18 January 2021

This May be the Worst Idea in Economics

There is a lot not to like about Economics.

It seems that most streams of economics appear to be a means for justifying the existing power structure, with the benefit being that economists are given (relatively) high positions within that power structures.

Political economist Blair Fix makes a good argument that modern Human Capital Theory, which resembles a toxic mix of Social Darwinism, and emerged largely from the University of Chicago.

The short version, to use Ayn Rand pulp fiction (and pulpier philosophy) as an example, the investor who pays scientists to create "Reardon Metal" is responsible for all the value derived from this wondrous material.

The scientist who creates this material adds no value, neither does the army of workers who labor to manufacture this material and forge it into shape.

If this sounds non-sensical, note how this is identical to the justification for paying obscene remuneration to founders and CEOs.

The little people just don't mater:

If there was an award for the most pernicious scientific idea ever, what theory should get first prize? I would vote for eugenics, a theory that claims we can ‘improve’ humanity through selective breeding.

If there was a second prize, I’d give it to human capital theory. I think of human capital theory as ‘eugenics light’. It purges the idea that abilities are innate (and that we should selectively breed the ‘fit’). But human capital theory keeps the Nietzschean idea that humanity’s success can be attributed mostly to gifted ├╝bermensch.

Among us, human capital theory claims, walk individuals who are unfathomably productive. These ├╝bermensch produce more in an hour than most of us do in a week. Take just 1% of these top individuals, and you’ll find that they outproduce the bottom half of society!1 According to human capital theory, then, we could do away with half of society with no great loss to economic output. Of course, few human-capital theorists advocate such atrocities. But my point is that their theory contains the seeds of eugenics … even Nazism.

The ethical problems with eugenics and human capital theory are easy to spot. But what about the scientific problems? These are more difficult to tease out. Eugenics is based on the hard truth that many traits are heritable. Similarly, human capital theory is based on the reality that some people earn hundreds of times more income than others. Where both theories go wrong, however, is that they misunderstand humanity’s social nature.

Yes, many individual traits are heritable. But it is a fallacy that traits that are good for individuals are also good for society. That’s the core scientific flaw in eugenics. And yes, it’s true that some people earn far more than others. But it’s a fallacy that this income is caused by traits of the individual. In reality, income is a social trait.

My goal in this post is not to rigorously debunk human capital theory. (I’ve done that here.) Instead, I’m going to chart its rise and speculate about its eventual fall. I’ll do so by looking at the rise and fall of eugenics. What’s ominous is that the theory that debunks eugenics is today still more obscure than eugenics itself. In a century, will something similar hold for the theory that debunks the idea of human capital?

He then compares this to experiments in animal and human eugenics:

In the 1990s, geneticist William Muir conducted experiments on chickens to see what would improve egg-laying productivity. In one trial, he did exactly what the eugenicists recommend — he let only the most productive hens reproduce. The results were disastrous. Egg-laying productivity didn’t increase. It plummeted. Why? Because the resulting breed of hens was psychopathic. Instead of producing eggs, these ‘uber-hens’ fought amongst themselves, sometimes to the death.

The reason this experiment didn’t work is that egg-laying productivity is not an isolated property of the individual hen. It is a joint property of the hen and her social environment. In Muir’s experiment, the most productive hens laid more eggs not because they were innately more productive, but because they suppressed the productivity of less dominant chickens. By selecting for individual productivity, Muir had inadvertently bred for social dominance. The result was a breed of bully chicken that couldn’t tolerate others.

The lesson here is that in social animals, traits that can be measured among individuals (like productivity) may not actually be traits of the individual. Instead, they are joint traits of both the individual and their social environment. Here’s evolutionary biologist David Sloan Wilson reflecting on this fact:

Muir’s experiments … challenge what it means for a trait to be regarded as an individual trait. If by “individual trait” we mean a trait that can be measured in an individual, then egg productivity in hens qualifies. You just count the number of eggs that emerge from the hind end of a hen. If by “individual trait” we mean the process that resulted in the trait, then egg productivity in hens does not qualify. Instead, it is a social trait that depends not only on the properties of the individual hen but also on the properties of the hen’s social environment.

—(David Sloan Wilson in When the Strong Outbreed the Weak)
A key problem with eugenics is that it neglects the social nature of human traits. It assumes that productivity is an innate trait of the individual, and that breeding for this trait would lead to a better society. It’s a seductive idea that is deeply flawed. In all likelihood, selectively breeding people for productivity would, like chickens, lead to a psychopathic strain of human.

This sounds a lot like the sociopaths who are in the top 1% of the 1%, doesn't it? 

Jamie Dimon seems to be the apotheosis of such a process. doesn't he?

The ground work for human capital theory was laid just as eugenics fell out of favor. In the 1950s, economists at the University of Chicago tackled the question of individual income. Why do some people earn more than others? The explanation that these economists settled on was that income resulted from productivity. So a CEO who earns hundreds of times more than a janitor does so for a simple reason: the CEO contributes far more to society.

The claim that income stems from productivity was not new. It dated back to the 19th-century work of John Bates Clark and Philip Wicksteed, founders of the neoclassical theory of marginal productivity.3 Clark and Wicksteed, though, were concerned only with the income of social classes. What the Chicago-school economists did was expand productivist theory to individuals.

  Doing so required inventing a new form of capital. The idea was that individuals’ skills and abilities actually constituted a stock of capital — human capital. This stock made individuals more productive, and hence, earn more income. Figure 3 shows key papers that initiated human capital theory.


The idea that skills constituted ‘human capital’ was initially greeted with skepticism. For one thing, the term itself smacked of slavery. (Capital is property, so ‘human capital’ implies human property.) For another, human capital theory overtly justified inequality. It implied that no matter how fat their incomes, the rich always earned what they produced. Any attempt (by the government) to redistribute income would therefore ‘distort’ the natural order. During the 1950s and 1960s, there was little tolerance for such views. It was the era of welfare-state expansion, driven by Keynesian-style thinking. Yes, big government may have been ‘distorting’ the free market — but society seemed all the better for it.


We can see the scientific flaws by returning to William Muir’s chicken experiment. I’ve already told you about his psychopathic chickens, created by breeding the most productive hens. But I haven’t told you about his alternative trial. In it, he bred the most productive group of chickens. The result was an astonishing increase in egg-laying productivity.

The reason this group selection worked is that chickens are social animals. That means productivity is influenced by the social environment. By selecting productive groups, Muir selected for egg-laying ability, but also for sociality. The resulting social hens flourished together.

Something similar holds true for humans. The abilities of individuals cannot be separated from the social environment in which they occur. For this reason, any selective breeding based on individual traits is likely to have unintended consequences. If Muir’s chicken experiment is any indication, breeding ├╝bermensch wouldn’t create an uber-productive society. It would create a psychopathic one.

The reason comes down to the unit of selection. As social animals, humans have been strongly shaped by the selection of groups. This group selection has tended to suppress selfish tendencies that are otherwise beneficial for individuals.

The bottom line is this:

Human capital theory supposes that income stems from productivity, and that this productivity is an isolated trait of the individual. This thinking, when taken to the extreme, is ludicrous. It implies that an Egyptian Pharaoh was thousands of times more productive than his slaves. Moreover, because this productivity was embodied in the Pharaoh, he could do away with his slaves and still retain his wealth. It gets worse. According to the logic of human capital theory, the Pharaoh’s slaves were actually a burden on the kingdom’s per capita productivity. If the Pharaoh exterminated them, per capita productivity would skyrocket.


We are run by a bunch of psychopathic hens.

Well, psycho chickens makes a fuck-load more sense than that whole QAnon lizard people thing.


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