Commentary

Why Laissez-
Faire Lovers Are
the Real Anti-
CapitalistsTime to resurrect an old idea: economic rent

By Dustin Mineau
Have you ever heard of the term “economic rent”?  No?  That’s
probably because of the greatest political coup in the history of our
republic.  In politics, true power comes – not from your argument –
but from the ability to steer the conversation to what you want to talk
about and away from what you don’t want to talk about.  The true
elites in our society have continued “winning” the political debate by
removing a very important concept from the political conversation.

I admit, reading the term, “economic rent” can cause eyes to glaze
over quickly.  A more accurate description is “unearned income”.  It is
people and companies who make money by doing zero work and risk
little or none of their own assets.
Taking Back Adam Smith and “Classic Liberalism”
Many conservative economists claim to be staunch followers of Adam
Smith.  They shout slogans such as “Supply and Demand!”
“Capitalism”! “  “Let the markets work!”  However, for anyone who
actually read Adam Smith, you would note that the “invisible hand”
was not his only observation of the inner workings of capitalism.
Adam Smith recognized that many in the economy were making gobs
of money, but weren’t contributing anything.  He was referring to
what was eventually called “economic rent”.
Smith observed that all production required 3 things.  Land, Capital,
and Labor.  A very simple example would be a brick factory.  The
building and oven needed to create the bricks are the “capital” – the
owners are the capitalists.  The people making the bricks is the “labor”
– the people doing the actual work.  The Land the factory occupies
and the clay used to make the bricks is the “land” – the owners of the
land are the “Rentiers”.  Any money made by selling the bricks is then
divided up between these three groups: the rentiers, the capitalists, and
the workers.

Adam Smith observed that only 2 of the 3 groups made any real
contribution to the production process.  The workers contributed their
time.  The capitalists contributed their capital that they either bought,
but is now used and worth less than before it was used.  The Rentiers
contributed their land, but have lost nothing.  Once the manufacturing
of the bricks is done, they get their land back and it is still worth the
same as it was before.  Any income they made by renting out their
land was made without work, and without risk to their assets.  There is
a word for someone that only takes, but doesn’t give back: a parasite.
Smith and those who carried on his work used the nicer term, Rentier.
This is where the phrase “economic rent” originates.  It originally
described a no value-ad landlord.

Adam Smith and future classical economists existed in a time where

the noble families of medieval Europe were still the large landowners.
The nobles had just turned into Rentiers. Because they owned the
land, they were able to rent it out to capitalist and workers and claim a
portion of their profits and wages by charging “rent”.  They were able
to do this without ever working. It was unearned income.
Much of the work done by economists from Adam Smith until the late
19th century was all about finding and identifying “rent-seeking”.
These classical economists didn’t want to overthrow capitalism, they
wanted to free it from the “rent-seeking” parasites.

The Neoclassical School “loses” rent

Right before the turn of the 20th century a new school of economists
appeared.  They were later named the Neoclassical school and it
continues today. When the transition from classical to neoclassical
occurred, one of the things that was lost was the concept of “economic
rent”.  The Neoclassicals started treating land and capital as the same
thing and therefore interchangeable.  In a world without land,
economic rent no longer makes sense.  Some would argue(e.g.
Gaffney’s Neo-classical Economics as a Stratagem against Henry
George – pdf) that this was intentional.  If it was intentional, it was the
greatest coup of ideas the elite class came up with to justify their
existence since The Divine Right of Kings.  On the other hand, It may
have just been a simple intellectual decision based on their new
approach to economics.
In any case, the decision to treat land and capital as the same, haunts
us to this day.  If land is treated as capital then the concept of “rent”
goes away and rentiers can masquerade as capitalists and cloak their
unearned “rent” income as justifiable profit. John Maynard Keynes
blew away everybody and what they thought they knew about
economics in the 20s and 30s.  In response to Keynesian economics,
the neoclassical economists didn’t die, they decided to fight back.
Milton Friedman is the most famous of this group.  To fight against
keynesian economics, he and his contemporaries tried to lay claim as
resurrecting the classic school of economics that said “less
government is good”.  They even called themselves New Classicals.
However, this “revival” of the classical economics was actual a
revival of the neoclassical school.  They, like the neoclassicals before,
again conflated capital and land.  Therefore, many modern economists
no longer make a distinction between land and capital.  They group
together income from rent and income from capital and call it profit.
This school remains in the mainstream and therefore the concept of
economic rent is no longer discussed in our politics.
Rent-Seeking
In the late 60s and early 70s “economic rent” saw a small revival
among select economists.  For those select few, “Rent-seeking” was
no longer defined as just “ownership of the land”.  It can take several
shapes. Rent-seeking is any income that is unearned. An alternative
definition is “profit without a corresponding cost of production”.
“Economic Rent” can come from ownership of land and just “renting”
it out for money. It can also come from collecting so much capital that
a firm now has a monopoly and can set the price independent of
supply demand considerations, It can be from government monopoly
granting, control of other “land” like our rivers, broadband spectrum,
or “mineral rights” of land.  It can come from control of financial
assets like capital gains, dividends, and interest on loans(especially
usury). It can also come from political favors from the government.
Political Implications
Economic rent was something I’d learned about in school several
years ago and quickly forgot about it once the class was over.  Now in
a post bank-bailout world, I ran across it again one day while
researching another article, It was like a light-bulb clicking on in my
head.  (A high-efficiency light bulb).  This is what progressives are
currently fighting against.  This is the concept, the vocabulary, the
name for the rage I feel in my gut at what’s happened.  The rentiers
have taken over our country by masquerading as capitalists. How did
this happen?

It was simple, once the neoclassicals removed the entire concept of

“rentier” from the economic, and eventually political, conversation. It
was all capitalism and capitalists in their world.  Therefore, now when
progressives rail against the unearned income of the rentiers, we lack
the vocabulary to properly express what is happening. Instead,
conservatives try to make it look like liberals are railing against
capitalism itself or against businesses in general.  In some cases we
may even come to believe it ourselves.  Many times when we’re
fighting against the “excesses of capitalism”, what we are actually
fighting is parasitic rentiers that are hurting the true capitalists as
much as the workers.

 When a company has a monopoly and can charge whatever they

want, that’s not being a capitalist or an entrepreneur, that’s
being a “Rentier”.
 When oil company’s make “windfall profits” as the price of oil
goes up, that’s not profit, that’s “economic rent”.
  When a drug company can keep the government from
negotiating lower prices, that isn’t capitalism, that’s classic
“rent-seeking” behavior.
 99% of the money made on wall street is nothing but pure rent-
seeking.
 Companies lobbying for tax loop holes is just more
unproductive rent-seeking.
Fortunately, some well known economists do talk about The Rentiers.
Unfortunately, not nearly enough are.  I’m guessing it’s because the
vast majority of influential economists are still neoclassicals and don’t
believe land and rentiers exist. They can try to deny their existence,
but when I see the top 1% of the country make more money in one
night while they are sleeping then most will make working at their job
for 6 months, it’s hard to deny their existence.  It’s unfortunately that
our intellectual class “lost” these words and concepts from the
mainstream discussion.
So where does that leave us now?  One could argue history is
repeating itself. 200 years ago, the conservative vs. liberal mantra was
that conservatives were fighting to keep the power of the nobles and
large landlords intact. The liberals were the ones trying to free
themselves politically and economically from their control.  Today it’s
the same.  Conservatives are fighting to maintain the privilege of the
Rentiers by pretending to defend capitalism itself.  And once again, us
liberals are fighting to free the market from the parasitical Rentiers.

2016 November 19

Commentary

12 Short Steps to Retell the Story of

Economics
It’s time for a different economic narrative
By Jag Bhalla
Are there key plot holes in a tale that shapes our times?

1. Economics illustrates “the pitfalls of a good story,” says science

writer Philip Ball.
2. It is built on a simple story that can discount or hide complicating
logic.

3. Here’s Adam Smith’s plot summary: “He who intends only his own
gain … is … led by an invisible hand … [and] frequently promotes
[the interest] of … society.”
4. The key “characters” are self-seeking individuals and competitive
markets, where prices automatically coordinate good collective
outcomes (benign efficient “spontaneous order” = unintended
consequence).

5. But what Smith’s invisible hand “frequently promotes,” it can’t

guarantee. The other logical possibility is that self-seeking can cause
collective harm, intended or not.

6. Plus the “simple story” mischaracterizes competition and prices.

7. Competition can be efficient, or wasteful — see Markets Dumb

As Trees.
8. Prices often aren’t “right.” Both sellers and buyers gain (short-term)
by ignoring “externalities,” like pollution costs. That complicates
voluntary fixes.
9. Two “invisible hand” types exist. Sometimes local incentives
combine to generate good group outcomes. Sometimes they
undermine group goals. As Charles Darwin saw, these bad invisible
hands create spontaneous disorder, which local incentives can’t cure.
10. Parts relate to wholes in two distinct ways. Sometimes we can
predict how wholes behave from the properties of their parts. Other
times not; it’s more complicated.

11. The field of “complex systems” studies these trickier beasts.

That’s an unfortunate name — jet engines are complex but
predictable, and two simple parts can generate unpredictable
complexity (Wolfram Rule 30).
12. Markets are the most powerful social forces on earth, they shape
how billions of people live. Let’s get their whole story straight. We
can’t afford to continue ignoring their complicating logic.

For less one-sided stories, and more on efforts to deploy tools and
ideas from complex systems, evolution and business, keep
following Evonomics.

Commentary

Why Radical
Libertarians Are
the New
Communists A toxic strand of a political ideology
By Nick Hanauer and Eric Liu
Most people would consider radical libertarianism and communism
polar opposites: The first glorifies personal freedom. The second
would obliterate it. Yet the ideologies are simply mirror images. Both
attempt to answer the same questions, and fail to do so in similar
ways. Where communism was adopted, the result was misery, poverty
and tyranny. If extremist libertarians ever translated their beliefs into
policy, it would lead to the same kinds of catastrophe.

Let’s start with some definitions. By radical libertarianism, we mean

the ideology that holds that individual liberty trumps all other values.
By communism, we mean the ideology of extreme state domination of
private and economic life.

Some of the radical libertarians are Ayn Rand fans who divide their
fellow citizens into makers, in the mold of John Galt, and takers, in
the mold of anyone not John Galt.

Some, such as the Koch brothers, are economic royalists who

repackage trickle-down economics as “libertarian populism.” Some
are followers of Texas Senator Ted Cruz, whose highest aspiration is
to shut down government. Some resemble the anti-tax activist Grover
Norquist, who has made a career out of trying to drown, stifle or
strangle government.
Yes, liberty is a core American value, and an overweening state can be
unhealthy. And there are plenty of self-described libertarians who
have adopted the label mainly because they support same-sex
marriage or decry government surveillance. These social libertarians
aren’t the problem. It is the nihilist anti-state libertarians of the Koch-
Cruz-Norquist-Paul (Ron and Rand alike) school who should worry
us.

Human Nature
Like communism, this philosophy is defective in its misreading of
human nature, misunderstanding of how societies work and utter
failure to adapt to changing circumstances. Radical libertarianism
assumes that humans are wired only to be selfish, when in fact
cooperation is the height of human evolution. It assumes that societies
are efficient mechanisms requiring no rules or enforcers, when, in fact,
they are fragile ecosystems prone to collapse and easily overwhelmed
by free-riders. And it is fanatically rigid in its insistence on a single
solution to every problem: Roll back the state!

Communism failed in three strikingly similar ways. It believed that

humans should be willing cogs serving the proletariat. It assumed that
societies could be run top-down like machines. And it, too, was
fanatically rigid in its insistence on an all-encompassing ideology,
leading to totalitarianism.

Radical libertarianism, if ever put into practice at the scale of

something bigger than a tiny enclave, would also be a disaster.

We say the conditional “would” because radical libertarianism has a

fatal flaw: It can’t be applied across a functioning society. What might
radical libertarians do if they actually had power? A President Paul
would rule by tantrum, shutting down the government in order to
repeal laws already passed by Congress. A Secretary Norquist would
eliminate the Internal Revenue Service and progressive taxation, so
that the already wealthy could exponentially compound their
advantage, as the programs that sustain a prosperous middle class are
gutted. A Koch domestic policy would obliterate environmental
standards for clean air and water, so that polluters could externalize all
their costs onto other people.
Radical libertarians would be great at destroying. They would have
little concept of creating or governing. It is in failed states such as
Somalia that libertarianism finds its fullest actual expression.

Extreme Positions
Some libertarians will claim we are arguing against a straw man and
that no serious adherent to their philosophy advocates the extreme
positions we describe. The public record of extreme statements by the
likes of Cruz, Norquist and the Pauls speaks for itself. Reasonable
people debate how best to regulate or how government can most
effectively do its work — not whether to regulate at all or whether
government should even exist.

The alternative to this extremism is an evolving blend of freedom and

cooperation. The relationship between social happiness and economic
success can be plotted on a bell curve, and the sweet spot is away
from the extremes of either pure liberty or pure communitarianism.
That is where true citizenship and healthy capitalism are found.

True citizenship enables a society to thrive for precisely the reasons

that communism and radical libertarianism cannot. It is based on a
realistic conception of human nature that recognizes we must
cooperate to be able compete at higher levels. True citizenship means
changing policy to adapt to changes in circumstance. Sometimes
government isn’t the answer. Other times it is.

If the U.S. is to continue to adapt and evolve, we have to see that

freedom isn’t simply the removal of encumbrance, or the ability to
ignore inconvenient rules or limitations. Freedom is responsibility.
Communism failed because it kept citizens from taking responsibility
for governing themselves. By preaching individualism above all else,
so does radical libertarianism.

It is one thing to oppose intrusive government surveillance or the

overreach of federal programs. It is another to call for the evisceration
of government itself. Let’s put radical libertarianism into the dustbin
of history, along with its cousin communism.
Republished with the permission of the authors.
2016 June 21

Commentary

Why Neoclassical and Behavioral

Economics Doesn’t Make Sense
Without Darwin
Back to basics

By Terry Burnham
Economics is in the midst of a quiet crisis having undergone a schism
forty years ago, and showing no signs of healing. In the paper,
“Towards a neo-Darwinian synthesis of neoclassical and behavioral
economics,” I argue that the natural sciences provide the best route to
re-unite economics.
Economics is divided into the neoclassical school that assumes people
are rational maximizers and the behavioral school that argues people
are, in the words of Richard Thaler, “dumber and nicer” than
neoclassical economists assume.
Behavioral economics has become more powerful because it has
documented a series of deviations between the behavior of actual
living people, and the predicted behavior of Homo economicus.

The schism between the two economic camps is exemplified by the

relationship between Professor Thaler and Eugene Fama, his
colleague at the University of Chicago. In the NY Times, Fama
dismisses Thaler’s work as follows, “What Thaler does is basically a
curiosity item … How did some of this [behavioral economic] stuff
ever get published?”
Here you have two tenured professors at the University of Chicago,
one of the best schools in the world for economics, who disagree
about the core assumptions of the field. Economics is in disarray.

The first behavioral papers were published in the 1970s by Daniel

Kahneman and Amos Tversky. Roughly half a century later, the
neoclassical and behavioral scholars are no closer to each other. In
fact, the 2001 NY times article where Eugene Fama dismisses
behavioral economics is still a good description of the state of
economics. No change in 15 years.
In fact, economics has been stymied for decades. Biology provides a
path to heal the schism and move economics forward. The core
dispute in economics is reconciling sophisticated, ‘smart’ behavior
with silly, ‘dumb’ behavior. Biology has a unified theory that explains
both sorts of behavior, and there is no similar schism within biology.

Consider the work of Nobel-prize winner Niko Tinbergen on herring

gulls. These birds exhibit all sorts of sophisticated strategies to survive
and reproduce in challenging environments. A neoclassical economist
could marvel in their ability to fly, forage, and raise offspring.

Tinbergen’s work, however, demonstrated some herring gull

behaviors that may appear silly. In the wild, gull chicks beg for food
by pecking the bills of adults, which have red patches. Tinbergen
discovered that gull chicks have innate tendencies to peck at red dots
even on artificially-constructed birds. Furthermore, the chicks prefer
pencils with red erasers over realistic, model birds without red.
If Richard Thaler were studying the herring gulls, one could imagine
him writing a behavioral economic paper on the ‘anomalous’ behavior
of gulls. These birds are so silly as to try to feed from pencils.
Professor Thaler might further conclude that Darwinian theory is false
as these herring gulls in artificial settings fail to survive and
reproduce.

Biologists, however, have no problem with herring gulls behaving in

ways that appear both smart and silly. Natural selection produces
elegant solutions such as flying. However, behavior is created by
specific neural mechanisms that can produce anomalous behavior in
some settings.

Indeed, Tinbergen did not see this pencil-pecking behavior as

anomalous, but rather viewed it as being produced by adaptive
mechanisms that arose in a herring gull world without pencil erasers.

This biological view provides a way to reconcile behavioral and

neoclassical economics. Humans, like other animals, are under
evolutionary pressure to maximize. This maximization is nearly
identical to the predictions of neoclassical economics. However, the
anomalies of behavioral economics are produced when decision-
making mechanisms are activated in particular environments.

Economics can learn from biology, heal the schism, and move forward
with a cohesive and relevant approach to human behavior.

Read the paper: Burnham, T. (2013). Toward a Neo-Darwinian

Synthesis of Neoclassical and Behavioral Economics.

Commentary

The Economy’s Greatest Illness: The

Rise of Unproductive Finance
How financial markets no longer support business, and thus, economic growth
By Rana Foroohar
Markets typically react more to economic fundamentals than politics.
But these are not typical times, and our economic future is deeply
entangled with the political economy.

Donald Trump’s presidential victory fundamentally challenges the

future of globalization and status quo capitalism. Indeed, the fact that
Trump grabbed an unexpected share of minority vote, as well as some
college educated women, speaks to the fact that economic anxiety is
about more than just income levels. It’s about the fact that a large
percentage of the population feels that we have a rigged economic
system that disproportionately benefits the US and global elite.
Nevermind that Trump is one of those elites. He ran as a challenger to
Hillary Clinton, the ultimate establishment political figure and sold the
electorate on the idea that he was the face of change.

How did we get here? Despite the economic progress made since
2008, our current recovery has been the longest, slowest one of the
post World War II era, and the level of inequality is as high as it has
been since the Gilded Era. The key reason is something that neither
candidate in the 2016 cycle addressed fully – the fact that the financial
markets themselves are no longer supporting business, and thus,
economic growth.
Why is this? Because the financial industry has, according to a large
body of data, grown too large and too far removed from its original
mission of investing in new, productive ventures. This illness has a
name: academics call it financialization. It’s a term for the trend by
which Wall Street and its way of thinking have come to reign supreme
in America, permeating not just Wall Street but all American business.

It includes the growth in size and scope of finance and financial

activity in our economy (which has doubled since the 1970s), to the
rise of debt-fueled speculation over productive lending, to the
ascendancy of shareholder value as the sole model for corporate
governance (and the short term pressure that puts on companies), to
the enormous political power of the financial lobby. It’s a shift that
has even affected our language, our civic life, and our way of relating
to one another. We speak about human or social “capital” and
securitize everything from education to critical infrastructure to prison
terms, a mark of our burgeoning “portfolio society.”

This isn’t the way it was supposed to be. Market capitalism, as

envisioned by Adam Smith, was supposed to funnel our collective
savings into productive investment, via the banking system. But today,
deep academic research shows that only around 15% of the money
flowing from financial institutions actually makes its way into
business investment. The rest gets moved around a closed financial
loop, via the buying and selling of existing assets, like real estate,
stocks, and bonds.

It’s a cycle that increases inequality, since the top quarter of the
population owns the vast majority of those assets (witness the
disconnect between the markets and Main Street, which has fueled
much of the populist sentiment in the election cycle).

The financial sector — including everything from banks, to hedge

funds to mutual funds to insurance to trading houses — represents
around 7% of the economy. Yet it creates only 4% of all US jobs, and
takes 25% of all private sector profits. While a healthy financial
system is crucial for growth, research by numerous academics as well
as institutions like the Bank of International Settlements and the
International Monetary Fund shows that when finance gets that big, it
starts to suck the economic air out of the room – and in fact, the
slower growth effect starts happening when the sector is half the size
it is today in the US.
It’s crucial that we tackle this issue to ensure not only more
sustainable growth, but more stable politics. A recent Harvard survey
found that only 19 % of millenials, now the largest voting bloc in the
country, consider themselves “capitalists.” Ironically, our next
president—an investor known for highly leveraged real estate deals —
has been one of the biggest beneficiaries of our financialized system.

Yet if the next administration doesn’t take serious steps to reconnect

the markets to Main Street, we will find ourselves in the same slow
growth economy in four years. Only this time, the politics will be even
more extreme—and there may be new outsiders to challenge the status
quo.

Originally published here.

2016 November 15

Behavioral Economics Doesn’t

Understand Happiness
More of everything, less choices or outwitting our brains?
By Terry Burnham
What would make you happier in 2016?

If you could change one aspect of your life during 2016, what would
make you the happiest? Imagine yourself on December 31, 2016
looking back with satisfaction on 2016. What would it be?

Standard economics has an answer. It is illustrated by this anecdote

conveyed to me by Professor Amartya Sen, Nobel Laureate in
Economics. Walking through Harvard Square one day Professor Sen
asked me, “What should you do if you see a person trying to cut his
fingers off with a pair of dull scissors?”

My response: stop him from cutting off his fingers, call the police for
help, etc.

“Offer him sharper scissors,” was Professor Sen’s answer. Standard

(a.k.a. “neoclassical”) economics assumes that people know what they
want. Professor Sen is a critic of some aspects of neoclassical
economics, so his question (and answer) was a rhetorical maneuver
designed to educate.

Let us to return to your happiness in 2016.  Did you secretly answer,

more money?

More money, more money, more money. Yes, yes, and even more yes.
More money would make everything better. Pay off some bills,
wrestle the monetary stress monkey off your shoulders, take a well-
earned vacation. Send some cash to Mom. Yes. More money.
To the answer of more money, neoclassical economics says amen.
Standard economics assumes that people know what they want (have
“stable preferences”) and know how to make themselves happy
(“maximize”). Thus, the way to make someone happier is to increase
their opportunities — more money and more time.
We make the Harvard Square resident happier by helping achieve her
or his goal, not by imposing our own goals. Similarly, all we have to
do to make anyone happier is provide more money or more time. The
individual will make the best choices for themselves.

Thus, the neoclassical economic prescription is clear. More money,

better medicine, a fountain of youth. Case closed.

Just as you are ready to seal your 2016 wish for a winning lottery
ticket, Professor Richard Thaler yells, “Wait a minute!” Neoclassical
economics is all wrong according to Thaler (you can read his recent
book Misbehaving or watch his talk summarizing the book and his
career).
Behavioral economics argues that the neoclassical economics is
wrong. Real humans, in the language of behavioral economic founders
Daniel Kahneman and Amos Tversky, exhibit biases and heuristics,
or, more colloquially, humans are crazy.
For the sake of your 2016 wishes, behavioral economics makes three
related claims. First, people do not know what makes them happy.
Second, fewer options are sometimes better than more options. Third,
more money may not make you happier.

A key moment in Richard Thaler’s intellectual life involved a bowl of

cashews. Thaler was hosting a party, and had served some cashews as
an appetizer. His guests were voraciously eating the nuts; so much so
that Thaler worried their appetites would be satisfied before dinner.
He removed the remaining cashews. The result? His guests thanked
him.
What do cashews have to do with economics? Neoclassical economics
argues that people should always be happier with the option to eat
cashews. Thus, Thaler’s guests should have been unhappy when he
reduced their choices.
Perhaps, Thaler realized, standard economics is wrong in assuming
people are rational maximizers. If this is true, perhaps the person in
Harvard square attempting to self mutilate with blunt scissors would
be happier with fingers than without.

Does more money equal more happiness? It sure feels like it to me.
However, there is a major academic debate on this topic, and one
(almost settled) result is that extra money does not make any
permanent change in happiness for most people.

“Wealth is the parent of luxury and indolence, and poverty of

meanness and viciousness, and both of discontent,” so wrote Plato
more than two thousand years ago. Plato’s complex view on the
relationship between money and happiness is a reasonable summary
of the field today.

So if money is not the key to happy 2016 what might be? Mired in
internecine warfare between neoclassical and behavioral schools,
economics cannot help.

The Darwinian view is that happiness is a tool to guide behavior

toward evolutionary success. Can this perspective help?

Allow me to cut directly to my speculative answer. Physical activity is

much more likely to make you happier than money. If that is true, why
do I/we often want to lie on the couch instead of running marathons.

My speculation is that we are built to get pleasure from activities that

lead to evolutionary success. However, what matters for our happiness
brain structures is the relationship between behavior and evolutionary
success, not for us, but for our ancestors.

Let me continue my just-so story by asserting that up until fairly

recently on an evolutionary timescale, humans were often hungry and
extremely physically active. Our ancestors would have benefitted
from a day on the couch eating high-caloric foods. Compared to us,
they had very high activity levels, lower caloric intake, and fewer
possessions.
The ‘mismatch’ idea is that while our world has changed incredibly
rapidly, our genes and brains have not. Thus, our tastes still reflect the
world of our ancestors. So we think more money will make us
happier, because more resources would have led our ancestors to
greater evolutionary success. Similarly, we are built to be energetic
thrifty because our ancestors were on a tight caloric budget.

In short, we love to eat and sleep because eating and sleeping were
good for our ancestors.

What is your reaction to the ‘cavewoman and caveman’ approach to

understanding your 2016? Perhaps you are thinking of Voltaire,
“Things cannot be other than they are… Everything is made for the
best purpose. Our noses were made to carry spectacles, so we have
spectacles. Legs were clearly intended for breeches, and we wear
them.” (This is actually Voltaire mocking the ideas of the German
17th century philosopher Gottfried Leibniz who was known for his
optimism and for arguing that our world was the best possible one.)

We tend to love money because resources were good for our

ancestors, and many of us hate useless exercise because it was bad for
our ancestors. Without evidence, this can be criticized as a ‘just-so’
story. Stephen Jay Gould and Richard Lewontin make just such a
critique of evolutionary thinking in their famous 1979 paper, The
Spandrels of San Marcos, and they include the Voltaire section above.
What is the response to the Gould and Lewontin critique? Yes, at
worst, my caveperson explanation is just-so story.

One person’s just-so story, is another’s NSF grant application. There

are many scholars working hard to convert evolutionary hypotheses to
testable theories, but, as of 2015, these approaches are not fully
investigated. Consequently, I support spending more money
investigating evolutionary hypotheses over the next 20-100 years.

What about our 2016 resolutions? Can we wait for decades? No. We
have to decide now. Here are three possible choices for 2016.

1. Neoclassical economics. Pursue the almighty dollar

 2. Behavioral economics. Hide cashews from yourself. Stumble
around confused.
3. Evolutionary economics. Work out more. You are smarter than
your brain.
25 December 2015