In
chapter 1 – Paralysis of The Darwin Economy
Frank, Robert H. Frank sets a foundation for the rest of the book by arguing
the logic of his underlying assumptions.
His
first assumption concerns our legislative institution’s inability to make
financially and economically sound investment and taxation decisions. Idealism is polarized to the point of
paralysis. He assigns partial blame to a politically-uneducated population and
the media that fuels their opinions (in-part). Not only are some media outlets
biased to the point of distributing irrational, unsupported, and
emotionally-based claims (for profit reasons, I presume), nearly all outlets
focus more on the politicking of politics, than the fundamental purpose and
process of the government itself. I agree with Frank when he states “we must
take seriously the question of how government institutions should be designed
and monitored.” (Pg. 6) And I further agree that these discussions (on government
design, transparency, public goods, taxes, etc.) are not being held as prominently
as they should.
My problem is when Frank draws the conclusion that political gridlock would be easy to overcome. He states it is not irreconcilable differences in values that has precipitated gridlock, but from a “profound misunderstanding about how competition works. Even if gridlock has been caused by a misunderstanding of how competition works rather than values (for argument’s and time’s sake I will humor this assumption), providing the public and legislators a solution with profound evidence in its favor (assume a 100% truth for this example), I do not believe that opinions will change and gridlock will be resolved ‘easily’. For the purposes of his book, however, I understand Frank’s enthusiasm.
My problem is when Frank draws the conclusion that political gridlock would be easy to overcome. He states it is not irreconcilable differences in values that has precipitated gridlock, but from a “profound misunderstanding about how competition works. Even if gridlock has been caused by a misunderstanding of how competition works rather than values (for argument’s and time’s sake I will humor this assumption), providing the public and legislators a solution with profound evidence in its favor (assume a 100% truth for this example), I do not believe that opinions will change and gridlock will be resolved ‘easily’. For the purposes of his book, however, I understand Frank’s enthusiasm.
Second,
he claims that open competition becomes inefficient when the actions’ of agents
(individuals or organizations) is based on head-to-head competition within the
society. As agents attempt to improve their relative position, they reach and
surpass an ideal point at which society benefits greatest. Beyond this point,
society is harmed by agents’ self-interests. Many of Frank’s analogies make
sense in their own right, but he fails to provide examples that are convincing
in real-world economies. There are many more stakeholders in relation to an
organization than a bull seal, and utilizing a legislative mechanism to fix market
imperfections is much more complicated than bull seals fighting each other and
becoming too fat. One example, however, that may (big may) support Frank’s
claim is the financial industry in 2007: investment banks fight for self-interest
by creating dangerous instruments and being naïve by over leveraging on too
much risk. Third parties were harmed substantially due to this arm's-race. A
tax on financial instruments in proportion to the systemic risk they create
could be reallocated to those who incur the systemic risk. This example is
quite controversial and illustrates why his claim is overly simplified.
The
last assumption that I’m going to address here is Frank’s view of governmental
taxation. He views that governments should tax harmful activities and not
beneficial activities. The first difficulty is the definition of ‘harmful’. He provides
examples that harm competitor’s relative performance (steroids in sports). The
non-steroid competitor is faced with two options: don’t take steroids and
lose, or take steroids and incur increased risk for health issues. Therefore,
Frank claims, the steroid user is causing the abstainer harm. Attempting to
define ‘harmful’ is a process that alone could cause inefficient gridlocks.
I believe
that taxing harmful activities would reallocate capital from detrimental
activities to productive or valuable ones. A problem is attempting to get a
society and legislative body to agree on the definition of ‘harm’ and the
identification of ‘productive’ and ‘valuable’ activities. Another problem is bureaucracies’
tendency to focus on its own survival and growth which creates inflated
departments. Furthermore, government is incredibly slow to evolve and adapt to
emerging conditions.
Notwithstanding the vague generalities, analogies, and simplifications that I should probably learn to expect in the 1st chapter of a book, Frank brings to conversation important topics that must be analyzed for the sake of social efficiency.
Notwithstanding the vague generalities, analogies, and simplifications that I should probably learn to expect in the 1st chapter of a book, Frank brings to conversation important topics that must be analyzed for the sake of social efficiency.
No comments:
Post a Comment