"The Darwin Economy"

John Whitfield reviews Cornell economist Robert H. Frank's The Darwin Economy.. (By the way, as Half Sigma likes to point out, there are a whole bunch of people named Robert Frank who write about economics, so it's important to specify the middle initial.)

Frank bases his argument on the Darwinian notion that life is graded on a curve. How much is enough depends on what others have got. Most people, for example, would rather live in a 4,000-square-foot house that was bigger than their neighbor's than a 6,000-square-foot house that was the smallest on the street. 

Economists call these positional goods, and contrast them with things that aren't so relative, such as safety at work, where most people think it's better to be safe in absolute terms than the safest worker in a hazardous factory. 

But, of course, safety in your house (measured on an absolute scale) tends to be related to the size of houses on your street. Neighborhoods with big (or at least expensive) houses tend to have lower crime rates. Much of the reason for zoning codes demanding large, expensive housing is to keep out low rent folks and their crime-prone, low test score kids.

Positional goods lead to waste, says Frank, because people end up living in bigger houses than they need to, throwing lavish parties, and spending money on pool cleaners. This pressures other people to do the same, and so takes money from the better uses that might be predicted by [Adam] Smith's rational model. 

As a biological analogy, Frank suggests the difference between running speed and antler size. A faster gazelle is better equipped to outrun a cheetah, and so, he writes, "being faster conferred advantages for both the individual and the species." Antlers, on the other hand, are used for fighting with other males. The pressure to have bigger ones than your rivals leads to an arms race that consumes resources that could have been used more efficiently for other things, such as fighting off disease. As a result, every male ends up with a cumbersome and expensive pair of antlers, says Frank, and "life is more miserable for bull elk as a group." 

This has a lot going for it as an economic metaphor. Sometimes competition results in cheaper, better products, like loft insulation or computer memory, and sometimes it results in Louis Vuitton luggage. (Often, of course, it delivers a combination of utility and status, like the iPad.) But evolutionarily speaking, the distinction is bogus. 

Natural selection sees no difference between running speed and antler size: All evolution is positional. When one gazelle got faster, the slower ones got eaten (a point Frank relegates to a footnote). And when gazelles got fast, so did cheetahs. Cheetahs and gazelles would all be better off if they'd stayed slow, because running fast uses energy you might "better" invest in offspring, and legs that are built for speed are more prone to fracture. The lissome cheetah, meanwhile, is bullied and often killed by bigger carnivores such as lions.