Economic Downturns, the Social-Darwinist Waltz, and the Navigation of the Starship Asgard

Tyler Cowen writes:

More rooftop-ready results on reservation wages: I conclude that some people aren’t very good at looking for jobs and further some people are not very good at accepting job offers…

It seems to me that this is one of the steps in what I have sometimes called the Social-Darwinist Waltz. It goes like this:

1. People are skilled decision-makers and rational judges of their own interests.
2. Markets are very good ways of coordinating social activity among skilled decision-makers who are rational judges of their own interest.
3. Markets are the best way to organize pretty much everything.
4. When markets go wrong and produce bad outcomes, it is almost always because the government has interfered and has mucked things up with command and bureaucracy.
5. You say government has not intervened, and yet the market outcome still sucks?
6. Well, it must be because some people are not skilled decision-makers and are not rational judges of their own interests.
7. But their lack of skill and foresight is non-adaptive.
8. Their lack of skill and foresight is blameworthy.
9. And they should be punished.
10. And in punishing them, the market outcome is good after all.
11. It improves the breed.

It is, I think, very important for rational policy to halt the Social-Darwinist Waltz where Tyler is, at step 7, and not go on to step 8.

First, it is not likely that a society in which people were "better" in Tyler's sense at looking for jobs would produce better macroeconomic outcomes. People were much "better" at volunteering to work for lower wages during the Great Depression, and that did not help the situation. What we have now is bad. Active destabilizing deflation is worse. To assume that more individual "rationality" will make for a more "rational" collective outcome is often false--think Prisoner's Dilemma--and in this case is probably false.

Second, a system that for good outcomes requires that people act in ways people do not do is not a good system--and to blame the people rather than the system is to commit a major intellectual error.

Consider the system for navigating the Starship Asgard as it approaches a Horst Interspatial Congruency:

That is a really bad system. When one person transposes an 8 and a 3 in the fifth and sixth decimal places of a hand calculation, the result should not be to send the starship hundreds of light years off course into uncharted space.

Similarly, in a well-functioning economy the failure of a critical mass of unemployed workers to realize that they really should drop their reservation wage because the economy is suffering from a nominal shock should not send the unemployment rate on a multiyear journey upward during which it kisses 10%.