It all began with Larry Arnhart giving a “Darwinian” account of the case for financial bailouts. Then David Sloan Wilson rejected the argument from the Invisible Hand. Then Massimo Pigliucci entered the fray. What’s at issue?
There are two basic extremes in economics: laissez faire and command economies. The former suppose, with the overextrapolation of Adam Smith’s Invisible Hand, that a truly unbiased and free market will generate goods better than any other economic system. The latter is socialism, and supposes that a central planner, usually the State, will control economies reducing waste and inequality. Neither works.
Arnhart holds that the bailout is a form of market control, and that this runs contrary to his interpretation of Darwinian dynamics as justifying laissez faire conservatism. Sloan Wilson said that the Invisible Hand is a dead idea. Massimo tends to agree with Sloan Wilson on that point. On other points, particularly Sloan Wilson’s claim that we are adapted to cooperative social behaviour, Massimo disagrees with Sloan Wilson. We have a Mexican standoff on the implications of Darwinian theory, and indeed even what Darwinian theory really is. Arnhart seems to be a radical methodological individualist, Sloan Wilson is a noted group selectionist, and Pigliucci is a noted advocate for the role of self-organisation in biology.
I won’t go through the ins and outs of this debate – it’s a civil and fairly clear set of contributions by all concerned. But there’s something that I think nobody has mentioned yet, so I will make my case for it now. If neither free markets nor a command economy can work in all cases, what can? Most democracies are a mixture of socialisation of infrastructure, regulation of financial institutions, open market access, and so on. The American case, in which regulation is held to be ipso facto a bad thing in as many cases as it can be eliminated, is a very weird and unrepresentative view in the world today. Most nations, my own included, have regulation of financial instruments and practices, as we know, from prior experience, that self regulation doesn’t work. And that does seem to be based on human nature. Nepotism and corruption is the default behaviour of humans. We are not enlightened self interested rational egoists. Nor are we total bastards to each other.
So a mixed strategy will tend to be the optimum for a given case, leading to the question: “how much regulation?” None is vulnerable to exploitation by a Tragedy of the Commons. All is vulnerable to the inefficiencies and corruption of the controllers. Some seems to be the answer, but there doesn’t seem to be a universally optimum mix, and Darwinian theory gives a reason for that, too. What we are seeking is an evolutionarily stable strategy; a mixture of populational variants that is the best tradeoff possible in the conditions. And this is not some magic number – it depends on the initial starting point of the population, the selective landscape over time, and the fitnesses of the variants themselves. All of this is highly dynamic and contextual. No single answer can be specified in ignorance of these conditions.
But economists are always acting under the constraint of very partial information. So at best we can justify post hoc some effective mixture of strategies, but we cannot know ahead of time what is going to work out for the best. As Darwinians, we ought not expect that one strategy or the other will always do best, any more than we should expect Tit for Tat will always win in simulations of social transactions. So we need instead to constantly revise and review the effectiveness of regulation, but to ensure that obvious regulation is in place.
Fact is, a Darwinian knows that selection processes can drive a population to extinction. A Darwinian knows that sometimes rational egoism can be less fit than an innate bias towards sociality (as humans seem to be slightly more than ordinary chimps, who do act like rational egoists). And a Darwinian knowns that social structures are never entirely one thing or the other, but instead that they depend on the local fitnesses of the variants available in the population (in this case of economic institutions).