Saturday, September 09, 2006

Why ignorant fools can systematically succeed

To commemorate Sept. 11, more Pollyanna-ism from Unforeseen Contingencies… Despite our best efforts, I think civilization will survive and flourish. Here's why.

Human beings are ignorant fools. We’re ignorant, in that there’s a tremendous amount that we might know about our world, but don’t – our ignorance borders on being complete. And we are fools, in that we believe things that are simply wrong, even though we have available to us sufficient logic and data to reveal the errors. Much, even most, of what we believe falls into this category.

Nevertheless, we progress, we succeed. An easy way to see this is to look at the last 200, 100, or 50 years of world history. Despite being ignorant fools, the three predominant facts characterizing these periods are 1) record population growth, 2) unprecedented growth in per capita incomes and living standards, and 3) unprecedented increases in freedom of the individual. If we are all ignorant fools, how can this be?

There’s something about human culture. Despite ourselves, we learn and progress.

As I mentioned previously, I’m currently teaching history of economic thought at Hillsdale College. I’ve been working up some lectures on the old Mercantilists, the writers who believed international trade was a zero sum game, a conflict, and that the goal ought to be accumulation of gold by means of running perpetual trade balances. There are numerous egregious economic fallacies in Mercantilism, and it isn’t a sustainable set of doctrines – as the Mercantilists themselves began to recognize, and their opponents – the Classical economists – eventually demonstrated.

While developing my lectures on all this, it struck me that every student in my class, and thousands of students in thousands of economics classrooms around the world, are capable of understanding where the Mercantilists went wrong – and they can “get it” with relatively little time and effort. The Mercantilists compounded error with error – most economic fallacies can be traced to them. My students get all this and see through the errors (they’d better!) And yet they aren’t somehow better or smarter than the Mercantilists were themselves. The Mercantilists tended to be drawn from the most successful businessmen of the day – men who had great intelligence and ability, and proved it with great successes. My students are good, but I am pretty certain that they are neither more intelligent nor harder working than the Mercantilists. The thing that accounts for the difference – why the best thinkers of the 17th and 18th centuries never understood what my students grasp in a lecture or two – is the strange ability of humans to capture and communicate knowledge in “culture.” No other animal seems able to do this, except perhaps at the most rudimentary level.

Economist Friedrich Hayek identified this “social learning” as something between instinct and purely rational, fully conscious and explicit thought. He suggested that there is a sort of natural selection of frameworks for organizing societies that results. Similarly, game theorist Ken Binmore has argued that our ethics are developed from a process of natural selection, one which he thinks favors the “Golden Rule,” cooperation, and trade.

I think this is right – and this explains in large part why we can be ignorant fools, and yet we progress. But progress isn’t automatic and inevitable, the way its seems to be in the neoclassical economist’s deterministic view of competitive markets. It’s clearly not automatic: every advance in our knowledge requires human effort, individual effort; it requires reason & hard work. The Mercantilists struggled to understand the world, and made slow progress – they understood national income accounts and the balance of payments, and began to understand the monetary roots of inflation. My students and I understand so much because of their efforts, and the efforts of the Classical and Marginalist economists who followed.

And progress might not be inevitable. Certainly today’s neomercantilists haven’t learned anything – indeed, they do not even understand as much as the old Mercantilists did, since they generally do not even understand the balance of payments concept.

But this brings me back to my same old reasons for optimism. We may be ignorant fools, and many – or most – of us fail even to absorb old truths from the past – but we do have available bodies of knowledge that are increasing and improving, and we do face strong pressures to take this knowledge seriously – we get whacks on the head from the universe when we ignore it.

The crux is whether we recognize when we are whacked, and identify what to do about it. I think our tendency is to eventually wake up and take another step in the right direction. And that’s why we keep progressing, despite ourselves.

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