The Up Side Of Down

In her new book, The Up Side of Down: Why Failing Well Is the Key to Success, Megan McArdle takes some time to discuss forager vs. farmer attitudes toward risk.

Forager food sources tended to be more risky and variable, while farmer food sources are more reliable. So foragers emphasized food sharing more, and a tolerate attitude toward failure to find food. In contrast, farmers shared food less and held individuals responsible more for getting their food. We’ve even seen the same people switch from one attitude to the other as they switched from foraging to farming. Today some people and places tend more toward farmer values of strict personal responsibility, while other people and places tend more toward forager forgiveness.

McArdle’s book is interesting throughout. For example, she talks about how felons on parole are dealt with much better via frequent reliable small punishments, relative to infrequent random big punishments. But when it comes to bankruptcy law, a situation where the law can’t help but wait a long time to respond to an accumulation of small failures, McArdle favors forager forgiveness. She points out that this tends to encourage folks who start new businesses, which encourages more innovation. And this does indeed seem to be a good thing.

Folks who start new businesses are pretty rare, however, and it is less obvious to me that more leniency is good overall. It is not obvious that ordinary people today face more risk than did most farmers during the farming era. The US apparently has the most lenient bankruptcy law in the world, and that is indeed some evidence for its value. However, it seems to me more likely that US forager forgiveness was caused by US wealth than vice versa. McArdle says the US got lenient bankruptcy in the late 1800s via lobbying by senators representing western farmers in debt to eastern banks. And it is even harder to see how farming in the US west then was more risky than has been farming throughout the whole farming era.

Most likely what changed was the wealth of US farmers, and their new uppity attitudes toward rich elites. This fits with debt-forgiveness being a common liberal theme, which fits with liberal attitudes being more forager-like, and becoming more common as rising wealth cut the fear that made farmers. If lenient bankrupts is actually better for growth in our world, this would be another example of Caplan’s idea trap, where rising wealth happens to create better attitudes toward good policy.

Overall I found it very hard to disagree with anything that McArdle said in her book. If you know me, that is quite some praise. :)

Added 2May: The fact that most farmer cultures were clannish may be part of an explanation here. The strict farmer morality is mostly about how to deal with outsiders, distant from your immediate family. The clan is punished severely, but it is usually more forgiving internally. If farmer clans had lower risk than do isolated families today, that could be a reason to have more forgiving bankruptcy law today.

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  • Doug

    How many people who favor lenient bankruptcy laws also favor a government policy of acting as lender of last resort to financial institutions during financial crises? (In other words “bail-outs” of the type seen in 2008.)

    If encouraging risky investment through providing a cap on potential losses promotes innovation, then what’s the difference between small entrepreneurs and large financial institutions. My sense is that most people have no firm answer to this distinction beyond seeing entrepreneurs as noble and banks as evil.

    • http://overcomingbias.com RobinHanson

      Small good, big bad is a common position. More puzzling might be those who wanted to bail out the big banks, but not the little guys.

      • Kitty_T

        One could argue that bailing out the big banks protected many (comparatively innocent) little guys, while bailing out a little guy (who often has some culpability for his own failure) doesn’t do much to help anyone but that little guy. Or, less moralistically, bailing out the banks gives you more bang for your bail out buck because it helps all little guys systemically.
        That was the main argument I heard back in the heyday of TARP, in any event.

      • IMASBA

        More bang for your bailout buck was indeed the most sensible reason (though obviously it doesn’t hurt bankers that they have friends in high places). Of course this changes once the banks start expecting bailouts.

    • McMegan

      Well, I support both–sometimes forgiveness is the cheapest course, even after you take into account the moral hazard it creates. Most of the people who suffered from teaching the banks a lesson wouldn’t have been bankers; they would have been ordinary folks whose livelihoods were wiped out, homes were taken, and retirement savings were destroyed in the financial contraction that followed the partial or total collapse of the US financial system.

  • Lord

    The late 1800s probably means it was fundamental for the creation of large modern corporations with their limited liability. It would be very difficult to establish one without it. Legally it would be almost impossible to function without it as any failure would redound to its owners forcing sales of other assets and interests and propagating bankruptcies making resolution interminable.

    • http://overcomingbias.com RobinHanson

      Europe has big firms, but does not have lenient bankruptcy.

      • Lord

        And don’t often have bankruptcies but long drawn out restructurings, but they do often have limited liability. One could argue bankruptcy avoidance is even more lenient in practice as it wouldn’t improve creditors situation.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    Forager food sources tended to be more risky and variable, while farmer food sources are more reliable. . . rising wealth cut the fear that made farmers.

    How did fear make farmers when foragers were more insecure?

    • Dave

      Foragers had more risk; to cut their risk, people turned to farming.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I don’t think that’s the sense in which Hanson maintains that fear made farmers: he means dynamically rather than historically. The post he links is at http://www.overcomingbias.com/2010/10/fear-made-farmers.html where he writes:

        A
        large robust literature makes it clear that inducing people to
        unconsciously think about death pushes them to more strongly obey and
        defend cultural norms, especially norms framed as disgust at animal-like
        behavior. Today, fear of death encourages folks to obey authorities,
        and be more loyal to their communities and spouses, all strong farmer
        norms: – See more at:
        http://www.overcomingbias.com/2010/10/fear-made-farmers.html#sthash.6hrlTeUc.dpuf“A large robust literature makes it clear that inducing people to unconsciously think about death pushes them to more strongly obey and defend cultural norms, especially norms framed as disgust at animal-like behavior. Today, fear of death encourages folks to obey authorities, and be more loyal to their communities and spouses, all strong farmer norms.”

        Hanson thinks fear of death directly elicits farmer norms. I agree, but farmers had less to fear than foragers!

        The scientific literature Hanson cites in the 2010 piece shows a tight relationship between fear of death and low self-esteem (read “status”). It would seem that rather than natural conditions driving our forebears fear of death, the status deflation occurring with agriculture heightened the fear of death. (See “Status inflation and deflation: Prestige, the essence of status, permits broad alliances”http://tinyurl.com/lxokdf7 )

        [Note also that, for Sigmund Freud, at the core of both fear of death and loss of status/self-esteem is castration anxiety.]

        A
        large robust literature makes it clear that inducing people to
        unconsciously think about death pushes them to more strongly obey and
        defend cultural norms, especially norms framed as disgust at animal-like
        behavior. Today, fear of death encourages folks to obey authorities,
        and be more loyal to their communities and spouses, all strong farmer
        norms: – See more at:
        http://www.overcomingbias.com/2010/10/fear-made-farmers.html#sthash.6hrlTeUc.dpuf

      • IMASBA

        Farming wasn’t better at first. People probably choose farming for strategic (to raise armies and live in walled settlements) or religious reasons, because it certainly didn’t make life easier, longer or less risky back in the neolithic. It’s even possible that initially only a small number of tribes chose farming and then forced all the others to do the same because farming tribes were more aggressive and could support armies.

  • michaeledwardvassar

    Western farmers in the 1800s were facing much more rapid technological progress than farmers ever have before.

    • http://overcomingbias.com RobinHanson

      But did that make their farming more risky than was ancient farming?

      • IMASBA

        Maybe it wasn’t more risky but the circumstances were just right (such as the fact that every state gets exactly two senators, whether it’s Kansas or New York) for them to get a lot of support in the senate.

  • http://greyenlightenment.com/ (new site) Economics Institute

    I don’t agree with the premise of her book…for individuals, failure costs time, money and energy. If you are going to fail, keep the costs as low as possible. bankruptcy is bad for your credit rating. Large companies and governments are better at coping with failure than people

    • IMASBA

      Failure is also largely due to coincidence, it’s remarkable that people even try given the low odds of success at launching a new business. You need lots of people to try before one succeeds, if the penalty for failure becomes too high few people will try and the economy and innovation will suffer.

  • IMASBA

    Farmers work harder (so slackers are more noticeable) and when something went wrong it was more catastrophic (such as a lost crop) than when something went wrong in forager society. Farmers also have stricter laws (the concept of land ownership itself for example), greater inequality and higher population density which tends to bring out the worst in people and made them invent things like war and slavery in addition to very harsh laws and angry gods who purportedly were the source of those laws.

  • http://facelessbureaucrat.blogspot.com/ Bill Harshaw

    The last of the 19th century saw a persistent deflation, meaning mortgages became more oppressive http://en.wikipedia.org/wiki/The_Great_Deflation and an expansion into the Great Plains which required different farming practices. Eastern agriculture was beginning its decline as production moved west, while the South was adjusting to a free market economy and no slaves.

  • Peter David Jones

    I looked at somethingsome of McCardles comments in public healthcare and it turns out she’s an idiot.

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