Watch “Town Square: Democracy as a Garden” By Eric Liu and Nick Hanauer on YouTube

Uploaded on Jan 4, 2012

The Seattle creators of the True Patriot Network suggest viewing democracy as a garden: functioning best according to the tendencies of nature, but also requiring vision, tending, and an understanding of connected ecosystems.

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Complexity Economics Shows Us Why Laissez-Faire Economics Always Fails

Markets are a type of ecosystem that is complex, adaptive, and subject to the same evolutionary forces as nature.

During 2007 and 2008, giant financial institutions were obliterated, the net worth of most Americans collapsed, and most of the world’s economies were brought to their knees.

At the same time, this has been an era of radical economic inequality, at levels not seen since 1929. Over the last three decades, an unprecedented consolidation and concentration of earning power and wealth has made the top 1 percent of Americans immensely richer while middleclass Americans have been increasingly impoverished.

To most Americans and certainly most economists and policymakers, these two phenomena seem unrelated. In fact, traditional economic theory and contemporary American economic policy does not seem to admit the possibility that they are connected in any way.

And yet they are—deeply. We aim to show that a modern understanding of economies as complex, adaptive, interconnected systems forces us to conclude that radical inequality and radical economic dislocation are causally linked: one brings and amplifies the other.

If we want a high-growth society with broadly shared prosperity, and if we want to avoid dislocations like the one we have just gone through, we need to change our theory of action foundationally. We need to stop thinking about the economy as a perfect, self-correcting machine and start thinking of it as a garden.

Traditional economic theory is rooted in a 19th- and 20th-century understanding of science and mathematics. At the simplest level, traditional theory assumes economies are linear systems filled with rational actors who seek to optimize their situation. Outputs reflect a sum of inputs, the system is closed, and if big change comes it comes as an external shock. The system’s default state is equilibrium. The prevailing metaphor is a machine.

But this is not how economies are. It never has been. As anyone can see and feel today, economies behave in ways that are non-linear and irrational, and often violently so. These often-violent changes are not external shocks but emergent properties—the inevitable result—of the way economies behave.

The traditional approach, in short, completely misunderstands human behavior and natural economic forces. The problem is that the traditional model is not an academic curiosity; it is the basis for an ideological story about the economy and government’s role—and that story has fueled policymaking and morphed into a selfishness-justifying conventional wisdom.

Even today, the debate between free marketeers and Keynesians unfolds on the terms of the market fundamentalists: government stimulus efforts are usually justified as a way to restore equilibrium, and defended as regrettable deviations from government’s naturally minimalist role.

Fortunately, as we’ve described above, it is now possible to understand and describe economic systems as complex systems like gardens. And it is now reasonable to assert that economic systems are not merely similar to ecosystems; they are ecosystems, driven by the same types of evolutionary forces as ecosystems. Eric Beinhocker’s The Origin of Wealth is the most lucid survey available of this new complexity economics.

The story Beinhocker tells is simple, and not unlike the story Darwin tells. In an economy, as in any ecosystem, innovation is the result of evolutionary and competitive pressures. Within any given competitive environment—or what’s called a “fitness landscape”—individuals and groups cooperate to compete, to find solutions to problems and strategies for cooperation spread and multiply. Throughout, minor initial advantages get amplified and locked in— as do disadvantages. Whether you are predator or prey, spore or seed, the opportunity to thrive compounds and then concentrates. It bunches. It never stays evenly spread.

Like a garden, the economy consists of an environment and interdependent elements—sun, soil, seed, water. But far more than a garden, the economy also contains the expectations and interpretations all the agents have about what all the other agents want and expect. And that invisible web of human expectations becomes, in an everamplifying spiral, both cause and effect of external circumstances. Thus the housing-led financial crisis. Complexity scientists describe it in terms of “feedback loops.” Financier George Soros has described it as “reflexivity.” What I think you think about what I want creates storms of behavior that change what is.

Traditional economics holds that the economy is an equilibrium system; that things tend, over time, to even out and return to “normal.” Complexity economics shows that the economy, like a garden, is never in perfect balance or stasis and is always both growing and shrinking. And like an untended garden, an economy left entirely to itself tends toward unhealthy imbalances. This is a very different starting point, and it leads to very different conclusions about what the government should do about the economy.

Einstein said, “Make everything as simple as possible, but not too simple.” The problem with traditional economics is that it has made things too simple and then compounded the error by treating the oversimplification as gospel. The bedrock assumption of traditional economic theory and conventional economic wisdom is that markets are perfectly efficient and therefore self-correcting. This “efficient market hypothesis,” born of the machineage obsession with the physics of perfect mechanisms, is hard to square with intuition and reality—harder for laypeople than for economic experts. And yet, like a dead hand on the wheel, the efficient market hypothesis still drives everything in economic policymaking.

Consider that if markets are perfectly efficient then it must be true that:

–The market is always right.

–Markets distribute goods, services, and benefits rationally and efficiently.

–Market outcomes are inherently moral because they perfectly reflect talent and merit and so the rich deserve to be rich and the poor deserve to be poor.

–Any attempt to control market outcomes is inefficient and thus immoral.

–Any non-market activity is inherently suboptimal.

–If you can make money doing something not illegal, you should do it.

–As long as there is a willing buyer and seller, every transaction is moral.

–Any government solution, absent a total market failure, is a bad solution.

But, of course, markets properly understood are not actually efficient. So-called balances between supply and demand, while representing a fair approximation, do not in fact really exist. And because humans are not rational, calculating, and selfish, their behavior in market settings is inherently imperfect, unpredictable, and inefficient. Laypeople know this far better than experts.

Markets are a type of ecosystem that is complex, adaptive, and subject to the same evolutionary forces as nature. As in nature, evolution makes markets an unparalleled way of effectively solving human problems. But evolution is purpose-agnostic. If the market is oriented toward producing junk and calling it good GDP, market evolution will produce ever more marketable junk. As complex adaptive systems, markets are not like machines at all but like gardens. This means, then, that the following must be true:

–The market is often wrong.

–Markets distribute goods, services, and benefits in ways that often are irrational, semi-blind, and overdependent on chance.

–Market outcomes are not necessarily moral—and are sometimes immoral—because they reflect a dynamic blend of earned merit and the very unearned compounding of early advantage or disadvantage.

–If well-tended, markets produce great results but if untended, they destroy themselves.

–Markets, like gardens, require constant seeding, feeding, and weeding by government and citizens.

–More, they require judgments about what kind of growth is beneficial. Just because dandelions, like hedge funds, grow easily and quickly, doesn’t mean we should let them take over. Just because you can make money doing something doesn’t mean it is good for the society.

–In a democracy we have not only the ability but also the essential obligation to shape markets—through moral choices and government action—to create outcomes good for our communities.

You might think that this shift in metaphors and models is merely academic. Consider the following. In 2010, after the worst of the financial crisis had subsided but still soon enough for recollections to be vivid and honest, a group of Western central bankers and economists got together to assess what went wrong. To one participant in the meeting, who was not a banker but had studied the nature of economies in great depth, one thing became strikingly, shockingly clear. Governments had failed to anticipate the scope and speed of the meltdown because their model of the economy was fantastically detached from reality.

For instance, the standard model used by many central banks and treasuries, called a dynamic stochastic general equilibrium model, did not include banks. Why? Because in a perfectly efficient market, banks are mere pass-throughs, invisibly shuffling money around. How many consumers did this model take into account in its assumptions about the economy? Millions? Hundreds of thousands? No, just one. One perfectly average or “representative” consumer operating perfectly rationally in the marketplace. Facing a crisis precipitated by the contagion of homeowner exuberance,fueled by the pathological recklessness of bond traders and bankers, abetted by inattentive government watchdogs, and leading to the deepest recession since the Great Depression, the Fed and other Western central banks found themselves fighting a crisis their models said could not happen.

This is an indictment not only of central bankers and the economics profession; nor merely of the Republicans whose doctrine abetted such intellectual malpractice; it is also an indictment of the Democrats who, bearing responsibility for making government work, allowed such a dreamland view of the world to drive government action in the national economy. They did so because over the course of 20 years they too had become believers in the efficient market hypothesis. Where housing and banking were concerned, there arose a faith-based economy: faith in rational individuals, faith in ever-rising housing values, and faith that you would not be the one left standing when the music stopped.

We are not, to be emphatically clear, anti-market. In fact, we are avid capitalists. Markets have an overwhelming benefit to human societies, and that is their unmatched ability to solve human problems. A modern understanding of economies sees them as complex adaptive systems subject to evolutionary forces. Those forces enable competition for the ability to survive and succeed as a consequence of the degree to which problems for customers are solved. Understood thus, wealth in a society is simply the sum of the problems it has managed to solve for its citizens. Eric Beinhocker calls this “information.” As Beinhocker notes, less developed “poor” societies have very few solutions available. Limited housing solutions. Limited medical solutions. Limited nutrition and recreation solutions. Limited information. Contrast this with a modern Western superstore with hundreds of thousands of SKUs, each representing a unique solution to a unique problem.

But markets are agnostic to what kind of problems they solve and for whom. Whether a market produces more solutions for human medical challenges or more solutions for human warfare—or whether it invents problems like bad breath for which more solutions are needed—is wholly a consequence of the construction of that market, and that construction will always be human made, either by accident or by design. Markets are meant to be servants, not masters.

As we write, the Chinese government is making massive, determined, strategic investments in their renewable energy industry. They’ve decided that it’s better for the world’s largest population and second-largest economy to be green than not—and they are shaping the market with that goal in mind. By doing so they both reduce global warming and secure economic advantage in the future. We are captive, meanwhile, to a market fundamentalism that calls into question the right of government to act at all—thus ceding strategic advantage to our most serious global rival and putting America in a position to be poorer, weaker, and dirtier down the road. Even if there hadn’t been a housing collapse, the fact that our innovative energies were going into building homes we didn’t need and then securitizing the mortgages for those homes says we are way off track.

Now, it might be noted that for decades, through administrations of both parties, our nation did have a massive strategic goal of promoting homeownership—and that what we got for all that goal-setting was a housing-led economic collapse. But setting a goal doesn’t mean then going to sleep; it requires constant, vigilant involvement to see whether the goal is the right goal and whether the means of reaching the goal come at too great a cost. Homeownership is a sound goal. That doesn’t mean homeownership by any means necessary is a sound policy. Pushing people into mortgages they couldn’t truly afford and then opening a casino with those mortgages as the chips was not the only way to increase homeownership. What government failed to do during the housing boom was to garden—to weed out the speculative, the predatory, the fraudulent.

Conventional wisdom says that government shouldn’t try to pick winners in the marketplace, and that such efforts are doomed to failure. Picking winners may be a fool’s errand, but choosing the game we play is a strategic imperative. Gardeners don’t make plants grow but they do create conditions where plants can thrive and they do make judgments about what should and shouldn’t be in the garden. These concentration decisions, to invest in alternative energy or not, to invest in biosciences or not, to invest in computational and network infrastructure or not, are essential choices a nation must make.

This is not picking winners; it’s picking games. Public sector leaders, with the counsel and cooperation of private sector experts, can and must choose a game to invest in and then let the evolutionary pressures of market competition determine who wins within that game. DARPA (the Defense Advanced Research Projects Agency), NIST (the National Institute of Standards and Technology), NIH (National Institutes of Health), and other effective government entities pick games. They issue grand challenges. They catalyze the formation of markets, and use public capital to leverage private capital. To refuse to make such game-level choices is to refuse to have a strategy, and is as dangerous in economic life as it would be in military operations. A nation can’t “drift” to leadership. A strong public hand is needed to point the market’s hidden hand in a particular direction.

Markets as Machines vs. Markets as Gardens

Understanding economics in this new way can revolutionize our approach and our politics. The shift from mechanistic models to complex ecological ones is not one of degree but of kind. It is the shift from a tradition that prizes fixity and predictability to a mindset that is premised on evolution. Compare two frames in capsule form:

Machine view: Markets are efficient, thus sacrosanct
Garden view: Markets are effective, if well tended

In the traditional view, markets are sacred because they are said to be the most efficient allocators of resources and wealth. Complexity science shows that markets are often quite inefficient—and that there is nothing sacred about today’s man-made economic arrangements. But complexity science also shows that markets are the most effective force for producing innovation, the source of all wealth creation. The question, then, is how to deploy that force to benefit the greatest number.

Machine view: Regulation destroys markets
Garden view: Markets need fertilizing and weeding, or else are destroyed

Traditionalists say any government interference distorts the “natural” and efficient allocation that markets want to achieve. Complexity economists show that markets, like gardens, get overrun by weeds or exhaust their nutrients (education, infrastructure, etc.) if left alone, and then die—and that the only way for markets to deliver broadbased wealth is for government to tend them: enforcing rules that curb anti-social behavior, promote pro-social behavior, and thus keep markets functioning.

Machine view: Income inequality reflects unequal effort and ability
Garden view: Inequality is what markets naturally create and compound, and requires correction

Traditionalists assert, in essence, that income inequality is the result of the rich being smarter and harder working than the poor. This justifies government neglect in theface of inequality. The markets-as-garden view would not deny that smarts and diligence are unequally distributed. But in their view, income inequality has much more to do with the inexorable nature of complex adaptive systems like markets to result in self-reinforcing concentrations of advantage and disadvantage. This necessitates government action to counter the unfairness and counterproductive effects of concentration.

Machine view: Wealth is created through competition and by the pursuit of narrow self-interest
Garden view: Wealth is created through trust and cooperation

Where traditionalists put individual selfishness on a moral pedestal, complexity economists show that norms of unchecked selfishness kill the one thing that determines whether a society can generate (let alone fairly allocate) wealth and opportunity: trust. Trust creates cooperation, and cooperation is what creates win-win outcomes. Hightrust networks thrive; low-trust ones fail. And when greed and self-interest are glorified above all, high-trust networks become low-trust. See: Afghanistan.

Machine view: Wealth = individuals accumulating money
Garden view: Wealth = society creating solutions

One of the simple and damning limitations of traditional economics is that it can’t really explain how wealth gets generated. It simply assumes wealth. And it treats money as the sole measure of wealth. Complexity economics, by contrast, says that wealth is solutions: knowledge applied to solve problems. Wealth is created when new ideas— inventing a wheel, say, or curing cancer—emerge from a competitive, evolutionary environment. In the same way, the greatness of a garden comes not just in the sheer volume but also in the diversity and usefulness of the plants it contains.

In other words, money accumulation by the rich is not the same as wealth creation by a society. If we are serious about creating wealth, our focus should not be on taking care of the rich so that their money trickles down; it should be on making sure everyone has a fair chance—in education, health, social capital, access to financial capital— to create new information and ideas. Innovation arises from a fertile environment that allows individual genius to bloom and that amplifies individual genius, through cooperation, to benefit society. Extreme concentration of wealth without modern precedent that has undermined equality of opportunity and thus limited our overall economic potential.

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

2016 February 21

Traditional Economics Failed. Here’s a New Blueprint.

Why true self-interest is mutual interest

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.

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. Homoeconomicus, 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

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

Eric-Liu-Nick-Hanauer_avatar_1458357791-175x175Eric Liu is the founder of Citizen University and a former White House speechwriter and deputy domestic policy adviser to President Bill Clinton. Nick Hanauer is an entrepreneur and venture capitalist. Twitter: @EricPLiu and @NickHanauer

American democracy is informed by the 18th century’s most cutting edge thinking on society, economics, and government. We’ve learned some things in the intervening 230 years about self interest, social behaviors, and how the world works. Now, authors Eric Liu and Nick Hanauer argue that some fundamental assumptions about citizenship, society, economics, and government need updating. For many years the dominant metaphor for understanding markets and government has been the machine. Liu and Hanauer view democracy not as a machine, but as a garden. A successful garden functions according to the inexorable tendencies of nature, but it also requires goals, regular tending, and an understanding of connected ecosystems. The latest ideas from science, social science, and economics—the cutting-edge ideas of today–generate these simple but revolutionary ideas:

True self interest is mutual interest. (Society, it turns out, is an ecosystem that is healthiest when we take care of the whole.)

Society becomes how we behave. (The model of citizenship depends on contagious behavior, hence positive behavior begets positive behavior.)

We’re all better off when we’re all better off. (The economy is not an efficient machine. It’s an effective garden that need tending. Adjust the definition of wealth to society creating solutions for all.)

Government should be about the big what and the little how. (Government should establish the ideas and the goals, and then let the people find the solutions of how to make it happen.)

Freedom is responsibility. (True freedom is not about living some variant of libertarianism but rather an active cooperation a part of a big whole society; freedom costs a little freedom.)

The Gardens of Democracy is an optimistic, provocative, and timely summons to improve our role as citizens in a democratic society.

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