Are People Econs or Altruistic?

In high-school every assignment puts up two opposites and ask you to categorize the real world into either of the two boxes.  The correct answer is always the secret option 3: a bit in-between the two (preferably leaning towards the orientation of your teacher).  Always.  To immediately ruin the mood of this entire post and also to defuse the slightly click-baity headline, let’s immediately defuse the title with the conclusion that humans are neither, they are somewhere in-between the two.

In this post, I’ll pit socialism against liberalism.  The words are not necessarily appropriate nor are the exact details.  Maybe capitalism is a better word than liberalism, maybe marxism is better chosen than socialism.  The point is not the details but the greater picture; like evolution by means of natural selection, this description does not fail because you can nit-pick some minor “missing” link.  The goal is to illustrate that the ideas underlying socialism as well as liberalism are flawed.  Humans do not fit into the more than hundred years old simplifications that form the basis of either ideology, and perhaps we need to look beyond our favorite ideology.


114281-112165Socialism can be summarized in the Marx quote “from each according to his ability, to each according to his need.” Like anything else socialist, he stole that quote from somebody else, namely Louis Blanc. The unnecessary comment in the previous sentence is a subtle hint about which of the two sides I’m leaning towards so you can tailor your answer in the test that follows. High-school is really easy.

The core of the saying is that humans are altruistic: they contribute what they can and only consume what they need. Some may produce more than they need and some may need more than they can produce. By pooling all produce together, it is possible for those that cannot produce as much as they need to survive to use some of the produce from those making more than they need. As those producing more than they need by definition doesn’t need it, it causes them no harm.

Socialism is an old ideology and has some flaws. For example, if everybody settles for what they need, do we as society move ahead? Wouldn’t we still be living in caves spending all day hunting if we didn’t spend effort to get more?  Isn’t this desire for more what allowed us to develop cooking and farming, leaving us time to move up the Maslow Pyramid and not just focus on wifi and food, but also focus on security and develop self-actualization like art?  There are indubiously variants og socialism that take care of this, or arguments why it is not needed. That is not the point here. We are going to entirely ignore any potential inherent flaws in the ideology, and only assume that if the base assumption of humans being altruistic holds, we can get the socialist paradise the ideology promises us.

History clearly tells us that at least so far this has not been the case. USSR, China, Venezuela, and Cuba are all examples of societies testing out socialism. Many a proponent of socialism will tell you that they are not examples of real socialism, because somebody broke the rules and started exploiting the system to amass more resources than they needed.

While it might be better for the society as a whole to produce and consume according to needs, each individual stands to gain by breaking the rules: by producing less than they can or consuming more than they need, they can get more free time or a bigger flat-screen TV.  If just one person breaks the rules the society as a whole may still prevail, but one rule-breaker might incite jealousy in others, thereby breaking the Nash Equilibrium socialism relies on.


tumblr_lnvvztbHJK1qbz60jLiberalism builds on the idea of an efficient market and assumes that all participants act rationally. Everything can be reduced to independent agents acting to maximize their personal gains. A trade maximizes value for both participants: the seller gets something of higher value to them as does the buyer. Any action is basically a trade of something less valuable for something more valuable in the eyes of both participants. Generosity can be viewed as a trade as well; it can be land for a steady future supply of crops or simpler just money for the feel-good of helping.  For hilarious attempt at this, check out the chapters where Dagny Taggart finally meets with John Galt (spoiler, by the way, if you didn’t read that dragged-out piece of “literature.”)

The core of the idea is that humans behave as econs: they always behave rationally and optimally according to available knowledge. They try to always get the best price for their produce. Price is always tied to supply and demand, so when supply goes down, price goes up and reduces demand until an equilibrium is reached. Similarly, if supply goes up, price goes down and demand up to balance it out.  trades are always done with full disclosure, so everybody makes fair decisions based on full knowledge.

Liberalism is an old ideology and has some flaws. For example, markets have a tendency of leading to monopolies. Liberalism counters this by claiming that new competitors will pop up once a player dominates and exploits the market, but does not take into account that several markets impose a huge inertia. It is not possible to build a country-wide network of cars/roads/railroads/phone lines/distribution/… without a huge investment, and monopolies can leverage owning such a network to push out aspiring competitors. They can temporarily lower price to force any weaker competitor out of the market and subsequently increase prices when competition is gone. There are many approaches to try and avoid this or arguments why it is not needed. That is not the point here. We are going to entirely ignore any potential inherent flaws in the ideology, and only assume that if the base assumption of humans behaving as rational econs, we can get the liberal paradise the ideology promises us.

History clearly tells us that at least so far this has not been the case. Many western countries have some degree of liberalism, yet we see monopolies and cartels pop up all the time, we see the banking sector (co-)causing one of the largest economical crises in history. Many a proponent of liberalism will tell you that they are not examples of real liberalism, because of government interference.

While it might mean better productivity for society as a whole if everybody aims to optimize for themself, such a society also needs to be willing to let people starve if they cannot or will not produce for themselves.

Behavioral Economy

I read a delightful book by Richard Thaler, the founder of behavioral economy. The book is called Misbehaving. It’s a wondrous introduction to the field, and one I think has many things in common with the classic Surely You’re Joking Mr Feyman.  The book explains and exemplifies why and how people do not behave as econs.  It is basically a good version of the book Freakonomics.

One example considers the price of a human life.  How much money is people willing to spend to save a human life?  It turns out, people are willing to spend much saving a concrete life than a statistical life.  People are willing to give personal contributions to gather large amounts for potentially life-lengthening operations for named persons, such as sob-stories from the news or more recently crowdfunding campaigns like GoFundMe, which is basically just begging for hipsters.  People on the other hand are much less willing to accept a small tax increase to further traffic safety and saving many more lives, even if the increase is fractions of fractions of what they just donated using the previous link.  Heck, most people are unwilling to even slow down to do their own part to further traffic safety, which has no economical cost but only one of convenience.  A human life has a price, but the price is not set in stone; you know if from yourself: how much are you willing to sacrifice to save somebody you love? a friend? a colleague or acquaintance? a stranger? somebody you despise? to reduce AIDS in Africa? to wipe out the common flu?

Behavioral economy teaches us that people are not altruistic.  Lives are not worth same same.  People are willing to support a named individual more than a statistical life, a colleague more than a foreigner, and a friend or family even more.  People might not work for personal gain only, but given only enough food to keep one person alive, they would probably give it to their own child instead of a stranger.

0bddb88The book also shows using a now-famous experiment that formulation matters; in a city with a population of 100 people that all have some fatal disease which will kill everybody if untreated, people are much more willing to administer a medicine if it is sold as “saving 75 people” than if it is sold as “killing 25 people.”  This is similar to a favorite ethics experiment in psychology where a run-away train is about to kill a number of people and where by action or inaction it is possible to divert the train to kill fewer or more people.  The rational solution is always to save the maximum number of lives, yet people do not react that way.  Even if the experiment stressed that all of the people were strangers, people were reluctant to saving 4 lives by condemning one to death.

Behavioral economy teaches us is that people are not rational: people do not necessarily favor saving 4 lives that would otherwise be lost if it means they have to end one life that would otherwise be saved.  People are not equally likely to administer the same medicine if it “saves 75 out of 100” as if it “kills 25 out of 100” even though it is the same as 100 of 100 are guaranteed to die otherwise.

remember-your-humanity-and-forget-the-restAs an example, consider a society with some income leveling.  That is, it could be any moden western society with a progressive taxing system.  Somebody comes up with the idea to spend more money on blorps.  Blorps can be anything, but you’re probably better off thinking of Britney CDs.  This can be realized by increasing the tax by 0.1%point.  Is this fair or not?  One might argue that it is not fair that low-income people have to contribute as they already have a very low amount left after regular taxes; an increase of 0.1%point will hit them the hardest because it will go directly into their food budget.  One might equally say that it is unfair that the rich contribute that much; 0.1%point means a much larger absolute amount from their salaries, and if blorps has a value of 1 for each person, it seems like a steal to pay 0.1% of 100 (= 0.1) while 0.1% of 1000000 (= 1000) seems a much less fair price.  Even rationally, there are good arguments for both the “rich” and “poor” to pay more.

It gets even worse when we start adding behavioral economy to the equation.  Often tax systems have complicated systems of payments and refunds built in.  What if our nation-wide purchase of blorps was instead financed by reduction of a deductible.  Behavioral finance experiments show that people have far less attachment to money they “won.”  People are much more likely to take a bet that might win them 2000 and cost them 1000 with a 50/50 chance if they just won 1000 than if they have to pay themselves.  Casino goers take much higher risks if they just won – they are playing with house money rather than their own, even though they are just as much their own money.  I know I started placing bets for $100 per spin after breaking the bank on a wheel-of-fortune in Vegas.  People who net receive money from the tax system will be “paying” or “not receiving” an amount of money, which will be far less painful than net contributors will still have the full impact of the pain of paying the money.  Doubly so, as they were very likely the ones paying for the deductible of the low-income person.  The problem that was already ambitious rationally, becomes doubly so because the emotional cost picture is completely skewered.


grocery_run_4A lot of people probably identify more with one of the two ideologies than the other.  They may not be completely on one side, but they find the examples against one ideology more fair than the arguments against the other.

I once read a novel, the name eludes me and my Google-fu is not strong enough to find it.  It was written around the 1900s  and was about a man, who fell sick and for some reason slept for 100 years.  When he woke up, he woke up in a socialist paradise.  Everybody got a job assigned according to what fit them the best.  Some even were without jobs as they did not feel like working, but they were a minority as everybody wanted to contribute.  Nobody got paid, and everybody could order from shopping centres free of charge.  Medicine was free.  Music was “broadcast” via tubes from centres where big orchestras were performing for free and everybody could enjoy the music from their homes.  The story does show its age.  At every page I was expecting the book to jump out like a Jack-in-the-box and go “psych! just kidding!” or reveal some dystopian underlying problem, yet it was playing all of this face-value and presented it as a dream society.

I felt awful, because to me it was a terrible society.  First, I did simply not buy the premise that people would contribute even if they didn’t have to.  Like the old story of an economics professor and socialized grades, I do just not believe that people in the real world behave that way.  We see scary USSR pictures of empty and heavily rationalized shops. We hear the story of the The Twentieth Century Motor Company. I have never seen it work in practise and until I do, I doubt it can exist. Second, I would feel confined in such a society. Why should I do my job if I don’t get something out of it? If my reward is the same as somebody who doesn’t work, what is my incentive to spend my time? Sure, I might be motivated by the desire to produce, and to a large degree I am. But, I would much rather spend my time making little applications that do funny things than making administrative systems. I would much rather play around with an idea or interesting new technology that may or may not lead to something useful than filling in time sheets or analyzing the impact of an upgrade. I do the necessary parts of the job to be able to do the fun parts. If I do more necessary parts now, I am and expect to be rewarded with more time for the fun parts later. A society where there is no personal gain for working harder or taking more responsibility would not allow me to do more fun stuff. Money is basically a way of keeping track of the necessary vs the fun, and a society without, where it was not even acknowledged to me would be nuances of gray; you would never be able to shift around necessity and fun, so you would not be able to have pure fun any time.

9578-work-physics-of-freefallI am also not entirely for the liberal point of view. There are genuinely things that are not necessarily handled best by the market and rational participants.  While I don’t believe that everybody is willing to sacrifice themselves on behalf of others all the time, I do believe that there are times and places for selfless acts without any regard for trade.  I found it completely artificial how Galt insisted that everything was a trade when introducing Taggart to his dream society.  Why not just give the woman food and clothes; she just crashed a frigging plane.  Spoiler again.  Why have a railroad tycoon work as a house help to allow her to work her way up?

3881491177_c617f3f1d8There also has to be a limit to people’s freedom. Somebody’s freedom to go around murdering people fundamentally conflicts with other people’s freedom not to be murdered. Normally, liberalists reduce the freedom to “freedom to do anything not harming others,” but as soon as we diverge from absolutes, people disagree on specifics. What does harming mean exactly? Are children included in this? For example, what freedom should people have to do or not do vaccinations of their children? Vaccination includes putting things inside children’s bodies, things that hurt them. Are the children free to say no? Parents? Can parents allow it on behalf of the children? How many of those arguments don’t also hold for child prostitution? Is it a problem that herd immunity requires that everybody who can get a vaccinations gets it to protect those who would die from a vaccination?  I think everybody agrees that people should have a lot of freedom, and some will try and take it to the extreme even though that is contradictory just to avoid having to talk about where the boundary goes.

Some projects are done in more efficient manners by being done collaboratively, especially big network projects like roads, mail service, telephony, internet. Sometimes, the whole really is more than the sum of the parts.  That is why we have the very capitalist concept of a corporation.

Today, we see network projects being done inefficiently by companies duplicating tons of effort in the name of free market and competition; for example, why does Microsoft need a shitty search engine? Why does Microsoft need a smart personal assistant? Why does Apple have a shitty mail and online file sharing service? Why does Google keep on insisting building shitty social networks even their own employees do not like? Why does both Amazon, Google, Microsoft and close to everybody build global cloud infrastructures? Why can’t I get one ecosystem that has the best of all worlds? Google is really good at search and data mining, but their user interfaces seems like something a 5 years old autist who didn’t get beaten up enough clobbered together in 5 minutes. Apple has tried and largely failed at cloud services for 15 years now even though they are the best at removing all the configurability only nerds like. Microsoft made probably the best BASIC interpreter in the early 1980s but spread out to do other things as well. From the side-line it’s really dumb to see the big tech companies each duplicating each of the others efforts in all markets in a bid to be the network provider in the future.  Sure, it’s great that the giants compete so we are not stuck with one standard left stagnant like the 10 years of no browser development thanks to Internet Explorer 6.  On the other hand, all the competing “world-wide” networks like Microsoft Network, Minitel, America Online, and CompuServe are mostly forgotten after the networks joined forces with the state-funded internet.

Often times people are not very good at making the best decisions for themselves long-term. For a large part it is either due to that pesky Maslow pyramid forcing people to rush out to buy things like wifi, food and housing when it would be better spent on education and art appreciation. Other times it’s just the fact that 20 Marlboro and 6 cold ones are just that more appealing right now than a health insurance which provides just about 0 instant gratification in any unit. That is not to say that everything should be done at state-level, though. It is good that people can chose a cheaper or more expensive version of services; why should a struggling single mother with 2 children have a health-insurance that gives her instant access to a hotel-suite like room at every hospital when it is probably acceptable to sit in line for non-emergencies and take the bus home afterwards? Why should it not be possible for a company to pay extra to ensure that their business-crucial CEO or network administrator can get in and out without waiting in line for an ulcer?

oppoThe point is, people are in different places. Some are more motivated by altruism and some more by incentives. People on average are not definitely in one of the categories, so arguing for ideologies assuming this makes little sense. It is perfectly fine to aspire to a socialist or liberal society, but don’t assume that people behave in ways they demonstratively do not.

Also, it would be super-useful if people stopped assuming the worst about others. Socialists like to think that liberalists are evil because they work from the assumption that if everybody aims to optimize their own profit, the entire society profits. Liberalists are evil and wants to leave behind the less fortunate, while the liberalist argues that everybody gets richer. Some get more richer, but even the poorest are better off, in absolute numbers, though they might be worse off relatively. Liberalists on the other hand like to think that socialists are dumb and greedy because they don’t want to work for their own upkeep.

Both tend to judge the other based on their own view of people. A socialist when judged from a liberal point of view can maximize their own income by sharing everybody’s income, while a liberalist judged by a socialist breaks the social contract of sharing by attempting to optimize their own profits. Each side can and are quick to point out the flaws in the other party’s assumptions about humanity, but fail to see the flaws in their own assumptions, typically because of confirmation bias where they see themselves in their favorite view of humanity.

Come on, people, even high-schoolers can get this one right: people are not altruistic, nor are they econs. They are in-between. If you as a liberalist assume that everybody acts rational, you come of as condescending and cold. If you as a socialist assume that everybody acts altruistic, you come of as oppressing of free enterprise/will and naive.  People are people, part rational and part altruistic.  Don’t judge the arguments of somebody you disagree with based on the (wrong) foundation of your preferred ideology.  Just because you tend towards rational or altruistic doesn’t mean everybody does.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.