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{{DES | des = Economics is a human science and will need to fuse into the other human sciences: biology, psychology and anthropology will be the profession’s lodestars and bedfellows. Redeployed to understand Social Man, the methodology of economics will make a massive contribution to the public policies needed to heal our societies from the ills inflicted by Economic Man. | show=}}
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December 6, 2019
Read this issue
IN THIS REVIEW
BLUEPRINT
The evolutionary origins of a good society 544pp. Little, Brown Spark. £30.
Nicholas A. Christakis
HOW BEHAVIOR SPREADS
The science of complex contagions 312pp. Princeton University Press. £30 (US $35).
Damon Centola
LICENCE TO BE BAD
How economics corrupted us 320pp. Allen Lane. £25.
Jonathan Aldred
Buy
WINNERS TAKE ALL
The elite charade of changing the world 304pp. Allen Lane. Paperback, £12.99.
Anand Giridharadas
Buy
PROSPERITY
Better business makes the greater good 288pp. Oxford University Press. £16.99.
Colin Mayer
Buy
The death of God, announced by Nietzsche in the 1880s, is still proving to be traumatic. In contrast, the death of Economic Man will be a balm to the soul. When the economics profession conjured him up in the 1950s, our understanding of human evolution was more rudimentary than it is now. Economic Man was duly characterized not just as greedy, lazy and selfish, which to some extent we all are, but as only greedy, lazy and selfish.

The applications of this travesty of the human condition have done immense damage. To take one instance, since Economic Man is incapable of being morally load-bearing, he cannot be trusted. He will only work if incentivized by material benefit, so his behaviour must be watched like a hawk, and his rewards linked to the observed performance of contract-specified actions. “Eat what you kill”, the phrase used in the investment banks to describe their system of monitored rewards, is implicitly normative: you get what you deserve, and you deserve what you get. Britain’s employers have been taught this in business schools and the consequence is manifest in the annual Jobs and Skills Survey. Twenty-five years ago, most people said they had enough autonomy to do their job properly; that has since dropped by 40 per cent. The reduction of workers to automata has resulted in a massive loss of job satisfaction, and with it of intrinsic motivation: it is hard to be loyal to an organization that manifestly distrusts you. It has also forfeited the good judgement that comes from using tacit knowledge – the expertise that can only be acquired through experience. By definition, this cannot be codified, specified, monitored and incentivized. In Britain especially, as the public sector lost self- confidence and began to ape business, the same approach – specify, monitor, incentivize – was adopted in public services. The consequences of this confident paternalism in social work – a context high in intrinsic motivation, tacit knowledge and teamwork – have been witheringly revealed, most notably by Hilary Cottam in Radical Help (2017), which, as its subtitle explains, proposes “how we can remake the relationships between us and revolutionise the Welfare State”.

Thankfully, we now know that Economic Man is a travesty. Blueprint: The evolutionary origins of a good society by Nicholas Christakis is the latest study to affirm this. It shows why, through the forces of evolution, Homo sapiens emerged as a uniquely social species. Far from being evolutionarily inevitable, Economic Man was culled almost to extinction, surviving only as the highly deviant behaviour we call psychopathic. In hunter-gatherer societies, hunters do not “eat what they kill”: such behaviour would bring social ostracism, so the hunters share their catch. The theorems derived from Economic Man explain the conditions under which a society of psychopaths would be able to function. In most contexts, those conditions turn out to be fanciful: the efficient paradise depicted in economics textbooks has never existed, and never will. Instead, in well-functioning societies, humans construct and abide by a vast web of kindness and mutual obligations of which Economic Man would be incapable.

Christakis is a professor at Yale University in the departments of Ecology and Evolutionary Biology, Sociology, Medicine, Statistics and Data Science, and Biomedical Engineering. That long list alone should tell us that the ossified boundaries erected between the disciplines in the nineteenth century are at last eroding: Economics is one of the few still glowering in its silo, which helps to explain the persistence of Economic Man. The book concludes that “humans everywhere are pre-wired to make a particular kind of society – one full of love, friendship, cooperation, and learning”. Christakis demonstrates how we have evolved to enjoy sociality and to be prosocial. Humans crave to belong to a group, and to value the good opinion of others in the group. We are prepared to forgo individual material rewards in pursuit of this. This prosociality comes from our genes, but the connection between individual genes and individual behaviour runs through collective behaviour: being prosocial, we co-operate, forming habitats that promote further prosociality, and through this common group behaviour we have gradually changed the gene pool. Since we are all programmed with these genes, vast swathes of our behaviour are common. This is why, as a species, we have evolved to be hard-wired for morality. The metaphors of the “naked ape” and “selfish” gene were always clumsy, but they become dangerously misleading if evolutionary genetics is thought to imply either the selfish organism, or that we are fundamentally just another nasty animal. In fact our “selfish” genes program us to be ethical humans.

Driven by our unique capacity for social learning, our “collective brain” – the stock of knowledge transmitted through culture and education – has gradually expanded, becoming vastly more important and reliable than our individual brains. For in certain ways human brains are not uniquely intelligent. As Joseph Heinrich argued in The Secret of Our Success: How culture is driving human evolution, domesticating our species, and making us smarter (2016) – a book that, like Blueprint, should be required reading for economists – young apes solve problems as swiftly as young children do: what they cannot do is learn from each other. Human brains are larger than those of apes, having evolved to cope with our hyper-sociality, necessitated by the (very slow) expansion in average group size from the forty of apes to the 150 of the Dunbar Constant (the cognitive limit to the number of people with whom we can maintain social relationships – now further expanded by our networking on social media). But our big brains are voracious energy-users and so very costly in the evolutionary struggle. As our collective brain accumulated, such costly individual brains became an extravagance, and so, for the past 500,000 years, they have actually been shrinking. As Heinrich notes, “In primates, the strongest predictor of cognitive abilities across species is brain size. Consequently, it is not implausible that we are dumber than the bigger-brained Neanderthals … Neanderthals may have needed those individually larger brains to compensate for their smaller collective brains”. We have less individual brain power than Neanderthals, but we are able to live much better thanks to our collective knowledge. Most of the time, it is efficient to rely on the collective brain both for the stock of knowledge and for the largely co-operative process of new discovery. Economic Man’s strategy of self-reliance is thus not “super-rational”: it is idiotic. But because we mostly rely on each other, we are liable to adopt herd behaviour, and hence, on occasion, to catastrophic collective error. Financial economists missed the Global Financial Crisis because they assumed that since banking professionals were behaving like Economic Men, they would “know the model”. The bankers indeed thought that they did, but what they were actually doing was following the herd – and the herd had got it wrong.

We are the only species that is morally load- bearing. We care for others beyond young offspring, and we are able to build vast networks of mutual obligation, even with people we have never met. Repeatedly through life, we stumble into dependence and require this non-transactional support. The life-cycle, in which we are born utterly dependent and end utterly dependent, is well suited for a community of prosocial people. And yet, economists have theorized the life cycle using Economic Man to predict the asset cycle: borrow when young, pay back and accumulate during working life, and dissave in old age. Nowadays, the affluent approximate to that behaviour, but in most societies, for most of history, most people have had no assets. Were they all too stupid to be Economic Man? Were there no assets to accumulate, or were they simply more intrinsically aware of the advantages of managing risk through insurance, as provided by prosociality?

Our unique sociality creates a further potent force that shapes behaviour: we imitate others. The mechanics of precisely how sociality spreads norms are now an active domain of social research: Damon Centola’s How Behavior Spreads: The science of complex contagions makes valuable advances in our understanding. Centola, a professor at the University of Pennsylvania, straddles the School for Communications and the School of Engineering. He argues that, while early work on the network communication of behaviour was built on the long-established epidemiological study of the spread of disease, ideas are not analogous to diseases. One kiss is enough to give a child chickenpox, but behaviour spreads through the pressure of opinion, and that depends on the number and status of the people with whom we interact, and whose behaviour we might potentially emulate: networks need thick overlaps. Usually, emulation amplifies the prosocial instincts with which we are hardwired: as both Heinrich and Christakis show, the most prestigious figures in a group are commonly modest and generous, so that others emulate modesty and generosity. Animals seek and respect dominance, but humans put more value on prestige – good opinion rather than fear – which tends to confer the greater reproductive advantage. Heinrich describes the behaviour of prestigious leaders as “prosocial, generous, and cooperative … using self-deprecating humour”. Christakis has a fascinating chapter on leadership during shipwrecks. The effective leaders, such as Shackleton, depended on the authority won through good opinion conferred by their sacrifice of self-interest.

But this process can sometimes go wrong – as it has done in our own societies. Economic and technological shocks, combined with a culture of “you deserve what you get”, have created big winners whose behaviour is disproportionately influential. As these winners turn into Economic Man, bad behaviour becomes prominent: they buy yachts; they dump their families; they brag. In consequence of being disproportionately influential, these people spread immodesty and selfishness: their repellent norms become more prevalent. Anand Giridharadas’s Winners Take All: The elite charade of changing the world passionately derides the pretensions of those responsible for this erosion of values, skewering the process of a rising economic elite of both conservatives and liberals gleefully ditching its responsibilities. As Giridharadas says, “by rejecting the idea that the powerful might have to sacrifice for the common good, [this elite] clings to a set of social arrangements that allow it to monopolize progress”. The current scandals of leading lawyers and actors buying Ivy League access for their children are the grotesque rococo gilding on this edifice of selfishness. What is new is not so much the selfishness of this elite, as its brazen assertion of moral superiority, signalling its detachment by espousing values that alienate many of its fellow citizens. Many of those same lawyers and actors promote the ostensibly generous message of open borders, which in reality amounts to a refusal to recognize any special claims of fellow citizenship. Further gilding is exemplified by the galleries bestowed on metropolises by the likes of the Sackler family: munificence financed by the opioid addiction of people in broken cities. What charity for Flint and Rotherham?

Finally, the mea culpas are arriving from the more thoughtful economists. Giridharadas quotes Larry Summers, who, despite being a staunch defender of economic orthodoxy, recognizes that: “A new approach has to start from the idea that the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good”. Another convert to mea culpa is the business guru Michael Porter. Both now understand that the protocols of “maximizing shareholder value”, which radiated globally from Harvard Business School, abandoned obligations to the community in which the relevant firm operated, and even to its own workforce. The protocols taught CEOs to acquire plants through Mergers and Acquisition and close those currently making losses rather than invest in returning them to viability – an option that, in many cases, might have been the more efficient had the full costs of closure been considered. But those true costs were felt not by shareholders but by communities, where, through knock-on effects, they escalated. The protocols taught CEOs to minimize the workforce. The costs imposed by the inevitable fluctuations in product demand had previously been met by shareholders: in periods of slack the workforce was not fully utilized. Shareholders were well placed to bear these costs since the shocks were cushioned by their diversified portfolios. Now, however, they have been shifted to the workforce: low-income employees face unpredictable working weeks through zero-hours contracts. Again, this shifted the burden to people ill-equipped to bear it, so that the true costs of volatile demand to society have escalated. In the name of efficiency, the structure of transactions has become both less efficient and less equitable. Although our nature is prosocial, CEOs have ended up behaving anti-socially: they have become Economic Men. The most astonishing of all the recent mea culpas is the retraction, in August, of the shareholder value mantra by the Business Forum – the club of America’s leading CEOs. All of them signed up to a counter-statement committing their companies to purpose beyond profit.

What can be done about this? Colin Mayer’s Prosperity: Better business makes the greater good is an intellectually heavyweight account of how business was driven into this ethical gutter by mistaken public policies, and how responsible purpose can be restored. Societies get the form of capitalism that public policy enables and encourages. We need business to be socially purposive: to find profitable solutions to society’s problems. Too often, what we have currently got is the conflation of purpose with profit. Mayer focuses on four policies that between them could transform how firms behave. By changing laws and regulations we could require corporate boards to state and uphold a clear purpose, and ensure that those purposes are aligned with the public interest. By broadening ownership and governance, we could change the composition of boards to better reflect their task of stewardship. By encouraging the measurement of how well purposes are being fulfilled, we would have yardsticks of performance more reliable than quarterly profits. By strengthening long-term relations between the providers and users of finance, we would encourage trust and longer investment horizons. For example, voting rights could privilege long-term investors, encouraging “voice” rather than “exit” when investors get concerned. This is an agenda that is at once transformative and practical: the recipe for credible hope.

But the misdesign of policy is not the only explanation for the corrosion of business ethics. The full description of Economic Man includes the epithet “rational” – and the fact that rationality must entail selfishness is the insistent fallacy on which this being has been constructed. We have arrived at the vile heart of the matter: in the phrase used by Jonathan Aldred for the title of his critique of how the subject has evolved since the 1950s, economics has provided a Licence To Be Bad. And more than just a licence: by linking selfishness and greed to rationality, economics instructed the business community to judge itself on these criteria. And so they became praiseworthy. The insidious diffusion of this norm of anti-sociality reached its apotheosis in Donald Trump’s justification for paying no tax despite being a billionaire. Instead of revealing that his ethics were incompatible with public service, it showed that he had been straining every muscle to be rational. As he bragged in the televised debate, it showed that he was “smart”.

Aldred takes an unusual approach to critiquing the modern economic canon: he recounts in some detail the history of who came up with the ideas that now form it, and how their ideas came to drive out others. In effect, his book is an application of the general network approach to how ideas spread, as analysed by Centola, to the domain of the economics profession. The approach is indeed illuminating. Here is Friedrich von Hayek initiating the idea that “government is the problem” and the spreading of that idea through a purpose-formed network organization, the Mont Pelerin Society. Here are John von Neumann and John Nash inventing Game Theory, with its equation of rationality with non-cooperation, and its spread through the simple narrative of the Prisoners’ Dilemma. (Von Neumann jumped ship from this brave new world, converting to Catholicism, while anyone who has seen A Beautiful Mind, 2001, will know what became of John Nash.) Here is Ronald Coase inventing the Theory of Social Cost: as long as actions such as the right to pollute are clearly assigned, and can be bought and sold, outcomes are economically efficient regardless of how the rights are assigned. A law that granted “the right to pollute” would simply induce payments from victims to polluters to desist, as long as the damage exceeded the gain to the polluter. Aldred shows how Coase, who was a lovely, gentle man, lost control of his own theorem: he meant it as a reductio ad absurdum, which revealed that the long-ignored costs of enforcing transactions must be important. Instead, it was taken at face value and applied to the law, having been spread by the influential jurist Richard Posner. In this view considerations such as blame, moral right and justice – would a right to pollute be reasonable? – came to be dismissed as irreconcilable and unimportant tussles about distribution. The rational discourse of the courts, Posner argued, should focus only on the criterion of achieving economic efficiency. Here is Mancur Olsen and his proof that social co-operation is impossible because it is irrational. Here is Gary Becker reducing moral values to “individual preferences” equivalent to tastes for food. Here are Milton Friedman and Leonard J. Savage dismissing uncertainty and reducing everything to probabilities which, with sufficient past data, can be estimated correctly. The profession’s connivance in this dismissal of radical uncertainty was the original sin that led to the Global Financial Crisis, as events that the probability-driven models had predicted would each happen only once every n-billion years occurred in quick succession. Aldred does not discuss an alternative to Economic Man, but his approach reveals that its constituent ideas were, and should be, questioned. They became the canon because of contingent, network effects – who knew whom – rather than through the sort of iron laws analogous to the classical physics to which economists aspire.

Economic Man is well entrenched and will linger for years, but he is now beset by evidence that will cumulatively kill him off. Social psychology and anthropology have shown that people have some predisposition towards fairness and meeting obligations. The Nash Equilibrium of mutual selfishness turns out to be the outcome only in a society of “rational fools” who have failed to build norms of mutuality. At the micro-level, behavioural economics, spawned by experimental psychology, has repeatedly refuted the predictions of Economic Man, even though its practitioners have conservatively clung to individualistic decision-taking, recognized only cognitive biases, and ignored uncertainty. At the macro-level, the 2008 crisis has forced the belated return of radical uncertainty into economic theory. This opens the door to why many decisions are based on narrative explanations that circulate in groups, rather than on the rational calculations of probabilities derived from individual observation. All this is a mounting inconvenience from which the profession averts its gaze, but the evidence that will eventually prove fatal is coming from evolutionary biology. Contrary to the presumption that Economic Man is inevitable for survival, we now know that he became utterly unsuited to the conditions of the past 2 million years, and particularly the past 200,000.

Economics is a human science and will need to fuse into the other human sciences: biology, psychology and anthropology will be the profession’s lodestars and bedfellows. Redeployed to understand Social Man, the methodology of economics will make a massive contribution to the public policies needed to heal our societies from the ills inflicted by Economic Man. That is why his death will be balm to the soul. Only the economists will mourn him.
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