Friday, February 20, 2009

Pinker and Caplan on the anti-market bias

In his book The Myth of the Rational Voter, Bryan Caplan documents that non-economists have systematic economic biases, one of which he call the anti-market bias. People tend to think of markets as exploitative rather than empowering. (Economists generally agree that they are empowering, and exploitation disappeared from serious economics, along with the labor theory of value, more than 100 years ago.)

Where did this bias come from?

According to Steven Pinker, our minds have a built in system of intuitive economics:
It is based on the concept of reciprocal exchange, in which one party confers a benefit on another and is entitled to an equivalent benefit in return.

...

The most common kind of exchange is what [Alan] Fiske calls Equality Matching. Two people exchange goods or favors at different times, and the traded items are identical or at least highly similar or easily comparable. The trading partners assess their debts by simple addition or subtraction and are satisfied when the favors even out. The partners feel that the exchange binds them in a relationship, and often people will consummate exchanges just to maintain it. For example, in the trading rings of the Pacific Islands, gifts circulate from chief to chief, and the original giver may eventually get his gift back. (Many Americans suspect that this is what happens to Christmas fruitcakes.) When someone violates an Equality Matching relationship by taking a benefit without returning it in kind, the other party feels cheated and may retaliate aggressively. Equality Matching is the only mechanism of trade in most hunter-gatherer societies. Fiske notes that it is supported by a mental model of tit-for-tat reciprocity, and Leda Cosmides and John Tooby have shown that this way of thinking comes easily to Americans as well. It appears to be the core of our intuitive economics. [from The Blank Slate]
The bias results from the application of this mindset to modern economies. As Caplan explains, this knowledge suggests we should rely less on demoacracy.

3 comments:

Andrew said...

"Economists generally agree that they are empowering, and exploitation disappeared from serious economics, along with the labor theory of value, more than 100 years ago."

"Serious" according to who?

Exploitation is a very real aspect of economic exchange, but it occurs because the government intervenes in the economy on behalf of some party (typically a wealthy and influential business). This was the theory of exploitation advanced by the classical liberals.

Both conservative and liberal intellectuals have convinced people that the Marxist concept of exploitation is the only theory of exploitation and that all the ills of our current economic system occurs because of market forces. This is the source of "anti-market bias."

As for your claim that the labor theory of value is dead, I recommend reading this book. The first 3 chapters deal with the LTV.

Skeptikos said...

Serious according to the overwhelming majority of economists.

Trade benefits both parties, so trade can't be exploitative. It doesn't make sense.

Andrew said...

Ok, so let's pretend that I'm a CEO of a large agribusiness and I get my lobbyists to convince the government to set up a licensing scheme that requires people to get certification before they can grow food. In order to become licensed, you first have to pay several thousand dollars in fees. After that, you need to continue shelling out thousands more for yearly government inspections. Although this costs my business thousands of dollars a year, I ultimately benefit from it because I can easily absorb the costs while small, local farmers cannot and quickly go out of business. Pretty soon, only a few large producers of food exist and because there are so few of us, we can charge a monopoly price on something that everyone needs.

Please explain how I am not exploiting my customers.