31 Aug 2011

The Company of Strangers -- The Review

This book offers an amazing, intuitive and scientific introduction to the economic method while describing the biological underpinnings of the economic dimensions of our behavior.

Paul Seabright wrote it in 2004 but updated it in 2010 to comment on the economic and behavioral dimensions of the financial crisis. This revision is helpful in describing the economic foundations of current events but not necessary in terms of understanding the timeless characteristics Seabright discusses.

The book is packed with rich thought and elegant language. Here are a few parts I liked:

p. 37: The average child is not as smart as his/her parents, but the average parent is more intelligent than his/her grandparents. So Harry is not as smart -- on average -- as his mum and dad, but he's probably smarter than average if passes his genes to the next generation. This has been true for awhile and will stay true (unless idiocracy comes to pass).

p. 50: Specialization in work and the gains that come from trading among specialists produces wealth in free markets but it can waste human and natural resources when it's directed from the center (i.e., the USSR). We KNOW this, of course, but Seabright extends this example into an explanation of how our small tribe instincts to support winners and neglect losers do not handle the losses that people experience in huge, anonymous economies. The result is emotional and social trauma for losers -- and they vote.

p. 85: Cooperative behavior among chimpanzees has been passed to humans. This behavior has been used in market and non-market situations, but it -- combined with specialization -- can put people in tough place psychologically as they cope with their small role or inferior position within or across specializations -- to the point where people who "feel useless" commit suicide. (I struggle with this feeling -- not suicide -- as I try to understand my role and/or impact in the debates over water policy.)

p. 140: Markets are good for producing gains from trade, but they are not so good when some participants have market power, information is asymmetric, trust is necessary but honesty is not present, equality is threatened, and/or negative externalities exist. Results are not so good when these weaknesses are present, but that doesn't always mean that government intervention can improve matters. Governments can be more corrupt and more myopic -- creating worse impacts via "helpful" interventions.

pp 172-173 & 184: Water (!) is a scarce resource with many dimensions of use, BUT it needs to be priced (above "free") when it's scarce.

p. 242: "Modern man could easily suffer from a collectively generated paranoid schizophrenia in the absence of guidance on how to evaluate the results of each others' endlessly restless creativity."

p 262: Our independent drive to create, prosper and have more children has made us all much better off on average, but there are losers from this process, and they need to be protected, via collective action (the best purpose for politics).

p. 266: It's nice to have a military to protect yourself from hostile neighbors or even take those neighbors over, but how do you defend yourself from your military?

p. 280: Thomas Friedman is wrong (his "Dell Theory of peace" states that trading partners will not go to war), since "there's no reliable basis in history" for the claim that "trade among neighbors makes warfare less likely."

p. 314: Global collective action (on climate change, etc.) requires cooperation, but the weak will not cooperate unless they can feel that the strong will participate, contribute and BE BOUND to support the effort. This means, paradoxically, that the American "New World Order" weakened international cooperative ventures, leaving the US to shoulder a greater burden (not sure whether military examples fit, but we see this with international aid, etc.) or neglect its "responsibility" (e.g., Rwanda 1994), leaving everyone upset that the US didn't do something at the same time as Americans ask why they should do all the dirty work.

Bottom Line: Every student, professor and dilettante interested in the philosophical and biological foundations of human behavior and economics should read this book. I give it FIVE STARS.


Eric said...

Thanks for the review.
I will read the book.
On the biology, since I am a professional biologist working in the molecular basis of behavior, I am likely to be skeptical. Often biological behaviors are 'proof texted' -- quoting stories that support the authors' belief system but do not accurately reflect the complexity of the biology itself.

Jay said...

Compelling Review.

p. 280: Thomas Friedman - though entertaining - is wrong about a lot of things. His grasp of economics, incentives, and specialized knowledge in "Hot, Flat, and Crowed" is terrible. Pure fantasy.

p. 280: Dell Theory of Peace - I vaguely remember a similar sentiment from, I think, the Marshall Plan. It is something like, "If goods don't cross borders, tanks surely will." Can anyone confirm the source. (I'm not necessarily in disagreement with Seabright, it's just a case of deja vu.

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