Sunday, 5 May 2013

Tim Tyler: Frank, The Darwin Economy (review)


Hi. I'm Tim Tyler, and this is a review of this book:

The Darwin Economy - Robert Frank

This book argues that Adam Smith's idea of an invisible hand in economics is a metaphor with some significant limitations - and that a Darwinian perspective shows how individual self-interest and group benefit are often in conflict and that individual selfishness often leads to bad outcomes at higher levels.

Frank's examples of unhealthy individual self-interest in biology include products of runaway sexual selection. He lists a number of examples - such as peacock's tails and oversize antlers. He compares these with similar wasteful processes in economics - such as "conspicuous consumption" and other forms of status displays. Frank says that a Darwinian perspective predicts and explains such cases - while the idea of an "invisible hand" does not.

These ideas are good, but they are only a small part of the book. Most of the book argues for making some economic changes, in the light of a Darwinian perspective.

The main proposed changes seem to be changes to taxation. Frank promotes the idea of sin taxes. He proposes we tax total consumption directly - rather than directly taxing sales - and suggests a sliding scale where the rich get taxed more. He proposes taxing heavy vehicles, tobacco and alcohol, and emissions of carbon dioxide sulphur dioxide.

He pictures his main opponents as libertarians, who oppose most taxation. A substantial fraction of the book involves pointing out how crazy the libertarian positions are. I tired of this material rather quickly - since Frank was preaching to the converted in my case - I can't take libertarian positions seriously.

The book is generally great. However, Frank spends a lot of time on his libertarian critics - and not enough time on other more interesting criticisms.

Frank seems to generally favour more taxes - but he doesn't spend much time addressing the question of how much taxation is the right amount. Cries for more taxation should try to address this question.

Frank realizes that countries with higher taxes will be unattractive places to run businesses. His argument about why this is not a problem invokes the idea that countries with less taxes are not such nice places to live. This idea appears to be nonsense to me. I spent much of my life in England, which has a few nearby tax havens - in the form of Ireland and the channel islands: Jersey and Guernsey. Jersey and Guernsey in particular have a great climate, are full of rich people and are miniature paradises. Businesses based there have pretty good access to English consumers. Most people don't live there - simply because they can't afford the land prices. In such cases, Frank's argument about tax havens being places where people don't want to live seems to fall on its nose.

Lots of taxation tends to produce black markets which fund criminal undergrounds. Sin taxes can only be taken so far because this sort of effect starts to kick in after a while.

Similarly Frank doesn't spend much time on tax evasion. Some taxes are easier to avoid than others - and tax evasion is pretty big business. Levels of taxation on undesirable actions have to be set in the light of the ease of tax evasion. Fortunately, conspicuous consumption is often easy to tax - since it is by nature easily visible.

Frank's plans mostly seem to revolve around taxing activities that are currently not taxed very much. However there's also scope for raising funds via taxing actions that are currently illegal - such as consuming some drugs and prostitution. Such a discussion might have added some spice and could have replaced some of the book's more repetitive elements - but this topic was not covered.

Lastly, Frank is basically proposing a tax plan that benefits the poor, at the expense of the rich. It is true that many people might vote for such a tax plan, but it is also true that other people might use lobbying, campaign donations and so forth to oppose it. Politics, proverbially, is the fine art of getting money from the rich and votes from the poor while promising each that you will protect them from the other. Frank's proposed policies might get votes from the poor, but they probably won't attract much money from the rich. This makes them less likely to be implemented.

Despite spending his energy on some of the the sillier criticisms of his ideas, many of Frank's proposals seem sensible. Consumption taxes are generally favoured by most economists, and a sliding scale that taxes the rich more makes obvious sense - compared to sales taxes. Sin taxes are fairly common anyway - the main issue is where they can be best applied.

In summary, this is a pretty good book, which should be read by anyone with an interest in how biological ideas apply to economic issues.


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