Vanity activism (14 December 2006)

The Economist takes on the notion of socially responsible food shopping, attempting to debunk notions that buying organic or fair trade or locally grown foods in any way helps accomplish anything other than making yourself feel better. I'm actually extremely sympathetic to this position -- shopping activism seems a bogus proxy for actually political power (as the editorial writer also points out) and it seems mainly a product of vicariously projecting oneself into some helpless other (a peasant farmer, a migrant worker, an animal bred for slaughter, an indigenous tribesman, etc.) in alien, complex situations created and driven by many different factors and then acting as though one's emotional response yields all the relevant facts. One is led through moral vanity to believe that one's own personal emotions are superior to and more significant than historical reality and the social systems that reproduce it and the conscious decision making of all those people whose lives we have no wherewithal to be making assumptions about. And our consequent actions are ultimately only about making ourselves feel good, and more powerful and influential perhaps than any individual can be, absent the tools of political power. Our own deeply felt good intentions don't make out individual piecemeal actions free of perverse, unintended consequences (Albert O. Hirschman's warning about reactionary rhetoric notwithstanding).

Neverthess I'll try to temper my gullibility for this species of right-wing argument in the following summary. (Brad Plumer has a nice corrective here as well.) The editorial argues that organic food, because it is produced less efficiently, consumes more land and has the perverse consequence of destroying more of the natural environment via deforestation. (I liked this bald statement: "Farming is inherently bad for the environment: since humans took it up around 11,000 years ago, the result has been deforestation on a massive scale."

I don't think, however, The Economist is advocating a return to hunting and gathering.) Fair-trade arrangements distort the price system and encourage farmers to produce goods for which there is insufficient demand, rather than diversify into viable crops. (Whether that option exists for many of these third-world farmers is not addressed -- but if they must be wrung out in the market's creative destruction processes as agribusiness consolidates, so be it.) And locally-grown food can't help change the finding that most of the miles food travels (in England, anyway) from farm to plate occur in our cars as we drive it home from the grocery store. The editorial also points out the futility of working against comparative advantages available in food being raised the locale where it can be achieved with greater efficiency -- we waste resources if we insist on ignoring those possible gains.

So in lieu of these solutions, the editorial proposes carbon taxes to address energy waste (Harvard economist and Pigovian tax crusader Greg Mankiw surely agrees) and the eradication of agricultural subsidies of all kinds (i.e. ensure real free trade in agriculture, which would be fairer -- though perhaps not for some individual farmers who would be driven out of business and have nothing else to do -- than matching subsidies with more subsidies in protectionist tariff wars).

Mark Thoma at Economist's View links to an essay from the journal Democracy that asks a related question: "Can progressives really change Wal-Mart–or any other company, for that matter?" Authors Aaron Chatterji and Siona Listokin argue that working to make corporations behave in a socially responsible way independent of binding, state-backed law is a futile endeavor. Corporations, due to their fiduciary responsibilities to shareholders, will always do what is most profitable. If that course also happens to also socially responsible, then so much the better. But they won't surrender big profits for lesser ones simply because they want to be considerate, even if they wanted to -- the hierarchical organization and the spontaneous order in the economic system that distributes decision making militates against it. That's where government can step in and let us all off the hook by reigning in the profit motive in certain instances when, unfettered, it demonstrably harms the public good. Thus we must engage with the political process to push government to achieve these goals, and dismantle governments that put forward corporate interests at the expense of the public good.

The price of noble gestures (9 November 2006)

One of the depressing thing about economics is its attempt to provide a system (a flawed one, albeit, but still recognizably predictive) to assign a price tag to virtue, to assign numeric value to things we prefer to think are magnanimous gestures that transcend all forms of petty calculation. Economics primarily concerns itself not with ethics (beyond matters like the economic efficiency of trust) but with what you have to give up for what you want to get. What this reminds us of -- what we generally don't want to countenance -- is that a "socially responsible" world isn't a product of mere well-wishing and ethically sound intentions. It comes from tangible sacrifices, from making difficult choices among many theoretically desirable outcomes, from using power to guarantee outcomes that benefit certain groups over others. (At Cato Unbound, economist Bryan Caplan looks how this impacts voting here -- his conclusions are that we vote to flatter our own ignorance rather than to pursue a rational course.)

No good deed happens in isolation; it has a cost that others may be unwilling to pay. Chris Dillow's post about the subpar returns for "socially responsible" stocks -- you know, no polluters, firearms, booze, tobacco, etc. His explanation for this is dour but apt:

So people who prate about "socially responsible" investing have lost out to proper investors; it's almost enough to make you believe the world is just.
There are two reasons why we should expect this:
1. "Unethical" firms like tobacco and arms companies face regulatory and litigation risk. If investors regard these dangers as non-diversifiable, they'll require a risk premium for holding them. So "unethical" stocks will deliver higher returns, if these risks don't materialize.
2. Investors equalize total risk-adjusted returns. And some of the returns to "ethical" investing are non-financial - the warm glow of sanctimoniousness. That means financial returns are lower.

In other words, we get paid in self-satisfaction for investing "responsibly" (it's a definition of responsible that most investors wouldn't accept; responsibility usually means profit maximizing) -- just as, say, our recycling as individuals makes us feel better rather than helping the world in any measurable way. It's a deft economics move that, in the name of making our behavior susceptible to modeling, invalidates our altruistic intentions and tries to make what we're doing seem irrational, selfish, or in some way beside the point. A price tag makes our noble gestures assimilable to greed. It reduces the wish to make a difference to something that you are purchasing for yourself, a consumable good like an organic carrot or chemical-free dish detergent. That you can actually make a difference to anything but your self-regard is virtually ruled out.

Sometimes I am attracted to this perspective because it clarifies that we shouldn't assume that investment -- a passive deployment of capital -- is the appropriate means for enacting social change. Social change is ultimately a matter of politics rather than finance, though money certainly plays into it. But Dillow's right that it's sanctimony to think that all one needs to do is by some green-oriented mutual funds and you've done your part for the planet. This is just a dodge -- a way to launder one's own (natural?) accumulative impulses. It's just strange to choose investing as a means to accomplish what are ultimately spiritual goals. You can prefer to see altruism as a means to selflessness, as a way out of the box of identity that so much of the consumer economy hinges on (foisting lifestyles, etc., on us), but skeptical economists regard altruism as nothing more than a lifestyle choice, a luxury, a practice of charity that assures that the existing relations of dependency remain in tact.

Of course, one could refuse to accept these methods of assigning meaning to an action, and reject the underlying assumptions of what is rational and what effects incentives have, and to what degree human behavior can be meaningfully analyzed. Many people are perfectly functional and happy without having any apparatus for analyzing their behavior whatsoever, preferring to approach the zero degree of totally spontaneity and randomness (the one thing that's impossible for a machine to accomplish, iPod Shuffle be damned). Here's how Caplan defines this kind of behavior: "My view is that these are symptoms not of ignorance, but of irrationality. In politics as in religion, some beliefs are more emotionally appealing than others. For example, it feels a lot better to blame sneaky foreigners for our economic problems than it does to blame ourselves. This creates a temptation to relax normal intellectual standards and insulate cherished beliefs from criticism — in short, to be irrational.... Irrationality, like ignorance, is sensitive to price, and false beliefs about politics and religion are cheap. If you underestimate the costs of excessive drinking, you can ruin your life. In contrast, if you underestimate the benefits of immigration, or the evidence in favor of the theory of evolution, what happens to you? In all probability, the same thing that would have happened to you if you knew the whole truth." Likewise, there's apparently no cost to you for believing in your own altruism in the face of doubting economists. But as Caplan points out, this attitude has a social cost, if not an individual one.

The appropriate question then is perhaps this: If we resist the analytical viewpoint of mainstream economics to preserve altruism and significance for our individual selflessness, what amount of utility have we gained at the margin? At what point to we retrieve better returns for our individual happiness by adopting a more "realistic" perspective on our pseudoaltrusistic deeds?