Traditional Economics Failed. Here’s a New Blueprint.

Why true self-interest is mutual interest

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By Eric Liu and Nick Hanauer

Politics in democracy can be understood many ways, but on one level it is the expression of where people believe their self-interest lies— that is to say, “what is good for me?” Even when voters vote according to primal affinities or fears rather than economic advantage (as Thomas Frank, in What’s the Matter With Kansas?, lamented of poor whites who vote Republican), it is because they’ve come to define self-interest more in terms of those primal identities than in terms of dollars and cents.

This is not proof of the stupidity of such voters. It is proof of the malleability and multidimensionality of self-interest. While the degree to which human beings pursue that which they think is good for them has not and will probably never change, what they believe is good for them can change and from time to time has, radically.

We assert a simple proposition: that fundamental shifts in popular understanding of how the world works necessarily produce fundamental shifts in our conception of self-interest, which in turn necessarily produce fundamental shifts in how we think to order our societies.

Consider for a moment this simple example:

For the overwhelming majority of human history, people looked up into the sky and saw the sun, moon, stars, and planets revolve around the earth. This bedrock assumption based on everyday observation framed our self-conception as a species and our interpretation of everything around us.

Alas, it was completely wrong.

Advances in both observation technology and scientific understanding allowed people to first see, and much later accept, that in fact the earth was not the center of the universe, but rather, a speck in an ever-enlarging and increasingly humbling and complex cosmos. We are not the center of the universe.

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It’s worth reflecting for a moment on the fact that the evidence for this scientific truth was there the whole time. But people didn’t perceive it until concepts like gravity allowed us to imagine the possibility of orbits. New understanding turns simple observation into meaningful perception. Without it, what one observes can be radically misinterpreted. New understanding can completely change the way we see a situation and how we see our self-interest with respect to it. Concepts determine, and often distort, percepts.

Today, most of the public is unaware that we are in the midst of a moment of new understanding. In recent decades, a revolution has taken place in our scientific and mathematical understanding of the systemic nature of the world we inhabit.

–We used to understand the world as stable and predictable, and now we see that it is unstable and inherently impossible to predict.

–We used to assume that what you do in one place has little or no effect on what happens in another place, but now we understand that small differences in initial choices can cascade into huge variations in ultimate consequences.

–We used to assume that people are primarily rational, and now we see that they are primarily emotional.

Now, consider: how might these new shifts in understanding affect our sense of who we are and what is good for us?

A Second Enlightenment and the Radical Redefinition of Self-Interest

In traditional economic theory, as in politics, we Americans are taught to believe that selfishness is next to godliness. We are taught that the market is at its most efficient when individuals act rationally to maximize their own self-interest without regard to the effects on anyone else. We are taught that democracy is at its most functional when individuals and factions pursue their own self-interest aggressively. In both instances, we are taught that an invisible hand converts this relentless clash and competition of self-seekers into a greater good.

These teachings are half right: most people indeed are looking out for themselves. We have no illusions about that. But the teachings are half wrong in that they enshrine a particular, and particularly narrow, notion of what it means to look out for oneself.

Conventional wisdom conflates self-interest and selfishness. It makes sense to be self-interested in the long run. It does not make sense to be reflexively selfish in every transaction. And that, unfortunately, is what market fundamentalism and libertarian politics promote: a brand of selfishness that is profoundly against our actual interest.

Let’s back up a step.

When Thomas Jefferson wrote in the Declaration of Independence that certain truths were held to be “self-evident,” he was not recording a timeless fact; he was asserting one into being. Today we read his words through the filter of modernity. We assume that those truths had always been self-evident. But they weren’t. They most certainly were not a generation before Jefferson wrote. In the quarter century between 1750 and 1775, in a confluence of dramatic changes in science, politics, religion, and economics, a group of enlightened British colonists in America grew gradually more open to the idea that all men are created equal and are endowed by their Creator with certain unalienable rights.

It took Jefferson’s assertion, and the Revolution that followed, to make those truths self-evident.

We point this out as a simple reminder. Every so often in history, new truths about human nature and the nature of human societies crystallize. Such paradigmatic shifts build gradually but cascade suddenly.

This has certainly been the case with prevailing ideas about what constitutes self-interest. Self-interest, it turns out, is not a fixed entity that can be objectively defined and held constant. It is a malleable, culturally embodied notion.

Think about it. Before the Enlightenment, the average serf believed that his destiny was foreordained. He fatalistically understood the scope of life’s possibility to be circumscribed by his status at birth. His concept of self-interest extended only as far as that of his nobleman. His station was fixed, and reinforced by tradition and social ritual. His hopes for betterment were pinned on the afterlife. Post-Enlightenment, that all changed. The average European now believed he was master of his own destiny. Instead of worrying about his odds of a good afterlife, he worried about improving his lot here and now. He was motivated to advance beyond what had seemed fated. He was inclined to be skeptical about received notions of what was possible in life.

The multiple revolutions of the Enlightenment— scientific, philosophical, spiritual, material, political— substituted reason for doctrine, agency for fatalism, independence for obedience, scientific method for superstition, human ambition for divine predestination. Driving this change was a new physics and mathematics that made the world seem rational and linear and subject to human mastery.

The science of that age had enormous explanatory and predictive power, and it yielded an entirely new way of conceptualizing self-interest. Now the individual, relying on his own wits, was to be celebrated for looking out for himself— and was expected to do so. As physics developed into a story of zero-sum collisions, as man mastered steam and made machines, as Darwin’s theories of natural selection and evolution took hold, the binding and life-defining power of old traditions and institutions waned. A new belief seeped osmotically across disciplines and domains: Every man can make himself anew. And before long, this mutated into another ethic: Every man for himself.

Compared to the backward-looking, authority-worshipping, passive notion of self-interest that had previously prevailed, this, to be sure, was astounding progress. It was liberation. Nowhere more than in America— a land of wide-open spaces, small populations, and easily erased histories— did this atomized ideal of self-interest take hold. As Steven Watts describes in his groundbreaking history The Republic Reborn, “the cult of the self-made man” emerged in the first three decades after Independence. The civic ethos of the founding evaporated amidst the giddy free-agent opportunity to stake a claim and enrich oneself. Two centuries later, our greed-celebrating, ambition-soaked culture still echoes this original song of self-interest and individualism.

Over time, the rational self-seeking of the American has been elevated into an ideology now as strong and totalizing as the divine right of kings once was in medieval Europe. Homo economicus, the rationalist self-seeker of orthodox economics, along with his cousin Homo politicus, gradually came to define what is considered normal in the market and politics. We’ve convinced ourselves that a million individual acts of selfishness magically add up to a common good. And we’ve paid a great price for such arrogance. We have today a dominant legal and economic doctrine that treats people as disconnected automatons and treats the mess we leave behind as someone else’s problem. We also have, in the Great Recession, painful evidence of the limits of this doctrine’s usefulness.

But now a new story is unfolding.

Our century is yielding a second Enlightenment, and the narrative it offers about what makes us tick, individually and collectively, is infinitely more sophisticated than what we got the last time around. Since the mid-1960s, there have been profound advances in how we understand the systemic nature of botany, biology, physics, computer science, neuroscience, oceanography, atmospheric science, cognitive science, zoology, psychology, epidemiology, and even, yes, economics. Across these fields, a set of conceptual shifts is underway:

Simple → Complex
Atomistic → Networked
Equilibrium → Disequilibrium
Linear → Non-linear
Mechanistic → Behavioral
Efficient → Effective
Predictive → Adaptive
Independent → Interdependent
Individual ability → Group diversity
Rational calculator → Irrational approximators
Selfish → Strongly reciprocal
Win-lose → Win-win or lose-lose
Competition → Cooperation

Simple → Complex

The reductionist spirit of the first Enlightenment yielded a passion for classification— of species, of races, of types of all kinds of things— and this had the virtue of clarifying and simplifying what had once seemed fuzzy. But Enlightenment mathematics was limited in its ability to depict complicated systems like ecosystems and economies. The second Enlightenment is giving us the tools to understand complexity, as Scott Page and John Miller explain in Complex Adaptive Systems. Such systems— whether they are stock markets or immune systems, biospheres or political movements— are made of interacting agents, operating interdependently and unpredictably, learning from experience at individual and collective levels. The patterns we see are not mere aggregations of isolated acts but are the dynamic, emergent properties of all these interactions. The way these patterns behave may not be predictable, but they can be understood. We understand now how whirlpools arise from turbulence, or how bubbles emerge from economic activity.

Atomistic → Networked

The first Enlightenment was excellent for breaking phenomena into component parts, ever smaller and more discrete. It was an atomic worldview that conceptualized us as separate and independent. The second Enlightenment proves that while we are made of atoms we are not atoms— that is, we behave not in atomistic ways but as permeable, changeable parts of great networks and ecosystems. In particular, human societies are made up of vast, many-to-many networks that have far greater impact on us as individuals and on the shape and nature of our communities than we ever realized. The “six degrees” phenomenon is not a party game; it is a way of seeing more clearly what Albert-Laszlo Barabasi, author of Linked, describes as “scale-free networks”: networks with an uneven distribution of connectedness, whose unevenness shapes how people behave. Recognizing ourselves as part of networks— rather than as isolated agents or even niches in a hierarchy— enables us to see behavior as contagious, even many degrees away. We are all on the network, part of the same web, for better or worse. Thus does consumption of Middle East oil produce climate change, which creates drought in North Africa, which raises food prices there, which leads a vendor in Tunis to set himself afire, which sparks a revolution that upends the Middle East.

Equilibrium → Disequilibrium

Classical economics, with us still today, relied upon 19th-century ideas from physics about systems in equilibrium. On this account, shocks or inputs to the system eventually result in the system going back to equilibrium, like water in a bucket or a ball bearing in a bowl (or the body returning to “stasis” after “sickness”). Such systems are closed, stable, and predictable. By contrast, complex systems like ecosystems and economies (or hurricanes or Facebook) are open and never stay in equilibrium. In non-equilibrium systems, a tiny input can create a catastrophic change— the so-called butterfly effect. The natural, emergent state of such systems— open rather than closed— is not stability but rather booms and busts, bubbles and crashes. It is from this tumult, says Eric Beinhocker, author of the magisterial The Origin of Wealth, that evolutionary opportunities for innovation and wealth creation arise.

Linear  Non-linear

The first Enlightenment emphasized linear, predictable models for change, whether at the atomic or the global level. The second Enlightenment emphasizes the butterfly effect, path dependence, high sensitivity to initial conditions and high volatility thereafter: in short, it gives us chaos, complexity, and non-linearity. What once seemed predictable is now understood to be quite unpredictable.

Mechanistic → Behavioral

The first Enlightenment made the stable, order-seeking machine the generative metaphor for economic activity (assembly lines), social organization (political machines), and government’s role (that of a mechanic or clockmaker). The second Enlightenment studies not how people process things independently but rather how they behave interdependently. As David Brooks describes in The Social Animal, behavior is contagious, often unconsciously and unpredictably so, and individual choices can cascade suddenly into great waves of social change.

Efficient → Effective

The metaphors of the Enlightenment, taken to scale during the Industrial Age, led us to conceptualize markets as running with “machine-like efficiency” and frictionless alignment of supply and demand. But in fact, complex systems are tuned not for efficiency but for effectiveness— not for perfect solutions but for adaptive, resilient, good-enough solutions. This, as Rafe Sagarin depicts in the interdisciplinary survey Natural Security, is how nature works. It is how social and economic systems work too. Evolution relentlessly churns out effective, good-enough-for-now solutions in an ever-changing landscape of challenges. Effectiveness is often inefficient, usually messy, and always short-lived, such that a system that works for one era may not work for another.

Predictive → Adaptive

In the old Enlightenment and the machine age that followed, inputs were assumed to predict outputs. In the second Enlightenment, once we recognize that the laws that govern the world are laws of complex systems, we must trade the story of inputs and predictability for a story of influence and ever-shifting adaptation. In complex human societies, individuals act and adapt to changing circumstances; their adaptations in turn influence the next round of action, and so on. This picture of how neither risks nor outcomes can be fully anticipated makes flexibility and resilience more valuable at every scale of decision-making.

Independent → Interdependent

The Enlightenment allowed us to see ourselves as individuals and agents. Free from supernatural authority, people were first allowed and then expected to act independently and selfishly for themselves. This extraordinary cultural shift sparked invention, innovation, and the autonomy we expect in our daily lives. But this mode of thinking, particularly applied to the American frontier, persuaded us that we were independent rather than interdependent. A new understanding of systems and human behavior and physiology shows this to be untrue. From the quantum level up, we are far more interdependent than our politics and culture generally let us think. We are at all times both cause and effect. Our mirror neurons and evolved social rites mean that how we behave influences how others behave, and how they behave influences us. The permutating patterns formed by those interactions become the shape our societies take. And obviously, the denser and more connected the network— compare, say, America today with America 300 years ago— the greater these effects.

Rational calculator → Irrational approximators

The Enlightenment encouraged scientists to apply mathematics and physics to human nature and social dynamics, but these were of course blunt instruments for such complex work, requiring many simplifying assumptions. Over time, the caveat that these assumptions were simplifying fell away and what was left was a mechanical view that people are rational calculators of their own interest. Economists even today assume that an ordinary consumer can make complex instantaneous calculations about net present value and risk when making decisions in grocery stores between tomatoes and carrots. This homo economicus stands at the center of traditional economics, and his predilection for perfect rationality and selfishness permeates our politics and culture. By contrast, the behavioral science of our times is pulling us back to common sense and reminding us that people are often irrational or at least a-rational and emotional, and that we are at best approximators of interest who often don’t know what’s best for us and even when we do, often don’t do it. This accounts for the “animal spirits” of fear, longing, and greed that seem to drive markets in unpredictable and irrational ways.

Selfish → Strongly reciprocal

For centuries, a bedrock economic, legal, and social assumption was that people were inherently so selfish that they could not be expected to support or aid others not in their own genetic line. Now the study of human behavior reinforces the neglected fact that we are hardwired equally to be cooperative. As social psychologist Dacher Keltner writes in Born to Be Good, humans could not have survived and evolved without the social organization that only cooperation, mutuality, and reciprocity make possible. In fact, we are so tilted toward cooperation that we punish non-cooperators in our communities, even at cost to ourselves. This “strong reciprocation” strategy reflects a deep recognition, made instinctual through millennia of group activity, that all behavior is contagious, and that rewarding good with good and bad with punishment is the best way to protect our societies and therefore ourselves. Reciprocity makes compassion not a form of weakness but a model of strength; it makes pro-social morality not just moral but natural and smart.

Win-lose → Win-win or lose-lose

The story that grew out of Enlightenment rationalism and then Social Darwinism had a strong streak of “your gain is my loss.” The more that people and groups were seen as competing isles of ambition, all struggling for survival, the more life was analogized at every turn into a win-lose scenario. But the stories and science of the second Enlightenment prove what has long been a parallel intuition: that in fact, the evolution of humanity from cave dweller to Facebooker is the story of increasing adoption of nonzero, or positive-sum, attitudes; and that societies capable of setting up win-win (or lose-lose) scenarios always win. Robert Wright’s Nonzero describes this dynamic across civilizations. Unhealthy societies think zero-sum and fight over a pie of fixed size. Healthy societies think 1 + 1 = 3 and operate from a norm that the pie can grow. Open, non-equilibrium systems have synergies that generate increasing returns and make the whole greater than the sum of the parts. The proper goal of politics and economics is to maximize those increasing returns and win-win scenarios.

Competition → Cooperation

A fundamental assumption of traditional economics is that competitiveness creates prosperity. This view, descended from a misreading of Adam Smith and Charles Darwin, weds the invisible hand of the market to the natural selection of nature. It justifies atomistic self-seeking. A clearer understanding of how evolutionary forces work in complex adaptive human society shows that cooperation is the true foundation of prosperity (as does a full reading Adam Smith’s lesser-known masterpiece A Theory of Moral Sentiments). Competition properly understood—in nature or in business—is between groups of cooperators. Groups that know how to cooperate—whose members attend to social and emotional skills like empathy—defeat those that do not. That’s because only cooperation can create symbiotic, nonzero outcomes. And those nonzero outcomes, borne and propelled by ever-increasing trust and cooperation, create a feedback loop of ever-increasing economic growth and social health.

Now: what does all this have to do with self-interest?

Everything. Our previous understanding of the world animated and enables a primitive and narrow perspective on self-interest, giving us such notions as:

– I should be able to do whatever I please, so long as it doesn’t directly harm someone else.
-Your loss is my gain.
-It’s survival of the fittest—only the strong survive.
-Rugged individualism wins.
-We are a nation of self-made people.
-Every man for himself.

Until recently, these beliefs—we aptly call them “rationalizations”—could be backed, even if speciously, by references to science and laws of nature. But now, to anyone really paying attention, they can’t. Today, emerging from our knowledge of emergence, complexity, and innate human behavior, a different story about self-interest is taking shape, and it sounds more like this:

-What goes around comes around.
-The better you do, the better I do.
-It’s survival of the smartest—only the cooperative survive.
-Teamwork wins.
-There’s no such thing as a self-made person.
-All for one, one for all.

Let’s be clear here: we are not talking about a sudden embrace of saintly self-denial. We are talking about humans correcting their vision—as they did when they recognized that the sun didn’t orbit the earth; as they did when they acknowledged that germs, not humours, caused sickness. We are talking about humans seeing, with long-overdue clarity, and with all our millennia of self-preservation instincts intact, a simple truth: True self-interest is mutual interest. The best way to improve your likelihood of surviving and thriving is to make sure those around you survive and thrive. Notwithstanding American mythology about selfishness making the world go round, humans have in fact evolved—have been selected—to look out for others in their group and, in so doing, to look out for self. We exist today because this is how our ancestors behaved. We evolve today by ensuring that our definition of “our group” is wide enough to take advantage of diversity and narrow enough to be actionable.

This is a story, in short, about self-interest that is smart, or “self-interest properly understood,” as Tocqueville put it. It is a true story. It tells of neither altruism nor raw simple selfishness. Altruism is admirable, but not common enough to support a durable moral or political system. Raw Selfishness may seem like the savvy stance, but is in fact self-defeating: tragedies of the commons are so called because they kill first the commons and then the people. True self-interest is mutual interest. This is even more urgently true in the age of global climate change, terror, drugs, pop culture, marketing, and so forth than it was in the age of hunter-gatherers.

We are aware that many have used the “newest science” to justify outlandish views and schemes, or to lend a patina of certainty to things ineffable. It would be easy to characterize our reliance on new science as similarly naive. We are also aware, acutely, that the Machinebrain thinking we criticize is itself the direct product of science, and that our remedy may appear strangely to be a fresh dose of the illness. But while skepticism is warranted, there is an important difference: today’s science is most useful in how it demonstrates the limits of science, Complexity and evolutionary theory doesn’t give you mastery over the systems we inhabit; it simply informs us about their inherent unpredictability and instability. These new perspectives should not make us more certain of our approaches, but rather, more keenly aware of how our approaches can go wrong or become outmoded, and how necessary it is in civic life to be able to adjust to changes in fact and experience.

Where the rationalist schemes of central planners on the left and market fundamentalists on the right have led to costly hubris, public policy informed by the new science should now lead to constant humility.

In a sense, the latest wave of scientific understanding merely confirms what we, in our bones, know to be true: that no one is an island; and that someone who thinks he can take for himself, everyone else be damned, causes a society to become to sick to sustain anyone. Indeed, he or she who defends his own immediate gain, for either the longer term or the greater good, causes a society to prosper so much as to pay back his investment of deferred gratification. True self-interest is mutual interest.

The contract between the new and old stories of self-interest —like any paradigmatic shift in the public imagination—is not just a philosophical curiosity. It plays out in how we interpret and understand—and therefore, prepare for or prevent—calamities like global financial meltdowns or catastrophic climate change or political gridlock. And it will transform the way we think about three basic elements of a democratic society: citizenship, economy, government.

2016 March 20

gardens(c) 2011 by Eric Liu and Nick Hanauer. Excerpted from The Gardens of Democracy by permission of Sasquatch Books.

Illustration credit: Elliot Gerard. To see more artwork from Elliot, follow him on Instagram and Twitter @elliotgerard

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  • sbean

    The assumption that “economy” is a basic element of democratic society is flawed. I invite you to consider mutual interest without that limiting belief.

    • skippy

      What is “economy” but sociopolitical theory… accent on the latter…

  • X-7

    Fine, fine work Gentlemen.
    Love the listed concepts distillation with the arrows. That should be put over every babies crib? Think this work is a great rundown.

    Think our species new levels of reach in and across geo eco bio cultural & tech networks per our new numbers and technology, increases the necessity to see Mutual Self Interest as primary; and that we seem to be moving along the eusocial spectrum towards increased integration, more superorganism.
    Variation re how we think about the economy per code in a physics / evolution context, submitting this:
    Variation re governance, some thoughts on a democracy2:

  • Few would dispute mist of the cintentions of the new paradigm concepts described. But most of the old paradigm concept descriptions are straw men. Remember, Newtonian physics works just fine in most practical applications despite having been replaced by a better model.

  • Punned_It

    The success of the Pet Rock should have been enough to make us question the rationality of humans in the market.

  • Rostale

    Inequality is at an all time high, the ability of Financial institutions and corporations to make gains by abusing the rest of society has increased exponentially. . . Traditional economics has been an unqualified success.

    • Swami

      Global prosperity is at an all time high. Global inequality and global severe poverty are plummeting. Lifespans are longer than ever, and humanity is better educated, more literate, freer, violence is down by an order of magnitude or more.

      Some comments are so absolutely wrong as to be astounding. I am not suggesting traditional economics is the sole agent of this prosperity and human flourishing, but it clearly is a significant part of it.

      The question I have to those reading this comment, is how can we be in a situation where the world is clearly better than ever before yet some people are convinced of the exact opposite. Seems to imply more about a defect in human nature than anything else.

      • Perhaps the “prosperity and human flourishing” is about to end for whatever reason… See and look at the graphs in the full text (link is at the bottom of the abstract)… Certainly, the costs of health care would make one wonder…

        • Swami

          Perhaps. There are no guarantees are there? But certainly there is something strong in human nature which causes us to deny and dismiss whatever progress we do make and instead focus and exaggerate the problems — real or sometimes imagined — which do exist.

          It isn’t just that some people worry about catastrophe and decline going forward, most people choose to ignore the progress we have made in the last two centuries.

          I find it perverse.

          • If you are into reading books, I can recommend MacIntyre’s “After Virtue” as well as John Gray’s “Enlightenment’s Wake.”

          • Swami

            Thanks Matt!

  • J K Larson

    This is a great article for those of you that have read too much Deepak Chopra and are deeply impressionable. Economics explains all of this juuuust fine. Rationality is the very reason we do not pursue most our self-interests at all costs: it’s just too expensive.

    Want to have a new era of cooperation and shared interest? Trade, trade and trade some more, with everyone. The freer the better

  • Kaslo

    I have yet to read the book, great blog post though. Based on the cover of the book though, I would add that it was the Calvinists with their left-brain binary mechanical thinking that in part introduced this idea of straight lines/linear based models on nature’s complexity which re-enforces the mechanical way of thinking. A lot about our society is in fact reflected in how we farm. Treating animals as machines, has also led to the assembly line thinking we see today that is so inhumane too. Gardens are great, but think in terms of circles, networks, not straight lines and monocultures.

  • Daniel Chilton

    Would love to see you address the metrics of success – triple bottom line, profit vs prosperity, and corporate law as it relates to – corporate purpose-benefit such as B-Corporations.
    In My Opinion LEAN methodology exemplifies the perversion of corporate purpose & benefits into just-for-profit and nothing else.
    Are the corporate charters and corporate law the navigation wheel of the economy?

    • Duncan Cairncross

      Hi Daniel
      I’m a fan of JIT and Lean – but I come at it from a different direction
      I’m now retired but I was a Mechanical Engineer first in Development then I moved into Manufacturing and Quality

      The manufacturing mindset is different
      You can take a Production Manager and twist his arm and get him to say that Quality is important but deep in his brain a little voice is saying that “numbers are important”

      Your whip arm will get tired long before you can get that little voice to change
      So you have to use some of that Japanese Martial Art – Judo

      What you do is “Lean, JIT” – you steal his safety stock!
      The stockpiles of parts between each station
      This means that if something is wrong the whole line stops – when that happens he finally understands that he has to get the Quality right

      The main advantage of Lean or JIT is not the small reduction in working capital but the fact that you need to change to a “right first time” “right all of the time” mentality and continuing on a “good enough” mentality does not work

      A modern quality system and JIT will lead to either massively improved quality or bankruptcy

      Lean, JIT has IMHO nothing to do with
      “the perversion of corporate purpose & benefits into just-for-profit and nothing else.”

      In fact JIT and Lean are common in countries like Germany that do not have that perversion

      There is a type of “Lean, JIT” that is actually simply a way to transfer some of your costs to your supplier
      This is bloody silly – the costs are still there and your supplier will simply pass them onto you

      The correct usage of JIT and Lean actually cuts the total costs of the supply chain by reducing the cost of quality and eliminating waste

      • Daniel Chilton

        My point was not to discuss the merits of LEAN or JIT applied ‘properly’ to a process within a company, but the application to the company’s strategy, business philosophy, and how taken in the aggregate, across many companies that think that way, affects the direction of the economy.
        Its my belief that most business people are profoundly misaligned in their thinking about the theoretical benefits of capitalism and profits, and the wishful thinking that benefits to society naturally flow from it.
        The investment in local communities, workers’ wages, and other true benefits, are belied by modern methods to focus on profits alone.
        LEAN can be applied to an assembly line or a corporate philosophy.
        My argument is that corporate charters, and the reason for a company’s existence, a company’s loyalties and purpose and corporate law that addresses profit vs other benefits ( See B-Corps) is precisely where leverage can be applied to turn the economy around.
        I advocate against the trend of multi-nationalism, and toward local loyalty and local purpose.
        Just to be specific, we have laws that make it nearly impossible for a corporate exec to do anything but “maximize shareholder value.” This is a specific example of – not just profit – in balance more valued than other things, but profit and there IS nothing else.
        One attempt at addressing this is in “B-corps” that change the corp charter.
        This is voluntary in the US, but it points a practical proven way to define a corporate purpose as something other than just-for-profit aka corporate greed.

        • Duncan Cairncross

          But you gored my ox by claiming that an incredibly useful technique was somehow to blame for various things that are going wrong,

          Blaming Lean and JIT for “the maximise shareholder value nonsense” is like blaming Hitler on beer because he started in a Beer Cellar

          • Daniel Chilton

            Even an incredibly useful hammer can be misapplied.

  • I think the main point–True self-interest is mutual interest (or, more accurately, a person’s individual interests are best served in the long run by considering the interests of others)–is right on. I have some quibbles with this excerpt. The description of libertarian self-interest as a type of self-interest that is actually self-defeating is inaccurate. Obviously the authors have never read two-time Libertarian presidential candidate Harry Browne’s book How I Found Freedom in an Unfree World, which talks precisely about the type of win-win interdependent interactions promoted in the book excerpt. Also, to suggest a shift across a list of binary choices (e.g., simple to complex) gives the misleading impression that these are irreconcilable, either/or choices in which the latter in each pair is more “true” in some sense. Also, there’s a touch of woo-woo and unsubstantiated ideas here and there, such as the butterfly effect. Nonetheless, it is good food for thought.

    • Swami

      Agreed completely. A lot of straw manning, or using the worst interpretation of other’s argument in the main piece. The authors do make good points, but they could do so in a more professional way.

    • ppatt

      Yet we see individuals proactive repudiation of their own self-interests which reinforces the idea that self-interest is something altogether different from selfishness. So the definition of self-interest falls short. Self-interest might involve seeing a common good beyond oneself or it might be a tribal thing based on fear and ignorance. There are far more layers to be peeled back then examined than are being illuminated here.

      These very thoughtful concepts need fertile ground to take root and grow. They will not prosper in an environment of fear and distrust which can be imposed by circumstances. Understanding those circumstances breeding fear and distrust is key. A system that works well for a few rather than all makes those negatives a certainty.

      • Right-on! There are indeed many more layers of meanings that could be examined for better clarity on the issue. And when decisions are habitually fear-based, the result is rarely optimal well-being.

  • Very interesting. Thanks!

  • James Goodman

    While our understanding of our economic environment has certainly increased, I am of the opinion that risk preference is the basic issue in achieving policy design that is biased in favor of the public interest. By that I refer to R. A. Heinlein’s definition of civic virtue: a willingness to take personal responsibility for the public interest, which supposedly rules out a risk-averse bias in taking personal risks for the public interest. When viewed in this context we can simply say that bad policy design (ie biased against the public interest) is a people problem. While Heinlein perhaps went to far in saying that voting should be limited to those who have provided evidence of civic virtue (eg former/current members of the armed forces, police, fire brigade etc), eligibility for political office and senior bureaucratic positions should certainly be limited to such persons. I think the principle here is to rule out people who may be risk-averse about taking personal risks for the public interest.

    • I just came across this Heinlein quote yesterday: ‘I now define “moral behavior” as “behavior that tends toward survival.” I
      won’t argue with philosophers or theologians who choose to use the word
      “moral” to mean something else, but I do not think anyone can
      define “behavior that tends toward extinction” as being “moral” without
      stretching the word “moral” all out of shape.’

  • JGaltbna

    Hmmm. Love your neighbor as you love yourself. Not exactly a new concept. But, I do enjoy the train of thought.

  • Robert Lapsley

    Regards the shifts in morays and ethics:
    Selfish → Strongly reciprocal
    Win-lose → Win-win or lose-lose
    Competition → Cooperation
    I am reminded, and we do well to consider,
    those same forces at play (the dynamics of complex adaptive systems with the emergent properties)
    Are working across scale, and for this reminder, more than on individuals, are working on societies at large. And …(This is my concern) strongly reciprocal, win win, cooperation in societies is not always for the good: you can find cartels of anti-social people who don’t care at all for the common good and prefer to cooperate for keeping a status quo that suits them even if the collective outcome is a mediocre result; see Jingoism. Thoughts?

    • teddy

      This article is a jumble of false dichotomies and ignorant nonsense. There is a vast realm of cooperation in the modern economy and that cooperation is codified in law, regulation, personal knowledge, and daily behaviour. If there were no cooperation, all the UPS trucks would be straddling the center line driving down the middle of the road crashing into one another, and we’d never get our web-based shopping goodies.

      • ppatt

        That there is some hardly seems like a rebuttal to me. That does not constitute proof.

        • Michael Philip

          proof is a mathematical concept. it’s a good rebuttal. a pile of piffle

  • Arthur

    Yes, nice piece… largely in line with existing books and papers about Spiral Dynamics… one crucial element missing though: the integral solutions lie in getting our current society back into BALANCE between YIN (way too little) and YANG (way too much): LESS competition and MORE cooperation, EFFECTIVE but still efficient etc.
    Arthur ten Wolde
    The Netherlands

  • teddy

    This is a series of straw men based on a profound misrepresentation of current economic theory. While there may be worlds of room for improvement in economics as in countless other fields, The challenging problems have to do with what sort of institutions and legal frameworks will promote cooperative solutions. These problems have been known to mainstream economists and political scientists for at least 50 years, with substantial progress in many respects. Two eager authors with no apparent knowledge of the field are rather unlikely to contribute any significant new solutions.

    • ppatt

      The article is less about economics as it is an examination of cultural assumptions and faux erudite memes regarding virtue and the greater good. You cited not one specific or example of what you speak. Saying it is so does not make it so unless you at least contrast a few specifics (I.e. Quotes from article with something that has been known). Or references demonstrating which of their conceptual shifts were known. That would supply others with evidence or your reasoning. No one will assume you know. One has to give the authors credit for putting their ideas out there. Anyone disagreeing should go to the small amount of work to do the same.

    • Exactly. Here is where the straw man is first fashioned: “And that, unfortunately, is what market fundamentalism and libertarian politics promote: a brand of selfishness that is profoundly against our actual interest.”

      • franciscolopezus

        Yes, it seems the author and the many writers in this forum who are not Economists, confuse Economics with free marketeering and libertarianism.

  • ppatt

    There is no linear progression towards realization of these conceptual shifts. We learn them then forget them over and over. All these things were known even at the time of the ancient Greeks.

    “What in our present situation, would strike one as most remarkable, if one had not observed much the same thing happening before in history, is the rapidity with which generally accepted ideals of the early twentieth century such as toleration, kindliness, objective truth, freedom, have been replaced in many people’s minds by their exact opposites. More remarkable still is the enthusiasm with which people have accepted the substitution.”

    There’s a good book that touches on some of the shifts in a general way:!12893&authkey=!AGEw072NZ3729sQ&ithint=file%2cpdf

    A much more useful notion than the “self-made man” is the “irresponsible individualist” that ties superfluously combined, supposed conceptual shifts into an exemplary definition far easier to comprehend. To be sure, the major takeaway is that we’ve been here over and over…and here we are again. It does little good to think of it as anything else but yet another iteration of the same old thing.

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  • Manneken

    “We used to assume that people are primarily rational, and now we see that they are primarily emotional”

    “emotional” is not the right axis. It’s “social”. Rationality does not actually exist in of itself, and neither does emotionality.

    Both are different expressions of the deeper reality of the social nature of humans.

    No argument is purely rational. No emotion is without reason.

  • Chu Nau

    my wife was needing a form several days ago and saw a business with a ton of fillable forms . If people are requiring it as well , here’s a

  • Sean Larabee

    It never ceases to amaze me how many people will read something as thought provoking as this op/ed and then immediately set to picking it apart. Let it simmer. Thought provoking ideas are meant to do just that; provoke thought. If, like Teddy, you are provoked to instant challenge, the thoughts, once provoked, are diminished, if not lost entirely.

  • franciscolopezus

    I wonder if the people who write these brilliant articles read beyond an introductory or may be intermediate book in Economics. Once one pass beyond these very simple stuff and go to the level where one can work professionally the way we pay for our bread and butter is chaotic, uncertain, probabilistic, non linear, multidimensional and very complex. Of course, you have to water things down for the politician, the student and the general public. Yes, the Earth is almost round.

  • SLDI

    “True self-interest is mutual interest… And it will transform the way we think about three basic elements of a democratic society: citizenship, economy, government.”

    The Fractal Frontier – Sustainable Development Trilogy

  • Much of traditional economic theory, and most of this post, ignores – or perhaps simply does not notice one of the fundamental elements of the economy, much less it’s depth and breadth:


    Economies are communities. They are communities of communities of communities, each of which are individuals, which make individual decisions in the economy. They arise from communities of individuals who purchase – from families to governments to corporations, each looking after their own interests, as best they can, and from communities of producers ranging from small one person companies to governments and corporations, each looking after their own interests. Some communities focus on self interest. Some few focus on the interests of others. A few focus on the poor, the disadvantaged, although I suspect there is more lip service than actual service – service to others does exist. Many simply focus on their bosses and attempt to do well for their bosses, which might be an individual or a community, and believe that this focus is more beneficial than attempting to be independent. Looking out for number 1 is simply not effective in a healthy economy. Both individuals and communities are aware of this. There are many economies and they interact.

    Much of this post arises as a result of this blindness, as a result of assuming that the economy is about individuals, about the decisions of individuals. Most of the economy is about communities, and the decisions of communities. Even individuals who make decisions, make those decisions in communities. This blindness leads to several first level errors in the above post. Errors of direction. Most of the arrowheads above are simply wrong. Economies, and economics are not ‘moving in one direction’. Economic elements that simplify, move in a single direction, can only do so until they lose to things that are more flexible. Some examples (from above):

    Simple → Complex – simple is important. Complexity is important. Communities, life finds not balance between simplicity and complexity. It finds advantage. When simplicity is advantageous, it is pursued. When complexity is advantageous, it is pursued.

    Atomistic → Networked – individual vs community. Both exist in economies. Both are important. There is no need to believe one is better than the other, or that there is a direction of economy from one to the other. Life and economics moves smoothly back and forth between one and the other, taking advantage of each when able. A total reliance on community, harms the individuals, making them prisoners. A total reliance on individual harms the communities, which outlive individuals. Even the family, the simplest community, outlives any individual.

    Equilibrium → Disequilibrium – life, and the economy does not aim for equilibrium. Each individual and each community does not aim for equilibrium, nor for disequilibrium. It lives, seeking advantage in both, moving forward in life.

    Mechanistic → Behavioral – individual vs community. Individuals are mechanistic. Communities are behavioral. Neither is sufficient for health, nor for healthy economies. Life and communities do not balance mechanistic and behavioral, the arrow, like all arrows in this post, move back and forth finding advantage from opportunity and inefficiency.

    Efficient → Effective – there is simply no arrow. Sometimes, efficiency is more effective. Sometimes, effectiveness is more efficient. In theory, theory and practice are the same, in practice, they are not. Life, and community is alive, living, practicing, always seeking the right path, not the right theory, not the right direction.

    Predictive → Adaptive. As above. There is no evidence of any movement in the direction of the arrow. Life and communities aim to predict the future, and to adapt when their predictions are wrong. That’s how life works. That’s how the economy works. Relying totally on predictive fails when predictions fail. Relying more on adaptive quickly leads to relying on ‘adaptive predictions’, or being too slow.

    Independent → Interdependent – individual vs community… as above. Both are necessary for effectiveness. Theories are useless against life. In life, in living communities, the arrow is constantly moving both ways, not for balance, for advantage. If either wins, it will lose in the long term.

    Individual ability → Group diversity individual vs community. As above.

    Selfish → Strongly reciprocal – individual vs community.

    Competition → Cooperation – individual vs community. Competition, effective competition requires cooperation. Cooperation, effective cooperation, requires competition. Competition and cooperation exist inside our cells, in every cell, inside our bodily tissues, in every tissue, inside our minds, in every mind, in every community.

    Every individual in the economy is short lived. Decisions to purchase, or not, are made day by day. Every individual is part of many communities – families, local communities, communities of citizens, in city, communities of a state, of a country, and of the planet. Most individuals are employees in communities – companies, corporations, religions, governments, many of which are also members of higher level communities, which are members of higher level communities.

    Every individual is a community of cells, of tissues, of organs, of brains, minds, and spirits, which live and grow and change throughout our lives. . Every community is an individual, pursuing individual goals. Economies are about communities interacting with and participating in communities, looking out for number one, even when they are designed to look out for others. Economies exist in and because of this reality. If individuals gain control, we call it a dictatorship, if a community gains control, the community becomes an individual – we might call it communism, but it’s just a different dictatorship, destined to fail in the long run, to be surpassed by more successful communities. .

    to your health, to the health of your communities, tracy
    Founder: Healthicine

  • Many really good principles in this, and a couple of minor(ish) errors.

    “We evolve today by ensuring that our definition of “our group” is wide enough to take advantage of diversity and narrow enough to be actionable.” – First major point of disagreement.

    The wider “Our group” is – the better for everyone.

    We have the tools to be actionable at all levels.

    There is no need to narrow anything!

    The key to making cooperation in large groups is have effective mechanisms of detecting and deterring cheating strategies.

    Cheats can traditionally hide in large groups.

    They can make changes that make them difficult to detect.

    With high definition recording, high bandwidth communications, and large volume storage, it is becoming easier and easier to detect cheating strategies at any level, using decentralised and distributed trust networks.

    We do now have technologies that allow us to stabilise cooperation at the level of all sapient individuals (human and non-human, biological and non-biological). One minor problem – doing so breaks our current economic system, because it puts the lives and liberties of every individual above markets and money.

    Automation now gives us the tools to make all market values, all exchange values, redundant and worthless – which is why we see so many laws designed at so many different levels to slow or prevent the free transmission of information (IP laws).

  • Macrocompassion

    Much as I applaud anyone who would like to see a change in the way economics and in particular macroeconomics is put across, I fail to see that here on evonomics this attitude has led to anything concrete about our pseudo-scientific subject. This does not mean that there is no hope for a change to true science, it simply means that those who wish to discuss it have yet to understand what kind of arguments are in order to bring about such a change. The stages necessary are as follows: Axioms, assumptions, definitions, model construction, analysis, simulation and summary of results. The pivotal aspect of these is the construction of a viable model which satisfies the requirements of being both as simple as possible without being oversimplified (as Einstein specified for scientific theories), and has a comprehensive span to include the whole of the Big picture. So far no theory has been able to meet these exacting and cool logical requirements, but with one exception, mine! So i would like serious readers of evonomics to take a pause in their complaining about how poorly this subject is being treated (a correct line but unfruitful) and take a look at what I have placed on record in my new book “Consequential Macroeconomics–Rationalizing About How Our Social system Works”. For those whose mathematics are not up to simple square matrices or the notation of of the calculus, you can still get the drift of it pretty well without going properly into these details, because the big emphasis is not on this but on LOGIC and the science that results. The book may be obtained for free through me at [email protected] by asking for an e-copy. Good luck to all of us!