‘Homo Economicus’ Must Die | Nick Hanauer

Reproduced from: https://democracyjournal.org/arguments/homo-economicus-must-die/

‘Homo Economicus’ Must Die

Nick Hanauer’s rousing speech on the lies on which neoliberalism is built.

Hanauer (left) being interviewed by Greg M. Epstein, humanist chaplain of Harvard and MIT. — Photo by Michael Tomasky

This piece is adapted from a speech delivered September 30th at MIT, where Nick Hanauer won the 2018 Harvard and MIT Humanist of the Year award. Read more about the award, as well as Editor Michael Tomasky’s Q&A with Hanauer, here.

I’m thrilled to receive this award from such distinguished hosts—but I won’t lie: When I was told I would be honored as the “Humanist” of the year, the first thing I did was double-check the definition to make sure it was a good thing. And here I am. So—thanks!

As a person who comes from three generations of non-practicing, non-religious Jews, what you “are” can be somewhat confusing. I’ve never been comfortable with the conformity of organized religions, nor their traditions and rituals. And I never was impressed by moral reasoning that went something like “do the right thing, or we’ll burn your ass in Hell for all eternity.” I was often at a loss to culturally and morally locate myself. One of my friends used to call me a “WASP Jew.” Now you folks tell me I’m a “humanist.” Who knew?

Mostly in life, we are judged purely for our actions and accomplishments. And I have been honored in that way before: as a successful capitalist and as a philanthropist and for my civic activism. But this award is more interesting and personally gratifying because in this case, why I do what I do is as important as what I do, and for this I am deeply appreciative.

To me, the great attraction of humanism is not that it holds us to a higher standard, but that it asks us to hold ourselves to a higher standard. It’s relatively easy to do the right thing because of a looming reward or punishment—even in an afterlife. It is much harder, and therefore more meaningful, to do the right thing simply because it is the right thing to do—particularly if doing the right thing appears to involve personal trade-offs in the here and now.

But more consequentially, the more I have come to understand market capitalism, both as a practitioner and as a student of economic theory, the more I have come to understand that this humanist ethos is a prerequisite for human prosperity itself.

I did note that I am the first capitalist to be honored with this award. I suspect that this may be because you all view the world I inhabit, the world of business and economics, as somewhat “morally challenged.” To be clear, contemporary American business and economic culture does have a moral framework: neoliberalism. But I think it is safe to say that this framework is dependably orthogonal to the last 50,000 years of moral norms and traditions.

Is that too harsh? Maybe. But the canonical moral expression of modern capitalism—“It was a business decision”—has far more in common with The Godfather than with The Golden Rule. Let’s be honest: Whenever you hear somebody say, “It’s not personal, it’s strictly business,” you know that really terrible things are about to happen.

It is a sign of the times that one of the best-known moral claims by an American business is Google’s: “Don’t be evil.” At least they have one.  But it is interesting to reflect on. Put aside whether Google has lived up to its credo or not. How did we get to the point where the highest standard a business will hold itself to is simply the absence of evil?

And how did we get to a so-called “ethics” of business that insists that the only affirmative responsibility of a corporate executive is to maximize value for shareholders?

I believe that these corrosive moral claims derive from a fundamentally flawed understanding of how market capitalism works, grounded in the dubious assumption that human beings are “homo economicus”:  perfectly selfish, perfectly rational, and relentlessly self-maximizing. It is this behavioral model upon which all the other models of orthodox economics are built. And it is nonsense.

The last 40 years of research across multiple scientific disciplines has proven, with certainty, that homo economicus does not exist. Outside of economic models, this is simply not how real humans behave. Rather, Homo sapiens have evolved to be other-regarding, reciprocal, heuristic, and intuitive moral creatures. We can be selfish, yes—even cruel. But it is our highly evolved prosocial nature—our innate facility for cooperation, not competition—that has enabled our species to dominate the planet, and to build such an extraordinary—and extraordinarily complex—quality of life. Pro-sociality is our economic super power.

Economists are not wrong when they attribute the material advances of modernity to market capitalism’s genius for self-organizing an increasingly complex and intricate division of knowledge, knowhow, and labor. But it’s important to recognize that the division of labor was not invented in the pin factories of Adam Smith’s eighteenth century Scotland; at some level, it has been a defining feature of all human societies since at least the cognitive revolution. Even our least complex societies, small bands of hunter-gatherers, are characterized by a division of labor—hunting and gathering—if largely along gender lines. The division of labor is a trait that is universal to our prosocial species.

Viewed through this prosocial lens, we can see that the highly specialized division of labor that characterizes our modern economy was not made possible by market capitalism. Rather, market capitalism was made possible by our fundamentally prosocial facility for cooperation, which is all the division of labor really is.

This dispute over behavioral models has profound non-academic consequences. Many economists, while acknowledging its flaws, still defend homo-economicus as a useful fiction—a tool for modeling and understanding the economic world. But it is much more than just an economic model. It is also a story we tell ourselves about ourselves that gives both permission and encouragement to some of the worst excesses of modern capitalism, and of contemporary moral and social life.

If we accept that it is true—if we internalize that most people are mostly selfish—and then we look around the world at all of the unambiguous prosperity and goodness in it, then it follows logically, it must be true, by definition, that a billion individual acts of selfishness magically transubstantiate into prosperity and the common good. If it is true that humans really are just selfish maximizers, then selfishness must be the cause of prosperity. And it must be true that the more selfish we are, the more prosperous we all become.  Under this logical construct, the only good decision is a business decision—“Greed is good”—and the only purpose of the corporation must be to maximize shareholder value, humanity be damned. Welcome to our neoliberal world.

But if, instead, we accept a prosocial behavioral model that correctly describes human beings as uniquely cooperative and intuitively moral creatures, then logically, the golden rule of economics must be the Golden Rule: Do business with others as you would have them do business with you. This is a story about ourselves that grants us permission and encouragement to be our best selves. It is a virtuous story that also has the virtue of being true.

I believe that prosperity is best understood as the accumulation of solutions to human problems. From curing cancer to a crunchier potato chip, every legitimate enterprise is in the problem-solving business, and because trade is reciprocal—you need a potato chip, I need a profit—every solution consumed is a mutual problem solved. But as our modern technological economy grows more prosperous, it’s problems inevitably grow more complex, and this requires ever greater degrees of social, economic, and technological complexity in order to sustain this virtuous cycle of innovation and demand.

Capitalism is the greatest problem-solving social technology ever invented. But knowing that capitalism works is different than knowing why it works. And contrary to economic orthodoxy, it is reciprocity, not selfishness that guides it—indeed—as if by an invisible hand. It is social reciprocity that builds the high levels of trust necessary for large networks of people to cooperate at scale. And it is only through these networks of highly-cooperative specialists that the complexity that defines our modern economy can emerge.

Dr. King said, “the arc of the moral universe is long, but it bends toward justice.” In the same way, thanks to the fundamental evolutionary logic of the market, the arc of the economic universe bends toward complexity. And these two arcs are just part of a larger circle that is anchored by justice, which creates the trust, that enables cooperation, which produces the complexity from which our prosperity emerges.

So this is the main point of my remarks: Properly viewed through this prosocial economic lens, we see clearly that it is our humanity, not the absence of it, that is the source of our prosperity.

But of course, in working to change the way we think about the economy, my ultimate goal is to change the way we act within it. And to this end, I’d like to close by offering four simple heuristics to guide your own actions and activism:

Heuristic number one: Capitalism is self-organizing, but not self-regulating.

The notion of market capitalism as a Pareto-optimal closed, equilibrium system is—to use the technical term—bullshit. Throughout the world, the most broadly prosperous capitalist economies are also the most highly regulated and highly taxed. To be clear: Government investment and intervention is not a necessary evil. It is just plain necessary.

Which leads us to heuristic number two: True capitalism is not shareholder capitalism.

The neoliberal claim that the sole purpose of the corporation is to enrich shareholders is the most egregious grift in contemporary life. Corporations are granted limited liability in exchange for improving the common good. Thus, the true purpose of the corporation is to build great products for customers, provide good jobs for employees, provide a fair return to shareholders and to make their communities stronger—in coequal measure.

Heuristic Three: Capitalism is effective, but not efficient.

Schumpeter’s “perennial gale of creative destruction” has proven extraordinarily effective at raising our aggregate standard of living, but it can also be extraordinarily wasteful, cruel, and unequal—unequal to the point that it threatens to destroy capitalism itself. If our economy and our democracy are to survive the ever-quickening pace of technological change, we must use every tool available to close “the innovation gap” between our economic institutions and our civic institutions.

And finally, heuristic number four: True capitalists are moral capitalists.

Being rapacious doesn’t make you a capitalist. It makes you an asshole and a sociopath. In an economy dependent on complex trust networks to facilitate the cooperative tasks from which prosperity emerges, and when prosperity itself is understood—not as money but as solutions to human problems—true capitalists understand that every economic act is an explicitly moral choice—and they act accordingly.

And so, to all the aspiring business and technology leaders in the audience today, I want to challenge you to adopt an alternative credo, far more ambitious—and more humanist—than Google’s “Don’t be evil”: “Be good.” Or maybe, “Always do the right thing.”

And when you do the right thing, do it with confidence that if it is the right thing to do for your customers, for your employees, for your community, and for the planet—then it is also the right thing to do for your shareholders.

Reproduced from: https://democracyjournal.org/arguments/nick-hanauer-the-plutocrat-of-the-common-man/

Nick Hanauer, the Plutocrat of the Common Man

A well-deserved honor for a great friend of Democracy (and democracy).

This Sunday, September 30, Democracy board member and frequent contributor Nick Hanauer will receive the 2018 Harvard and MIT Humanist of the Year award in Cambridge, Massachusetts. Here, we asked Greg M. Epstein, the humanist chaplain of both universities, to write a brief essay about the award and Nick’s selection. It is followed by a Q & A between Hanauer and Democracy editor Michael Tomasky.

By Greg M. Epstein 

I’ve served as the Humanist Chaplain at Harvard since 2005, advising atheists and agnostics among the student body, in the faculty, and around the university. During that time I’ve seen skyrocketing numbers of students who describe themselves as nonreligious: together, atheists and agnostics now outnumber all Christians combined among Harvard College students. An avalanche of studies has emerged to suggest a similar trend is emerging among young people nationwide, perhaps even worldwide.

These demographic changes are already impacting our democracy, and while that fact hasn’t yet earned atheists full, open inclusion in influential public policy and civic spaces, it will in a generation or so once millennials replace their generally more conservative and traditionally religious counterparts in public leadership roles.

People always want to know, meanwhile, what a humanist chaplain does. It’s actually pretty simple: I help people learn to live ethical and meaningful lives. Humanism is not primarily about whether you believe in a god. It’s about whether you do good, here and now. One thing we’ve often done to drive this message home is give awards to notable humanists And fortunately for us, inspiring people are often willing to come to Harvard to accept awards! So we’ve honored plenty of famous humanists like the late Carrie Fisher, Sir Salman Rushdie, Seth MacFarlane, Piper Kerman, and Joss Whedon.

But when I was recently invited to expand my work by becoming the Humanist Chaplain at Harvard and MIT, one topic and one person stood out this year. Nick Hanauer, our 2018 Harvard and MIT Humanist of the Year, has spent the past decade arguing that we need to talk about the economy we are creating. Simply highlighting the need for public service or assistance for the poor or even “corporate social responsibility” is no longer good enough.

With heroes like Elon Musk or Mark Zuckerberg, students at both Harvard and MIT (and other similar institutions) are creating and shaping science, technology and industries that will change the nature of human existence. But with such powers have often come devastating divides between haves and have-nots: savage inequalities that should make us very, very afraid. Rising inequality could mean that, for all our progress, we’ve simply made it to the top of the roller coaster. If we’re not careful to share our wealth in a more just manner, we could be due for a very steep and rapid decline.

Enter Nick Hanauer: a zillionaire plutocrat who has become, as he recently told me, the official “turd in the punchbowl” at gatherings of his fellow global super-elites. Hanauer’s good fortune and even better investing acumen made him wealthy; his repeated warnings of pitchforks coming for people like him have made him famous.

But I’m especially excited to hear from him this weekend because I’m hopeful the best is yet to come. The humanist heroes we need most this century are those who can help us all learn what it means to collaborate, to include others, and to care about much more than simply the immediate bottom line. That’s what Nick Hanauer and the team at his think tank Civic Action are working on, and they have ambitious plans. I hope many young people, secular and religious alike, will learn from them and work with them – for the sake of humanity as a whole.

Q & A with Michael Tomasky

Michael Tomasky: How’d you find out about the award?

Nick Hanauer: Apparently these folks had been tracking our work on a variety of subjects for a couple of years. They called my office and told me that we’d won. I should say my first instinct was to look up the word “humanist” to make sure it was a good thing.

MT: It’s a good thing! How do you hope this reinforces the work you’re doing?

NH: As you know, because we talk a lot about these things and because you’ve read the stuff I and my collaborators have written, I believe strongly that neoclassical economics and neoliberalism are built on a lie. That lie is that the best way to characterize human behavior is to see us as selfish rational maximizers.

From that mistaken idea about human behavior, you essentially can derive, or we have derived, a bunch of really bad ideas about how to arrange human societies. Because if it is true that people are intrinsically selfish maximizers, and we accept that as true, then it must be true by definition that all of our prosperity is a consequence of selfishness; that selfishness creates prosperity, that the more selfish we are, the more prosperous we will become. And from that, you can derive other things, like that the only purpose of the corporation is to enrich shareholders. How could that not be a good idea?

We now know with scientific certainty that that idea about human behavior—homo economicus—is just objectively false.

MT: What’s the right idea?

NH: That homo sapiens is other-regarding, reciprocal, and moral. We evolved to be moral creatures because cooperation is our superpower. It is how we survive, evolve, and compete. And what that means, in turn, is that it’s not selfishness that creates prosperity, it’s cooperation and reciprocity.

MT: What’s the scientific evidence you’re referring to?

NH: The last 40 years of research on human behavior. Psychological research, sociological research, behavioral economic research: It’s just demonstrably true that human beings are fundamentally moral heuristic reasoners, and not selfish calculators. If we start with this new assumption about how humans behave, you derive a bunch of different ideas about why capitalism creates prosperity in human societies and what policies will make us all better. What you won’t derive is “the more selfish we are, the better things will go.”

MT: Your work for some time now is an attempt to inject this thinking into the civic, political, and economic bloodstream. That’s a big job. How do we turn that big lumbering frigate around?

NH: Well, there are three big jobs. The first is in the academy, to build up a new academic framework that replaces neoclassical economic thinking and all the assumptions about the dynamics of human social systems and the metrics that we use to measure human welfare. GDP is another deeply flawed idea.

The second is to create a movement across disciplines around that new set of economic ideas. Finally, it’s organizing institutions that can embody those new ideas and create power and change. So you need to build a new set of ideas, you need to build a movement, and you need to build powerful institutions that are driven by that movement and embody those ideas. So our work touches all of those things.

MT: Are you encouraged? How are we doing on all three of those fronts?

NH: The ideas are evolving nicely, and there’s a huge thirst globally for those new ideas. Most thoughtful people recognize that the existing economic framework and the existing ideological framework—the existing economic framework, neoclassical economics, and the existing ideological framework, which we call neoliberalism—are not working out. That they need to be replaced.

People are less sure about what replaces them. My colleague Eric Beinhocker and I have a strong view that we doknow what will replace them. We’re writing a book on that. But we have yet to find out whether anyone else in the world agrees with Eric and me. I’m involved in a ton of organizing around creating change that is animated by those ideas. The $15 minimum wage is animated by that kind of thinking.

MT: Let’s talk about that for a moment, because those reading this may be aware that you’re involved in that movement in Seattle. It was successful. There was one study that tried to knock it down, but you have an answer to that.

NH: What’s important to recognize is that the aim or claim of trickle-down economics, neoliberalism, is that anything that benefits rich people directly will benefit the entire society, and anything that benefits poor people directly harms the entire society, including the poor people. The most pointed instantiation of that generalized claim is that raising wages kills jobs. The reason that that claim is made so relentlessly, in the absence of any empirical evidence to support it, is that it’s the only moral argument available to keep wages low and profits high. They can’t just say we’re rich, you’re poor, and we want to keep it that way. You have to clothe your naked self interest in some sort of moral claim, and what rich people have been saying to poor people for thousands of years is some form of “it will harm the very people it’s intended to help.”

Whether it was eliminating slavery, where the South made the argument that slaves were better off as slaves than as free people. Whether it was giving women the right to vote, where they argued that giving them the right vote would harm them. These arguments always take the same form. They say “we woulddo this thing for you, but it’d harm you, so we won’t.” Not the more naked statement, which is that we prefer women not voting, because then we’re more powerful; we prefer you remain slaves because it’s working out for us.

So there are many people with the Chamber of Commerce who have about a trillion reasons a year to advance the claim that raising wages kills jobs, and there are all sorts of ways to build a study to prove that’s true, if that’s your goal.

The way these studies work is that they take reality, then they build a synthetic reality and try to compare the two and show the synthetic reality with a lower minimum wage would have more jobs. By the way, not that there are fewer jobs in existing reality, just that, in theory, there would be more in an alternative one. But you can build that synthetic reality any way you want. And the University of Washington study found a way to build a synthetic Seattle that was an inaccurate representation of actual Seattle, and you know that because they use ZIP codes that are not in Seattle to build their alternative.

MT: Kind of a giveaway.

NH: Yeah, when there are some other synthetic alternatives that have been modeled and correlated from other cities that are like Seattle. If you do that then you see that the minimum wage in Seattle didn’t kill jobs at all. I mean it’s clear: Unemployment fell from 4.9 to 3.6 percent over the time we implemented it so the idea that it killed jobs is ludicrous.

MT: Restaurants seem pretty full.

NH: They are. What people need to recognize, and I’ve written about this a lot, including in Democracy, is that the people in the Chamber of Commerce are not going to stop making this claim. Ever. They will never stop making this claim because it’s the only claim that will make wage suppression defensible. If it’s not true that raising wages kills jobs than why in the world wouldn’t we raise wages a lot, right? There’s no place to hide if it’s not true that raising wages kills jobs. Then all you can say is no, no, no we love us those high profits and don’t give a shit about you, and that’s awkward.

MT: Right. Let me ask you about corporate America. There’s more and more talk about corporate social responsibility. Some prominent CEOs have emphasized this and are trying to push this. Do you get a sense that that’s gaining any currency in boardrooms?

NH: You know, the CEOs of lots of big companies feel the pressure to be good corporate citizens and to not be openly rapacious and exploitative. How that is being translated into a change in behavior is harder to see. PR stunts are easy and cheap. Significantly raising wages for workers is not. So you have more of the former than the latter.

MT: And, finally, let’s talk a little bit about politics. Talk a little bit about the political lay of the land as you see it right now. You know what’s happening within the Democratic Party, what’s happening between the parties. You know we have a very important election coming up. What do you see shaking out?

NH: Well, the Republican Party has gone off the rails and the Democratic Party doesn’t really know what it wants to be. I would argue that the shit show that is American politics today is a consequence of the fact that, to a greater or lesser extent, both political parties abandoned the economic interests of the bottom nine deciles of Americans. That, as a Democrat, if you’re being honest, we massively contributed to the rich getting richer too, it’s just that we would more occasionally throw bones to poor people. That’s why most American wages have been stagnant for 30 or 40 years and why everyone, on the left and the right, is so angry at the political system. Because, in fact, it is rigged against them.

And the Democratic Party needs to figure out if it’s going to continue being merely a kinder and gentler form of trickle-down economics, sort of neoliberalism light, but with less racism. Or if the party is actually going to rotate toward a policy agenda and a politics aimed at materially and substantially advancing the economic interests of a majority of Americans with the belief that that set of policies not only won’t harm business, it will help it, despite what the Chamber of Commerce says.

MT: Do you see a potential 2020 candidate who intrigues you at this point?

NH: No. I mean, I know many of the people who are running for office. Many of them are friends. Many of them would make good presidents, but I have zero confidence in my ability to predict the future. And if Daffy Duck was the leading candidate as a Democrat, I would vote for Daffy Duck.

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