Saturday, September 30, 2023

What's wrong with people?


This question is posed in the title of Chapter 10 of Steven Pinker’s book, Rationality: What it is, Why it Seems Scarce, Why it Matters.

I enjoyed reading the previous 9 chapters but didn’t learn much from them. Those chapters were a painless way to refresh my memory about definitions of rationality, rules of logic, probability, Bayesian reasoning, rational choice, statistical decision theory, game theory, correlation, and regression analysis.

I particularly liked the approach Pinker took in discussing the research of Daniel Kahneman and Amos Tversky which documents many ways in which people are prone to fall short of normative benchmarks of rationality. Pinker makes the point:

When people’s judgments deviate from a normative model, as they so often do, we have a puzzle to solve. Sometimes the disparity reveals a genuine irrationality: the human brain cannot cope with the complexity of a problem, or it is saddled with a bug that cussedly drives it to the wrong answer time and again.

But in many cases there is a method to people’s madness.”

A prime example is loss aversion: “Our existence depends on a precarious bubble of improbabilities with pain and death just a misstep away”. In Freedom Progress and Human Flourishing, I argued similarly that loss aversion helped our ancestors to survive.

Pinker doesn’t seek to blame the propensity of humans to make logical and statistical fallacies for the prevalence of irrationality in the public sphere. He is not inclined to blame social media either, although he recognises its potential to accelerate the spread of florid fantasies.

The mythology mindset

Pinker argues that reasoning is largely tailored to winning arguments. People don’t like getting on to a train of reasoning if they don’t like where it takes them. That is less of a problem for small groups of people (families, research teams, businesses) who have a common interest in finding the truth than it is in the public sphere.

People tend to have a reality mindset when they are dealing with issues that affect their well-being directly – the world of their immediate experience – but are more inclined to adopt a mythology mindset when they are dealing with issues in the public sphere.

When economists discuss such matters, they may refer to the observation of Joseph Schumpeter that the typical citizen drops to a lower level of mental performance when discussion turns to politics. They reference the concept of rational ignorance attributed to Anthony Downs and Gordon Tulloch. They may also refer to Brian Caplan’s concept of rational irrationality. (For example, see Freedom, Progress, and Human Flourishing, pp 114-115).

Pinker doesn’t refer to those economists’ perspectives but offers interesting insights about factors that might lead people to adopt mythology mindsets. In summary, as a consequence of myside bias, attitudes to the findings of scientific studies often have less to do with scientific literacy than with political affiliation. The opposing “sides” are sometimes akin to “religious sects, which are held together by faith in their moral superiority and contempt for opposing sects”. Within those sects the function of beliefs is to bind the group together and give it moral purpose.

What can we do?

Pinker’s suggestions for combatting irrationality in the public sphere are summed up by his subheading “Re-affirming Rationality”. He advocates openness to evidence, noting the findings of a survey suggesting that most internet users claim to be open to evidence. He suggests that we valorize the norm of rationality by “smiling or frowning on rational and irrational habits”.

Pinker identifies institutions that specialize in creating and sharing knowledge as playing a major role in influencing the beliefs that people hold. Since “no-one can know everything”, we all rely on academia, public and private research units, and the news media for a great deal of the knowledge which forms the basis of our beliefs. Unfortunately, these institutions are often not trustworthy.

In the case of the universities, Pinker suggests that the problem stems from “a suffocating left-wing monoculture, with its punishment of students and professors who question dogmas on gender, race, culture, genetics, colonialism, and sexual identity and orientation”. News and opinion sites have been “played by disingenuous politicians and contribute to post-truth miasmas”.

It is easy to agree with Pinker that it would be wonderful if universities and the news media could become paragons of viewpoint diversity and critical thinking. However, movement toward that goal will require large numbers of individuals to enlist for a ‘long march’ to re-establish norms of rationality in institutions that specialize in creating and sharing knowledge.                                                                    

Tuesday, September 12, 2023

Where have the supporters of capitalism gone?


Cartoon by Peter Nicholson from “The Australian” newspaper:

Some erstwhile supporters of capitalism probably don’t realize that they have gone missing. They still support private ownership of property and businesses, and may claim to see merit in the profit motive. However, they overlook that capitalism also involves “prices, production, and the distribution of goods that are determined mainly by competition in a free market”.

The quoted words are from the Merriam-Webster definition of capitalism. Use of a definition from an American dictionary seems appropriate because the supporters of capitalism who have gone missing seem to me to be mainly Americans. That is unfortunate because Americans were once the world’s strongest supporters of capitalism.

In Australia, most of the people I hear talking about capitalism seem to use it as a term of disparagement. The people who support capitalism talk about free enterprise and economic freedom.

I have the impression that it is fairly common outside of America for supporters of capitalism to avoid using the word because it is commonly viewed as a term of disparagement. That may stem from the word’s origins. When I was growing up, someone told me that Karl Marx had invented the word. That is not correct. Marx rarely used the word. He preferred to describe capitalism as “the capitalist mode of production”. Nevertheless, even in America the term was apparently considered to be a socialist expression until well into the 20th century.

In the latter half of the 20th century, the strongest supporters of capitalism had no qualms about using the word. Milton Friedman used the word in the title of a book, Capitalism and Freedom. Friedman made it clear that he was writing about “competitive capitalism – the organisation of the bulk of economic activity through private enterprise operating in a free market”. Ayn Rand used the word in the title of a book, Capitalism: The Unknown Ideal. She defined capitalism as “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned”.

Where have America’s supporters of capitalism gone? Johan Norberg prompted me to think about that question as I was reading his latest book,
The Capitalist Manifesto: Why the Global Free Market Will Save the World. This book is a follow-up to In Defence of Global Capitalism, which Norberg wrote about 20 years ago. Globalization has now become a dirty word to many erstwhile supporters of capitalism, but Norberg remains a strong defender of global capitalism.

Who opposes the free market?

One of the most interesting contributions of Norberg’s new book is his account of the changing opposition to the ideal of a global free market. Norberg wrote In Defence of Global Capitalism to counter the arguments of left-wing activists who mistakenly believed that free trade, foreign investment, and multinational corporations were making the world’s poor even poorer. George Monbiot, Oxfam, Bono etc. eventually began to see some merit in free trade, but opposition then migrated to economic nationalists on the conservative side of the political spectrum.

Norberg suggests that the opponents of globalization share an underlying misconception that it is a zero-sum game – someone’s gain is another one’s loss:

“The worldview is the same, the roles are just reversed – twenty years ago free trade was considered bad because we exploited them, now it is considered bad because they exploit us.”

Norberg seems to assume that most readers will already understand why free trade is a positive-sum game – beneficial to both importers and exporters. He uses colourful illustrations to reinforce the point:

“Free trade allows the farmer to grow a new mobile phone in his wheat field, the textile worker can sew a new motorbike and the author can (if lucky) write a holiday trip to Tuscany.”

The author argues that free enterprise is primarily about “opening the dams of human creativity – to let everyone participate and test their ideas and see if they work”.

The opposition of economic nationalists to free trade is associated with the narrative that during the early years of the 21st century, cheap imports from China caused deindustrialization and wage stagnation in the United States.  Norberg’s most important contribution seems to me to be in challenging that narrative. He makes the point that the loss of jobs in manufacturing is attributable largely to automation rather than import competition. He suggests that the slow-down in wages growth in the US dates from the mid-1970s, reflecting a necessary correction of cost levels because wages had previous been growing faster than productivity. The Rust Belt apparently lost more jobs in the decades before globalization reached the US, than it has in recent decades. The share of manufacturing jobs in the US declined more rapidly prior to 2001, when China was admitted to the World Trade Organisation (WTO), than it has in the decades since then.

 Fear of China

Economic nationalists suggest that the involvement of China in international supply chains has been particularly problematic because of the theft of technology. Norberg points out that China has been by no means unique in that respect. The US itself apparently once had a policy of smuggling inventions and bribing European artisans to reveal their secrets. There is evidence that the Chinese government has a relatively good track record in following WTO rulings relating to disputes about intellectual property and government subsidies.

Norberg acknowledges the potential for Chinese investment in digital and physical infrastructure to pose a security threat because the Chinese government views Chinese companies as its agents. He points out that this does not mean that the US and its allies were wrong to encourage China to open up to the outside world. He suggests that if China had not opened up, it is much more likely that the Chinese people would have generally perceived Westerners as irreconcilable opponents. He fears that use of trade barriers to isolate China could strengthen the most reactionary and nationalist forces in China.    

Leviathan’s helpers

Where have the capitalists gone? Many business owners and executives now seem to spend less time on conventional entrepreneurial activities than on seeking to ingratiate themselves with politicians and bureaucrats who are engaged in active industrial policy.  

The chapter in The Capitalist Manifesto entitled “Picking Losers” should be of particular interest to Jim Chalmers, Australia’s Treasurer. In his article in The Monthly (Feb 2023) Chalmers wrote:

“As the influential economist Mariana Mazzucato has explored in her work, markets built in partnership through the efforts of business, labour and government are still the best mechanism we have to efficiently and effectively direct resources.”  

Johan Norberg has quite a lot to say about Mariana Mazzucato’s na├»ve views. I will not attempt to provide a summary here because it might spoil the fun for readers. However, I particularly liked this sentence:

 “Governments are bad at picking winners, but losers are good at picking governments.”

That observation seems particularly relevant to Australia at present.

Concluding remarks

In focusing on reasons why support for capitalism has declined, I have failed to mention many of the virtues of capitalism discussed in The Capitalist Manifesto. For example, I was particularly interested in what Johan Norberg had to say about the relationship between capitalism and various aspects of happiness, in his chapter on “the meaning of life”.

I began by noting that many supporters of capitalism are reluctant to use the word because socialists have historically used it as a term of disparagement. I commend Johan Norberg for writing a capitalist manifesto. In doing that he is following in the footsteps of great advocates of economic freedom who had no qualms in talking about the virtues of capitalism.

In this book, Norberg has provided an interesting account of how many erstwhile supporters of capitalism have come to oppose global free markets. The most important contribution of the book, in my view, is the challenge it offers to the narrative that cheap imports from China have caused deindustrialization and wage stagnation in the United States.