Was there ever a more appropriate title for Adam Curtis’ slickly edited follow up to the Power of Nightmares?
His thesis, that the failure of political society and democracy is due to our enthusiastic embrace of free markets and the hyper-rational seflish individual model of human behaviour, is so broad that one can’t say it’s either true or false. What I can say with some conviction is that many of his supporting arguments are contradictory and plain wrong. Perhaps the biggest irony wasn’t intended by Curtis: if the politican’s failed in their attempts to make markets work their magic, it’s because they didn’t pay heed to the real message of Buchanan, Nash, Arrow et al, and instead relied on the kind of oversimplifiation presented in the documentary.
I won’t dwell on the rough treatment of economic theory already covered here, here and here. Not Sassure also provides an interesting take here). Few economists ever believed in homo economicus except as a simplifying assumption, and few also believe that the free market can work completely unaided but this isn’t the place for an elementary economics lesson. I won’t dwell either on his view that British society has become more unequal, except to say that this depends on whether one considers only outcomes or opportunities. The distribution of wealth may have become more unequal but it does not necessarily follow that our capability to leave fulfiling lives has become so.
There are three things I’d like to focus on.
Firstly, Curtis suggests that we have mistakenly applied the markets’ view of freedom to other areas of life, but this is the wrong way round. As Hicks said:
The liberal, or non-interference principle of the classical (Smithian or Ricardian) economists were not, in the first place, economic principles; they were an application to economics of principles that were thought to apply to a much wider field. The contention that economic freedom made for economic efficiency was no more than a secondary support
That is, ideas of freedom came first and the market followed. If, as Curtis proposes, we have less freedom today, it is not because market principles apply to many areas of life, but because politicians do not have a clear concept of freedom independent of the market.
Curtis points to the introduction of targets in the public services as a complete failure. Targets are meant to work as ’shadow prices’ and thus provide incentives to staff who operate like selfish individuals. Curtis noted that policemen, for example, found ‘devious’ means to meet their targets (by reclassifying some crimes into other categories), thus proving that humans weren’t simplistically selfish after all. He also suggested that the financial frauds of the late 90s illustrated that the selfish model is a poor one.
Am I the only person for whom these anecdotes provided strong supporting evidence that humans are selfish rational maximisers? The broad economic take on human behaviour is that we maximise our utility, and this takes the form of maximising self-centred welfare. Buchanan, Niskanen and others argued that for public officials, welfare took the form of prestige, power, budgets, departmental size etc. But the introduction of target just replaced maximisation of these variables with maximisation of others. Similarly in the corporate world, the failure was probably the over-reliance on homo economicus which proved to be too true: use stock options to incentivise directors and, motivated by selfishness, they’ll do all they can to bump up the share price.
Whether this selfishness is the right form of behaviour to encourage in all contexts is another matter. Critical to this analysis is the design of institutions themselves. Curtis presented example after example of public services where market principles were harnessed but failed to deliver. But the overriding failure was the incomplete introduction of market principles; politicans put themselves between people and ‘market’ outcomes in the public services; they maintained political intereference, and did not really trust the market at all. Universities for example, are allowed to set prices, but they are capped, and they face intereference in terms of who they can accept. Is it really surprising that market principles don’t work when applied in this way?
If markets aren’t appropriate, e.g. defence, police, then the message is that half-hearted measures are likely to have unintended consequences. It may be better then to leave market theory out of it and let professionals manage the service as appropriate.
And did anyone really believe in this model of behaviour? Even Smith noted the limitations of selfishness as appropriate when considering mutual exchange, and argued that other moral sentiments may be as important for other human endeavours. Curtis tied his story to the emergence of the selfish gene theory. But as Dawkins’ book makes clear, humans possess a clear advantage over other animals: the ability to override blatant selfishness with genuine concerns for equity and justice for others. Dawkins’ own view was that unmitigated selfishness was a way of illuminating some aspects of our behaviour, but as a humanist, he would argue that concerns other than selfishness can and should be harnessed for their ability to promote growth and development. There is no contradiction here; ultimately, all our behaviour may be driven by selfish genes, but proximally, we can feel love and behave with altrusim. Even if our genes have ‘tricked’ us into these emotions, it doesn’t make them any less real or useful. The real lesson here is that behaviour is adaptive, not selfish; we will do what we have to do, given the incentives and institutions at our disposal.
The end of last night’s programme suggested that the work of behavioural economists proves that the notion of strict human rationality was wrong. Presumably Curtis will use this to argue that market intervention by Government is therefore right but even Richard Thaler would argue (and does so here) that this doesn’t follow. Assymetric patnernalism, which mantains freedom but encourages ‘right’ decisions (e.g. not smoking) from weak-willed individuals, is consistent with a competitive free market. The Government may be duty bound to intervene where it already sets a default, for example, the decision as to whether individuals opt-in or out of pension schemes. But that is no reason to give the Government carte blanche to interfere everywhere.
My own theory is that politicans of today will look at behavioural economic work in the same simplistic way that politicans of the 80s looked at competitive markets. The message they’ll take is that individuals are poor decision makers and conclude that they must help them. Don’t be surprised if we see more direct paternalism rather than incentivising individuals to obtain information and encouraging them.
[…] Turning to the economics and politics of the programme, I find much of what I want to say has already been said by William Boot, of whose Fixed Point I was hitherto unaware, but it’s well worth a read. I particularly liked his point that Curtis’ discussion of the way targets in the public services have been so spectacular a failure in many cases, and of how they’ve led to corruption in private business, suggests, if anything, that people actually do behave as ’selfish rational maximisers.’ Give people targets to achieve, and make these important enough — people were saying on the programme their annual increment, or even their job from one month to the next, depended on meeting them — and obviously they’ll find creative ways of meeting the targets, even at the expense of what the enterprise is supposed to be about. If your job depends on not having patients waiting on trolleys in hallways, and there’s no obvious way of getting them into beds on wards because you haven’t got enough, then it’s entirely sensible you’ll take the castors off the trolleys, call them beds, declare the corridors are, in fact, wards and thus solve the problem. Similarly, provide directors with sufficient incentives in the form of stock options and obviously at some point the temptation artificially to ramp up the share price will become irresistible. […]