17 October 2010

09 October 2010

Thought experiment in economics from biology

Since discovering Ludwig von Mises, Ayn Rand and Karl Marx's Das Kapital, I've been interested in economics. In a previous post, I claimed that the big hurdle in South Africa's economic environment is transaction cost. This is due to the dismal results of the state intervention in the economy and the conclusion of Coase's Theorem.

Yet we as humans still have to abide by the laws of the jungle since we are at our roots animals and nothing more. This made me wonder if some known biological phenomena could apply to the economic environment of human beings. Two such phenomena are the paradox of enrichment and the paradox of pesticides.

Socialism, Social democracy, Communism and its aims

The difference between these is of degree and not of ideology. All of these aim for the greatest common good. The methods that they employ are geared towards creating a classless society where decisions are taken from a centralised point in order to benefit the majority. Traditionally, this means applying some Robin Hood tactic, whereby the rich are taxed to payroll the poor in a variety of means and equality is enforced, whatever the costs. Resources are thus gathered and rationed by the government, meaning you'd have to be nuts to work hard and gather resources if the government just takes it and gives it to those who don't cooperate.

Karl Marx socialism communism das kapital naomi klein
Karl Marx. So what if his ideologies caused the suffering and death of millions? He has a great big bushy beard.

Somehow the distinction between governmental and non-governmental classes is not deemed a paradox when the government is established by a Pop Idols style popularity contest called democracy. This also makes a socialist/communist system acceptable because the greedy money grabbers who make up the majority of the population voted what is to be done with rich people's money.

The paradox of enrichment

The paradox of enrichment is a phenomenon in population ecology whereby increasing the food supply of prey has the undesired effect of also increasing the food supply of its predators. This is because giving more resources to a certain kind of prey causes its numbers to increase, which also inadvertently results in more food and resources for its predators. The predator numbers may increase beyond control and they may even cause the extinction of the prey. Thus, making things more comfortable for prey does not necessarily equate to taking care of its best interests.

The paradox of pesticides

Suggest then that you are a rich bitch and you aren't too happy with being taxed towards the breadline in order to feed the mouths of the barely literate. The solution is obviously to cull the numbers of the 'prey'. You'd need some kind of pauper pesticide because that would get rid of the spongers and moochers, right?

The paradox of pesticides occurs when a pest is given a pesticide and its numbers dwindle, but this inadvertently causes a decrease in the food supply of its predators. Thus, a pesticide may actually increase the numbers of a given pest in the long run due to dwindling natural predator numbers.

Princes and paupers by means of analogy

Suggest that the Gini coefficient gives you an indication of how the predators are distinguished from the prey in your economic population (it's not a good indicator but it's the one in common use).

If you were a pauper, your solution would be to move this coefficient more towards a straight diagonal line. Yet this puts you in danger of inadvertently increasing the number of princes who could exploit the paupers, so you'd be at the mercy of the paradox of enrichment.

Suggest that you'd rather be a prince, then your solution would be to edge the line more towards the bulging side. Yet this may drop you in the clutches of the paradox of pesticides, as there are less paupers to exploit.

What does this tell us about human economics?

Both paradoxes are a result of a third party that is above the laws of both predator and prey but that serves as a kind of referee of the entire system. Thus, humans who administer pesticides or who protect prey are inadvertently causing an imbalance in the natural, optimal equilibrium. Throughout nature - and throughout even human society for as long as we are organic beings - there is but one general law:

Charles Darwin evolution social darwinism
One general law, leading to the advancement of all organic beings, namely, multiply, vary, let the strongest live and the weakest die. - Charles Darwin

Of course this argument only applies if it were true that the rich get rich at the expense of the poor, namely if the 'rich get richer while the poor get poorer' statement isn't complete crap. If you believe that this isn't complete crap, the paradox of enrichment and the paradox of pesticides trap you at an equilibrium somewhere in a scenario where rich people are rich and poor people are poor anyway.

It is thus futile to allow a third party that is independent to interfere with processes that do not affect it directly. Like they say: in the bacon and eggs equilibrium, the chicken is involved but the pig is committed.

This reminds me of the debate on the disgraced Media Tribunal, which is meant to be an independent statutory body (stop laughing, the South African government is really under the impression that it can appoint an independent statutory body) that has to take care of the predator-prey dynamics of a system where it is only involved, and not committed.

Whether government is happy about it or not, a self-regulatory system really is the best possible system for as long as we are organic beings. The only logical conclusion is that beer should be our currency.

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