Friday, February 15, 2008

For the holiday season, a brief treatise on economics

Lately, the economists have been pissing me off. The problem lies with the fact that some of them are taking economic theories and trying to turn them into theories of everything. Perhaps some of you are familiar with the "long tail" theory of economics, elucidated on by Chris Anderson (not the former NBA reserve center known as the "Birdman") in his best-selling book titled—appropriately enough—The Long Tail. Tim Wu describes the theory:

"In most entertainment industries (films, music, books, etc.) a few hits make most of the money, and demand drops off quickly thereafter. Demand, however, doesn't drop to zero. The products in the Long Tail are less popular in a mass sense, but still popular in a niche sense. What that means is that some businesses, like Amazon and Google, can make money not just on big hits, but by eating the Long Tail. They can live like a blue whale, growing fat by eating millions of tiny shrimp."

The "tail" is the long stretch at the end of the demand curve. Wu argues that Anderson takes the theory too far, that he

"threatens to turn a great theory of inventory economics into a bad theory of life and the universe. He writes that 'there are now Long Tail markets practically everywhere you look,' calling offshoring the 'Long Tail of labor,' and online universities 'the Long Tail of education.' He quotes approvingly an analysis that claims, improbably, that there's a 'Long Tail of national security' in which al-Qaida is a 'supercharged niche supplier.' At times, the Long Tail becomes the proverbial theory hammer looking for nails to pound."

There is a problem with expanding the theory to some sort of universal. If you believe in evolution—and you should—then you must also recognize that the idea of an economy is a product of human cognition. No other animal barters to improve its self-state. Economics are not innate; if they were, people the world over would have settled on a single, correct system. Human interactions bred economics, not the other way around. There is no chicken/egg dilemma here.

To give economics some due, animals are familiar with the concept of fairness. This is why one cat gets upset if you pay too much attention to the other cat. Fairness has also been the focus of several studies. A couple years ago, Sarah Brosnan and Frans de Waal of Emory University performed a study examining the concept of fairness in capuchin monkeys. They handed the monkeys a pebble and trained them to give the pebble back in exchange for a cucumber. They then took monkeys in adjacent cages and gave one of them a grape in the exchange. The other monkey balked at this, and refused the cucumber, preferring to have no reward if the reward was not fair.

While this may seem like an economic exchange—pebble for food—it is actually just a product of conditioning. The jilted monkey did not then offer something else, such as a prized toy, in exchange for a better reward. The monkey did not realize that sometimes a bartering position is a product of outside factors, as well as what is available on both sides of the exchange.

But the monkey did know when it was cheated, and took a stance against such an act. So the concept of fairness seems innate; as philosopher Joshua Greene observes about the study, "Chimps may be smart, but they don't read Kant." Or Chris Anderson or any other economists, for that matter.

The point of all this should be clear as we think about the direction of our lives during this, the most over-commercialized time of year. Goods and gifts and all things of material value are only worth what we as a society have cognitively assigned to them. Fairness to our fellow man, both in our thoughts and actions, is what is truly innate to being not just human, but to being a part of the larger world in which we exist.

So offer up some act of kindness to the world around you, and those who exist in that world. Ol' Chuck Darwin would approve.

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