Economics


I reviewed “Capitalism, Alone” by Branko Milanovic for the Liberal Currents website.

To supporters of the market economy, the fall of the Berlin Wall nearly thirty years ago was supposed to mean the undisputed triumph of capitalism. But tensions today from increasing inequality, the rise of populism, and the remarkable growth of China have thrown this foregone conclusion into doubt. Did capitalism’s supporters take a premature victory lap? In his recent book Capitalism, Alone, Branko Milanovic argues that while we must resolve some of capitalism’s internal contradictions and countries like China show there is more than one recipe, capitalism is here to stay.

And:

In the end, Milanovic’s greatest contributions in Capitalism, Alone come from his fresh approach to the history of different capitalist countries. His taxonomy of Western countries evolving from classical, social-democratic, and now liberal-meritocratic capitalism helps us put the current state of affairs into better context and think about the ways policy can and cannot improve the system. While he is overconfident in political capitalism as a dominating force in global politics and a sustainable alternative to liberal capitalism, his analysis of the forces and magnitudes of different kinds of inequality give a more nuanced story than is often found in public discussions.

Check it out!

Tyler Cowen tries to argue in his latest book Big Business that big businesses are in reality not the villains they’re often made out to be and, in fact, deserve our praise. While the book presents strong counter-intuitive arguments about the good that big business does in America, I suspect readers skeptical of large private enterprise will walk away unconvinced. In the big picture, critics of big business are still likely to assume that some combination of more regulation, smaller businesses, and public ownership would be a superior alternative to the status quo.

In a huge ecosystem of large corporations, Cowen emphasizes that a fair assessment needs to look at the “net net” of the total impact of big business and not just the worst offenses. Cowen acknowledges the salesmen swindling low-information customers, dentists recommending more appointments than necessary, and pharmaceuticals striking shady deals with doctors to dish out addictive drugs. But his underlying thesis is that we need to look at the net effect.

The Good

While admitting these egregious offenses, Cowen claims “the propensity to commit fraud is essentially just an extension of the propensity of people to commit fraud.” He points to a survey showing that 53% of people admitted to lying in their online dating profile. One study estimated that we tell an average of nearly two lies per day and most often those are to people we are the closest to and not total strangers. Another showed 31% of people having completely fabricated information on their resumes and 76% “embellished the truth.” Indeed, when we look at big business in the modern economy we often evaluate things as they are and think of alternatives as we wish to be. It’s worth considering the possibility that big business is no more dishonest than we are as individuals.

In fact, Cowen argues that big business is incentivized to be even more honest than individuals or small companies. Because they have an (inter)national brand to uphold, big businesses are more incentivized to avoid the PR disasters that come from customer negligence in a world of viral social media. Further, there is evidence big businesses are more likely to treat their workers better than their mom-and-pop counterparts.

The NFL can shamefully exclude Colin Kaepernick because of his politics, but often overlooked is the idea that the profit motive can be a positive force for social justice. Cowen points to our national reckoning with sexual assault to argue that private business can be a better force for good in these regards than the public alternative. Allegations against men in the entertainment industry were met with swift action – think of Kevin Spacey, Jeffrey Tambor, etc. – while a man with a long history of unambiguously immoral treatment of women sits in the Oval Office. Roy Moore only barely lost in the Alabama Senate race. Market forces can be seen as a villainous determinant to cut corners and exploit people unfairly, but it can also be a force for social justice under some circumstances. As Sam Hammond argued in Liberal Currents, corporate capitalism and social justice are not always opposing forces.

Too many arguments in favor of scrapping the entire system assume that a radically redefined economic system and culture will mold to their ideal reality. But what happens when we put government in control of every industry and Donald Trump is the one running that government? Fox News is an easy target for the ills of profit-driven media, but would an entirely publicly-owned media landscape just mean Trump hires Roger Ailes to run PBS?

Cowen spends the majority of the book tackling the common criticisms of big business: CEO pay, the financial industry, big tech companies, and corporate influence over government. The gravity of these statements need to be analyzed through his “net net” framework and does add counter-intuitive arguments to the conversation, even if not always entirely convincing.

CEOs today work in a more demanding environment, he argues, needing to steer through a globalized economy full of public relations issues, foreign investment, and regulatory know-how. How important is leadership to a company’s performance? The top 4 percent of corporate performers are responsible for the entire increase in the U.S. stock market since 1926. Cowen offers evidence that these higher demands are borne out by higher performance. For example, Chinese firms could improve their productivity by 30 to 50 percent by bringing management quality up to the standard of Americans, Indian firms 40 to 60 percent. One study says a company’s leader accounts for 5 to 6 percent of the value of a company. Under this backdrop, Cowen believes higher pay is warranted under the greater demands.

An important stylized fact is that the main driver of inequality is not from changing pay scales within firms, but changing pay scales between firms. In other words, superstar firms that are torching the competition with higher productivity are paying all of their workers better, and Cowen believes this rise of superstar firms is thanks in large part to good CEOs.

The benefits of the financial industry are not always obvious for the typical citizen but Cowen tries to paint a brighter picture. He points to the role of credit in supporting the country’s biggest projects and the strong correlation between prosperous countries and the health of their financial sectors. American venture capital, he believes, is the envy of the world and funds some of our greatest success stories – without ever expecting a bailout. The American banking system is more fragmented than any other high-income country in the world, and the proliferation of smaller banks during the Great Depression shows “breaking up the banks” is no guarantee in preventing catastrophe.

Contemporary tech companies give us unparalleled power at our fingertips, often for free. The cost of privacy has become the common public rallying cry but Cowen still believes their value to each and every one of us far exceeds the cost. We’ve become so accustomed to free email, free mapping, one-day shipping, and reliable spreadsheets that it’s easy to only focus on what appears to be corrupting market power. But only recently did companies like Kodak, Myspace, General Motors, IBM, AOL, and Blackberry seem to be too dominant. The image of too-powerful tech titans complicates our appreciation for the value of these companies, in Cowen’s mind. The common criticism of brain-rot through the internet and smartphones is strikingly familiar to the doomsday predictions of yesteryear about the opera, rock and roll, and the novel.

The election of Donald Trump shows the hold of big business on government is not nearly as strong as portrayed, Cowen believes. Business leaders most often state their priorities to be predictability, more open immigration, and free trade – a clear opposite to Trump’s policies. The $3 billion companies spend annually on lobbying is pennies compared to the $200 billion they spend on advertising. Farm subsidies – one of the most offensive instances of crony capitalism in the Federal budget – only accounts for $20 billion a year out of a $4.4 trillion budget.

In Search of a Better Alternative

But to all of the good of businesses, a skeptical outsider would rightly point out that these realities exist within the current system. What if we lie on our resumes because it’s a brutal rat race economy? Or we lie on our dating profiles because the market economy conditions us to be self-interested and cut corners to get ahead? It’s true that Monsanto supplies the food that keeps me alive, tech giants allow me to communicate with my family, and big pharmaceutical companies produce drugs that fight infections. Every prosperous society has indeed depended on a well-oiled financial system. And the dignity of work that employers give us through jobs is indeed important. But why are these actions necessarily being done in the most optimal way?

Feudal lords could be given credit for the food given to peasants or the dignity their work provides, tyrannical leaders for military protection, and the DMV for making sure our roads are safe. Skeptics of the market economy believe that we could have a world that is more prosperous, more egalitarian, and more ethical under a different regime. Just as an anarcho-capitalist would refute gratitude towards roads or a public school education with “well, the private sector could do it better,” any critique of the status quo asserts a superior alternative outside big business.

Incrementalists who criticize big business may just want more regulation or more support for small business, while radicals prefer more public ownership. I sense that many of Cowen’s observations on the goods that big business provides will fall on deaf ears to skeptics whose prior beliefs are that we could have an even better regime.

Of course, Cowen is up against an insurmountable foe in many of those skeptical arguments. Critics of the status quo can struggle to find strong counterfactuals in order to prove there is a better system out there. Saying that “culture and economy would shift under a different system to one where we’d all be moral, not run the rat race, cut corners, or tolerate pollution” is a tough argument to prove or disprove when it is so hypothetical.

In Cowen’s (wonderful) podcast, he always asks the guest about their “production function” – what habits/routines the guests do to ensure their highest productivity. In a recent Ezra Klein Show podcast episode about workism, Ezra brings up how an inevitable part of capitalism is the encouragement to always maximize productivity…even doing something like meditation or wellness as a means to counteract the toxins of modern life. But it’s still under a framework of “optimizing” time. Can this cultural reliance on “productivity” actually make us miss the point, even when we appear to be cognizant of mindfulness? For an infovore like Cowen, the current culture and system gives him every opportunity he can to learn and explore new things. But for the vast majority of us, are smart phones instead just giving us a bigger portfolio of addictive distractions from more important matters?

As a response to skeptics, Cowen points to data he believes reveals that – despite our self-reported disdain for tech and working – we love our smart phones and love working. He says that the fact Americans work longer hours now than they did in 1950 shows we necessarily like our jobs better. But what if we are just being motivated to “keep up with the Joneses” and none of the extra work is actually making us better? Similarly, he argues few people actually leaving Facebook despite all the public criticism shows that people like it a lot more than they let on. But the powerful network effects and addictive qualities of social media are not always the easiest thing to shake off. It seems a far jump to assume these facts necessarily reveal strong-willed rational decision-making. It’s not encouraging that the people who designed the notification mechanisms for phone apps don’t let their own children use them.

So Why the Hate?

The last chapter of Big Business addresses a lingering question: If big business is so good, why does everyone seem to hate it? While the vast majority of the population loathe the post-Citizens United saying that “corporations are people,” Cowen believes we indeed do anthromorphosize corporations. In fact, projecting human qualities onto our outside world is how we have long attempted to understand and relate to it. In all of recorded history, civilizations have told stories of the weather and natural forces as gods with faces, arms, and legs. “When it comes to our cars, our ships, and our pets, we give them names, talk about their loyalty, and feel abandoned or let down if they disappoint us.”

It is this humanizing fact that makes us inevitably disappointed by corporations’ performance. We want them to be our fuzzy friends that take care of us but in the end they are actually just … “faceless” corporations. It presents a case that we will never be grateful enough for what big businesses do for us. Cowen says hating corporations is like hating your parents – the people who give you everything but also enforce rules. This might be true…but again, couldn’t oppressive feudal landlords fit the same description?

 

It’s important to view any analysis of big business in “net net” terms by focusing not only on the most outrageous failures, but the tremendous good big business brings to our lives. To these points, Cowen does a service by providing under-appreciated defenses of the most common shortcomings of big business. I agree with Cowen’s point of view and think big business needs more appreciation. In the end, skeptics may be impossible to sway as they rely on non-falsifiable hypotheticals. But a better appeal to their stronger arguments would likely leave a stronger impression on the critics of big business.

I have another piece in the LA Review of Books, this time a review of Tyler Cowen’s book Stubborn Attachments.

The end blurb:

Stubborn Attachments is short and intentionally vague on many dimensions. Respecting human rights is an admirable pursuit, but what is the definition of human rights? At what point do income transfers become so excessive that they make immigration untenable? How exactly can we be sure to establish institutions that lead to higher sustainable economic growth? Cowen knows these are important questions but instead chooses to emphasize the need to rethink our big-picture goals. How we get there is still up for debate, but Stubborn Attachmentspresents a compelling case for redefining our long-term priorities in favor of more sustained economic growth and a greater respect for human rights.

The persistence of history’s effects on economic growth is significant and remarkably robust to negative shocks.

A paper by Comin, Easterly, and Gong asks the question “Was the wealth of nations determined in 1000 B.C.?” The paper looks at the relationship between the technology available in various regions in 1000 BC, 1500 A.D., and levels of per capita income today. Their findings suggest that history from three thousand years ago can be a strong predictor of economic standards of living today. The results are even stronger for the connection between 1500 AD and contemporary per capita incomes. These two chosen periods of time are picked as a way to tease out the impacts of industrialization and colonization, two massive forces prone to cause noise in the analysis. In a pre-explorer world with very little long-distance trade and very high isolation, the math of compound economic growth suggests, as the paper writes, “those who started out ahead would be even further ahead in both population and income today.” Further evidence from Nunn and Wantchekon (2011) shows that areas of Africa with higher participation in the slave trade centuries ago still suffer from lower levels of trust.

The larger question I think this idea begs is how persistent certain X-factors of economic growth can be throughout time. Economists theorize about factors like institutional quality, levels of trust, culture, access to trade, and natural resource environment, among many others, as the catalyzing “ingredients” for economic growth. However difficult it may be to nail down what these x-factor ingredients are, evidence suggests that the x-factors can survive massive external forces.

All areas started out as poor at one point. What made countries that initially escaped economic misery centuries ago in northwest Europe rich was the subject matter of Adam Smith’s Wealth of Nations. Of course many other countries have since followed suit, with the East Asian Tigers rising up to “Western” levels of wealth, and so-called emerging market economies realizing double digit economic growth. The exact recipe for a country to grow is debatable and varies across countries, but as a country finds this special recipe for economic growth, it’s nearly impossible for it to regress. Some countries may stagnate or exhaust their potential for a period of time. But only one country – Argentina – was considered high-income a century ago and middle-income today.

Think of the dramatic events that can happen that would seem to shake the x-factors out of its crucial hold. Political upheaval leading to “failed states,” a currency or financial crisis that breaks the economy, a civil war that breaks social fabric and kills millions of people. Surely, these would reset the conditions needed for economic growth?

While watching the great Babylon Berlin television show, I’m drawn to the powerful example of Weimar Germany – the country’s history between the two world wars. Consider what happened in Germany after 1913: first, the country led the losing side of a world war that killed 60-80 thousand of its soldiers and was fought partially in its backyard; then, experiencing massive sovereign debt and unable to reach any stability, the country entered a debilitating economic depression and accompanying hyperinflation that ravaged any sense of social fabric and functioning economy; then, Hitler took power and… you know this part of the story; then, the country was rebuilt in significant part by Turkish immigrants because so many German men had died; then the country was physically divided by a wall for the almost-45 years after WW2 ended, governed on one side by social democracy and the other by Soviet proxy rule. The tumult, uncertainty, constant mindless death, identity struggles, ripe distrust, and sheer hopelessness seem like overwhelming forces that would keep the country poor for a long time. Yet ten years after the Wall falls, the country is the de facto leader of the European Union, hosts the European Central Bank, and today has a top 5 economy in the world.

hyperinflation

Hyperinflation in Weimar Germany

 

There seems to be an implied “potential” GDP per capital level in Germany that was able to sustain itself throughout that near-century of struggle. Countries with less conflict and instability were poorer than Germany in 1913 and continue to be today. Very few Germans were alive before World War I that saw the transition into the euro currency on January 1, 1999. So what characteristic is it that Germany kept during the 1913-1989 period that allowed its potential standard of living to stay the same? The formal governmental institutions have changed dramatically, the demographic makeup has changed, and the surrounding world is entirely different. The physical geography has remained relatively constant, but this is not the underlying reason Germany is the 5th richest economy in the world today.

“Culture” is a squishy catch-all term that some social scientists like to use as the significant explanatory variable in economic growth. It could be a “Protestant work ethic” or the entrepreneurial spirit of diasporas like the Murid sect of Islam that explain why some groups are rich and others poor. If this is so, is culture really that persistent – and robust to so many outside forces – that it withstands the strongest winds of history?

Another set of evidence comes from Alexander de Tocqueville’s Democracy in America. de Tocqueville was writing in the 1830s as a Frenchman describing what made America so different than its European counterparts. There’s a question about how accurate his descriptions were for the time, but he notes cultural differences between the regions of New England, Mid-Atlantic, and Southern colonies in his chapter “Origin of the Anglo-Americans.” His analysis is apt to ascribe contemporary differences as being borne out of differences set centuries before. For example, compared to England settlers, “the men sent to Virginia were seekers of gold, adventures, without resources and without character, whose turbulent and restless spirit endangered the infant colony.” Remarking on the lasting impact of of slavery in the South:

[slavery] was the main circumstance which has exercised so prodigious an influence on the character, laws, and all the future prospects of the South…it introduces idleness into society, and with idleness, ignorance, and pride, luxury and distress. It enervates the powers of the mind, and benumbs the activity of man. The influence of slavery, united to the English character, explains the manners and the social condition of the Southern States.

The areas were settled under slightly different circumstances and by slightly different groups that determined the nature of their political institutions and cultures. Remember, the settlement of these places by European pilgrims was centuries before – yet in his eyes, the differences persisted to that day. Even now, many of his descriptions of the regions ring true, at least to our intuitive sides – whether it be the individualism on the frontier or the commitment to localized governance. What’s striking is the strength of this persistence. The quality and type of institutions and culture that were set up at square one had such strong path-dependence that all of the coinciding forces that one would assume would “reset” the environments were in reality unable to change.

Perhaps revolutions can reset these environments. But do political revolutions change what we might believe to be the crucial x-factors conducive to economic growth?De Tocqueville also believed the American Revolution to be borne out of an ethos present at initial settlement, “the doctrine of the sovereignty of the people, which had been nurtured in the townships and municipalities, [that] took possession of the State.” Maybe cultural revolutions – that at least claim to change the underlying social fabric of a nation – reset and redefine these conditions. But what are examples of true cultural revolutions? Did Mao’s gruesome one really change thousands of years of history for the Chinese people? Maybe on the surface, but I’m unconvinced it was a “reset” in the way meaningful to economic potential.

220px-Alexis_de_tocqueville

Alexander de Tocqueville

But the vast majority of Americans are not children of Puritans, at least in the biological sense. Today, German is the most common ethnic group in the United States. And, importantly for this analysis, New England is now dominated by non-English people. Over 37% of New York City residents are foreign-born. In fact, every region has had its demographic makeup totally shaken up and redefined with each new wave of immigration and cross-mating of ethnicities and religions. If different groups are assumed to have a “culture” or “work ethic,” did the newcomers to these regions adopt the local customs rather than modify the regions to be more like their homelands? Compared to Germany’s 20th century, which has seen a nontrivial amount of inward migration, America’s demographic makeup has changed even more.

Yet the regions of the United States, as far as I can tell, are not defined by the Native American tribes that resided there pre-colonization. It could be that the newcomer migrants, unlike the original colonizers that wiped out the native population, never arrived in a critical enough mass to totally redefine the areas they moved into. Instead, their relatively small numbers meant they had no choice but to assimilate to the pre-existing norms, cultures, and customs of their destination. This usually meant they added their own flavor with a nod to their homeland, but it wasn’t a total reset.

So did the governments that were set up in Plymouth or Jamestown or the Pascua Florida peninsula in the 1500s – seemingly arbitrary and highly fungible at the time – define the destiny of these areas nearly five hundred years later? Does this mean that America’s national fabric – struggling to find itself amidst contemporary politics – will continue on relatively unscathed? The past shows that underlying cultural x-factors can have an incredible amount of resilience.

I’ve got an essay published in the LA Review of Books about Universal Basic Income. Here’s a snippet:

…before a greater UBI context is considered, the essential task is to convince the public that unconditional cash transfers for every citizen are feasible and beneficial. Redefining society’s view of what “work” is and what it means to contribute to society is no easy feat. Yet we are beginning to be engulfed by the seismic winds of societal and economic change from a globalized digital age. We need a paradigmatic shift in how we view these things in order to ensure a broad-based peaceful prosperity for the future.

I’ve found that most UBI discussions hop right to “how can we afford this?!” and “how much will it be?!” without hashing out the important intermediate steps, namely rethinking how we view work and its place in the social safety net. Rather than focus on the policy details – which are essential, of course – I decided to focus on this bigger picture about getting comfortable with the idea that *everyone* should get *cash* (Universal and Income) rather than government assistance being means-tested and having restrictions for what it can be spent on.

New podcast episode out featuring Sam Hammond of the Niskanen Center about his paper on “The Free Market Welfare State.” In it, he makes the argument that social spending is not only compatible with but even strengthens free market policies. Native feed here but of course you can always listen on iTunes and any of your favorite podcast providers. I wrote a short write-up with some points of skepticism of Sam’s paper in a previous post here.

Check out my latest post at Novel Stance about how economists need to incorporate sympathy more into their models. Here’s a bit:

Economic models’ overreliance on rational self-interest as the basis of human nature made their conclusions appear selfish and out of touch with reality. By not embracing a more nuanced view of human nature, economists lack a full understanding of how people behave and risk losing more credibility with the general public.

Read the whole thing here.

What follows is the sixth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Section 1, Chapter 1 of Wealth of Nations.

The reason why certain nations get rich and others don’t is from a country’s ability to utilize the gains from specialization and division of labor. If we are all left to independently grow our own food, tend to our own wounds, or build our own airplanes, we’d all have a material standard of living dramatically less than what we have by participating in a commercial society. The “Robinson Crusoe” scenario is an extreme example showing how much we gain by having people focus on fewer tasks and work together to produce more with this same amount of inputs.

Smith was inspired by this picture in Denis Diderot’s Encyclopedie that showed the different stages of pin production.

1762_Diderot's_Encyclopedie,_Epinglier_II

Even in such a seemingly trifling trade, the tasks are split up between all the workers in a pin factory to significantly increase input.

One man draws out the wire; another straightens it…it is even a trade by itself to put them into paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operation, which, in some manufactories, are all performed by distinct hands…

Within a firm, division of labor increases output. Twenty people trying on their own and separately to do all tasks needed in pin production will surely turn out fewer pins in a given day than when they work together.

…But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them, have made twenty, perhaps not one pin in a day; that is, certainly, not the…what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

And within a society, specializing and utilizing division of labor increases output even more. A brain surgeon’s time is too valuable to force him or her to grow their own food and learn to program their computer. Instead, the brain surgeon goes to the supermarket where specialists in food production sell their services and resources. Or buys the iPhone that was programmed by the people who studied computer science.

It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.

The complete lyrics to Pin Factory:

From wire drawn until the straightening, pass through eighteen distinct hands
Ten people now could make more in a day than if left to do on their own
Cut then before put into paper, the pin comes out in completion
What seemed at first to be a trifling trade is revealed to greatly improve

And the master of a family knows this truth
That you don’t make at home what it costs less to buy

And the master of a family knows this truth
That you don’t make at home what it costs less to buy

What follows is the fifth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 3, Chapter 3 of Theory of Moral Sentiments.

Despite our tendency to engage in sympathetic fellow-feeling, it’s abundantly clear that this is not infinite. We do not feel equally connected to everyone across the world. In Smith’s view, this is limited in part by our ability to put ourselves in the situation of others.

He tells us to consider a scenario where, as a Scottish person in the 1700s that hasn’t travelled much, you hear that an earthquake has happened in China:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake…[a man in Europe] would, I imagine express very strongly his sorrow and misfortune of that unhappy people…he would too, perhaps, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe.

So after saying “aw shucks, that’s so sad,” one would go on to thinking about how this might affect the commerce of Europe – in other words, how would it actually affect me? At the end of the day, this Scot wouldn’t lose a wink of sleep over this tragedy. Contrast this to a scenario that is clearly less severe than an earthquake swallowing up tons of Chinese people:

The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren.

Philosophers over the ages observed this pattern in human nature and thought of a variety of remedies to correct this tendency. One group Smith mentions – the Stoics – believed that we should bring down our own feeling of pain and happiness to the level at which we naturally consider those of the anonymous humans we hear about across the globe. Another group – unnamed but implied to be Catholics – suggests that we should feel for others the same way we feel about ourselves; in other words, feel lots and lots of suffering. But Smith thinks neither of these methods gets the point, and is able to rationalize our asymmetric emotions towards our pinky finger and the millions of Chinese people. In his scenario, the Scot has likely never met a Chinese person, never been to China, and only knows vague stories about the country thousands of miles away. To the Scot, hearing of suffering in China is such a distant concept because the Scot finds it nearly impossible to put themselves in the shoes of a Chinese person and understand how this tragedy makes them feel.

Think of the saying “this really hits close to home.” It’s a suggestion that we feel stronger about intense events that happen to those we love, those that live near us, and those that we can relate to better. When a terrorist attack happens in Paris, American social media reacts much differently compared to when a terrorist attack happens in Jakarta. Of course these events are equally tragic in a human sense when lives lost are the same, but Americans are much more likely to know French people, have been to Paris, be ethnically French, or have studied in Paris than to have experienced similar things with Indonesia. If you hear of a school shooting in Iran, how does it make you feel compared to a school shooting in your town?

So maybe reacting to the terrorist attack in Paris differently than the attack in Jakarta can be rationalized by Smith’s conception of a finite level of fellow-feeling, but can we really consider it ethical? Well, here the Impartial Spectator comes back in. Given the tradeoff between our pinky finger and millions of Chinese lives, we would never pick our pinky finger.

“…would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them…human nature startles with horror at the thought…It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power…the inhabitant of the breast, the man within…calls to us…It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the nature misrepresentations of self-love can be corrected only by the eye of the impartial spectator…it is a stronger lover, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble…

The Impartial Spectator thus tempers the absurdity of our self-love and makes us recognize that, although our instinctive fellow-feeling may make the loss of a pinky more intense at first, the honorable and noble thing is to care more about these millions of Chinese lives.

The complete lyrics to Chinese Earthquake:

Far away from where I’m sleeping, tragedy shakes the earth
Myriad of its inhabitants, the Chinese empire swallowed whole
Annihilated in a moment, reflect upon misfortune
But what for European trade? Return to pleasure all the same

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

But if you told me that tomorrow, my little finger would be gone
I’d lie awake in real disturbance, do you tremble at the thought?

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

 

What follows is the fourth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 1, Chapter 2 of Wealth of Nations.

The book commonly referred to as “Wealth of Nations” is actually an abbreviation of its full-length title “An Enquiry into the Nature and Causes of the Wealth of Nations.” The question at this time was why, amidst millennia of abject poverty and subsistence-level living, a few countries mostly in the northwest of Europe had started to have a significantly better standard of living. For some, the answer was obvious: the farther from the equator you were, and the whiter your skin was, the more superior you were. For others, it was a country’s ability to hoard gold or other fine metals. Or maybe it was that good-ol’ Protestant work ethic? Smith rejected all of these explanations and instead used Wealth of Nations to argue that a nation’s standard of living is determined by its ability to utilize specialization and the division of labor.

Smith went farther than just rejecting the racial explanation as a determinant of wealth. He saw all humans as essentially equal in worth and dignity. What we perceive to be inequalities is actually the result of, and not the cause of, the division of labor.

The difference of natural talents in different men, is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labor. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came in to the world, and for the first six or eight years of their existence, they were, perhaps, very much alike, and neither their parents nor play-fellows could perceive any remarkable difference.

Smith uses the comparison of a street porter and a philosopher as extremes of social standing. One is near the lowest status of society as far as prestige and perceived skill level, the other considered to be a wise and distinguished profession. But before they enter into schools or the labor force, their skills are basically equivalent. Through different levels of education, parenting, and circumstance, these previously-indistinguishable individuals end up working two jobs with incredibly different reputations in society. Yet deep down the two people are not so different.

By nature a philosopher is not in genius and disposition half so different from a street porter.

This is a radical contrast to any “nature” arguments in a “nature versus nurture” debate. This specifically departs from Aristotilean thinking that certain people like the Barbarians were meant to be slaves (thus explains our lyric “so Aristotle was wrong about the slaves”). The commercial economy, in addition to giving us the capability to innovate and flourish, also gives us deep material inequality that deceives us into thinking we are less equal in worth or dignity than we actually are.

It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature…the propensity to truck, barter, and exchange one thing for another.

Just as with Smith’s conception of sympathetic fellow-feeling, this propensity to engage in commerce is universal across people. In fact, it is what separates us from other animals. Unlike dogs, for example, humans are able to engage in trade and specialize.

It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any species of contracts…The strength of the mastiff is not in the least supported either by the swiftness of the greyhound, or by the sagacity of the spaniel, or by the docility of the shepherd’s dog.

So the next time you go down to your corner store to buy a pack of gum or toothpaste, think to yourself, “damn, it feels good to be human.”

The complete lyrics to “The Street Porter & the Philosopher“:

Well at six years old we seem to be
In ability nearly the same soon changed by modernity
And our innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

Whether you’re paid to think or move on street
Your disposition and genius were made in equity
In isolation they’d appear the same
Still that philosopher remains so vain

But the fellow dogs separately
Can’t utilize their different skills: strength, swiftness or docility
From no innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

Whether you’re paid to think or move on street
Your disposition and genius were made in equity
In isolation they’d appear the same
Still that philosopher remains so vain

It’s our innate desire to truck barter or exchange
And you’re not any higher in worth or dignity

 

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