52. Leviathan

The problem with reading Leviathan, by Thomas Hobbes is that, unlike say the works of say, Weber or Nietzsche, its impossible to find an English translation. Nevertheless, I persevered so that I could write this post.

In Leviathan, Hobbes attempts to build a model of how society should be governed from first principles, in the same way that the newly developing (at the time) field of geometry was able to generate interesting conclusions starting from a seemingly self-evident set of axioms and building from there using logical reasoning.

Hobbes starts with the individual human as his basis and then builds from there based on the characteristics shared by all individuals.

Typically, when reading a book adorned by a cute black and white bird from the southern hemisphere, I make a point of skipping any preamble/introduction and going straight to the text. However, it's worth making an exception in this case for the excellent introduction by C.B. Macpherson who has done a fair bit of interesting work in his own right on ethics and economics. Macpherson makes the point that Hobbes defines power such that power consists of power over other people, each person's power offsets the powers of other people, and there are people who desire more power than others would like them to have¹. It is this dynamic which forces a competition for power and which makes that pursuit of power harmful, in a manner that the pursuit of other things (e.g. food and shelter) is not.

We can see that, in modern terms, what Hobbes was getting at is that power is a positional good, and that, given the internalities and externalities imposed by the search for this positional good, the net result of a competitive pursuit of power is negative. He characterized this eloquently in his description of the state of nature (where there is no 'Leviathan' to prevent people from using force on one another) as a state in which life is 'nasty, brutish and short.'

Given the trouble caused by the pursuit of power in a state of nature, this pursuit must be curtailed by placing all the power in a single source that is so strong, nobody will dare to challenge it (the Leviathan of the title). Hobbes sees civil war as the greatest evil, even more so than tyranny or dictatorship.

It seems to me that Hobbes' argument is really an argument for a single world government. After all, as Hobbes acknowledges, the conflicts between states have the same negative sum character that conflict within a state has. However, with his overriding concern for avoiding civil war and less concern for was between states, Hobbes seems to implicitly accept that government must govern a particular territory. It is one thing, for Hobbes, to have two different governments occupying different territory, but a far worse thing to have two (potential) governments competing within a particular territory. As far as I could tell, he never really delves into why there is such a distinction.

Hobbes imagined that a person (who Hobbes refers to as 'the foole') might see their best course of action to be in agreeing to set up Leviathan if that's what everyone wants, but then still using force when it suits them and they feel the risks of being caught or punished by the state are outweighed by the potential gain. This is similar to David Gauthier's concerns that it made sense for people to make promises, but not necessarily to keep them.

Hobbes counter-argument is as follows,

"He therefore that breaketh his Covenant, and consequently declareth that he thinks he may with reason do so, cannot be received into any Society, that unite themselves for Peace and defence, but by the errour of them that receive him; nor when he is received, be retayned in it, without seeing the danger of their errour; which errours a man cannot reasonably reckon upon as the means of his security; and therefore if he be left, or cast out of Society, he perisheth; and if he live in Society, it is by the errours of other men, which he could not foresee, nor reckon upon; and consequently against the reason of his preservation; and so, as all men that contribute not to his destruction, forbear him onely out of ignorance of what is good for themselves."

Basically, Hobbes is invoking the 'shadow of the future' suggesting that anyone who violates the rules will be expelled from society and therefore suffer more than they might gain from their covenant-breaking. This of course, relies on some assumptions about the government's power to catch and punish covenant-breakers, as well as assumptions about the rationality of potential covenant-breakers.

Another potential puzzle for Hobbes view is how the same people can on the one hand have the foresight to institute a sovereign power to have a monopoly on violence, but on the other hand, have the lack of foresight to get stuck into a violent state of nature if that sovereign power is lacking.

There are at least a couple of answers to this problem:

1) Instituting leviathan doesn't require everyone to go along, it just needs a large enough group, whereas in the state of nature, even a few people who prefer power to peace will cause a chain reaction of violence and vengeance.

2) Hyperbolic discounting means that people can see, from the vantage point when they are setting up leviathan, that peace is preferable to the state of nature, even though when they are in the heat of a conflict they may prefer attack or vengeance for an attack to peace.

For the most part, Hobbes' viewpoint reflects the movement in his time away from older hierarchical notions of status towards a commercial syndrome minded, 'all humans are created equal' view, with Hobbes justifying this on the basis that every human has the capability to kill another, and thus inflict 'infinite' harm upon them, so based on the fact that infinity is the same in all cases, all people are equal on this basis. Macpherson makes the same point in his introduction although he says that Hobbes employs a 'bourgeois mentality' rather than a commercial mindset, but he means the same thing. The commercial mindset is well reflected in Hobbes' rules for how men should behave with respect to one another (a long list of rules that Hobbes says basically amounts to 'do unto others as you would have them do onto you,' - a good commercial syndrome sentiment).

But even with a commercial mindset, Hobbes still saw the need for a single, all-powerful sovereign power that would take on the role of society's guardian. Once instituted, the sovereign could never be replaced (respect for tradition), it could not be usurped (respect for hierarchy), it must be obeyed, it was just for the sovereign to take vengeance (but unjust for anyone else to take vengeance), the sovereign was expected to exert prowess and it was just for it to employ deceit, force or whatever means were necessary to maintain order. Under Hobbes, the (guardian) rules that apply to the sovereign are completely different than the (commercial) rules that apply to everyone else.

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¹ It's interesting that Hobbes has a section of the book tiled 'On Man' which is generally written as if all people are the same, but in his discussion of the pursuit of power he allows that there may be variation in that it is only some people who desire so much power that there is inevitably conflict.

44. Social Limits to Growth

The book Social Limits to Growth by Fred Hirsch, has two primary themes:

1) As the economy grows over time, more and more of our consumption becomes status oriented / suffers from positional externalities, with the result being that greater economic activity doesn't necessarily make us better off, to the extent that most of that activity is just trying to keep up with (or get ahead of) the Jones.

2) Over time our society is becoming 'commercialized' in that more and more things are treated as a matter of commerce. And this commercialization, resting on an ethical system that promotes self-interest over public service, gradually erodes the ethical basis upon which society and the market based economy itself rest.

I think I've covered the first point fairly well (although Hirsch covers it in the most depth that I have seen in any reading to date), but I think it's worth spending a bit more time on this second point. Says Hirsch,

"The market system, left to itself, tends to fill this vacuum [in social organization] in the same way it fills others [through appeal to individual self-interest]; but here it may sabotage its own foundations. An extreme but pertinent example illustrates the wider point. If judges were regularly to sell their services and decisions to the highest bidder, not only the system of justice but also of property would be completely unstable ... If everything can be privately appropriated, including the judge, then nothing can be - for who will save the system from the first entrepreneur to be able to raise enough credit to buy the judge and everything else through him. As [economist Kenneth] Arrow put it: "Thus the definition of property rights based on the price system depends precisely on the lack of universality of private property and of the price system." Some minimum area of social obligation therefore has to be held. The problem is how to reconcile this social responsibility with the opposing mainstream of the market ethos."

Hirsch argues that those who theorize that politics runs along commercial lines of self-interest are mistaken,

"Economic theories of bureaucracy and of political action, which have been extensively developed in Virginia and in Chicago during recent years, are built exclusively in the individualistic norm. Political and bureaucratic activity are seen, in the same way as market activity, as means to private ends. As such, they tend to be inherently inefficient. The inference drawn by exponents of this approach is that the sphere of political action should be minimized.

An alternative inference flowing from the same analysis is that where individual preferences can be satisfied in sum only or most efficiently through collective action, privately directed behaviour may lose its inherent advantages over collectively oriented behaviour even as a means to satisfying individual preferences themselves, however self-interested."

Finally, Hirsch links his two main points by arguing that it the increased competition for status that results from positional goods taking up more and more of the economy (competition to get into the best schools, to get the best jobs, to own the best land, etc.) drives people away from concern for the public interest and towards self-interest by increasing the personal costs to giving a little ground in the battle for status by putting the social interest ahead of the personal interest.

There's a lot more in 'Limits to Growth' than I've covered here, I'd certainly recommend it to anyone interested in the topics I've covered in this series. It's a bit depressing that it came out in 1976 and yet so little progress had been made since then in even recognizing, let alone reacting to the social limits that he describes.

37. Envy

Envy is considered one of the seven deadly sins, the ten commandments came out strongly against it and if Wikipedia is to be believed, it doesn't go over well in Islam or Buddhism either.

So what's so bad about envy?

Joseph Heath has an excellent essay on the topic of envy which can be read here.

Heath explains how envy can interfere with pareto-efficiency:

"The Pareto principle states that if a proposed change in the condition of society makes at least one person happier, and does not make anyone else unhappy, then that change should be regarded as an improvement. This principle forms the conceptual core of modern welfare economics, and exercises enormous influence in contemporary discussions of justice and equality. It does, however, have an Achilles’ heel. When an individual experiences envy, it means that the happiness of others itself becomes a source of unhappiness. As a result, envy has the potential to block any and all Pareto improvements. Making one person better off will automatically make someone else worse off, so there will be no point talking about efficiency gains."

Envy translates your gain automatically into my loss much in the same manner that a positional externality does. However, whereas nothing much can be done about a pure positional externality, envy can be reduced by the virtue of a people who will not allow themselves to feel worse simply because someone else has made a gain.

Heath notes that because of the problems that envy causes for economic theories of pareto-efficiency, theorists generally treat envy as an 'illegitimate' preference and exclude it from their model,

"Thus John Rawls assumes that rational agents behind the veil of ignorance 'do not take an interest in one another's interests.' Similarly, David Gauthier excludes any 'tuistic' preferences from consideration in his bargaining theory."

The problem is that, no man is an island and people may have good reason to be concerned about their relative position, which would imply that they need to be concerned about the position of everybody else. If a Canucks fan is upset that the Flames win a game against some other team, it may be that he hates the Flames and hates to see them do well, but it may also be that a Flames victory has a negative affect on the Canucks chances to make the playoffs, or win the division, or get home ice advantage. The question is where to draw the line between an illegitimate feeling of envy and a legitimate cause for concern. Heath provides an example:

"Imagine in a situation in which my neighbour acquires an air conditioner. This is a purely private transaction between himself and the merchant. Unfortunately, as a consequence of this purchase, I may find myself, on sweltering days, glaring enviously across the yard, resenting the comfort enjoyed by my neighbour and his family. Does this undermine the win-win character of the transaction between the neighbour and the merchant? There is a very strong moral intuition which suggests that, in this sort of case, the loss of welfare that I experience from my neighbour's new acquisition should not count as a consideration that speaks against the transaction.

On the other hand, the air-conditioner might also make a lot of noise, which keeps me awake at night. Then we might not want to regard the purchase as purely a private matter between the neighbour and the merchant. I become an unwilling participant, and my loss of welfare, it seems, should count for something. Economists would say that in this case the transaction creates a 'negative externality.' Thus when we talk about markets, the 'laundering' of preferences normally occurs in the decision that we make about which external effects of a transaction to treat as 'externalites' – and thus as part of the 'social cost' of an action."

The problem as Heath notes, is that "Despite the intuitive attractiveness of these distinctions, it is difficult to formulate a precise articulation of the underlying logic."

Heath spends the bulk of his paper working through the subtleties of trying to make that formulation and how to form policies that might recognize the value of people's legitimate concerns about their relative standing, while at the same time not providing legitimacy to simple envy. It's well worth reading, but too complex to summarize in detail here.

Heath concludes,

"The reasons for wanting to launder out envy from our social welfare judgements are for the most part sound. It is very important that we be able to identify win-win transformations in social outcomes, without being held back by people who get upset at the mere fact that somebody else is winning. The problem is that our preferences cannot be separated cleanly from one another, simply because our judgments – the very concepts that we use to articulate our needs and desires – have a deeply relative character.

...

If all of our desires were of this type, and everything were relative, then there would be no problem. The human race would have been locked into a state of hedonic homeostasis since its inception. The problem is that the relativity of our desires admits of degrees. As a result, it is possible to achieve Pareto improvements by shifting resources out of areas that have the structure of a zero-sum game, and into areas where improvements in absolute welfare level are still possible."

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The more general point I want to make is that the commercial, trade based system functions best when people and their preferences are independent of one another. This post was an example where people's welfare was negatively correlated (your gain is my loss or your loss is my gain (i.e. schadenfreude)). There can be other issues when people's welfare is positively correlated which I might get into in a later post.

To some extent, this is just re-covering earlier ground on the problems caused in markets by negative and positive externalities, but I though it was worthwhile showing how these externalities can have a basis in human emotion as well as in the physical world and that, where human emotion triggers negative externalities, it has been suppressed using moral means as far back as the Book of Exodus when God told his people, "You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife, or male or female slave, or ox, or donkey, or anything that belongs to your neighbor."

36. Positional Externalities

Today's topic is a particular type of negative externality known as positional externalities. They're called 'positional' because they relate to areas where what matters is one's position relative to how others are doing, as opposed to some absolute measure. i.e. Trying to win the gold medal rather than trying to set a world record.

Wikipedia describes positional externalities as follows:

Positional externalities refer to a special type of externality that depends on the relative rankings of actors in a situation. Because every actor is attempting to "one up" other actors, the consequences are unintended and economically inefficient.

One example is the phenomenon of "over-education" (referring to post-secondary education) in the North American labour market. In the 1960s, many young middle-class North Americans prepared for their careers by completing a bachelor's degree. However, by the 1990s, many people from the same social milieu were completing master's degrees, hoping to "one up" the other competitors in the job market by signalling their higher quality as potential employees. By the 2000s, some jobs which had previously only demanded bachelor's degrees, such as policy analysis posts, were requiring master's degrees. Some economists argue that this increase in educational requirements was above that which was efficient, and that it was a misuse of the societal and personal resources that go into the completion of these master's degrees.

Another example is the buying of jewelry as a gift for another person, e.g. a spouse. For Husband A to show that he values Wife A more than Husband B values Wife B, Husband A must buy more expensive jewelry than Husband B. As in the first example, the cycle continues to get worse, because every actor positions him or herself in relation to the other actors. This is sometimes called keeping up with the Joneses.

One solution to such externalities is regulations imposed by an outside authority. For the first example, the government might pass a law against firms requiring master's degrees unless the job actually required these advanced skills.

Competition for positional goods is a zero sum game, in that any gain made by one person is exactly offset by losses to another. If I move up from having the third nicest house on the block to having the second nicest, someone else has moved down from second to third. Therefore, whether competition in these areas is beneficial to society or not depends on whether any positive side effects from the act of competition outweigh the resources devoted to an area in which no gains can be made.

In 'The Efficient Society' Joseph Heath recounted a story of native leaders who competed with each other on the basis of who could afford to destroy more of their own possessions. This is an extreme case of competition for status with negative side effects.

Generally, there will be a greater gain to society if people focus on achieving absolute improvements rather than relative ones. For example, innovation that allows every house on the street to have indoor plumbing is more valuable than everybody on the street competing to see who can have the biggest house. To the extent that people concern themselves with status rather than looking for improvements to their lives that don't involve comparison/competition with others, greater gains will be made, because this approach will reduce the presence of negative positional externalities.