Selection, Sociality, and Systems

Recently, I have been trying to wrap my head around some of the major tenets of biology, I have enjoyed it so much that I commented to someone close to me that I was sad I chose economics for my PhD, I would have enjoyed biology with equal fervor. Nevertheless, I am in a pursuit to connect the various themes of the fields and create a stronger stance for both. We are, after all, a species of biological organisms whose very survival is dependent on our interactions. It is interesting to note the variety of systems of organization and hierarchy found throughout biology and economics; there seems to be an plethora of solutions to an infinite number of potential problems. Through learning and adaptation, we eventually get to the now. This also must mean that many systems of organization did not make it to the now, they failed to survive. What I mean to uncover in my research is the framework by which social interactions and systems evolve and persist. This is where I begin to look for the interconnections with biology.

I have come across a controversy in biology that hinges on the fitness and adaptability  of species: the debate between group and individual selection. Group selection exists when there is competition not only between individuals but between groups as well. And we know that individuals compete on a number of various levels for both resources and mates. But what about species that have high populations of sterile or non-reproducing organisms like ants or bee? Why would any one ant give up their life in order to save the lives of their fellows?

Hamilton’s theory of kin selection solved that paradox. Hamilton proposed that kin selection was an evolutionary strategy that favors the reproductive success of an organism’s relatives, potentially at the cost of the organisms own fitness or survival. It must be noted that group selection and kin selection are not the same.

Recently, there has been a resurgence in the biology literature on the efficacy of Hamilton’s theory, how these play out in the real world, and how does altruism fit into all of this. The paper that reinvigorated the dormant argument between the different types of selection was published in Nature during August 2010. In “The Evolution Of Eusociality,” Nowak, Tarnita, and Wilson argue that the previous four decades of theorizing using the kin selection theory had serious limitations and perhaps another methodology would be more useful and simpler. This caused a cascade of dissent from the biology community, and rightly so. One cannot shake a beehive and expect the residents to remain content.

The main issue seemed to be with the first half of the paper, which provided plenty points of contention for those who would adamantly disagreed with the paper, but the latter half included a well-developed mathematical framework by which their new theory could be expounded. Unfortunately, many of those who read the first half failed to check the appendix, which being a grad student is something I would forgive them for. (Who has time to check appendices?) The main point of their paper was that kin selection makes far too many simplifying assumptions and that Hamilton’s rule fails to describe a number of interactions that occur in the wild.

Seven years later, Jordana Cepelewicz writes in Quanta about the mathematical underpinnings of the growing debate. She brings in other research and further shows that the assumptions made by Hamilton’s rule fail to take into account a number of phenomena, especially when it comes to offspring:

In other words, it can be more important for an individual’s reproductive success to be consistent on average, rather than simply higher than that of others. In an uncertain environment, the bet-hedging value of helping others starts to look much more appealing as a strategy: It improves the odds that some shared genes will survive even if an individual’s own lineage dies out. Allocating some energy to helping others, even at the expense of further reproductive success, then works as an insurance policy.

There are even more variations when it comes to differences in hives, colonies, and species,

But even so, “there are a lot of subtleties within how those dominance hierarchies form and how those societies maintain stability,” said Sandra Rehan, a biologist at the University of New Hampshire. “It’s much more nuanced than just saying ‘something is social,’ or ‘something is eusocial.’”

She goes on to further claim that uncertainty is apt to breed altruism. This is equivalent to the economics concept of the Folk Theorem: when the end of a game is unknown, cooperation is sustainable. The problem with many one-shot and finite games is that cheating is a sustainable strategy in the last turn, but if someone will cheat in the last turn, why not cheat in the next to last turn and so on. Games of this kind tend to unravel, but if there is some probability of continuing the game, at say the species/multigenerational scale, then it is definitely worth cooperating at the individual level.

Goal-seeking Economics

We are on the verge of a revolution in economics, in fact, it might have already started. Many have pointed out that the current climate within the discipline is such that it cannot continue. I have linked to these discussions in previous posts, although, I have neglected to include other heterodox forms of the field such as feminist economics, humanistic economics, etc, but mostly because I don’t feel as if I know enough about them to give them proper representation. Though, even in the mainstream, economists have begun to seek new ways of their craft things outside the status quo rate of the field’s continual evolution.

Something that must be warned against is the potential for economists to use economic theory as a means to their own ends, instead of merely a means to discover truths about the nature of humanity and economies. I would argue that economics has value in and of itself, without the addition of value placed on it by those who are consulting or use the prescriptions to further their own interests. An economy is not something that can be engineered. More so, an economy is not something that can be altered from the outside. None of us can take a metaphorical wrench and adjust the economy in seemingly knowable/predictable ways that will guarantee specific outcomes. However, many economists attempt to do just that.

While I think there is a mix of good intentions and hubris involved in the decisions of those who wish to alter the state of the economy using tools and policies, there is something to be said about what a fully engineered economic system would look like. What if we could model the economy down to the very basis points of interest rates and cash flows? One could imagine that a computer capable of doing such things might not be too far in our future, especially since quantum computing is closer than ever before. We could know exactly what is going to happen and how to change the dials and the knobs to secure specific outcomes. For many, that would be a Utopian dream. Imagine eradicating all poverty just by changing some set of parameters to complement a given set of initial conditions.

This has been considered before, over 200 years ago, but it was through the eyes of classical mechanics and not economics. Pierre Simon Laplace realized some 150 years after the invention of Newtonian Mechanics that if there was some being that could know the exact specifications of everything, the entire universe could be modeled. He stated in A Philosophical Essay on Probabilities,

“We may regard the present state of the universe as the effect of its past and the cause of its future. An intellect which at a certain moment would know all forces that set nature in motion, and all positions of all items of which nature is composed, if this intellect were also vast enough to submit these data to analysis, it would embrace in a single formula the movements of the greatest bodies of the universe and those of the tiniest atom; for such an intellect nothing would be uncertain and the future just like the past would be present before its eyes.”

This supreme intellect became known as Laplace’s Demon. The reason being the point at which everything becomes predictable then the universe becomes entirely deterministic — free will ceases to exist, we become cogs in the machine. Because this machine could crank time forwards and backwards and we would be no more than actors playing a predefined script. Quite quickly, this Utopian vision turns into an existential nightmare. Fortunately, this kind of machine or intellect was proven to impossible with the discovery of quantum mechanics ca. 1900, but there has been some talk of a “computer” that could model the universe via quantum wave functions. However, the size of the computer is probably the same size as our universe.

I have argued against the fatalist view of economics (essay to be posted later), I think there are marginal changes that can be made through the work of policy and individuals allowing us a better world. Nothing is entirely set in stone, complexity allows us to appreciate the myriad number of potential outcomes and how all of the interactions of individuals make for beautiful, interesting world. Using economics as a tool to mess with the supposed “cogs” might end up doing more harm than good, but we are able to learn from the works of others. Economics isn’t merely decision theory, it is the theory of explaining how people interact to achieve their goals at both the micro and macro scale (as far as those actually exist). So while I think economists working in the public and private spheres provide a necessary service, what is unnecessary is for economists to create versions of economics that have vested interests. If one is to remake a better version of DSGE, it shouldn’t be a means to the greater positioning of oneself, but for a greater understanding of behavior that will in turn help humanity.

 

Public Choice and the expansion of the government

Why government expands is an important point of discussion in the public choice literature. (Public choice being the application of economic tools onto the realm of political theory and practice.) This question has often been asked by economists and occasionally there is an answer that makes sense, but rarely can we account for all of government growth through the use of a singular theory.

Donald Wittman claims to provide an overarching, mono-causal theory of government expansion: it’s because the people, the voters, want government to expand. An increase in the role government is the reflection of the will of the voters and this expansion supposedly leads to the lowering of transaction costs or opportunity costs of the constituency. Bryan Caplan, Wittman’s nemesis, says that this theory is wrong since we know that voters are absolutely underinformed; he claims that it is too costly for voters to gain information and that there is relatively little benefit to having that information. The logic of collective action is in full swing.

A second theory, purported by Robert Higgs, claims that government has grown during times of emergency and afterwards fails to shrink back down to its previous size. Higgs calls this his “ratchet-model” of government expansion. It can be seen through the lens of history: the US government rapidly expanded during the World Wars and after each of them were over, the size of the federal government shrunk somewhat but never back to the size it was before the onset of war. During each of these national “emergencies,” the government takes on extra roles and duties not previously delegated, only to refuse to relinquish them once the need for that role being filled is over. Whether the government should have occupied that set of duties in the first place is a different question. The ratchet model fails to take into account countries that have not experienced world wars or other national emergencies but have still grown nonetheless.

A third theory of government expansion has been cited by Tyler Cowen. His theory, unlike the previous two, is not mono-causal, but only relates a part of the story. Cowen claims that as technology has advanced, the cost of governing has decreased. This, in turn, has lead to an expansion of powers to places that were previously too costly to govern. Cars, highways, and air travel made far away places accessible within hours or days instead of weeks. Telephones and internet made communication instantaneous. Much of the technical innovation lowers the transaction costs of implementing policies. I am partial to this explanation of government expansion, though, it must be kept in mind that this is only a small part of the story.

Lately, I have been wondering about a more endogenous model of government expansion. Many of us who study public choice often look at the incentive structures of policy and the public realm, but sometimes we miss the forest for the trees. In a democracy, government might expand due to the opinion of the majority at the expense of the minority. Such a case has been theorized since Madison’s Federalist 51 and has been often repeated in various circles as outside threats arise. Madison says, “It is of great importance in a republic not only to guard the society against the oppression of its rulers, but to guard one part of the society against the injustice of the other part. Different interests necessarily exist in different classes of citizens. If a majority be united by a common interest, the rights of the minority will be insecure.”

I think it is improbable that a society can exist for long without having the majority take over large parts of governance without some minority bearing some cost. This is especially true when the minority can be seen as the outgroup. This has been a defining part of history. Many societies have increased the burden on the fringes and minorities of their civilization to prop up the rest or to simply keep the other group down. Medieval Europe, South Africa, Japan, China, the Aztec Empire, the United States, Ancient Greece, the Roman Empire, and the list goes on, have engaged in these kinds of actions. Not every policy action is a pareto improvement, so, someone is hurt, at least in the short run, each time a new policy comes out. What makes this viewpoint different is that entire groups pay the price instead of a small collection of individuals who have no connection other than interest.

The possibility from this kind of policy endeavor rises from the formation of large groups who can at any one time control the majority. Madison continues, “Whilst all authority in it will be derived from and dependent on the society, the society itself will be broken into so many parts, interests, and classes of citizens, that the rights of individuals, or of the minority, will be in little danger from interested combinations of the majority.” If there are not enough interests shared by enough groups and large bundles are instead monopolized under the umbrella of an uber Gruppen, we get a system that prioritizes the majority. In a duopoly, one group can claim to prioritize the wants of the minorities it supposedly represents, but given the a prior fractures among groups this will achieve little and may exacerbate the polarization and fracture of a society. This is especially true of democratic societies in which the median voter model holds true.

In a carbon constrained world, why increase the rate of carbon production?

Since the realization that carbon deposits in the atmosphere could cause global temperatures to rise, there has been increasing conversations on humanity’s role in causing this rise in temperature. We call this the Anthropocene Era, or the span of time in which the activity of humans has and continues to fundamentally alter the state of the world. (For the sake of this conversation, we’re going to assume that the anthropogenic climate change is incontrovertible.) The potential outcomes from this have ranged from mild warming of the global climate to the end of life on earth as we know it. I would wager that there is a fat tail of predictions that map the most disastrous outcomes. Many of these predict existential events.

Warning, normative statement: If there is a significant probability any one of these predictions coming true, humanity should coordinate to prevent this from happening.

One possible solution is by removing the human factor entirely. If there are no humans, there can be no anthropogenic climate change. This is also an existential event; therefore, I will ignore the potentiality of this being doable. I should note that many movements that proclaim a retrogression to primitive human civilizations are equivalent to the removal of humanity. How? No one ever states how far back we must go to not affect the world. Even going back a few centuries of economic evolution requires the elimination of billions of lives. Who decides who gets to live? How this is any better than allowing for future climate catastrophes to take their toll on humanity. This moral implications of this philosophy make it unacceptable.

Solution number two involves in doing nothing, or perhaps increasing our carbon production, which would end in any number of mild to existential level events.

Solution three involves using the resourcefulness of humanity to produce outcomes which are less severe than those being predicted. Even if the probabilities are currently set. moving one percentage point towards a more positive outcome is worth it. Should we do whatever is necessary to avoid the worse outcomes? I can’t answer that. What we shouldn’t do is make things worse. Specifically, if we’re looking to reduce carbon production, using fossil fuels in place of gaps in renewables or nuclear power is anathema to this goal.

Data to come later.

Not your father’s macroeconomics

The decision of the Fed not to raise interest rates raises some immediate doubts about the future of the economy; though, I question the validity of these doubts. Has the Fed been at the helm of the economy in a meaningful way over the past few years? I would argue that at most it has been a standard-bearer that the economy has looked up to since the Great Depression, but for a long time, there has been a disconnect between the actions of the economy and Fed policy. Just looking at the immediate trends: unemployment is low at less than 4% and interest rates are still near-zero when compared to historical averages. Is there an issue with this? Not really, unless you take stock in the Phillips Curve — the same curve taught today in many intermediate macro courses, but has been thoroughly debunked since the beginning of stagflation in the 1970s.

So what does this mean? Justin Wolfers sums it up nicely:

Fine tuning the economy is over… Controlling for u and r in face on inflation fails muster; the rudders connected to this helm aren’t as large or as sensitive as previous thought.

The discipline of economics is changing for the better. Two years ago, David Wilson Sloane claimed that economics as we know it is dead The stories economics uses to explain the world are extremely useful, but in all their explanatory power, they are merely fictions that simplify the world into understandable pieces. (I don’t mean to understate their importance, only to state that economics can go further. For all it’s simplifying, economics during the past century has had truly brilliant insights.) Macroeconomics is currently at sort of crossroads, one that will help define the discipline for generations to come. The useful fictions can be maintained, but their explanatory power can be made to be more robust through the integration of economic thought with the processes and knowledge of other sciences towards a common goal of creating a more humane science. Beinhocker et al. sum it all up in a recent response to their neoclassical counterparts, “We believe that in order for economics to progress it needs to fully embrace a transdisciplinary approach and modernize a number of its key concepts.” The authors of that essay come from a wide variety of backgrounds and believe that their combined insights allow for more perfect version of the truth. Given the exponential nature of combinatorial interactions, I am sympathetic to this claim.

They posit that economics can do three things to increase its explanatory power:

  1. Most of us admit to the downfall of homo economicus, we should bring in insights from the fields of neuroscience, psychology, etc. to advance the understanding of homo sapien.
  2. Heterogeneity goes mostly unexplored in neoclassical because most things are generalized to help simplify things. Complexity thrives in a heterogenous space; people are not homogenous.
  3. We need to look at the economy from the systems level. (I’m most in tune with with this action.)

In an aside to all of this by Dani Rodrick, he claims that we must take up FDR’s credo of nothing less than “bold, persistent experimentation” in order to advance the field. I couldn’t agree more.

You might find yourself asking, “Where will macroeconomics take us next?” That’s not the question we should be asking. The better question is: Where will we take macroeconomics?

One final thought, Noah Smith is right, the Fed is our scapegoat no matter what happens.

 

More thoughts on “The Economy of Cities”

Jacobs’ main thesis is that cities experience growth through import replacement: the economies of the cities begin producing the products that they are currently importing from other economies. One of her examples was that Tokyo started manufacturing bicycles once they became technologically able (the costs became sufficiently low) to produce them in the city rather than importing the bicycles from abroad. What this entails is the internalizing of economic activity– a city may seek to be self-sustaining, and this seeking causes economic growth. But this comes at a significant cost: the city, and its contents, must always be in constant adaptation and change. In fact, Jacobs remarks, “The primary economic conflict, I think, is between people whose interests are with already well-established economic activities, and those whose interests are with the emergence of new economic activities.”

I do not think that this is merely an anti-rent seeking argument. Surely, there is some of that implicit in the statement; people who want to maintain the status quo may want to stifle further innovation and may do so by seeking legal and political tools to prevent others from infringing upon their profit opportunities. These interests may attempt to exert control over who may enter the markets via certain qualifying measures, certifications, and fee structures; some may go as far as attempting to set up a government-licensed monopoly. Jacobs’ argument speaks to something far more devastating to economic evolution: not in my backyard.

It’s not only the resistance of change from those who own the methods of production but the resistance from those who would benefit from future economic evolution.  She states, “Conformity and monotony, even when they are embellished with a froth of novelty, are not attributes of developing and economically vigorous cities. They are attributes of stagnant settlements.” Economic evolution must advance the interests and benefit the lives of the average person– an argument I heard earlier this week said the same thing of climate change regulation. Import replacement, as Jacobs describes it, is a process of entrepreneurial discovery and division of labor within a city. These processes are part of a larger Schumpeterian system of creative destruction: new economic activities evolve to replace older activities. These stand to increase the wealth of both the city and its inhabitants.

Who carries the costs of these import replacements? There are immediate costs of undergoing change; this is where the NIMBYs can strike with the most damage. By refusing to change or limit the amount of growth, those with interest in older economic activities can prevent the evolution of new ones before they even get started. There is a cost in saying yes to development, but remember, there is no cause of poverty — that is the base condition — there is a cause to prosperity, which a key to which is the change of economic activity. There may be short-run costs to those exporters of goods from the which the city previously consumed, but these will be made back in the long-run by more and better technologies being produced in the city. These technologies then get imported to other cities and rural areas. The long walk of progress determines that growth is not simply for some, but all can prosper in the long-run. Recent trends in poverty reduction are proof to this. The reason that so much food can be grow with so little labor involved originates in work and innovation done in urban areas, not with the farms themselves. As I noted in an earlier post, urban and rural economies must work in a cycle for both to survive. (This will probably be true until someone figures out to grow enough food in urban  areas; vertical farms aren’t enough to feed an entire city. A lot of this is due to the limited selection of foods that can be grown in a vertical farm.)

Jacobs has a wonderful bit on discrimination in cities and how it is inefficient for unequal governance to be operation. Prior to gender/race equality, an economy is losing out on a large portion of labor, creativity, and human capital. Engaging in such discriminatory behavior only allows for more stagnation, sooner.

Side note for future thought: If contracts are unable to be performed, then there will be inefficiencies. Think apple trees and bees– Where is the Coasean bargain?

Krugman (gasp!) talks on evolutionary economics and biology

Okay, okay, okay… It was at the European Association for Evolutionary Political Economy in November of 1996 (which is before the blogging Krugman we all know and love). In this talk, Krugman offers some bridges in between the two fields, finds common ground, and even suggests that we use the same methodologies to accomplish our studies. Which I think is appropriate given that the variables studied in both of our fields are not as concrete as physics but can be infinitely more complex (and thus, according to Michael Shermer, more difficult).

Here are some notes:

Krugman offers a four-part approach to economics:

  1. Economics is about what individuals do.
  2. Individuals are self-interested.
  3. The individuals are intelligent.
  4. The primary focus of these individuals is their interactions.

The primary difference between evo-bios and econs is that evo-bios don’t assume requirement number (3). Agents in evo-bios can be myopic. My own interjection here is that agents need not seem rational to the outside observer, only that they are rational insofar as their rationality is bounded.

Reading John Maynard Smith’s (not Keynes’) “Evolutionary Genetics” is probably a good start to recognizing the parallels between the fields.

The differences between evo-econs and neoclassicals is that evo-econs want to get away from maximization and equilibria. I think the latter is a recurring theme in heterodox economics, especially that of Austrian which lends some bias into my formal training. Nonetheless, I often argue that the economy is always trending towards an ever-changing equilibrium; therefore, it is always in disequilibrium. If we ever reached equilibrium, either communism has succeeded or the human race is extinct… possibly both.

Krugman points to Leslie Orgel’s Second Law: “Evolution is smarter than you are.” Maybe so, if only in that evolution is an organic process and there is no way that any one person can predict the eventual outcomes of these marginal changes over time. We can’t necessarily know a priori what is and is not efficient. Often we assume whatever outcome is reached is inherently efficient. Also, evo-bios look at evolution from a stationary perspective, and not in a dynamic shift that is presently occurring. This is not so much unlike certain models in economic growth theory.

The most useful concept in this talk is that of “Evolutionary Stable Strategies.” These are the strategies that any one agent should follow given the strategies everyone else is following. Krugman points to equilibrium, but I think more towards game theory (both have equilibria, but game theory allows for probability of repeated games).

In conclusion, Krugman offers sage advice on what econs can learn from evo-bios: “that models are metaphors, and that we should use them, not the other way around.” Many economists fully believe in their mechanisms versus acknowledging them for what they are, merely useful fictions that allow us to simplify the complexity that is human action.