68. Selfishness, Altruism and Rationality, Part 1

Note: This post is the sixty-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is the book, Selfishness, Altruism and Rationality, by Howard Margolis

Margolis' goal in this book is to extend the Economic Theory of Rational Choice so that it covers political situations as well as Economic ones.

He opens the book with a quote from James Coleman which eloquently outlines the problem, while also covering our now familiar choice between two versions of self-interest,

"Classical economic theory always assumes that the individual will 'act in his interest'; but it never examined carefully the entity to which 'his' refers. Often, as when households are taken as the unit for income and consumption, it is implicitly assumed that 'the family' or 'the household' is the entity whose interest is being maximized. Yet this is without theoretical foundation, merely a convenient but slipshod device. In this case, as in many others (e.g. when a man is willing to contribute much, even his life, to national defense, rather than use a strategy that will push the cost onto others), men act as if the 'his' referred to some entity larger than themselves. That is, they appear to act in terms, not of their own interest, but of the interest of a collectivity or even of another person. Indeed, if they did not do so, the basis for society could hardly exist.

Yet how can this be reconciled with the narrow premise of individual interest ... we could simply solve the problem by fiat, letting 'his' refer to whatever entity the individual appeared to act in the interest of. This would obviously make the theory trivially true, and never disconfirmable. A more adequate solution is one which states the conditions under which the entity in whose interests he acts will be something other than himself."

We saw in the last post that James Buchanan was willing to settle for a theory that based human motivation solely on the desire for material gain, arguing that the desire for material gain is always present to some degree in people.

But Margolis isn't willing to settle so easily,

"A satisfactory theory of social choice requires a model of individual choice that is consistent with the way human beings are observed to behave. Yet, even after a generation of work on the problem of applying the economic 'rational choice' perspective to social choice, often leading to striking results, this fundamental problem remains unresolved. We still lack a model that accommodates (without fudging) such obvious observations as that citizens bother to vote and do not always cheat when no one is looking. A resolution of this difficulty can be expected to require some departure from conventional assumptions."

Margolis goes on to indicate that, in his opinion, the main difference between situations which can modelled fruitfully using the traditional model and situations requiring a new model is that situations where the old model works are economic in nature whereas situations where a new model is required are political in nature (echoes of Mancur Olson specifically indicating that this theories on collective action only applied to economic groups, not groups formed for no-economic reasons.

Says Margolis,

"This classical model is profoundly shaped by its root concern with the problems of the marketplace. But in politics we are dealing with goods allocated largely through some coercive process, not through voluntary market transactions; and political 'goods' (such as justice) are often inherently unmarketable. Nonmarket effects (externalities) which are aberrations - market failures, which one seeks to correct - for most economists are the central feature of political life for political scientists.

We can expect that Samuelson's notion of public goods (which can best be understood as a generalization of the notion of externalities) would play a central role in any viable formal theory of politics, and indeed that is the case. It is not too strong a statement to say that societies, and hence politics exist because public goods exist."

Margolis spends a chapter illustrating his argument that the classical rational choice models fails to handle political situations via a series of 3 examples:

* Voting
* Repeated Prisoner's Dilemmas
* Public Goods

In the case of voting, the rational choice model fails to explain why people might go the trouble of voting even when they know their vote won't affect the outcome.

In the case of the repeated Prisoner's Dilemma, the model fails to explain why people will generally cooperate even though on any given iteration they could gain by defecting against the other player in the dilemma.

In the case of public goods, the model fails to explain why people will make contributions to things that are publicly available to everyone. Margolis asks us to imagine a hypothetical man named Smith who is planning a $10 donation to his favourite charity. The classical economic model says that Smith would do this because he wants the charity to have $10 more available to it than it does currently.

But now imagine Smith finds out that someone else has just donated $10 to the charity. Under the classical model, Smith, realizing that his favourite charity is now $10 richer just as he wanted it to be, no longer feels a need to make a donation.

Of course in reality there may be some relationship between how much money a charity has raised and how much people contribute, but it is nowhere near this strong a relationship. Clearly there must be something more to Smith's motivation than simply wanting the charity to be $10 richer, but the classical model has no answer to what that might be.

Margolis argues that there are two altruistic motivations that need to be taken into consideration. We have an altruistic motivation based on wanting other people to have more, and an altruistic motivation based on wanting to contribute our fair share (what Margolis calls 'participation').

Margolis also notes that all of his examples are prisoner's dilemma type situations, which is not surprising since the Prisoner's Dilemma is the formalization of situations where what is in the self-interest of participants is opposed to the group interest.

In the next post we will look at the solution that Margolis proposes in order to create a model of rational choice that can model human behaviour accurately in the case of prisoner's dilemma / public goods type situations.

More Krugman on Debt

Paul Krugman has posted one of his more in-depth explanations of his thoughts on debt and getting out of economic depressions.

For the most part, it is reminiscent of my final thoughts on the topic, expressed back here.

The main difference is that Krugman seems to think government borrowing can somehow trigger an eventual reduction in overall debt levels, paving the way for a more balanced economy and future growth. In my view, government borrowing only prolongs the debt party a little, but it will take either money printing or default on a significant scale to bring debt levels back down and right the economy.

More discussion of this topic over at Worthwhile Canadian Initiative

67. Public Choice Theory

Note: This post is the sixty-seventh in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Here's Wikipedia on Public Choice Theory,

'In economics, public choice theory is the use of modern economic tools to study problems that are traditionally in the province of political science. From the perspective of political science, it may be seen as the subset of positive political theory which deals with subjects in which material interests are assumed to predominate.

In particular, it studies the behavior of politicians and government officials as mostly self-interested agents and their interactions in the social system either as such or under alternative constitutional rules. These can be represented a number of ways, including standard constrained utility maximization, game theory, or decision theory. Public choice analysis has roots in positive analysis ("what is") but is often used for normative purposes ("what ought to be"), to identify a problem or suggest how a system could be improved by changes in constitutional rules.'

In discussing Public Choice Theory, we need to be careful to remember the two different self-interests that we discussed a while back:

1) Self-interest in the sense that people just want to accumulate more money and more stuff for themselves and,
2) Self-interest in the sense that when people decide to do something, they choose to do whatever it is they prefer to do.

Now, the first definition of self-interest clearly is not accurate as a description of human behaviour, especially in political contexts, and the second definition is a fairly useless tautology, so the question is then how this concept of self-interest can be made useful.

James Buchanan, one of the founders and most famous advocates of social choice theory takes on the tricky question of self-interest in this summary of public choice theory, stating,

"The source of this charge lies in the transfer of the two hard-core elements, methodological individualism and rational choice, directly from economic theory to the analysis of politics. At one level of abstraction, these two elements are themselves relatively empty of empirical content. To model the behavior of persons, whether in markets or in politics, as maximizing utilities, and as behaving rationally in so doing, does not require specification of the arguments in utility functions. Economists go further than this initial step, however, when they identify and place arguments into the categories of 'goods' and 'bads.' Persons are then modeled as acting so as to maximize some index of 'goods' and to minimize some index of 'bads.'

More specifically, economic models of behavior include net wealth, an externally measurable variable, as an important 'good' that persons seek to maximize.
The moral condemnation-criticism of public choice is centered on the presumed transference of this element of economic theory over to political analysis. Those who find themselves in roles as public choosers, whether as voters, as legislators, as political agents of any sort, do not, it is suggested, behave in accordance with norms that are appropriate to behavior in markets. Persons are differently
motivated when they are choosing 'for the public' rather than for themselves in private choice capacities. And it is both descriptively inaccurate and morally questionable to assign self-interest motives to political actors. Or so the criticism runs.

At base, this criticism stems from a misunderstanding of what the whole explanatory exercise is all about — a misunderstanding that may have been fostered by the failure of economists to acknowledge the limits of their efforts. The economic model of behavior, even if restricted to market activity, should never be taken to provide
the be-all and end-all of scientific explanation. Persons act from many motives, and the economic model concentrates attention only on one of the many possible forces behind actions. To employ the model for prediction does, of course, require the initial presumption that the identified 'goods' that are maximized are relatively important in the mix. Hypotheses that imply that promised shifts in net wealth modify behavior in predictable ways have not been readily falsifiable empirically.

At issue here is the degree to which net wealth, and promised shifts in net wealth, may be used as explanatory incentives for the behavior of persons in public choice roles. Public choice, as an inclusive research program, incorporates the presumption that persons do not readily become economic eunuchs as they shift from market to political participation. The person who responds predictably to ordinary incentives in the marketplace does not fail to respond at all when his role is shifted to collective choice. The public choice theorist should, of course, acknowledge that the strength, and predictive power, of the strict economic model of behavior is somewhat mitigated as the shift is made from private market to collective choice. Persons in political roles may, indeed, act to a degree in terms of what they consider to be the general interest. Such acknowledgment does not, however, in any way imply that the basic explanatory model loses all of its predictive potential or that ordinary incentives no longer matter."

You can see the dilemma Buchanan faces. On the one hand, he acknowledges that people are less inclined to be self-interested in a public setting than they are in a private marketplace, but he can't concede too much on this front or the theory won't really be able to predict anything because it is too unsophisticated to be able to account for the non-monetary motivations people might have (whether for the public interest, or even for self-interest in non-monetary form (e.g. glory or praise).



One element that sometimes gets mentioned and sometimes seems to get lost in public choice work is the very different role played by self-interest in the political realm vs. the private realm.

Within the economic realm, assuming it is contained within the sort of bounds we discussed earlier in our recounting of the work of David Gauthier and Walter Schultz (be honest, shun force, come to voluntary agreement, invest for productive purposes, excluding interactions within a corporation etc.) the pursuit of self-interest can be seen to lead to a socially optimal outcome.

But within the political realm, the pursuit of self-interest is almost always a bad thing. Any attempt to personally make a material gain via politics is almost by definition trading and thus a violation of the 'shun trading' precept which is one of the most critical in the guardian syndrome.

One of the weaknesses of public choice theorists (visible in the quote above from Buchanan) in my opinion, is that they bring over an idea about how commonplace the pursuit of self-interest is from their work in economics without recognizing just how different the political world is.

You can see this in the quote above, where Buchanan says,

"The public choice theorist should, of course, acknowledge that the strength, and predictive power, of the strict economic model of behavior is somewhat mitigated as the shift is made from private market to collective choice."

Buchanan is sophisticated enough to pay lip service to the difference between politics and the marketplace, but he is unable to admit more than that the pursuit of self-interest might be 'somewhat mitigated' by the move to a political world. He himself realizes the moral difference between self-interest in the marketplace and self-interest in politics, and I suspect that he believes that he would not take advantage of political office to enrich himself, yet he theorizes on the basis that most people make little distinction between serving the public and serving themselves. He comments that critics of 'public choice theory' think "We should, therefore, proceed with analysis of politics under the illusion that persons do indeed become 'saints' as they shift to collective choice roles."

At it's best, work in public choice theory resembles the sort taken on by Elinor Ostrom - empirical work that attempts to model how people accomplish collective action and what works and what doesn't, neither neglecting the role played by the pursuit of monetary gain by individuals, nor treating it as the only factor at work.

At it's worst, work in public choice theory resembles wingnut internet diatribes about how all government is evil and every government employee cares for nothing about scamming the system for their own gain, and if we only lived in an anarchist society, all would be well.

Near the end of 'Systems of Survival', Jane Jacobs recounts a poem by Lao Tzu,

"When people lost sight of the way to live
Came codes of love and honesty
Learning came, charity came
Hypocrisy took charge;
When difference weakened family ties
Came benevolent fathers and dutiful sons
And when lands were disrupted and misgoverned
Came ministers commended as loyal"

Jacobs was worried that her own analysis was just a symptom of moral decay, with what was once too obvious to be worth analyzing, now becoming clearer in its absence. Sometimes I think Public Choice Theory is another step down the same road, a study of corruption in politics that treats the corruption as 'reality' with moral behaviour just a fantasy world inhabited by 'saints'.

Times Change

I have one of those desktop calendars where you peel off a page every day. This year's version is on the topic of survival, and here's the survival story it told for October 14 - try to imagine this scenario unfolding today...

"On this day in 1912, Theodore Roosevelt was shot at close range by saloonkeeper William Schrank. Schrank's .32 caliber bullet, aimed directly at Roosevelt's heart, failed to mortally wound the former president because its force was slowed by a glasses case and a manuscript for a speech Roosevelt was about to deliver. Roosevelt, who suffered only a flesh wound from the attack, went on to deliver his scheduled speech with the bullet still in his body. After a few words, Roosevelt pulled the frayed and bloodstained manuscript from his breast pocket and declared, 'You see, it takes more than one bullet to kill a Bull Moose.' He spoke for nearly an hour, and then was rushed to hospital."

Playing Chess

One of the more overused metaphors out there is for someone to describe something as a 'chess game', or to describe someone in politics or business as 'playing chess'.

You often get this in sports, where the commentator will refer to a showdown involving 2 or 3 options (will the player go left or right?, will the coach put in the checking line or the scoring line?) as a 'chess match.' I suppose it is understandable that they avoid a more accurate assessment, since referring to these showdowns as a 'simplified tic tac toe match' might seem demeaning to the million dollar athletes involved. At least I've yet to hear a commentator suggest that the eternal fastball-curveball dilemma represents a game of Go played between pitcher and batter...

In politics, Canada's right-leaning media spent so much time trying to polish up the years of ineffectiveness from the Stephen Harper government by describing Harper as playing 'chess' rather than 'checkers' that it became a comedy line for blog commentators - with each screw-up, mis-step, boneheaded decision, defeat and failure being greeted by queries as to whether this was really another humiliating setback for the government or just another clever move by Harper the 'chessmaster'.

I bring this up, since we had a recent situation where I think a little insight from the world of chess might actually be helpful. As you may have heard, the United Arab Emirates recently evicted Canada from a military base that Canada had operated on their soil for many years. The UAE had been using the threat of kicking Canada out to try and gain more airspace rights for its domestic airline.

Most of the commentary I've read on the issue has focussed on the question of whether it was better to give up our military base or better to give in to the UAE's airspace demands. In chess terms, this is like debating which of your pawns you should let your opponent take without taking anything in return. Seen from this perspective, the question of which pawn to sacrifice is not the real strategic question. The real question is why did we allow ourselves to get into a situation where we had to sacrifice any pawns? Why were our pawns not supported with other pieces on the board? Why were we not in a position to take one of our opponents pawns, or better, a knight or a bishop, if one of our pawns was taken? But looking at it from this angle makes it obvious that the Conservative government has failed Canada yet again, so I can see why some people might not want to think about it this way.

You know, maybe Harper is playing chess, but he's just not very good at it. It would be nice if Canadian voters sent him packing while we still have some pieces left on the board.

Crowded Marketplace

From a Globe and Mail editorial today, "Under the Conservatives, Canada has maintained its position of global leadership. ... It may hedge on an issue like climate change, but..."

The Conservatives never seem to get more than 40% of the vote in this country, and the marketplace already has lots of newspapers such as the Sun Chain and the National Joke that serve that portion of the population that believes Canada has shown global leadership under the Conservatives, while 'hedging' on climate change.

I guess it's no shocker that the Toronto Star continues to have the highest weekly circulation in the country. A believer in free-markets might wonder why the obvious opportunity to profit handsomely from running a newspaper that isn't so ideologically right-wing that it prints nonsense like the Globe editorial above continues to remain untaken.

66. Dimensions of Morality

Note: This post is the sixty-sixth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

In his book, Morals by Agreement' David Gauthier defined a 'moral' as an 'impartial constraint' but it wasn't always clear what it was a restraint on

Asked this question, some might say that morals are a constraint on self-interest, a requirement to, say (for example) 'do unto others as you would have done onto you.'

There's no doubt that behaviour towards other people is a part of morality, but it can't be the only part.

Recall, from many posts back, Francis Fukuyama describing Max Weber's Protestant Ethic,

"The capacity for hard work, frugality, rationality, innovativeness, and openness to risk are all entrepreneurial virtues that apply to individuals and could be exercised by Robinson Crusoe on his proverbial desert island. But there is also a set of social virtues, like honesty, reliability, cooperativeness and a sense of duty to others, that are essentially social in nature."

This distinction of the morals making up the 'protestant work ethic' coincides fairly well with the division of the commercial syndrome ethics described by Jane Jacobs into two blocks, as described in an earlier post: A block containing virtues such as honesty and non-violence which is social in nature and which ensures that transactions are win-win, and a block containing virtues such as innovativeness, efficiency and industriousness that can mostly be practiced on one's own.

The first block is indeed constraints on the pursuit of self-interest while the second block is clearly a constraint on something else - in my view the primary constraint there is the constraint imposed on our tendency to place too much weight on the present and not enough on the future.

What about the guardian syndrome?

Many of the guardian syndrome ethics relate to other people, but they diverge depending on whether those 'other people' are part of a person's group or not.

Virtues such as 'exert prowess' and 'deceit for the sake of the task' and 'take vengeance' are generally directed at those who are not considered part of the group, while virtues such as ' be loyal' 'be obedient' and 'dispense largesse' are clearly directed at those who are considered part of the group.

There are a few guardian virtues that don't directly involve other people, and these 'make rich use of leisure' 'adhere to tradition' and 'be fatalistic' These seem generally designed, as far as I can tell, to counteract a desire of one person to get ahead of others via working extra hard, or innovating or imagining a better way of doing things, so perhaps there is an indirect relationship with other people there as well.

So what's my point?

My point is that what I feel we need in our quest to get to the bottom of the systems of survival is a middle ground between, on the one hand, the sort of attitude expressed by Dierdre McCloskey in 'The Bourgeois Virtues' (as covered earlier) - an attitude that says that all the different virtues are a dimension onto themselves that can't be compared to other virtues or made commensurate with them in any way, and on the other hand, an attitude that everything can be reduced to a single axis, for example, that ethics is solely about the denial (or proper role) of self-interest.

The two primary dimensions that are represented in the ethics listed by Jane Jacobs in Systems of Survival, are self vs. others and current self. vs. later self.

Within the guardian system, the dimension of self vs. others in turn seems to be further divided depending on whether the others are part of our group or part of an enemy group.

Within the commercial system, groups don't seem to play a role, and others are just others, with neither a need to treat them as hostile (with deceit and force) but neither a need to treat them with sympathy (via loyalty, obedience and generosity).

No, I didn't really cover any new ground here, just trying to organize my thoughts a little before continuing onwards.

A License to Print Money 3

A little while back I expressed disappointment that Paul Krugman seemed to hold back from an obvious conclusion that printing money was the sensible course of action given the current economic predicament (weak overall demand, high private debt levels).

So it is good to see that he stuck his nose out a little further on this topic while I was away.

Says Krugman,

"In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt."

It's also reassuring to see that, since I wrote this post summarizing my thoughts on the economic situation in mid-2009, the views of notable economists I respect (such as Paul Krugman) seem to be coming around much more to the view I articulated at that time - in particular that we either need to inflate or default in order to reset our debt to a much lower level. Or maybe they knew this all along and are just now becoming willing to spell it out clearly - either way, it seems like progress to me.

Hornby Bike Lane / Reaction to NDP Governments

Some good news upon my return to Vancouver - I see that city council is going ahead with the separated bike lane on Hornby Street. Given the waffling of the provincial government on the HST, it's nice to see a government forging ahead with a plan despite a swell of ungrounded, yet hysterical opposition.

Speaking of hysterical and largely ungrounded opposition, the Globe and Mail has an excellent post from Gerald Caplan documenting the hysterical opposition that Bob Rae's government faced from business groups and the media when they governed Ontario in the early 1990's. It's too bad that Bob Rae and the NDP conceded so much ground to their opposition, even to the point of not implementing public auto insurance in Ontario. The concessions got them exactly nothing in the way of fairer treatment from the media or less hostility from the business community, so they might as well have stuck to their guns.

Empty Blog Music #3

Empty Blog Music #2