Tuesday, May 09, 2006

Economic Darwinism

A few months ago, Bryan Caplan and I discussed a chapter of Landsburg's Armchair Economist entitled "Why Prices Are Good: Smith Versus Darwin." Landsburg claims there little connection between free markets and evolution. "The outcomes of biological processes are often inefficient, for the simple reason that there is no reason why they should not be." (p75)

Unlike Landsberg (and Caplan), I see no inherent difference between the two. There's inefficiency in ecology, but it also exists in free-markets. And there's reason for both of them not to be as such: the strongest (most efficient) survive.

Prof. Caplan disagrees and recently he illustrates with this post. In The Tawny, Scrawny Lion a lion runs around all day chasing down animals. He eats a lot, but since he spends all day hunting, he stays thin and weak. This is pure deadweight loss, says Prof. Caplan, no doubt recalling the above quote from Landsburg.

I completely agree; it's deadweight loss. And just like a firm that's swapped in inefficiency, this lion is unlikely to reproduce, let alone survive for much longer.

Landsberg complains that the ecosystem has no prices, thus its inefficiency remains. But there are prices in ecology and just like all good prices, they convey relevant information. This lion is being told that there are too many lions in this ecosystem and if he doesn't find greener pastures, he's going to become a textbook example of creative destruction.


Jacob said...

But nature cares nothing for efficiency. It doesn't matter how much energy or how many resources a creature wastes, if it is able to reproduce at the end of the day. And reproductive fitness is not necessarily tied to efficiency, just functionality.

Take the human appendix, for instance. We spend metabolic energy growing an organ that has no purpose except to possibly one day make us sick and necessitate removal. Some cave fish grow eyes that then get covered over by skin. Also the cicada, which spends 95% of its life below ground. Efficient? Hardly. Functional? Certainly.

Imagine, however, a firm that did absolutely nothing 95% of the time. Would they profit? Certainly not.

jeremy h. said...

Believe it or not, I used the phrase "economic Darwinism" on the macro test (bonus question).

Anonymous said...


I have to disagre with you on a few points. First nature cares a great deal about efficiency. Even today we are turning to nature for mechanical and electronic designs. Nature uses mathematical ratios and principles like how nautilus shells use Fibonacci rectangles. Bees use hexagons in their hives. Migrating birds fly in a V formation because it's easier. Efficiency lets an organism do more with less.

Second, it's not strictly reproducing that matters. It's assuring their genes progress to future generations. Animals which care for their young and invest more energy in their survival tend to have fewer young than those who do not. Fish lay thousands of legs at a time and only a few survive. Humans usually have one baby at a time and most survive. It's not the next generation, it's the one after that which counts but you can't skip ahead. If you don't provide for children, they can't reproduce themselves.

Nature does a sort of cost/benefit analysis to find the best way about doing something. Maple trees make thousands of simple seeds because it's better to do that on the hopes a few will survive instead of one or two complex seeds with a higher chance. Mostly because plants have a hard time defending their young.

Evolution does not translate directly to economics. Evolution "happens" when a new DNA strand is formed. At that point the organism is stuck with its DNA and can't change. But a company changes daily. For example consider what happened when computers entered the office. In strict biological evolution, only new companies would use computers and the old ones would die out. But instead old and new companies adopted computers.

Oh, as a species we are loosing our appendix. Genetically its easier to modify existing parts than to add or eliminate them. All mammals have the same basic plan, head 2 forelegs, tail, 2 hind legs. (Yes, even whales but their hind leg bones are now internal.) If there was no efficiency in nature, why not have a whole different plan for each animal?

Cicada larva live underground, to make it harder for birds and other predators to eat them. More survive to reproduce. They don't spend that time doing nothing eather, they can dig to the roots of plants to eat in relative saftey. Efficient and clever.


ryan said...

At least ostensibly, isn't the difference supposed to be one of speed? A Darwinian model has that lion keep hunting and doing badly until it dies or exhaustion, but a model of real rationality says that as soon as a firm figures out that it's not making a lot of money, it closes up shop. If minimizing pain is a goal, then that's a bit of a difference, right?

Jenny said...

How exactly does nature "care" about efficiency? If species are supposed to differentiate ("evolve") so that ecological resources are used efficiently, we'd expect to see different species in the same environment tending towards "specialized" diets. Instead the process of "natural selection" seems to be inefficient, since different animals compete and continue to compete with each other in the same environment for food.