Why we should all trim our antlers

Robert Frank’s ‘The Darwin Economy’ argues that there are markets in which we would be better off if we agree to throttle back

In a hundred years, if professional economists are polled to identify the founder of their discipline, the majority will name Charles Darwin, rather than Adam Smith as they would today.”

This prediction, made in a recent speech in Oxford by the American economist Professor Robert Frank, has a certain symmetry about it: after all, Darwin’s theory of evolution was inspired by the economist, Thomas Malthus.

Frank has a particular Darwinian insight in mind: the idea that contra Smith’s “invisible hand”, individuals competing can produce results that are bad for society as a whole.

Consider the vast antlers of the north American bull elk: they’re the result of sexual selection balanced by other selective pressures. Elks with big antlers win fights with other elks, and mate with multiple females. However, they also get hunted down and killed by packs of wolves. Elks as a whole would be better off if they could all agree to shrink their antlers by a factor of four or five: the males with the biggest antlers would still get the girls, while only the wolves could object to faster, more agile bull elks. Sadly for the elks and happily for the wolves, that’s not how sexual selection works.

In a new book, The Darwin Economy, Robert Frank sees elk antlers everywhere he looks in modern society. For example, when parents bid up the price of houses near good schools, they’re engaging in a wasteful arms race: children as a whole will be no better educated as a result, but vast sums are devoted to the quest for the right school district. My flashy car makes you less satisfied with your own; if I take ladies out to the opera and Michelin-starred restaurants, other men will no longer succeed by offering scampi and chips at the Romford dog track. In short, says Frank, my spending harms you as surely as I would harm others by standing up at a concert and forcing everybody behind me to stand up in turn.

Sometimes this dynamic is the result of envy; at other times it is genuine competition for scarce resources, such as beautiful partners or elite university places.

Elks cannot reach an agreement to trim their antlers, but humans can, and Professor Frank advocates a steeply progressive consumption tax to serve this purpose. In effect, the tax would be an income tax with an exemption for savings, encouraging investment but discouraging spending sprees. Frank argues that it should be progressive because the wasteful economic arms races are at their most grotesque at high consumption levels.

I think Frank’s analysis is impressive, original and thoughtful. But one need not invoke elk antlers to justify progressive taxation. And I part company with Frank on two points.

First, I am unconvinced that such arms races are quite as common as he feels. For instance, new antibiotics or cancer treatments are “luxury” goods in the technical sense that rich societies spend a greater proportion of their income on healthcare. Is this really just a race for status, for the coolest chemotherapy treatment? Frank thinks that “luxury” goods tend also to be positional, status goods – but such medical treatments seem to me to be an increasingly important counterexample.

Frank also sidesteps the idea that markets themselves can be structured to eliminate the arms race. For example, parents can scramble to buy property near an existing good school, or they can fund a new school – at least in principle. In the second case, new resources are mobilised and more children get a good education. Can education really be nothing but the anthropic equivalent of elk antlers or peacock tails?

Frank is right to remind us that there are markets in which we’d all be better off if we could collectively agree to throttle back. But he may have been too quick to assume that such markets are beyond reform.

Also published at ft.com.

22nd of October, 2011 • Undercover Economist • Comments off