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.

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What follows is the second installment in a long-overdue series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.” The first post for the titular track can be found here. Listen to the entire album with audio commentary/explanation here. This song is inspired by the first section and chapter of Theory of Moral Sentiments.

Of the many misunderstandings of Adam Smith’s work, the idea that Smith saw humans as being motivated entirely by rational self-interest is the one that looms largest. The robotic Homo Economicus model of human nature so dominant in modern economic theory is far from how Smith explained human behavior. The first song on Silent Revolution, called “Fellow-Feeling,” invokes his idea that the basis of human behavior is not in rational utility maximization, but rather sympathetic fellow-feeling and a desire to share in the sentiments of others.

The first of Smith’s two books, Theory of Moral Sentiments, starts with this:

How selfish soever man may be supposed, there are evidently some principals in his nature, which interest him in the fortune of others…for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane…

A few things to emphasize here: 1) as selfish as we may appear to be and often can be, we exhibit behavior suggesting we are interested in the well-being of others ; 2) there is universality in his analysis (“by no means confined to the virtuous and human”). Smith was writing specifically in contrast to David Hume and Bernard Mandeville‘s writings that took more of a utility maximization perspective. People’s tendencies to exhibit altruistic, sympathetic, or ethical behavior could be viewed through a redefined utility function, they argued. In other words, we are nice to each other and follow rules because it’s in our best interest. Smith is not convinced. He gives a number of examples where we put ourselves in the shoes of others, with no discernible self-interest or rational calculation.

When we see a stroke aimed and just ready to fall upon the leg or arm of another person, we naturally shrink and draw back our own leg or our own arm…the mob, when they are gazing at a dancer on the slack rope, naturally writhe and twist and balance their own bodies…persons of delicate fibers and a weak constitution of body complain, that in looking on the sores and ulcers which are exposed by beggars in the streets, they are apt to feel an itching or uneasy sensation…

As another example, consider instances where we cry while watching movies. Our tears will not help the characters in the movie and the characters are often fictional and/or experiencing fictional events; there can be no explanation for our tears being out of expected reciprocity or benefit to anyone. So what gives? Smith would say our impulse towards fellow-feeling has put ourselves in the shoes of the characters concerned, and though we cannot feel exactly as they do, we respond as if it were happening – in part – to us. In his examples, seeing someone about to be hit, struggling for balance on a tight rope, or experiencing severe discomfort from homelessness, our reaction is so instantaneous that it’s hard to imagine it being the result of a rational calculation or perceived personal benefit.

This tendency towards sympathetic fellow-feeling not only governs our behavior, it is the basis for explaining what we truly desire. Rather than pursuing a straightforward utilitarian life of wealth, fame, and prosperity, what we seek is for others to share our sentiments. We want them to understand how we feel, like what we like, and – more importantly – dislike what we dislike. We can all relate to the giddiness of sharing with friends works of art that we enjoy. Knowing that they enjoy it as we do gives us a deep pleasure.

A man is mortified when, after having endeavoured to divert the company, he looks around and sees that nobody laughs at his jests but himself…When we have read a book or poem so often that we can no longer find any amusement in reading it by ourselves, we can still take pleasure in reading it to a companion…But both the pleasure and the pain are always felt so instantaneously, and often upon such frivolous occasions, that it seems evident that neither of them can be derived from any such self-interested consideration.

Similarly, when our friends dislike people or things that we disliked, we are even more pleased (more on this in the future). To me, Smith believes that the deep pursuit of our lives is to feel we are correctly understood by the peers we care about, and to be worthy of accompanying praise.

Nestled towards the end of this section in TMS is a quick teaser on how Smith explains our ethical behavior.

We sympathize even with the dead, and overlooking what is of real importance in their situation, that awful futurity which awaits them, we are chiefly affected by those circumstances which strike our senses, but can have no influence upon their happiness. It is miserable, we think, to be deprived of the light of the sun; to be shut out from life and conversation; to be laid in the cold grave…It is from this very illusion of the imagination, that the foresight of our own dissolution is so terrible to us, and that the idea of those circumstances, which undoubtedly can give us no pain when we are dead, makes us miserable while we are alive. And from thence arises one of the most important principles in human nature, the dread of death, the great poison to the happiness, but the great restraint upon the injustice of mankind.

Through the mechanism of fellow-feeling, Smith says we put ourselves in the position of those we see that are dead and think “wow, that would really be a bummer to be that guy.” Again, mourning for someone that’s dead – especially one in fiction or someone you don’t know halfway across the world – cannot be explained through the lens of rational self-interest. Your tears cannot bring them back to life, being sad does not benefit you, and crying for a fictional character should have no real effect on your well-being. But from this tendency to sympathize with the dead, we refrain from killing each other and are given “the great restraint upon the injustice of mankind.” By understanding as best we can what it feels like to be dead – in the cold, dark grave, never again able to experience the pleasures of life – we aim to never put anyone in that situation nor put ourselves in that situation anytime soon.

So why can we sometimes be unethical? Aren’t there limits to our fellow-feeling? How does this square with the view of human nature found in Wealth of Nations and the market economy? Answers to all of that coming up later in this series!

 

The complete lyrics to “Fellow-Feeling”:

So I mourn for the dead, though they cannot hear my cries
What good is it unnoticed, what good is it to try
From that fear of cold and darkness, when imagined in that grave
Give power to restrain the injustice of mankind

The fortune of others, as I conceive
Not just the virtuous, or humane
However selfish that I may seem
Derive his sorrow
Though at ease I cannot feel his pain, imagination puts me in his place

The stroke is aimed (I shrink back) upon his arm
The beggar on the street, ulcers and sores
On the slackrope (I twist) the dancer writhes
Only conception
Yet enough to cause me that unease, the robust and feeble feel it too

To share the amusement of a book or a poem
And to enter in their sentiments just as if they were our own
The mortification when we jest and no one joins,
Feels so instantaneous that it cannot be self-love

 

P.S. here’s a selfie I took by the Adam Smith statue in Edinburgh last week

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Harvey Weinstein, Bill O’Reilly, Donald, and on and on and on. There can no longer be any doubt about the existence of male privilege and how it breeds sexual entitlement. Something has to change.

The obvious answer for men on the individual level is to call out instances of misogyny and loudly condemn any sexual assault within our own immediate vicinity (in addition to not being a pig). But what to do on a systemic level? A lot of the commentary coming out now casually connects misogynist culture with some notion of capitalism, but it’s not clear to me what role the American economic system plays in all this.

[Anyone who has ever read this blog knows my sympathies to the market economy, though I’ll admit it’s not perfect and there can always be productive tinkering.]

Capitalism, in most real world manifestations of the word, allocates resources based on consumers’ preferences. When inequality is such as it is in the United States, rich people’s preferences are overrepresented massively because consumption is a function of income. If the consumers’ dollar is their vote, people with more dollars have a lot more votes. Money is power and I don’t think this is up for debate. In this sense, movies will be made that reflect men’s view of the opposite gender because they write the checks for the movies to be made and have more money to spend on movie tickets. If those with more money don’t want to see football players kneeling in social protest, then the profit-maximizing action for the NFL is to make a rule disallowing kneeling during the national anthem. Essentially, a capitalist system will shake out to reflect the interests of those with money and power, even if those interests are discriminatory and completely exploitative like in the case of Harvey Weinstein. Under these scenarios, I admit, the market economy is a system that rewards and perpetuates unethical behavior. [Not all corporate behavior is done under profit-maximizing conditions, however.]

On the other hand, I’m cognizant of arguments that show the market economy as being a force for good in this debate. Money talks, but this can go both ways. Bill O’Reilly was effectively forced out from Fox News because advertisers were boycotting. They didn’t want to be associated with such a vulgar human being. Were their decisions based on ethics, or just avoiding bad PR? Either way, the boycott worked. Similarly, Harvey Weinstein was forced out from his own company and seemingly blacklisted from the entire industry. Compare this to the President: his first wife alleged marital rape, he’s had countless sexual assault allegations, and the Access Hollywood tape was a smoking gun showing what kind of person he is. But he’s still in power. He’s not the only politician or person in government to retain their position after doing terrible things. We can all choose to support companies that we think are ethical and not use our dollar votes to support unethical ones, yet we are all bound to pay taxes to the same government.

So then I wonder: Under what circumstances do market forces punish men for this behavior better than the democratic process? It’s easy to look at the very real faults of a consumer-driven market economy and see an alternate system based on public control as the antidote. But if culture is the real problem, a new economic system might not make much of a difference. In fact, high-quality legislation from the democratic process could be disappointingly ineffective if the underlying culture is so engrained. If you think of different countries around the world with less ‘capitalist’ economies, how much of an improvement is there? For European countries that boast higher female participation in corporate boardrooms or the legislature, was it because of their culture or some sort of tinkering in how their economy is structured? I’m skeptical that replacing the current US economic system with, say, a full-on Bernie Sanders system will improve much. A sexist culture will still put sexist men in charge, though often we assume the right democratic outcome weeds them out.

The economy is not always a zero-sum game. We can both be better off without it coming at the expense of someone else. But power is a zero-sum game. So the asymmetric power of men, reenforced by their asymmetric holdings of money and connections, does come at the expense of women. Closing this power gap absolutely needs to be a policy priority, but more importantly it must be a cultural priority. Market forces should be used in tandem with legislation and the democratic process; anyone suggesting only markets or only a new economic system will cause the change which we would like to see should rethink their approach.

Three new podcast episodes, starting with most recent:

  1. 2002 Nobel Laureate Vernon Smith talks about his work in experimental economics and how Adam Smith’s Theory of Moral Sentiments influenced his work.
  2. Dan Hirschman of Brown University discusses “stylized facts” and their role in the process that takes ideas from academia to public policy, specifically inequality.
  3. Nell Compernolle of the University of Michigan tells the migration story of Nepalese men and its impact on marital attitudes.

Lots more episodes coming soon, hopefully. If you know anyone that would be interested in being interviewed, let me know!

New podcast episode finally out. I interviewed Carson about The Ethics of Locavorism. Essentially, the question is: if we want to be ethical consumers, should locavorism be a priority in our consumption habits? I won’t spoil the answer, but we examine the case for locavorism through the environmental lens, economic lens, and trying to foster communities. Find the RSS feed here, iTunes here.

I’m currently reading Bourgeois Equality, Deirde McCloskey’s final installment in a trilogy. I have a lot of thoughts that will be for another day, but for now a quick observation…

Among the many ideas and arguments brought up in the trilogy, McCloskey criticizes modern-day economic thought as relying only on one of the seven principal virtues: prudence. Ethical philosophers and psychologists throughout time have recognized that human behavior is (and should be) guided not just by prudence (“rational self-interest”) but also by temperance, justice, courage, love, faith, and hope. Adam Smith, in Theory of Moral Sentiments, argued wonderfully about how human behavior guided only by any one of the four cardinal virtues (the first three plus prudence) was unreasonable and unethical. More to the point, mainstream economic analysis today is both incomplete and unreasonable to reduce all human behavior down to a rational utility maximization.

What dawned on me is how the economics discipline today is full of people worshipping this prudence-only mindset. I think the causation works both ways. On the one hand, individuals who themselves see problem-solving and behavior as largely rational calculated decisions will be disproportionately drawn to economics…because the framework they are going to be working with jives better with their own approach to life. On the other hand, students who study economics often start to shape their approach to life problems and policy decisions as if human behavior is only understood through prudence. After studying economics for a couple years, I recognize that I started to oversimplify behavioral analysis and ethics as “well, yeah, it’s in their self-interest.”

To non-economists the following parable may seem absurd, but to me at the time it sounded oddly sensical: the girlfriend of a roommate was visiting for the weekend; the roommate without the girlfriend felt this was a burden on his space and lifestyle, so he did some Coasean bargaining to allow this roommate’s girlfriend to visit and stay with them. They worked out some monetary deal to make the visit an agreeable event. Since they were sharing a room, the girlfriend visit meant the single roommate would have to sleep on the couch. What a drag! (For the record: I was not directly involved in this situation)

Another quick bit of evidence can be seen in experimental economics. Some experiments, like the dictator game or ultimatum game, are meant to isolate how altruistic humans can be in different scenarios when money is involved. Non-economists demonstrate more charity and altruism, even when the experiments are anonymous and no “self-interest” can be ascertained from their behavior. Undergraduate economics students, on the other hand, follow more closely to what “maximize utility” models would predict. Basically, they know the models. They know how they’re “supposed” to act. In a sense, they have shifted their decisions to emphasize prudence more than the other virtues. Like I said, the causation can work both ways, but I doubt that roommate would have engaged in some Coasean bargaining absent learning about the concept in economics classes. No society that I know of imposes a norm of private bargaining in such a household situation.

This reality unfortunately reinforces itself. Prudence-driven individuals are more likely to go into economics, economics is more likely to draw people towards a more prudence-based approach, and the discipline ends up staying focused on prudence only. People who are so aghast at the idea of rational self-interest being the sole driver of human behavior stop after Intro to Micro and go into other disciplines. In addition, the credibility of the subject to outsiders diminishes. On some levels, this is a fair decrease in credibility. In others, it means non-economists wrongly dismiss economic realities of scarcity and the laws of supply and demand when they shouldn’t.

I have written a concept album with a band called The Benevolent Dictators all about Adam Smith, and the first song was just released.

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My motivations for writing the album and general vibe will be left for another time, but I feel inclined to discuss more about this particular song’s thematic significance. The song is inspired by text from The Wealth of Nations, Book 3, Chapters 2-4. The summary: commerce liberated the masses from the feudal system.

[Adam Smith was an 18th century Scotsman. His first book, Theory of Moral Sentiments, is about morality and human nature. His second book, Wealth of Nations, is considered the starting point for modern economic thought.]

The story begins just after the Roman Empire’s demise. Everything is in chaos and eventually order is restored via different sovereign monarchs throughout the former Empire. The monarchs don’t have the capability to enforce laws and protect everyone in their respective polities, so they enlist the help of others in exchange for big chunks of land. These estates produce enough food for the feudal landlords to survive. But, Smith observes, our desire for food is limited to the extent our bellies can make space. To utilize the surplus food, the feudal lords give their additional food to individuals in exchange for their servitude in the feudal estate. At the time, the feudal lords had no other outlets for their surplus food. Thus, their best option was to increase their power by making commoners dependent on them for food.

Meanwhile, a bunch of city dwellers (called “Burghers”) were given a special exemption by the king to start making stuff. These are the artisans and merchants. Soon, the Burghers had shiny baubles and trinkets that they were looking to sell. The feudal landlords might have limits for their desire to fill their bellies, but they have no boundaries on their childish vanity. The feudal lords wanted to show off how great they were and get their hands on these diamond trinkets. As a result, they started to trade their surplus food not for the servitude of commoners, but for the luxury goods the merchants were selling.

What they used to exchange for the servitude of hundreds, sometimes thousands of men, was now going to service their childish vanity. As the demand for these trinkets went up, so did the supply, so the previously dependent commoners now could join in on the market. Before, when the commoners were given subsistence-level resources in exchange for their work, there was of course no incentive to innovate or increase efficiency. They did the bare minimum that allowed them to survive, because any extra work would go unrewarded. Now, they began to cultivate different areas, knowing the fruits of their labor would mean more money for themselves. Prosperity follows.

In addition to the cultivation, this new market brought about interdependence where dependence used to be. In a sense, all of the parties involved were just as reliant on each other as before. The commoners of course needed the landlords as consumers of their goods, and the landlords needed an outlet for their surplus food. The difference now was that the power was completely decentralized. Rather than a commoner being subjected to the whims of one feudal lord, the market gave him the ability to appeal to the childish vanity of all the landlords to which he could ship his goods.

What is more exciting than reading about how peaceful commercial exchange liberated the masses from the tyranny of the feudal system? Smith emphasizes how this ‘silent revolution’ came about not because a top-down authority dictated it, and not because anyone was consciously trying to bring about positive change for the masses.

A revolution of the greatest importance to the public happiness was in this manner brought about by two different orders of people who had not the least intention to serve the public. To gratify the most childish vanity was the sole motive of the great proprietors. The merchants and artificers, much less ridiculous, acted merely from a view to their own interest, and in pursuit of their own pedlar principle of turning a penny wherever a penny was to be got. Neither of them had either knowledge or foresight of that great revolution which the folly of the one, and the industry of the other, was gradually bringing about.

There are free PDFs all around the internet if you’d like to read the passages in their entirety. Here is one.

I leave you with the lyrics of Silent Revolution:

They say beauty is in order
What’s left over in so few hands
But the landlords spell their doom
Wanting the jewelry the merchants have

The price they paid could buy them
A thousand different men
And though they get the diamond
Power leaves them
And commerce wins instead

Here comes the silent revolution
Moving slowly, no certainty
Interdependence, cultivation
From no design comes prosperity

Without any intention
Without beneficence
The feudal system’s dying
Lords made obsolete from
Their childish vanity

Without any intention
Without beneficence
The feudal system’s dying
Lords made obsolete from
Their childish vanity