The Darwin Economy: Liberty, Competition, and the Common Good – Robert Frank

via The Diane Rehm Show.

For centuries, economists have believed in the power of Adam Smith’s “invisible hand” to steer the markets. But the global financial crisis and a rising income gap has many reconsidering Smith’s theory: that competition channels self-interest for the common good. One economist proposes a new intellectual giant of economics – Charles Darwin. He argues the naturalist’s understanding of competition describes economic reality far more accurately than Adam Smith . And he warns that failing to recognize that we live in Darwin’s world is putting our economy at risk. What Charles Darwin can teach us about economics.

I’m not convinced of his idea but, I want to learn more.  I have ordered his book but have not yet read it.  I really liked the interview and you can listen to it via the link at the top of this post.  You can also read the transcript here….

My favorite part of the whole show was this….

My target really is the movement libertarian, I call them. The people who embrace a very naïve vision of Adam Smith’s invisible hand — one that says that we don’t need government at all. We can just let markets handle all the tasks that are to be done, vis-à-vis banks.
The “Market” cannot handle all of the problems.  I love capitalism but it must be kept in check.  Capitalism without oversight leads to monopoly!
I completely agree we need to regulate them tightly. They shouldn’t be so big that if one fails it threatens… …to take down the system…
I think the phrase “too big to fail” is two words too long.  If a bank or broker or insurance company is too big to fail then it is just too big and must be split!
…but I don’t think it was the subprime Fannie Mae activity that was the sole cause of the housing crisis. People campaigned for — the banking industry made very donations to the Congress. They bought banking deregulation as a consequence. Those deregulations allowed banks to lend in ways that wouldn’t have been considered prudent in earlier times. They convinced themselves they had rich customers who had a lot of money to park.
We do need to change the way politicians get funds to run for office.  The temptation to do as your donors wish instead of what is best for your district or the country is too great.
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One Response to The Darwin Economy: Liberty, Competition, and the Common Good – Robert Frank

  1. Leo B says:

    I guess I’m curious how his “Darwin economy” differs from the “free hand” because I would think, pardon the phrase, “survival of the fittest” (essentially competition) is a concept that works somewhat for both. Or is this guy saying the environment needs to be hostile to survival (unlike with the “free hand”)? I just can’t help but get the feeling that he may not understand evolution. After all, I think us humans have gotten to be “too big” and we have become a threat to the whole system. Evolution did not prevent this from happening. So, if he thinks applying ideas of Darwin or evolutionary theory will fix such a problem, he is obviously wrong.

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