The seeming economic success of this year’s Black Friday-But-Really-Thursday, judged by many as an economic win-win for business and consumers, got us wondering what we as a country have gained in terms of what psychologists often term well-being, i.e., happiness. The answer, to us, is very little — but we think there’s much to be gained in the explaining of why that is. Here’s what we think we can say about this year’s Black Friday without getting too much disagreement: Shoppers who would have lined up at stores early Friday to get the best bargains encountered, for the most part, the same kindred spirits late Thursday. Merchants hoping to out-maneuver the competition were disappointed when rivals followed suit. Nothing gained for consumer or merchant, but much lost by employees whose ability to get in touch with feelings of gratitude were diminished by the knowledge that they’d have to trudge to work before Thanksgiving was over — not to mention the erosion of yet another boundary between our souls and our wallets.
More important, for our purposes here, these sorts of costly stand-offs are everywhere. States move up primaries and caucuses to increase their clout in the nomination process, only to see rival states do the same. Athletes take performance enhancing drugs to gain an edge on the competition, but the competition seeks the same advantage. One nation spends a fortune on arms that is soon matched by its rival, recreating the same standoff at greater expense. What’s a shopper, athlete or country to do?
In a remarkable new book, The Darwin Economy, economist Robert Frank (a colleague of Tom’s at Cornell) explores how these sorts of arms races play out in myriad areas of economic life—and how we could create a more productive economy if we understood their nature and impact. Frank’s thesis is that Charles Darwin will someday be known as the intellectual founder of economics, budging ahead of Adam Smith. Darwin deserves that distinction, Frank argues, because he wrote so insightfully about the important role of relative (or comparative) advantage in life.
When bull elk butt heads in the contest over access to females, the one with the larger antlers typically wins; thus has evolution produced elk with the massive antlers we see today. But those antlers come at a cost. They are nutritionally taxing and they make the elk more vulnerable to predators. Thus, what’s good for the individual elk (big antlers, access to females, genes passed on to future generations) is not good for elk as a whole (vulnerability to predators).
Frank’s brilliance is to call attention to a number of ways in which we act like bull elk ourselves. Someone at work buys a 4,000-square-foot house or a $60,000 car and suddenly our own 2,000-square-foot house or Toyota Camry no longer seems adequate. So we buy a bigger house in a more remote area where land is cheaper, or borrow to buy a higher-end car. But then we’re saddled with a longer commute and we’re deeper in debt.
Worse, we know that people quickly adapt to the bigger house and the fancier car and soon derive only as much happiness and satisfaction from them as they did from their predecessors. But we don’t adapt to long commutes (they start out stressful and unpleasant and stay that way) and, well, we’ve seen the problems that follow when societies treat debt lightly.
Frank acknowledges the merit of Smith’s “invisible hand” and grants that competition often directs self-interest toward the common good. But in the Darwinian world in which we live it’s simply not the case that less regulation, less government and lower taxes are the solution to every problem we face. We aren’t harmed by arms-limitation treaties; we’re helped by them. Neither players nor fans are harmed by regulations that ban performance-enhancing drugs; they’re helped.
The critical question, then, is what sort of interventions would best tame the counter-productive arms races that crop up so often around us. And Frank’s answer—really, his discipline’s answer—is to tax those things we want less of so we can afford those things we want more of. And there are myriad things nearly everyone agrees belong to each category—less pollution, drug abuse and crime; better roads, bridges and medical research facilities. We won’t go into detail about his recommendations (buy the book).
But Frank has the jump on several Republican presidential candidates with a proposal to scrap our complicated income tax system and replace it with a progressive consumption tax. It may not be as simple as Herman Cain’s 9-9-9 plan, but it’s fairer, and it wouldn’t be remotely as cumbersome as our existing system. Better still, it would deal with the unproductive arms races we often encounter in everyday economic life, which slowly but surely degrade everyday living for many of us.