Spontaneous Order vs. Dionysus vs. Rousseau

Ok, that is a strange combination. But I was thinking about different theories of the group. I have been obsessed with thinking about collective action since I first read Hayek who articulated the idea in a way I had not found in other places. Now I know that collective action problems are everywhere, but it really depends on how you look at them. So I want to break these down into categories:

The ancient Greek idea of Dionysus was of a harvest god, a god of excess. So what do you do when you have a harvest and much of it will cannot be stored for the long term? Well, you feast. The feast celebrating Dionysus must have been quite a few people's favorites, but over time the creation of myth about the god suggested something very interesting. Dionysus as a fetus was ripped apart on the order of a jealous goddess Hera because, as usual, Zeus had been fooling around and fathered Dionysus from a mortal woman. One way that the dismembered god could be re-united is when his worshipers all worked themselves up into a drunken frenzy. Dionysus here stands for the transcendental union of the mob in its most animal form. The individuals have to be reduced to a totally unconstrained state, like an orgy.

The French author Rousseau also talked about where political authority comes from. By trying to imagine a sovereign who most perfectly captured the majority of political will, Rousseau posited that the general will could be achieved in society in at least a relative degree. Rousseau did not have the benefit of social choice theory, nor the intervening scholars that have studied the issue, but he becomes an early expression of approximating a social choice solution at an aggregated level. Arrow would later call this solution a dictator.

Finally there is Hayek. The theory of spontaneous order deliberately rejects the solution of collective action through one mind (be that god or sovereign). In its place Hayek finds that the price mechanism help to communicate information so that totally isolated individuals could get what information they need to move resources in the right direction to everyone in society's benefit. Typhoons cause damage to catfish farms in Vietnam, no need to read the paper, the price rises and people start conserving catfish by eating other foods at the margin.

What is explicitly rejected in Hayek's theory then is that the aim of this process is deliberate. There is no god, no sovereign whose purpose this whole process serves. Looking at the three different cases we note the similarities. All have two levels: social order and individual action. The Dionysians debase the individual in order to celebrate their god, whatever happens happens. Rousseau ignores the minority, which causes some problems that even he would have to admit. Ultimately Rousseau's system is unstable because it is too bold with majority will. Hayek rejects the teleos, the goal of society that Rousseau would want, and the thing Dionysians couldn't care less about.

Hayek, to my mind is the one that cares the most about the individual. Some say to a fault. Perhaps Hayek's biggest challenge is to deal with a world where the minority gets some power or privilege by historical accident or evolutionary failure. Rousseau's majority would take care of this problem, but it would soon start looking like a Dionysian mob because, as far as I understand, Rousseau didn't have a solution for run away majority will (French Revolution). So the biggest question is, in avoiding the mob, are we doomed to have entrenched interests?

Rules and Progress

In his post from Monday, Michael asked the question of what rules are designed to do and gives us two types of frameworks to answer his question: In Rawls’ reflexive equilibrium rules are designed to produce some end state. With Bentham’s rule utilitarianism, the rules are designed to allow people to take risks in the interest of progress (I hope I am explaining this correctly). In talking about Bentham, Michael points out that there is a fundamental tension between stability and growth. I want to draw on Elinor Ostrom’s work to expand on that point a little. I have to admit sheepishly that I read her article on collective action and the evolution of social norms, which was published in the Journal of Economic Perspectives in 2000, for the first time yesterday. The article is a great summary of evolutionary psychology and experimental economics results applied to her field studies on the design of governance institutions. Ostrom reports that to more accurately model the evolution of cooperation, we have to distinguish between different types of actors. She describes two different types: Rational egoists and conditional cooperators. Rational egoists behave like the standard homo economicus. Conditional cooperators will thrive on trust and are better off if the people they interact with reciprocate their trusting. The incorporation of these other agent types helps her to explain why in experimental settings, cooperation exceeds the game theoretic predictions. In fact, it can explain why societal norms and values emerge that support cooperation. Rules that facilitate cooperation can emerge in the real world in the absence of centralized direction. More specifically, it explains how groups of people can overcome common pool resource problems successfully.

At this point you are probably wondering how this diatribe is related to the argument about stability vs. growth. Well, I would like to assert that economic growth is correlated with changes in the norms and values that society is build on. This is not really my idea; I am taking it from Hayek in his Constitution of Liberty where he explains how societal norms change when a critical mass of individuals decides to violate the existing set of rules because they prevent them from taking an action that promotes their own self-interest. Such changes do not necessarily have to occur for the basic norms that facilitate trust and cooperation, but maybe for norms and values that determine what is appropriate behavior more broadly. You might say that such norms are a reflection of the man within the breast from Adam Smith’s Theory of Moral Sentiments. Think for example of the idea that it is somehow repugnant to sell your blood or your organs and the social norm against exchange for such goods, which is based on this intuition. Because of this societal norm, severe shortages of blood and organs persist and people die every day who could be cured easily, if we just got over ourselves already and decided that it would be ok for people to sell their kidney. This is somewhat of a crazy problem if you think about it, because we have all of the knowledge and technology that is required to save people’s lives when they need an organ transplant or a blood transfusion. The only thing that keeps us from actually saving them is the fact that there is some norm that says it would be wrong to exchange body parts for money. If you consider an increased ability to save lives progress, then these norms that prevented people from selling their body parts are in the way of progress.

Now this is very tricky because the same norms that facilitate trust and cooperation in the advanced division of labor can become obstacles to progress and the advanced division of labor. So while they provide for enough stability to allow people to form expectations about each other’s behavior and trust each other, they can at the same time provide too much stability. What I am trying to claim here is that this fundamental tension between stability and growth is determined by the rule structure that governs social interactions. If rules are too loose, cooperation is difficult. If rules are too tight, movements towards increased cooperation become difficult. This brings me back to Elinor Ostrom and the emergence of self-governance norms and rules. If rules are indeed the factor that determines the balance between growth and stability in a society, then formalization of rules will always result in a more stagnant society because it increases the cost of change. Informal rule systems on the other hand will be more fluid and adaptive and therefore better able to facilitate growth. So not only can informal rules emerge in the absence of formal government. Informal rules are also more likely to promote economic growth than formalized systems of rules. Now my question for Michael is the following: Does Bentham propose formalization of rules and if so why did he not favor informal social norms over formal laws (since formalization seems to slow down the rate of progress)?

Rationality, Irrationality, and Ignorance

I should just call this post Leeson vs. Caplan, but what I mean is the versions of Leeson and Caplan I have in MY mind...

Rational action is that which accounts for all the knowledge available, or at least that which would be relevant to the task at hand. Irrational would be to take information that is relevant to the problem and then to conclude falsely without relying on an informational error. Ignorance would be to conclude falsely because of an error in information. One thinks of adaptive expectations and limits to cognition when on things of ignorance.

So Leeson's work describes rationality which is found everywhere. Pirates are rational, the Roma are rational, Trials by ordeal are rational. Leeson is strictly right because he limits the definition of the group more than most people. This is a careful articulation of how the group functions. The pirates behave rationally given that they are on a boat together and are mostly outlaws. In a way Leeson shows that Pirates are more like Robin Hood than they are foaming at the mouth crazies. Contrast this with the way Pirates are typically considered (they destroy the peace as seen from the best interest of maritime travel). Leeson basically stakes his claims on the fact that groups are not ignorant of what it is in their best interest to be aware of, and therefore their behavior is rational (informed and maximizing subject to constraints).

How then would someone read Pirates as irrational. This is where I read Bryan Caplan into the mix. Caplan famously stakes a third category between rationality and ignorance. This category is called is irrationality. Caplan performs this trick by drawing a line between what is in the best interests of individual and what is actually chosen. If you ask the question about what is in the best interest of maritime travel, then you see the P-D game unraveling. The way that Caplan does this is to draw a contrast between what someone would chose privately, if they paid the full cost, and what someone would do publicly, when they free-ride. This standard welfare economics move shows that people will over-indulge when they pay too little cost. So then he says that irrationality is a good, like other goods. But what does irrationality literally buy you?

This is where I am reading into the debate. I start thinking about why someone would want to believe something irrational. Why might Unions believe that tariffs are a good idea (not only for them, but for the US)? Well the union has a position that they stake rationally for their own interest. Then they allow it to be argued as if it were in the interest of the nation. They must know that the interest of the whole nation is better served by lowering trade restrictions. So why might they consume this false or irrational argument despite the availability of very cheap information (so many economists are blogging now)?

I think that the real divide between rationality and irrationality is the demarcation of the group. When groups overlap and when individuals do not pay careful attention to the differences in membership between what North would call organizations (of which each individual is a member of several organizations at different sizes), then what looks like irrationality shows up. Leeson solves this by redefining the group to the point where the actions taken are rational (restricting the organization in question) -- rather than buying the fact that unions are actually arguing for the whole of the US he calls them out and says they are arguing for only the union itself. Caplan, on the other hand, seems to hold the question constant -- in my example, what is good for America. In doing this he allows for irrationality to persist by ignoring how groups define interest itself. This prevents the discussion from falling into a tautology.

I think you need both Leeson and Caplan to discuss the issue. Don't give up the question that is being asked, but consider how individuals define their own interests. Some back-and-forth between the two sides is needed to understand the problem.

More on Rules and a little on Bentham

Diana starts off the latest round of conversation talking about rules. I want to even take it back to a more basic point about rules.

What are rules designed to do?

If we proceed from a rule-utilitarian perspective than we have two routes to follow that I can think of. John Rawls has broken the path so well in terms of his reflexive equilibrium that many may only think of his approach, but I also want to consider a different approach that is less obvious. But first, we focus on Rawls.

The reflexive equilibrium is designed to produce rules that coincide with a desirable resulting state-of-the-world. Rules are adjusted like the throttle of a motor-bike to achieve the desired result. Each throttle is tuned to produce incentives necessary to reach the desired outcome. However, Rawls is not so naive as to not give us guidance as to what these throttles are aiming to achieve (his version of the teleos). The primary purpose is to achieve fairness and the possibility of allowing unfairness is only allowed in a dynamic context if the ultimate growth which results form the difference increases the least-well-off. Well certainly this changes the game for interpreting the rule-utilitarian approach. I defy you to find a better discussion of rule-utilitarianism than that which is surrounding the work of John Rawls. Even in economics, James Buchanan relies heavily on Rawls (both took Frank Knight very seriously, BTW). All of this is very rational and very optimistic about human reason. It also enshrines stability and order in rules.

Now that I have told you want is the standard approach to rule-utilitarianism, I want to go further. What I have discovered in reading late 18th and early 19th century texts is that before it was clarified by Rawls, some other thoughts were out there. The name of the game was to replace the interpretation of morality by clerics and create a secular basis for rationally articulating moral reasoning.

The work of the arch-utilitarian Jeremy Bentham is dripping with moral imagery while simultaneously dismissing rights-theory and organized religion. Bentham rejects what Hume would call superstition and enthusiasm, but he holds onto the subjective. [This last line is my own reading]. So what does a utilitarianism look like that includes this type of pursuit. It is something that is larger than the utilitarianism you have been taught was in Bentham.

For example: Bentham considers the question of committing suicide publicly when one's spouse dies. He considers the utility calculation for the individual to justify the position and to argue against it. Certainly the actor in question could be making an accurate representation of their decision, but also the person could feel as if society has put a great deal of pressure on them to do this. Barring an environment where we were clear about the person's actual intentions we would be against such a practice. We could assume society is implicitly compelling the act. However, were we to be convinced of the sincerity of their motivation to die with their spouse, we would be forced to stand aside and allow it to take place.

For a more pedestrian example, should people who borrow money be allowed to do so at high rates? They certainly are higher risk, but who if not the market should decide about the appropriate level of risk in a society (by bidding up returns)? Too many risk-lovers and the market becomes brittle. The 1997 Asian crisis is one concrete example of excessively brittle international relations. The US banking disaster in 2008 is another example of high risk. So what is a rule-utilitarian to decide? Why is it that Bentham breaks from other rule-utilitarians and critiques financial regulation (famously arguing that Smith's defense of usury laws was inconsistent with other parts of his own work)? Bentham believes that society progresses when people take risks. He also longs for more progress which he defines as a result of risk-taking. To use rule-utilitarianism as it is often used, to constrain growth in favor of stability, is to bias the result. There are types of rule-utilitarianism that favor risk, for example.

Ultimately, I want to construct an analysis of rule-utilitarians that distinguishes them according to their time-preference or preference for the status quo vs. progress. The results fly in the face of conventional left-right dynamics. For instance, social democrats and their penchant for redistribution implicitly believe in lower growth rates than do right wingers who are willing to embrace social mobility and high growth. I argue that the conservative / progressive dichotomy is reversed at least on this margin.

What say you?