connotation. Although some of it is negative. But you are talking about the incredibly rich array of attitudes and, I would call them Rules of Thumb: Things that are go-to, algorithms--
Arnold Kling: heuristics--
Russ Roberts: Heuristics that we have, that make life really easy, that we don't think about at all. And I think there's a tendency to think about it as technology. So, the idea we mentioned--I flubbed and said 'steel' instead of 'iron'. You know, if, uhhh, we forgot how to--if all of our steel factories or foundries and factories were destroyed by some weird, um, reaction from space, and now we had to start from scratch: Oh, my gosh! Well, somebody knows something about it. And we try to find the person who made, you know, some piece of it. Or again, to take some classic example, the pencil. If we didn't have any pencils, and someone said, 'Well, how do you make one?' That know-how was so disembodied. It's so spread out across thousands and thousands of people that the smartest person in the world would take forever. Decade and decade to make anything equivalent to a pencil that gets turned out by the second, in the hundreds of millions across the world. And so, all that, that knowledge that's not in our head, that isn't embodied in our own brains, is just sort of in the atmosphere and we sort of drink it in without appreciating how rich it is; and it doesn't just include technology, like how to, say, plane cedar to make it look, you know, a format you can turn it into a pencil. But, a cedar tree--but rather, all the social norms, which I think is the part that's even harder to see--all those social norms that we have accepted and been acculturated to, to expect, the people around us.
Arnold Kling: Yeah. I mean, all that stuff is just extremely important. And, I think as economists we are kind of trained to ignore it. To--you know--the difference between and economist and a sociologist is the economist really treats people as if they were completely atomistic individuals. That's the way we write down models. You know? And individual utility function, and so on. A sociologist says, 'Well, this is all socially determined.' I think the sociological view is closer to correct. And that led me to kind of--I was pondering this the other day: Why, if the sociologists are basically right, why does economics seem to work better? And I think it's just because we do better at using the ceteris paribus assumption--that's the 'other things equal.' So, we'll hold all of a lot of things equal. That includes, you know, social norms, institutions, and so on. And we'll make statements that hold as long as other things are equal. And we get a lot out of that. And I'm afraid the sociologist doesn't make good use of that. So, the world to the sociologist may look more like--either looks like a blooming, buzzing confusion, or they, you know, take this gender/oppressor/oppressed model as their hammer and hammer everything with it, whether it's a nail or not. I don't know. It's an interesting question why sociology doesn't dominate economics. At some times it seems like the other way around.
Russ Roberts: I would say, by the way, that perhaps a more--an easier translation of that Latin phrase--which I always pronounce 'seteris paribus'--which is probably not correct'--
Arnold Kling: oh, yeah,--
Russ Roberts: You are probably right about how it's pronounced. But when we translate it as 'all things equal,' I think that's a little bit misleading. We really mean all things held constant. Not changing. As we mean by equal. Meaning, the environment we're in is the same as it was 10 minutes ago; but the price changed; and therefore people respond by changing their behavior.
Russ Roberts: I'm not sure that--by the way, in the second part of this conversation, I'm going to go on a rant where I think economics has gone wrong. I don't think, maybe sociology has gone better. But, I do think that the reason I think we look fairly successful--besides the fact that we tell our stories to ourselves--and of course we are going to look successful that way--I think it was George Stigler who said, 'There is only one social science, and we are its practitioners.' Meaning, um--maximizing wellbeing in a world of self-interests with limited incomes and a world of prices. But, part of it is we fool ourselves, perhaps. But part of it is also perhaps that our focus is exceedingly narrow. Our focus is, people's economic behavior, their financial behavior, whether they take a job or not, take a job, what wage they earn. These are very concrete and explicit things that in many ways don't get at the reality--as I'll rant in a minute. But I think that's part of the reason we do a little bit better than sociologists in terms of prediction, or creating a framework for thinking about a complicated world.
Arnold Kling: Yeah. But I do think that this other-things-equal, or other-things-held-constant is a big deal, so that, um, you know, when it works, like when we're looking at a price change and how it affects demand or something like that, it works well. But, it really only works for small periods of time, in very stylized examples. But, you know, if you try to expand to larger questions--like, here's one that you thought about, tried to work with a lot, which is: How have, sort of average incomes and standards of living evolved over time? And, if you try to do that over a 40- or 50-year period, the last 40 or 50 years in the United States, there are so many things that have not been held constant that it's really hard to get a coherent answer. And--you know, people will throw around answers, but they are very controversial and they are very controversial. And I think it's because of this other-things-held-constant assumption that we, that kind of enables us to make accurate statements just doesn't hold in that setting.
Russ Roberts: Yeah; and you've written on it, too. I think it's a great example, because I think, actually, I forget how you described it a few seconds ago, but you made it sound like, you said it's very controversial or it's unsettled. I think it's totallysettled except for, like, you, me, and about seven other people. Everyone has decided that the received wisdom is such that the average American has made very little progress over the last 40 years. And, when I am confronted with those data and try to respond to them, one of my first answers is exactly what you just said, 'Well, gee, you didn't take account of this, this, this, this, and this,' where those are things that have changed a lot in the last 40 years. So, besides the performance of the economy in helping people's standard of living, you also want to take account of, say, the marriage rate. And you'd also want to take account of how we measure inflation. And you'd also want to take account of composition of the labor force. And you'd want to take account of general demographic changes--education and so on. If you are trying to assess whether the economy lifts all boats, say, or whether a rising tide lifts all boats. And I think, you know, I'll put up a couple of videos that I've done to try to explore those issues. And I know you have put up an essay or two of yours that looks at it. But, it's just extremely--to me, it's just very complicated. And yet, people talk about it as if it's--you know--open and shut. Which, 'We just measured it. It's easy.'
Arnold Kling: Yeah.
Russ Roberts: And, you know, the fact that things change ruins everything. People make blanket statements about, say, the effect of some food on your health, or whatever. And my thought always is: Correlation isn't causation. And, most people's reaction is like: Keep quiet. We've got a good thing going here.
Russ Roberts: The last part of your essay--and then I want to give my rant in a minute and take us in a different direction--but the last part of your essay, you say the following. You say, "None of us should underestimate the importance of cumulative cultural intelligence, as reflected in the social norms and formal institutions that enable human cooperation in large scale society." You want to flesh that out a little bit? You want to talk about some of what those norms might be? I think about those a lot. Not enough. But I do think about the role that our expectations play about how people will interact with us. What do you have in mind when you make that statement?
Arnold Kling: Well, a number of things. First of all, just, cooperation isn't automatic or normal. Cooperation is, you know, as I've said before, in animals you don't see much of it. They--a chimpanzee never learned how to bake bread. It's not that chimpanzees are sort of stupid, I don't think. I think it's that they cannot--they don't have the tools to communicate with one another: to try things out, to record the results, report their results, and so on. But we do. And so we know how to bake bread. It's, again, you are not born knowing how to bake bread. You have to learn it from somebody. And, you know, we've accumulated cookbooks and all sorts of tools and implements for doing it, and so on. And that's--but that all comes from this remarkable ability to cooperate. And the--as you point out, cooperation up to a level of 50 people or 100 people like you have in a tribe gives you a very limited set of people that can specialize. And so it really puts constraints how far a society can advance. So, the--the first revolution in cooperation that takes place about 15,000 years ago--maybe religion plays a part of it. Maybe some kind of military technology plays a part of it. Somehow, we get to the point where you can have, you know, tens of thousands of people in a cooperative relationship with one another. And that's a remarkable thing. It takes a lot of social enforcement of moral norms. [?] To take a prosaic example that I've used before, maybe not here: If you go to a food court, how do know that you can just walk up to any stand and take a napkin? But you can't walk up there and pour yourself a soda?
Russ Roberts: Yeah.
Arnold Kling: I mean, that's just--that's cultural knowledge. It's just norms that have just built up over time. There are all sorts--if you sat down and observed people at a food court, you'd observe all sorts of social norms going on: the people throwing away their stuff after they are done, returning their trays. The person who is standing at the cash register asking if you'd like a soda with that. And just the whole--all sorts of rituals and so on with that. So, there's just an awful lot that we again take for granted, again in ceteris paribus we hold equal, as we describe economic behavior--an awful lot of stuff that makes social cooperation possible and makes economic activity possible.
Russ Roberts: Just to take an even more prosaic example: What side of the road to drive on. There's a norm in the United States that you drive on the right side. And there's a norm in the United Kingdom you drive on the left side. They are both fine, as long as everybody knows what the norm is. And if they don't know, it's a nightmare. One of the great--I think the power of this is to just enormously economize on what economists call transaction costs. Your example of the napkin: If you had to ask for everything that you do in life--if you had to ask permission rather than forgiveness--you'd spend an enormous time asking. And you don't have to. Because you learn what's okay and what's not okay. What's accepted. When it's okay to cut in line and when it's not okay to cut in line. When it's okay to leave a task undone for the other party. I've used the example here before when you sell a house: Certain expectations about selling a house: A house is an extremely large transaction, and a contract for selling a house is full of all kinds of details about what expectations are that are written out and explicit. But there's a whole 'nother set that's not written out, that's not explicit; that's implicit; that is probably very different in different cultures. And, we all interact with each other, and we are bumping into each other, economically, socially in ways that are much easier in America, for example, because we have certain expectations of trust. I don't know if I've ever told this story before, but my wife and I had the opportunity to spend the night in Big Sur--a beautiful part of California. Problem was, it was a two-night minimum; we could only stay for one night. And I didn't have time to get the owner a check. So, the owner said, 'That's okay. I'll leave the door unlocked.' When I think about this sequence of events in most of human history--'I'll leave the door unlocked.' 'When you leave,'--she said, 'I'm out of town, anyway. So, don't worry about sending me the money.' She said, 'I'll leave the door unlocked, and when you get there, when you leave, just leave the money in cash on the table. And my cleaning lady will pick it up.' And that's just--I mean, that's just--as an economist, I said, 'Fine,' of course. But as an economist, I'm kind of horrified by that. There's so many places that that story can go wrong. Obviously the cleaning lady can pocket the money. Obviously, I can not leave the money and claim the cleaning lady took it. Obviously, the cleaning lady could give the money to the owner and the owner could say, 'I never got it.' Obviously, I could say, after only one night, even though I promised I'd pay for the two-night minimum, I could say, 'Well, that's not fair. That's absurd. I'll just leave one night. That's enough.' And so, all those things could have gone wrong. And it's--I think I write about this in my Adam Smith book--that the--when I laid the money down, a large number of $20 bills for one night--I took a photo of it with my phone. I still have that photo. Which is a stupid thing to do, of course, because I could just put the money back in my pocket. But I felt good about that--not the phone--but about the experience. And I walked out without really worrying deeply that this was going to go awry. And it did not. And, you know, I contacted the owner a couple of days later: 'Did you get the money?' 'Yes.' 'Thanks! I had a great time. Appreciate it.' And the ability to trust--the amount of social capital that was built into our interactions--including the maid, who I never met, who worked for money for this owner of the property--the amount of social interaction there and the amount of trust and social capital was enormous. And, without it, my wife and I wouldn't have had a wonderful time in a beautiful place. And the owner wouldn't have had the $x-hundred dollars to spend on something that she held of value.
Russ Roberts: And those kind of transactions happen fairly--I want to tell one more, by the way. This fascinates me, and I don't know if you have any thoughts on this; and then you can comment on the Big Sur story, too, if you want. But, the ability to return things in America is extraordinary. So, if you buy a product and you are not happy with it. And you return it. You usually get all of your money back. You don't even--in the old days you might get a credit. Now you get all your money back. In so many settings. And, even if it's a little bit bruised up or damaged, if you didn't like it, they're very eager to give you your money back. And, of course, that's lovely. But what it means is that everything is more expensive: that it has that promise behind it. And most of us are happy to pay that premium to make sure that we get something that we are passionate and love. And, it's extraordinary to me that that's become the norm. The norm is--and, of course, it's exploitable: people do exploit it. They will return things that they've worn for 6 weeks, that they aren't planning to buy in the beginning. It's--yanno--I think that's immoral, even though the company will take it back. And I just find that, just a revolutionary experience in retail that certainly wasn't true 20 years ago.
Arnold Kling: Yeah. I think there are--a lot of revolutionary things just coming from the Amazon model of delivery. You know, just the notion that it's going to be left on your front stoop for hours. And no one's going to disturb it; and you're going to be--and--you are not going to claim that it didn't get there even though it did. And--yeah. There are just so many things that can go wrong with that. But--and, it's just not--it's not simple economics, that explains how that takes place. You know, it's really a sort of a complex--you might be able to come up with a repeat-game story. But some of it, I think just goes beyond that. It's just--it's just irrational behavior that fortunately--you know, maybe individually irrational but collectively allows us to enjoy much better commerce.
Russ Roberts: Right--if we all exploited it, if we all lied about whether we--I mean, I've had the experience where--
Arnold Kling: Not even all of us--
Russ Roberts: enough--
Arnold Kling: if enough of us exploited it, it would fall apart.
Russ Roberts: I was just doing a reductio ad absurdum there. But, yeah. So, I find it fascinating: At times I've called a retailer or emailed a retailer and I say, 'I didn't like this,' or, 'It came damaged.' And they say, 'We'll send you another one.' And I say, 'Well, what do I do with the other one?' 'Oh, just keep it.' It's like it's not worth it for them. It's a small item, obviously, that I'm talking about. But, the potential there for abuse, of course--what you are referring to as 'irrational,' is this idea--and I'm going to push back a little bit. I know what you mean. But, this idea that, 'Well, if people are self-interested they should just take advantage of that.' And, of course, the answer why they don't is, they feel guilty; they have a conscience; they might think about the consequences if everyone did it--which is Kant's categorical imperative: it would ruin it for everybody. And of course, many people do cheat on those opportunities, do exploit them or ruin it or make it more expensive for others. But it's amazing that not everybody does. And that's the puzzle. The puzzle is--I mean, it's just extraordinary.
Arnold Kling: Yeah. No, we are not the rational economic man that we depict ourselves to be.
Russ Roberts: So, I'm now--that's a good segue for my rant. So, I'm going to take your opening line, 'Human beings are social,' and I'm going to take it in a different direction. And a different place in terms of thinking about economics. You say: "that does not invalidate economics." I don't think it invalidates economics. But I'm going to suggest that our textbook, classroom, and sort of back-of-the-envelope way we think about people is missing something important. So: If we think about the essential economic model of individual behavior that you and I were taught as undergraduates--certainly as graduate students--that human beings maximize something. We call it utility. It's a short--it's a vague and colorless word to describe wellbeing. Satisfaction. Sometimes you might call it happiness. And, in the economic models that we write down, we say U--Utility--is a function of, usually, x1, x2, ..., xn. A bunch of stuff. And, most of that stuff is stuff. It's purchases. And, it's a model that was used to generate the demand for x1, the demand for x2--the demand for shoes, the demand for wheat. It's downward sloping, that demand curve--which, we go through a lot of--in the classroom I stopped doing it, but for a long time I used to teach this way, and I think many people still do: You go through a lot of indifference curves and budget lines to generate the demand curve. After a while, I realized I could just say, 'Let's assume demand slopes downward: That people buy more stuff when it gets less expensive, and buy less stuff when it gets more expensive.' And it might be affected by the price of complements or substitutes, our income. And we do that model in class. And then we start talking about--and, underlying that, by the way, is a sort of tautological claim that more is preferred to less. That people want, they would rather have more food, and if they get to the point where food becomes a negative, we'll just say higher quality food. And if it does become a negative, we'll just say, 'That's not something people want more of. They only want more of things that are good. That's a bad. Like trash. Trash is a bad. We want less trash.' With trash, less is preferred to more. But for most things that we have out in the world, more is preferred to less; but we can't have everything we want. We've got a limited amount of income. And anybody who has been in an introductory economics class, or taught one, knows what I'm talking about. That's a rather extraordinary way to think about human wellbeing, I would suggest. It certainly ignores the fact that human beings are social--your opening sentence. So, I just happened to look up Gary Becker's 1974 paper, "The Theory of Social Interactions," before our conversation, Arnold. He's opening, he opens with two quotes. The first is from John Donne, the poet: "No man is an island"--
Arnold Kling: "No man is an island." Which is--
Russ Roberts: Which is another way of way of saying human beings are social. And then, even more dramatically, he quotes Seneca. Who says, "Man is a social animal." The only difference is that when Seneca was writing, or even when Gary Becker was writing in 1974, 'man' meant human beings; so now, we are sensitive to that, so we say, 'human beings.' So--and I'm going to read the opening of Becker's article, this "The Theory of Social Interactions." He says the following:
Before the theory of consumer demand began to be formalized by Jevons, Walras, Marshall, Menger[?], and others, economists frequently discussed what they considered to be the basic determinants of wants.
For example, Bentham discusses about 15 basic kinds of pleasures and pains. All other pleasures and pains are presumed to be combinations of the basic set. And Marshall briefly discusses a few basic determinants of wants before moving on to his well-known presentation of marginal utility theory. What is relevant and important for present purposes is the prominence given to the interactions among individuals. Bentham mentions, "The pleasures of being on good terms"--with him. Or them. The pleasures of a good name. The pleasures of exalting from the view of any pleasures, supposed to be possessed by the beings who may be the objects of benevolence. And the pleasures resulting from the view of any pain, supposed to be suffered by the beings who may become the objects of malevolence. Nassau Senior said that: The desire for distinction is a feeling which we consider it's universality and its constancy, that it affects all men at all times. That it comes with us from the cradle and never leaves us till we go into the grave, may be pronounced to be the most powerful of all human passions. So, this is the desire for distinction. The desire to be admired. And, of course, many listeners will think of Adam Smith's Theory of Moral Sentiments: "Man naturally desires not only to be loved, but to be lovely." That's what we desire. We don't desire iPhones and shoes and wheat. We desire the respect of the people around us, the admiration of the people around us. We want to matter. We want to feel like we're significant. And that paper of Becker's, and some of his other work--he wrote a book called A Treatise on the Family which also dealt with the social aspects within the family--they had virtually, I would argue, little or no impact on how economists think about economic wellbeing generally. They were clever; they helped him win the Nobel Prize; in his hands, they were an extraordinarily powerful tool for thinking about choice in certain settings. Didn't really change the way economists look at the world. And, in fact, I would say most of the modern perspective on this is a, what I think is a ghastly intellectual concept called the "social welfare function," which purports to aggregate utility, wellbeing, across individuals; be willing to trade off individual wellbeing against someone else's through some public policy, optimal tax rate; and so on. And that brings us to the happiness literature--a question of whether income makes us happy; whether more income continues to make us happy; whether we hit some plateau. But, all of this totally ignores the social side of our lives. And the argument I think would be, 'Well, that's because the social side of our lives doesn't involve money. And therefore it's not about the demand for this, that, or the other. And therefore it's not about economic choices.'
Russ Roberts: But I think it really misses something important. Just to take the obvious examples, there's no role in the way we teach our students for patriotism. There's no role about national pride. Ethnic pride. Religious pride. There's no discussion of meaning. We have nothing to say about what gives people their deepest and most abiding satisfactions. To take an extreme: Economic theory the way it is taught--and I think this is obviously false, but it's taught this way, even though this example might be ignored: If I work hard and I learn how to do something of value to other human beings, and that allows me to earn an income of $50,000 a year, and I use that to take care of my family--or, myself, either one; but certainly in the case of my family I would feel proud and feel good about that--according to economics, if I can get that $50,000 a year through some other mechanism without having to work, I'd be better off. Because I'd have the $50,000 and then I'd have leisure--extra time to do something I valued more than whatever I was working on. And it wouldn't matter whether it was a legacy from a rich uncle; it wouldn't matter whether it was a welfare payment from the state. It wouldn't matter if I were a thief and I was able to find a way to hack into people's bank accounts and take $50,000. Those are all considered "the same." They all produce the same level of utility. And, we say, 'Oh, well, we could complicate the model. We could, you know, jazz it up to include how we feel about other people or how they feel about us.' But, the bottom line is, the economic way of thinking has little or nothing to say about friendship, about love, about the deep satisfaction that we get beyond the fact that I can text you across town on my phone--which is lovely, but. And then the question is: Is it really--does it matter? Is it important that economics ignores these social satisfactions, the respect that Bentham and Marshall and Adam Smith talked about? Do those matter? Or, is it just, 'Oh, that's a different--that's sociology'? And I would argue it matters a lot. And I think a lot of what we're arguing about in America and in Europe right now is about things that economists typically ignore. And so we really have nothing productive to say about many of these issues. And, I think it goes a little further than that--and then I'll let you respond. I think, by teaching this model of utility maximization, we have privileged growth, and income, and financial matters above many others. Now, of course, you can hold those other things constant, as we talked about earlier, and just say, 'Well, if I've got a lot of friends and I'm really respected and I feel important and I have a deep sense of belonging to either my social communities or my religious communities or my ethnic communities; and then I've got more money, too,' I'll be better off. And that's all we mean in economics. But sometimes they conflict. Sometimes you have to make choices about trading off those social values. You have to decide where to work, and what kind of respect you are going to get from people around you depending on what job you take. And what you are producing. And what your skills are. And what are the services you provide to others; and whether those are truly, deeply human beneficial things or whether they are just "things you make money at" that maybe aren't so great. And so, I think, by privileging this maximization model--and, of course, Deirdre McCloskey has called the Max-U model--maximization of utility, but it makes it sound like a person--this view of human beings as calculating machines, as maximizers, as taking in inputs like stuff we buy and then producing outputs like happiness--doesn't that somehow, ultimately, having taught that over and over again and absorbed it as students over and over again--does that make us maybe ignore some of those other things? And start to think that we can manipulate people? Create that--you know, imagine that social welfare function where I have the insight--which I think is not true--but the insight into who should gain and who should lose from this policy; and we know how to, by manipulating the levers and dials, create human wellbeing? And I think we're kind of missing out there. I think we're really grotesquely on the wrong track. So, that's my rant. And, Arnold: Go ahead.
Arnold Kling: So, a few thoughts--
Russ Roberts: And I should mention--one last thing. I went to the University of Chicago for my Ph.D. Arnold went to MIT (Massachusetts Institute of Technology). MIT in those years--it's more so now, and Chicago is much more so now, very focused on mathematical visions of these kind of decision-making. And that's the path economics has been on for the last 25 years, maybe the last hundred, 60, 70 years. And maybe even longer. And I'm suggesting that maybe we've lost something. Go ahead.
Arnold Kling: Okay. So, just a few random thoughts. One is sort of: Live by ceteris paribus, die by ceteris paribus. I think, you know, a defense of economic methods is to say, 'Look: we get as far as we can holding all this, you know, social status, and sociological stuff constant. And just let us be, and let us do it that way.' But, you die by that in the sense that you are right: You just--you know, answer certain questions very accurately or with some strong predictions. But you make strong predictions about things that ultimately become less and less interesting, perhaps. Or you miss out--you can't make predictions about interesting things. Another thought is: You mentioned using economics to talk about people's decision to take a job. Let's take--you know--I have this joke that I wish one of my three daughters would work for a profit. Because--you know, somehow they were acculturated, I think, to take the view that working for a non-profit is inherently morally better than working for a profit. And therefore, that's what you should do. That's an interesting point of view. I mean, it's an interesting heuristic. Now, as an economist, I'd say the heuristic is: To a first approximation, the most socially useful thing you can do is the thing that pays the best. I'm going to use the word 'best,' not 'most,' because, you know, you could be--
Russ Roberts: It kind of includes some non-monetary issues.
Arnold Kling: Yeah. You could have a 100-hour work week versus a 40-hour work week, whatever. That's true to a first approximation. But people are inclined to override that--my heuristic, you know, the pays-the-best heuristic. You know, the reason for it being that you know, in economic theory, if you are being paid a lot to do something then you are providing benefits. That's--but, you know, people, for good reason are not confident in that heuristic. You could be working for a company that's ripping people off or destroying the environment. You know, there are all sorts of reasons why that heuristic might not be right. It's just--I mean, I happen to think that with all the--it's all the--people probably are more skeptical of the heuristic that says, you know, 'You are most useful society if you take the best-paying job.' I think people are probably more skeptical than they should be and probably try to override it more than they should. But it's absolutely not a perfect heuristic. And you are certainly entitled to try to come up with something else. But, the point is, you know: People do try to come up with something else. And they do think about that. And these issues of self-evaluation and meaningful life, and all that--absolutely matter to people. And the other point is that those, those concepts of, you know--self-worth, of, you know, 'Am I on a path that's meaningful?'--very much culturally determined. That doesn't just come from inside you. Very, very much culturally related. And there will be--you know, your choices will be affected a lot by the people who you respond to most over the course of your life. Your peers or your mentors or what have you. So, those--and because that's true, you are going to see things happen that you probably wouldn't explain well with a given economic model. And, you know--it affects, I think, all sorts of things. Why did the labor force participation rate take the plunge that it did, starting 2008, and why has it been declining, you know, for many years? That's--I don't think you can just sort of write down a mathematical model that tells that whole story.
Russ Roberts: And I find Casey Mulligan's work very interesting. He argues relentlessly that it's changes in access to various types of welfare payments. And we had him on EconTalk to talk about that; it's provocative work. But, like you, I'm skeptical that it's capturing everything that's going on. I'm very confident it's not capturing everything that's going on. It doesn't mean it's irrelevant. It just doesn't capture--
Arnold Kling: yeah, and at the very least, it has to be processed through people learning from each other. People just can't--I just don't think all these people are capable of sitting down and doing the calculation that says, 'Oh! I guess at the margin I'm better off not taking a job, than I am taking a job. It's--my guess is it's much more contagion. That, you could take the same person with the same calculating ability, and you put him or her in a bunch of peers who aren't committed to being in the labor force no matter what. Versus, you put them in a setting where other people are starting to drop out of the labor force, and sort of suggesting that that's an okay thing to do. And you get different behavior. I'm very confident of that.
Russ Roberts: Yeah. No, I agree. I had a very sobering Uber driver once who--this was about a year ago. She was working part-time driving an Uber. And during the day, she was, worked at the Unemployment office of handing out unemployment benefits. And I asked her what that job was like. And, you know, in theory that job can be very meaningful. Right? It can be very satisfying: You have people who are down on their luck, had tough times; they are unemployed--and you are able--it's not your money--but you are able to give them some sunshine. A little bit of hope. And that they can be taken care of. And she said she hated the job. And I said, 'Well, why?' And she said, 'Well, people come in and they yell at me. They curse at me. They yell at me.' All day long, that they are furious or angry that the benefits aren't bigger. That, essentially if she has to turn them down, that they are not eligible, that they are mad at her. They think she is, you know, holding something back. Is refusing to give largesse to them for personal reasons or whatever. And that wouldn't--would that have been common 50 years ago? 100 years ago? Maybe? I don't know. But it does appear to have a cultural component.
Russ Roberts: I want to take us one other place in thinking about public policy. I think it's obvious--you brought us back, really, full circle with your observation about that cultural norms about people feel about work. And I think that's absolutely true. I'm just think about more, this issue of being respected and having meaning--where this not a show about Universal Basic Income, although some listeners may have noticed that it's implicit in some of the things we are talking about, whether that's a good idea or not. But I actually think it's something a little bit more complicated, which is the following. So, economists are very interested in making the pie--the economic pie, the dollar value of goods and services--as large as possible. And so, when a policy comes along that makes the pie smaller, economists tend to say, 'Well, that's inefficient. Because it's going to make the'--Inefficient, there, means something very technical. It means the pie is smaller. Or, they'll say, 'That's an improvement because the pie is bigger.' And we tend not to worry about where the shares go. So, if the pie gets bigger, some people are going to get maybe a lot, much bigger share. Some people may get a smaller share, though, when that pie gets bigger. And we tend to say things like, 'Well, there's enough gain in the pie to compensate the people who get a smaller share.' And of course they don't get compensated, actually. But we have this sort of utilitarian, I think, idea, that if the pie is bigger, we are better off, in some general sense. And I think there's a very--And I taught that way for 25 years; and then in the last 5 or so years of my teaching I decided that was not a particularly moral or informative--in fact, I find it's a misleading way to think about public policy. And I--so, when I think about trade--to take an example that's in the news these days--and I think about the case for free trade--a lot of economists I think make the case for trade because it leads to a bigger pie. And I think that's the wrong way to think about trade. I don't think that's--because trade obviously makes--I'm talking about [?] international trade--trade with other nations obviously makes some people worse off. They now have to compete with other people, who--and that competition harms them. So that is relevant. You can't just say, 'Well, but the total gain is large enough.' Like, what kind of calculation is that? Who would ever--that's like saying, 'Okay, in the family we're going to make a decision about where we spend our vacation. Johnnie's going to love it a lot. Susie's going to be so depressed that she's not going to want to come out her room for five days. But, Johnnie's so much happier, the family is better off.' That's nonsense. Johnnie is better off; Susie is worse off; and then we have to decide what to do. We have to make a decision. But we wouldn't just add stuff up. And economists do that all the time. So, for me, just to make it clear: The case for free trade, for me, is the fact that it allows people to use their skills in powerful and meaningful ways. And, that when we close off opportunities for exchange and close off opportunities for trade, we actually are limiting the amount of opportunities available to people. And certainly by the next generation, those opportunities are going to be dramatically smaller if we start to close our borders to foreign goods and services. And so that people who are harmed today, they are going to be happy even though they are harmed today to see that their children lead richer and more meaningful lives--not financially richer, necessarily. Although that matters. And I wrote an essay on this called 'The Human Side of Trade.' I'll post it. And we've talked about it in passing here on the program here before. But--I don't think this standard economic way of thinking about it--of "maximizing the size of the pie"--is the right way to think about it. It's just wrong.
Arnold Kling: Well, I think you are--I think you are arguing a bit against a straw man. I don't think there are many economists who would hold up their hand and say, 'I don't care about distributional effects': Free trade over all-ists. I think they might say free trade or uber-distributional effects in many situations--and just, sort of say, you know, they'd say, 'What does a national border mean? Why do you care about that?' And, 'Why do you care about the steel worker whose wage goes down in the United States more than the steel worker whose wage goes up in China, or somewhere?' Anyway, there's a whole set of issues there. And I actually--I don't think that is really the major flaw or even necessarily a flaw in economic analysis. I think the--just sort of, missing--just--I think the things that we miss are more these, the social determinants of economic outcomes. So, you know, we--10 years after the Financial Crisis, I don't think there's any real consensus on, you know, what took place, how it took place. And I think part of that is there were just--there was a lot of social contagion going on, and we don't have a good--that's not something we think in terms of. And, you know, so--there are some things that we can look at and analyze with our other-things-equal, other-things-held-constant models. And we get, you know, answers that we have a fair amount of confidence in. There are other things that we look at with those models and we may or may not have confidence. We don't have deserved confidence. And there are lots of important questions that people might think of as something that they'd expect economists to have answers to, that these other other-things-equal story--the other-things-equal framework just doesn't work at, at all. And that's kind of the way I would describe sort of the state of economics, and sort of why, you know, sort of--there ought to be a broader kind of sociology out there that isn't, that doesn't conduct itself the way sociologists conduct themselves now, but which does look at the sort of broader ways in which human beings cooperate with one another, compete with one another. Are sometimes peaceful with one another; sometimes warlike with one another. Sometimes treat each other fairly; sometimes don't. Those are--you know, those are very big issues. Maybe they are even becoming bigger in terms of relative importance as sort of our affluence increases. I mean, I don't think, 100 years ago, my daughters would have been so anti- working-for-profit and so eager to work for nonprofits, if--you know, given the difference in financial rewards, and so on.
Russ Roberts: Well, Gary Becker, who we mentioned earlier, was a Professor of Economics at the University of Chicago. He was also a Professor of Sociology. And I suspect he had a dream, and a vision, that economics and sociology would merge in some sense. I think it's true that sociologists probably use some techniques, and certainly some statistical techniques, that economists use. But, the silos are still pretty strong. I wish Gary were still alive. It would be fun to talk to him about it. We did do an episode with him; I'll put a link to it. We also did an episode with Tyler Cowen, who argued that growth was only the only thing economists should care about. Very different from what I'm suggesting here, to some extent.
Arnold Kling: Well, and I think Tyler's argument is a very interesting one. It's almost a teleological one, where, you know, what's: What are your great-great grandchildren going to care about? And, the distribution of income in 2018 is going to mean zip to them. But, whether we have grown at--you know, 2% or 2-and-a-half percent, will mean an enormous difference to them. You know, cumulatively over, that intervening period. So, you know, I don't think that's a story about--sort of, economist, that max-U[?]? It's an interesting kind of story about kind of, you know, again, I'll use almost a teleological story: What are we aiming for, 200, 300 years from now?
Russ Roberts: Yeah. It's actually similar to my story [?]. I don't mean to suggest that somehow I'm anti-growth. I'm not.
Arnold Kling: Yeah.
Russ Roberts: I'm just trying to--I'm actually suggesting, I'm suggesting we might want to have a more nuanced, um, thought on that. The only thing I want to add--probably not the only thing, Arnold, but it might be the only thing, as we're near the end of this. But, I think it's also the case--it's obviously also the case that culture is endogenous. It also changes in response to economics, to prices, to--
Arnold Kling: Absolutely. Absolutely. We've sort of trained people to be this homo economicus. We've sort of, by encouraging it, and again, Deidre McCloskey said that we'd say that that encouragement was a good thing. That, as long as people were anti-commerce, and anti-capitalist, that held back wealth creation and entrepreneurship. So, um--yeah. I just want to reinforce: yeah, that culture is affected by many things, and including economic rhetoric.
Russ Roberts: I was think more, just--when I am at a party, and there are young people there, and I see them engrossed in their phones and staring at the screen as they sit on the couch next to each other, possibly texting each other
Arnold Kling: right--
Russ Roberts: 3 feet away-- and I think, 'Well, that was culturally unacceptable.' Unacceptable 20 years ago. Now it's acceptable. The pendulum may swing back. But, certainly what we consider polite behavior is in flux, because of our access to these incredible toys And, it will be interesting to see if there's a cultural backlash against some of this. There's a little bit of one right now. I don't know if it will last or if it's real. But it seems to be.
Arnold Kling: Yeah. I know. There's all sorts of rapid cultural change going on in a lot of areas, that, uh--and culturally, in a trial-and-error world, the errors will be discovered and will be discarded.