A flurry of recent activity indicates that evolution is beginning to occupy center stage in economic debates--and not a moment too soon.
Recently published books include Robert Frank's The Darwin Economy: Liberty, Competition, and the Common Good (in which he predicts that Darwin will eventually be regarded as the father of economics), Yochai Benkler's The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest, Geoffrey Hodgson and Thorbjorn Knudsen's Darwin's Conjecture: The Search for General Principles of Social and Economic Evolution, and my own The Neighborhood Project: Using Evolution to Improve My City, One Block at a Time.
Behind the trade books is a growing academic movement, including a recently concluded conference organized by Denise Dollimore and Geoffrey Hodgson titled Evolutionary Thinking and Its Policy Implications for Modern Capitalism. As president of the Evolution Institute, I am privileged to function as a coordinator in addition to my own contribution, including a collaboration with NSF's National Evolutionary Synthesis Center (NESCent) on integrating economics and evolution. One result has been a white paper submitted to NSF titled "The Relevance of Evolution for Economic Theory and Policy", co-authored with economist John Gowdy and with 64 signatories, including luminaries such as Pulitzer prizewinner E.O. Wilson and Nobel laureate Elinor Ostrom.
Economic policies informed by evolution do not fall cleanly into any current political camp, presenting an opportunity to formulate a new Middle Path. Another exciting prospect is that the dialogue can be based on scientific norms of accountability, which, while not entirely genteel, are vastly more constructive than the fight to the death and disregard for the facts that current political discourse has become. In this spirit, I will focus on a review of Frank's book in Slate magazine by science writer John Whitfield, whose own book, People Will Talk: The Surprising Science of Reputation, will be published in November.
Frank does not aspire to entirely rethink economics in The Darwin Economy. Instead, he focuses on a single foundational difference between evolutionary and economic theory. Evolutionary theory is based on relative fitness--which individuals survive and ultimately reproduce better than other individuals. Economists sometimes think in terms of "positional goods", in their own parlance, but the main edifice of economic theory is based on absolute utility maximization--as much as possible for me, regardless of what anyone else gets.
Thinking about human economic behavior in more relative terms explains some of the excesses that are on display everywhere we look, from the $1000 suit that provides a competitive edge over a $500 suit for a job interview, to the 4000 square foot house that's worth buying in a neighborhood of 2000 square foot houses but not in a neighborhood of 8000 square foot houses, to the millions of dollars worth spending for your daughter's sweet sixteen party, if you happen to have billions of dollars at your disposal. The fact that these excesses are obvious does not mean that they have been incorporated into economic theory. Frank therefore provides an important service by pointing out the difference between absolute vs. relative utility thinking and exploring some of the implications--including a very feasible tax policy that should appeal to thinking libertarians in addition to liberals. Frank is a highly respected economist, an insider rather than an onlooker such as myself. His proposed tax policy richly deserves to occupy center stage in political and economic debates. If it is adopted, it could literally alter the fate of the nation and the world.
Whitfield agrees with Frank's tax plan but disagrees with his evolutionary rationale. According to Whitfield, Frank pays insufficient attention to another foundational difference between evolutionary and economic theory. For an economist, the pursuit of self-interest typically results in a well-functioning economy. That's what the metaphor of the invisible hand (and a lot of neoclassical economic theory) is all about. For an evolutionist, functioning well as a group requires cooperation, which is often undermined by individual self-interest. Explaining how cooperation, altruism, and anything else that appears "for the good of the group" is one of the central problems of evolutionary theory. Many attempts have been made to provide an explanation, which sail by names such as group selection, kin selection, inclusive fitness theory, and evolutionary game theory. Even so-called selfish gene theory treats cooperation as a central problem with a (partial) solution, using its own vocabulary. The relationships among all these theories are famously confusing, even to evolutionary insiders, not to speak of onlookers such as Frank and Whitfield.
Whitfield is right that Frank pays scant attention to the problem of cooperation in The Darwin Economy. You'd think that I would have beaten Whitfield to the punch in my own videocast with Frank, but I was content to focus on Frank's positive contribution. Now I welcome the opportunity to reconcile the points made by Frank and Whitfield. Intriguingly, if we follow Frank by thinking assiduously in relative terms, we can resolve most of the confusion that famously shrouds evolutionary theorizing about cooperation.
To begin, consider a tinker toy evolutionary model in which a single group consists of two types, solid citizens and slackers, that breed true. One of the joys of being an evolutionist is that these could be bacterial types just as easily as human types. The two types can exist in any initial proportion. The solid citizens provide a benefit to the whole group, including themselves, at no personal cost. You might think that such a no-cost public good is unrealistic, but at least it is imaginable. Even though the solid citizens benefit themselves in absolute terms, the proportion of solid citizens in the group has not changed. No evolution has occurred.
What is required for solid citizens to be favored by natural selection in this model? Imagine that there are several groups that vary in the proportion of solid citizens. Within each group, no evolution takes place. The proportions remain the same or vary only by chance. But the groups with more solid citizens fare better than groups with fewer solid citizens. The addition of several groups to the model creates a relative fitness difference that was lacking in the single group model--and the fitness difference is between groups, not within groups.