It’s no secret that humans don’t understand everything. It’s easy to astonish yourself with the amount of things you don’t know, just by clicking “random article” on Wikipedia. What’s amazing is what humans do understand, and what they are good at. Language is something for which humans have an incredible natural ability. Nearly everyone is able to communicate complicated meanings to others using words and sentences, and by a young age. We’re also really good at being empathetic–a virtue that hasn’t really been observed in animals toward non-kin. We also intuitively understand narratives and patterns, which helps us make sense of things we’ve never seen before. But despite our strengths, humanity has some catching up to do.
A person’s or group’s particular mindset or approach to the world (the word matrix might fit here, see last post) can’t be easily reduced. I wouldn’t argue that either genetics or upbringing or socializing singly explains the reasons we think the way we do–but clearly all of these matter. No matter what, changes in our mindsets take time. Because of our highly innovative, globalized world, society may be changing faster than our mindsets are able to adapt. Here’s one example.
Economics sounds like quite an academic thing to have “folk” culture built up around. But we form beliefs and make everyday decisions on the basis of economic assumptions. Many of the assumptions the average person holds are correct: “If there’s a drought, food prices will rise”; “We have to make trade-offs when using resources”; “Stores sell products based on what people want to buy.” But people also hold many assumptions that economic theory and empirical evidence seem to say are incorrect. A 2003 paper by Paul Rubin, from which the term “folk economics” is derived, notes as its main point that people tend to think of economics in “distributive” terms, caring more about how wealth is allocated than they do about how or whether it is produced. The problem with this innocuous-looking way of thinking is it rests on the assumption that the total amount of wealth in the economy is generally fixed, and the corollary belief that one person’s gain must be another’s loss.
This folk belief–economists refer to it as zero-sum thinking–isn’t always and everywhere wrong. For example, in a 150-person hunter-gatherer community, wealth is essentially fixed because of the constraints of that economy. To become rich, an individual hunter probably would have to impoverish others, by stealing or cheating. The obvious and important point is that our modern economy is nothing like that prehistoric economy. Ours has division of labor, established markets and progressing technology which constantly open new opportunities for profit. There is essentially no one in our society who directly produces their own goods and services, as was the case with early humans. We all benefit from the gains of mutually beneficial trade. Wealth is created through economic action, not simply moved around. These ideas are virtually unquestioned by economists. They’ve learned a different way of thinking that adapts itself much better to our modern economy than the limited, pre-industrial mindset many of us have.
To illustrate, think about the difference in wealth between North America and Africa. Americans and Canadians prosper, for the most part, while many Africans struggle to meet basic needs. One common intuition that arises from this is that North Americans have “more than their share”, and that perhaps this happened as a result of Westerners taking resources from Africans. This can’t be dismissed out of hand as an explanation, of course, but researchers have not accepted this idea of theft or transfer as accounting for the different levels of wealth. One important observation is that both Africans and North Americans are much richer than they were, say, 300 years ago. In fact, the average wealth per person, as measured by GDP or other measurements, has increased right in step with population in both continents–the opposite of what you’d expect with a zero-sum mindset. The story is not one of transfers of wealth from one continent to another (although to an extent that has happened), but one of different rates of growth; how quickly wealth is created. This can give us hope: even with a world whose population continues to grow, we can work for and expect growing prosperity for everyone.
Zero-sum thinking isn’t the only way that “folk economics” manifests itself. A majority of economists believes the minimum wage increases unemployment and hurts young people and minorities, while a majority of non-economists tend to support the minimum wage, believing that it raises wages. Economist Scott Sumner at TheMoneyIllusion recently posted an excellent list of concepts that non-economists tend not only to misunderstand, but to ignore and resent.
Of course, I’m simplifying. Not all groups have the same mindsets about economics. Some have had more time to adapt to global capitalism, and some already may have had a more favorable mindset toward it, contributing to its rise. And economists themselves can’t possibly have it all figured out. One practical challenge for now may be to identify which groups have the mindsets that are most favorable to economic prosperity and try to train our intuitions to mimic theirs.
Economics isn’t the only area where our intuition lags behind. I think we could use an upgrade when it comes to media addiction, hostile group mentalities, and measuring risk, to name some that have occurred to me recently. I might expand on these ideas in later posts.