After reading Michael Shermer’s book, “The Mind of the Market”, I felt of a mind to write something critical. Then I read a couple of critical reviews of the book and decided that I should find a way to tell people that it was worth reading.
The subject matter of this book is the way our emotions and behaviours are influenced by the fact that our brains evolved to operate in hunter-gatherer economies rather than in modern market economies. The age in which we live - and take for granted as normal -accounts for a mere one-quarter of one percent of the history of humanity (3).
The main problem I have with this book is the author’s failure to build upon the work of those who have considered similar issues before, particularly Friedrich Hayek. Although Shermer has a similar libertarian perspective he barely mentions Hayek’s contribution.
It seems to me that Shermer could have usefully specified the aim of his book as being to bring the findings of neuroeconomics research to bear in re-considering what Hayek had to say about the human mind as “an adaptation to the natural and social surroundings in which man lives” and as “the product of the social environment in which it has grown up” (“Law, Legislation and Liberty, V. 1: 17). He could have related much of the neuroeconomic evidence he discusses to the problem identified by Hayek of dealing with primordial instincts in a modern society:
“The conduct required for the preservation of a small band of hunters and gatherers, and that presupposed by an open society based on exchange are very different. But while mankind had hundreds of thousands of years to acquire and genetically to embody the responses needed for the former, it was necessary for the rise of the latter that he not only learned to acquire new rules, but that some of the new rules served precisely to repress the instinctive reactions no longer appropriate to the Great Society” (LLL, V. 3: 164).
Shermer suggests that widespread distrust of the market mechanism and the tendency for unequal wealth to be attributed to ill-gotten gains is a consequence of the fact that our hunter-gatherer ancestors lived in small communities where everyone knew everyone, most resources were shared, wealth accumulation was almost unheard of and excessive greed and avarice were punished (18). He suggests that it is likely that moral emotions evolved out of behaviours that were reinforced as being good either for the individual or for the group. Hence humans tend to favour kin over non-kin, friends over strangers, in-group members over out-group members (115 -117).
Shermer makes a strong case that a lot of the evil behaviour that occurs today can be traced to the instinct to favour in-groups at the expense of out-groups. He argues that evil, such as that found in Abu Ghraib and Enron, is the product of corrupting circumstances. Instead of attributing evil to a few bad apples we should look more carefully at the barrels (the organisational culture) in which they are found (205).
He also makes a strong case that our ancestors’ aversion to inequity helped to promote beneficial cooperative interactions because individuals who feel they are being cheated by one trading partner can look for another partner to trade with (176). Free trade breaks down the normal tribal barriers blocking trust. “Trade makes people more trusting and trustworthy, which makes them more inclined to trade, which increases trust ... creating a self-reinforcing cycle of trust, trade, freedom and prosperity” (186). “The psychology behind defusing intergroup aggression involves turning potentially dangerous strangers into prospectively helpful honorary friends (252).
Shermer also has some interesting things to say about happiness. He defines happiness as “a subjective state of well-being that depends on relative frames of reference, grounded in an evolved psychology that finds meaning in the simple social pleasures and purposes of life” (140). On page 158 he suggests that the evolutionary purpose of emotions is to get us to act in ways that lead to an increase in reproductive success. By page 161 he has reached the point where he states: “my point here is that being social is integral to all aspects of our lives, including our Subjective Well-Being”. Over the next few pages we climb to an even higher level until on page 166 we are told, “It all comes to this: the simplest way to be happy is to do good” (166).
That sentiment was attributed to an article Helen Keller wrote in the “Home Magazine” in 1933. For some reason I wished at that point that Shermer had mentioned that the link between virtue and happiness goes back at least as far as Aristotle.
Monday, September 1, 2008
Thursday, August 28, 2008
Do gaps between wanting and liking explain government paternalism?
At the end of my last post I raised the question of whether gaps between wanting an liking - craving things that bring little or no happiness once we have them - provides grounds for government paternalism. I have previously referred to an article in which Glen Whitman discusses various ways in which people deal with self-control problems without paternalistic interventions (here). In an article discussing government paternalism, Edward Glaeser provides some good reasons why flaws in decision-making should make us more, not less, wary about trusting governments (‘Paternalism and psychology’, Regulation, Summer 2006). For example: “If incentives to make good decisions increase the quality of decision-making, then ... private decisions should be better than public decisions: government decision-makers do not care as much about the individual’s well-being as the individual himself does” (34).
As well as suggesting that gaps between wanting and liking could possibly justify paternalistic interventions by government , Colin Camerer has suggested (here) that the existence of such gaps might help to explain paternalistic interventions that are already in place. An obvious example is prohibition of addictive drugs. Sin taxes on tobacco and alcohol could have similar motivations, but these taxes have also been promoted on other grounds e.g. correcting externalities and raising revenue. The provision of “cooling off” periods for consumer purchases can be explained in terms of allowing time for consumers to re-consider purchases they have made in a “hot” emotional state. When restrictions are imposed on people who are considered to be mentally incompetent, one of the reasons may have to do with impairment of the brain circuitry that restrains impulsive actions. Regulations to protect children and young adults may also be motivated partly by beliefs about the development of the brain circuitry that controls impulsive actions.
Defenders of liberty have conventionally argued, along with J.S. Mill, that children should be protected: “Those who are still in a state to require being taken care of by others, must be protected against their own actions as well as against external injury” (“On Liberty”, 1859). There is a “slippery slope” in this argument, however, as is evident in the fact that Mill goes on to argue that despotism is a legitimate mode of government “in dealing with barbarians” provided the objective is “their improvement”.
I find it easier to understand how Mill could justify extension of paternalism to protect “barbarians” than to explain why adults in democracies would vote in favour of paternalistic policies to restrict their own freedom. Paternalism, by definition, is about treating people like children. Do a majority of adults in democratic countries really want to be treated like children?
My guess that if adults were asked that question there would not be many who would say that they do want to be treated as children. But a lot of adults seem to lack sufficient confidence in their own capacity to make the right decisions and stick by them. This applies in a wide range of areas from personal safety e.g. wearing seat belts to financial security e.g. investing in superannuation. Rather than asking family and friends to help them learn how to cope with their emotional impulses, or to seek professional help, a lot of people have come to want governments to regulate everyone’s behavior.
As well as suggesting that gaps between wanting and liking could possibly justify paternalistic interventions by government , Colin Camerer has suggested (here) that the existence of such gaps might help to explain paternalistic interventions that are already in place. An obvious example is prohibition of addictive drugs. Sin taxes on tobacco and alcohol could have similar motivations, but these taxes have also been promoted on other grounds e.g. correcting externalities and raising revenue. The provision of “cooling off” periods for consumer purchases can be explained in terms of allowing time for consumers to re-consider purchases they have made in a “hot” emotional state. When restrictions are imposed on people who are considered to be mentally incompetent, one of the reasons may have to do with impairment of the brain circuitry that restrains impulsive actions. Regulations to protect children and young adults may also be motivated partly by beliefs about the development of the brain circuitry that controls impulsive actions.
Defenders of liberty have conventionally argued, along with J.S. Mill, that children should be protected: “Those who are still in a state to require being taken care of by others, must be protected against their own actions as well as against external injury” (“On Liberty”, 1859). There is a “slippery slope” in this argument, however, as is evident in the fact that Mill goes on to argue that despotism is a legitimate mode of government “in dealing with barbarians” provided the objective is “their improvement”.
I find it easier to understand how Mill could justify extension of paternalism to protect “barbarians” than to explain why adults in democracies would vote in favour of paternalistic policies to restrict their own freedom. Paternalism, by definition, is about treating people like children. Do a majority of adults in democratic countries really want to be treated like children?
My guess that if adults were asked that question there would not be many who would say that they do want to be treated as children. But a lot of adults seem to lack sufficient confidence in their own capacity to make the right decisions and stick by them. This applies in a wide range of areas from personal safety e.g. wearing seat belts to financial security e.g. investing in superannuation. Rather than asking family and friends to help them learn how to cope with their emotional impulses, or to seek professional help, a lot of people have come to want governments to regulate everyone’s behavior.
Tuesday, August 26, 2008
What are the implications of the gap between wanting and liking?
Neurological research by Kent Berridge suggests that separate brain mechanisms control wanting and liking (described here). In Daniel Nettle’s words, we can crave for something very much but take little or no pleasure in it once we have it (“Happiness”, 2005: 126).
As a former smoker I think I already understood this before I had heard that separate brain mechanisms control wanting and liking. After a while the main pleasure in smoking was the temporary release from craving.
Nettle argues that the evolutionary purpose of the wanting system is to trick us into seeking things like status and resources even though such things may not make us happier. In his view we tend to want such things because they were important to the reproductive success of our ancestors: “The things we want in life are the things the evolved mind tells us to want, and it doesn’t give a fig about our happiness”.
Nettle suggests that the wanting system “draws us to compete for promotion or a higher salary; a larger house or more material goods; an attractive partner or 2.4 children” (152). It seems to me that a lot of people might feel that such goals were worth pursuing even if they knew that they were not likely to be much happier if they managed to achieve them.
Colin Camerer has given several examples of wanting-liking gaps that more clearly challenge the conventional economic view that people make rational choices (‘Wanting, liking and learning: neuroscience and paternalism’, here). In the case of drug addiction, wanting can be created by a desire to avoid the pain of withdrawal even though drug use is not actually pleasurable. People suffering from obsessive compulsive disorders feel a strong desire to perform particular acts even though they obtain little pleasure from them. Shopaholics want to buy goods that they don’t use. People who make excessive use of their credit cards may be too strongly influenced by the wanting system, instead of weighing up the pleasure of having the goods against the cost of paying for them.
Camerer introduces the learning system into the analysis: “Learning is a process by which the wanting system comes to know what the liking system likes”. He suggests that the conventional economic view that what people like can be inferred from the choices that they make only holds in “the special case where learning has taught wanting what is liked” (109). This is the case where people have learned from past mistakes.
Camerer suggests that some gaps between wanting and liking may justify government paternalism of various kinds. However, such proposals raise many questions. Is there any reason to believe that gaps between wanting and liking are of less importance in making political decisions (voting) than in making market choices? If we vote for paternalistic government, what are the chances that we will like the kind of government that we get? Would we actually like living under a paternalistic government that relieved us of the personal challenge of dealing with gaps between what we want and what we like? Would this help us to become the kinds of people we would like to become?
As a former smoker I think I already understood this before I had heard that separate brain mechanisms control wanting and liking. After a while the main pleasure in smoking was the temporary release from craving.
Nettle argues that the evolutionary purpose of the wanting system is to trick us into seeking things like status and resources even though such things may not make us happier. In his view we tend to want such things because they were important to the reproductive success of our ancestors: “The things we want in life are the things the evolved mind tells us to want, and it doesn’t give a fig about our happiness”.
Nettle suggests that the wanting system “draws us to compete for promotion or a higher salary; a larger house or more material goods; an attractive partner or 2.4 children” (152). It seems to me that a lot of people might feel that such goals were worth pursuing even if they knew that they were not likely to be much happier if they managed to achieve them.
Colin Camerer has given several examples of wanting-liking gaps that more clearly challenge the conventional economic view that people make rational choices (‘Wanting, liking and learning: neuroscience and paternalism’, here). In the case of drug addiction, wanting can be created by a desire to avoid the pain of withdrawal even though drug use is not actually pleasurable. People suffering from obsessive compulsive disorders feel a strong desire to perform particular acts even though they obtain little pleasure from them. Shopaholics want to buy goods that they don’t use. People who make excessive use of their credit cards may be too strongly influenced by the wanting system, instead of weighing up the pleasure of having the goods against the cost of paying for them.
Camerer introduces the learning system into the analysis: “Learning is a process by which the wanting system comes to know what the liking system likes”. He suggests that the conventional economic view that what people like can be inferred from the choices that they make only holds in “the special case where learning has taught wanting what is liked” (109). This is the case where people have learned from past mistakes.
Camerer suggests that some gaps between wanting and liking may justify government paternalism of various kinds. However, such proposals raise many questions. Is there any reason to believe that gaps between wanting and liking are of less importance in making political decisions (voting) than in making market choices? If we vote for paternalistic government, what are the chances that we will like the kind of government that we get? Would we actually like living under a paternalistic government that relieved us of the personal challenge of dealing with gaps between what we want and what we like? Would this help us to become the kinds of people we would like to become?
Saturday, August 16, 2008
What is happening to Whitlam's legacy of fair play in industry assistance?
The Australian government has just released a report into the car industry commissioned from a committee led by Steve Bracks, the former premier of Victoria. The committee has recommended an extra $2 billion in budgetary assistance to the industry on top of an amount of similar magnitude to be paid under existing programs.
Few people would be surprised that Steve Bracks has recommended additional assistance to the car industry. After all, this industry is concentrated in Victoria, while the taxpayers who will bear the cost of the recommended assistance are spread around the whole of Australia.
It is reasonable to presume that the government set up this ad hoc review precisely in order to obtain a recommendation of additional assistance. If it had approached the issue with an open mind it would have sent a reference to the Productivity Commission – the organisation that normally conducts such industry assistance reviews.
In reading the Bracks report I was particularly interested to find out how it would reconcile claims that the Australian car industry needs further assistance in order to become internationally competitive with often heard assertions that the Button car plan, introduced in the 1980s, had been a big success in helping the industry to become internationally competitive.
The Bracks report argues that the competitiveness of the industry has declined because the Australian dollar has appreciated against the currencies of the major automotive producing countries. That explanation doesn’t hold water. Other industries are having to cope with exchange rate appreciation without additional assistance. If the car industry needs a special round of additional assistance this suggests that it is still fundamentally uncompetitive in the Australian environment.
One of the good things about the Bracks report is its recognition that assistance to the car industry “comes at a cost to other industries and consumers” (92). So, what is so special about the car industry to warrant this additional assistance at the expense of other industries?
I could not find a satisfactory answer to this question in the report. There is some discussion of spillovers but nothing definitive to suggest that they are more important than in other industries that have been adversely affected by exchange rate movements. The report does not consider why this industry should be given preferential treatment. The people undertaking the review lacked the economy-wide perspective required to balance the claims of this industry against those of other industries.
If the government accepts the recommendations of this dodgy review it will be seen to have trampled on what has possibly been Gough Whitlam’s most positive legacy – a system of fair play in industry assistance. The government needs to be reminded of what Whitlam said in setting up the IAC (predecessor of the Productivity Commission) in 1973. I quote from his second reading speech:
“It will be apparent that the reference to the Commission of questions relating to assistance for individual industries cannot be optional. If some industries, particularly those which stand to lose most from public exposure of their claims, can avoid the process of public inquiry the fundamental purpose of the Commission will be frustrated”.
Those words seem to me to be just as relevant today as in 1973 – and this picture sums up the direction in which the Rudd government's industry policy is heading.
Few people would be surprised that Steve Bracks has recommended additional assistance to the car industry. After all, this industry is concentrated in Victoria, while the taxpayers who will bear the cost of the recommended assistance are spread around the whole of Australia.
It is reasonable to presume that the government set up this ad hoc review precisely in order to obtain a recommendation of additional assistance. If it had approached the issue with an open mind it would have sent a reference to the Productivity Commission – the organisation that normally conducts such industry assistance reviews.
In reading the Bracks report I was particularly interested to find out how it would reconcile claims that the Australian car industry needs further assistance in order to become internationally competitive with often heard assertions that the Button car plan, introduced in the 1980s, had been a big success in helping the industry to become internationally competitive.
The Bracks report argues that the competitiveness of the industry has declined because the Australian dollar has appreciated against the currencies of the major automotive producing countries. That explanation doesn’t hold water. Other industries are having to cope with exchange rate appreciation without additional assistance. If the car industry needs a special round of additional assistance this suggests that it is still fundamentally uncompetitive in the Australian environment.
One of the good things about the Bracks report is its recognition that assistance to the car industry “comes at a cost to other industries and consumers” (92). So, what is so special about the car industry to warrant this additional assistance at the expense of other industries?
I could not find a satisfactory answer to this question in the report. There is some discussion of spillovers but nothing definitive to suggest that they are more important than in other industries that have been adversely affected by exchange rate movements. The report does not consider why this industry should be given preferential treatment. The people undertaking the review lacked the economy-wide perspective required to balance the claims of this industry against those of other industries.
If the government accepts the recommendations of this dodgy review it will be seen to have trampled on what has possibly been Gough Whitlam’s most positive legacy – a system of fair play in industry assistance. The government needs to be reminded of what Whitlam said in setting up the IAC (predecessor of the Productivity Commission) in 1973. I quote from his second reading speech:
“It will be apparent that the reference to the Commission of questions relating to assistance for individual industries cannot be optional. If some industries, particularly those which stand to lose most from public exposure of their claims, can avoid the process of public inquiry the fundamental purpose of the Commission will be frustrated”.
Those words seem to me to be just as relevant today as in 1973 – and this picture sums up the direction in which the Rudd government's industry policy is heading.
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