New Foundations for Macroeconomics

Ever since Darwin drew upon Thomas Malthus and Adam Smith, economic and evolutionary theory have been entwined throughout their histories. Yet modern macroeconomic theory has yet to incorporate developments in evolutionary theory during the last few decades.

We hope this changes, starting with our project for Rebuilding Macroeconomics of introducing Multilevel Selection (MLS) Theory to explain how governance can evolve — or fail to evolve— at any level of a multitier social hierarchy, from small groups to the global village.

Back in 1975, Edward O. Wilson published his classic book ‘Sociobiology’ in which he identified the evolution of altruism, broadly defined as behaviors that benefit others or one’s group at individual expense, as the central theoretical problem in Sociobiology.

For the solution, Ed showcased two theories of social evolution then in vogue. First, inclusive fitness theory, whereby organisms maximize the fitness of their genes in themselves and their relatives. Secondly, reciprocity theory, whereby organisms help others to receive return benefits. Both theories explained altruism as a form of self-interest, an interpretation that would be reinforced by the 1976 publication of The Selfish Gene by Richard Dawkins.

In 2007 I published an article with Ed titled ‘Rethinking the Theoretical Foundation of Sociobiology’ The new foundation we provided was Multilevel Selection (MLS) theory, which originated with Darwin but seemed dead as a doornail in 1975 to all but a handful of heretics.

The central claim of MLS theory is that altruism is not individually advantageous. It declines in frequency within each and every social group where it occurs and can evolve thanks only to the differential fitness of groups in a multi-group population. We closed our article with the simple summary statement that ‘selfishness beats altruism within groups. Altruistic groups beat selfish groups. Everything else is commentary.’

When the 2008 Global Financial Crisis struck, I was asked through my role at Evolution Institute what evolutionary theory might have to add. Ever since, I have been immersed in economic theory and practice from an evolutionary perspective. A highpoint was my collaboration with Elinor Ostrom, resulting in a generalization of her work on single groups and polycentric governance from a MLS perspective.

I also learned about the sociological landscape of the economics profession. The day after Elinor was awarded the Nobel Prize in economics in 2009, the economist and Freakonomics author Steve Levitt wrote this on his New York Times blog:

“If you had done a poll of academic economists yesterday and asked who Elinor Ostrom was, or what she worked on, I doubt that more than one in five economists could have given you an answer. I personally would have failed the test. I had to look her up on Wikipedia, and even after reading the entry, I have no recollection of ever seeing or hearing her name mentioned by an economist…[The] economics profession is going to hate the prize going to Ostrom even more than Republicans hated the Peace prize going to Obama. Economists want this to be an economists’ prize (after all, economists are self-interested). This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics.”

Something that Levitt wrote in his blog points to the contribution that I hope to offer. He wrote that ‘after all, economists are self-interested’ as if it can’t be otherwise. In this respect, the economics profession is not much different from the rest of the social sciences.

In both cases, holistic conceptions of society during the 19^th and first half of the 20^th century were replaced by various forms of individualism, as if social phenomena aren’t truly understood until reduced to the motives and actions of individuals (or ‘micro-founded’ to use the vernacular). Evolutionary biology’s individualistic swing during the 1960’s and 70’s was part of the same trend—and MLS theory provides the robust alternative for economics and the social sciences, no less than sociobiology in the biological sciences.

I very much hope that I can contribute to this ‘Rebuilding Macroeconomics’ initiative the same way as my article with Ed over a decade ago. The theoretical component will be in collaboration with Dennis Snower, co-leader of the Social Macroeconomics hub which will oversee the project. We hope to lead away from the individualism that has become so pervasive during the last half-century, which is the proverbial ‘water that the fish can’t see’.

My RM project will also have an empirical component. One insight of MLS theory is that governance must be multilevel. Crudely speaking, it must function at the micro (single groups), meso (coordinated collections of groups), and macro (global) scales. Using a practical framework for working with groups called ProSocial World, I will attempt to enhance multilevel governance in one or more locations within the UK. I am currently reviewing partnering people, organizations, and locations for this part of the project.

This article was originally posted on the Rebuilding Macroeconomics website. The "Managed Evolution: A New Narrative for Macroeconomics" project has been generously funded by Rebuilding Macroeconomics and the Economic and Social Research Council (UK).