Friday, December 3, 2010

Fable of the bad gifts

This semester brought a refreshing change in teaching assignments. Instead of the usual technique-heavy graduate fare, I had the opportunity to teach a freshman seminar on "Markets and Morality" (I'll pause a moment while Bubba, Joe Guarino, Pino, and Tony Wilkins clean up the coffee they just snorted onto their computers).


Okay, are we all back?

Anyway, one of the more challenging assignments from the class was an analysis and discussion of Bernard Mandeville's poem, the "The Grumbling Hive," from his book The Fable of the Bees or Private Vices, Publick Benefits.

In "The Grumbling Hive," Mandeville, an early 18th century essayist and provocateur, describes a colony of bees whose many vices actually contributed to the overall prosperity of the hive.
Thus every Part was full of Vice,
Yet the whole Mass a Paradise;
Flatter’d in Peace, and fear’d in Wars,
They were th’ Esteem of Foreigners,
And lavish of their Wealth and Lives,
The Balance of all other Hives.
Such were the Blessings of that State;
Their Crimes conspir’d to make them Great:
And Virtue, who from Politicks
Had learn’d a Thousand Cunning Tricks,
Was, by their happy Influence,
Made Friends with Vice: And ever since,
The worst of all the Multitude
Did something for the Common Good.
The bees, recognizing only the vices and none of the public benefits, pray for and are granted virtue. However, many jobs and incomes depended on the bees' wasteful and dishonest activities. When vice disappears, the demand for goods shrinks, and soon after, the hive collapses, leading Mandeville to conclude
Then leave Complaints: Fools only strive
To make a Great an Honest Hive
T’ enjoy the World’s Conveniencies,
Be fam’d in War, yet live in Ease,
Without great Vices, is a vain
Eutopia seated in the Brain.
Fraud, Luxury and Pride must live,
While we the Benefits receive:
Hunger’s a dreadful Plague, no doubt,
Yet who digests or thrives without?
Do we not owe the Growth of Wine
To the dry shabby crooked Vine?
Which, while its Shoots neglected stood,
Chok’d other Plants, and ran to Wood;
But blest us with its noble Fruit,
As soon as it was ty’d and cut:
So Vice is beneficial found,
When it’s by Justice lopt and bound;
Nay, where the People would be great,
As necessary to the State,
As Hunger is to make ’em eat.
Bare Virtue can’t make Nations live
In Splendor; they, that would revive
A Golden Age, must be as free,
For Acorns, as for Honesty.
Mandeville's insight was that in a decentralized society, vice could be a source of demand. When coupled with possibilities for trade, this demand (despite its corrupt underpinnings) motivated supply, which then led to prosperity. Some years later, Adam Smith formalized this lesson when he described in The Wealth of Nations how the "invisible hand" of the decentralized marketplace transformed individual greed and self-interest into social well-being.

For the class, students were asked whether Mandeville's thesis had any relevance for today. The students were pretty sharp, and most recognized how the parable related to a market economy and thus to modern society (I tried not to get too discouraged over the remaining few who wrote that Mandeville's analysis was irrelevant because we hadn't become bees).

This morning, however, Slate's Timothy Noah provides a more direct application of Mandeville in our times as he extols wasteful gift-giving.
Economists never tire of pointing out that gift-giving is economically wasteful. The ur-text is O. Henry's famous short story "The Gift of the Magi." Della cuts off her silky tresses to buy husband Jim a platinum fob for his gold watch. Jim sells his gold watch to buy wife Della tortoise-shell combs to groom her silky tresses. Merry Christmas! Even if Della hadn't cut off her hair, economic theory would demand to know why, if Della really wanted the combs, she wouldn't already have bought them. Or why, if Jim really wanted to replace his worn leather watch strap, he wouldn't already have done so.

But let's consider an alternative interpretation. Yes, Christmas gift-giving will visit upon Della and Jim heartbreak and economic waste. But upon the altar of their sacrifice they create economic stimulus. Jim and Della suffer that the rest of us may prosper. Long live inefficiency!

...In a weak economy, Americans don't have the luxury of worrying whether their spending patterns are efficient; they just want to see somebody spending money, period. Nor (despite the sudden vogue for deficit reduction) do they really want to spend much time worrying about debt. Efficiency and debt are both important considerations, but not while unemployment remains close to 10 percent.
Noah criticizes economists for their obsession with efficiency, most notably Joel Waldfogel's yule-tide chestnut about the deadweight loss of gift-giving. However, Noah also reaches back further, writing
Many, many years ago, economists used to worry that people's economic wants far exceeded their economic needs. These wants were judged the creation of evil advertising executives on Madison Avenue. Advertisers, John Kenneth Galbraith famously observed in his Mad Men-era book The Affluent Society, "bring into being wants that previously did not exist."
If Noah had reached back another 200 or so years (or sat in on the seminar), he would have found that economic thinkers once held a much more accommodating view of people's wants and of inefficiency.