Friday, October 03, 2008

How Will the Bailout Affect "Wary Cooperators"?

CNN reports here that the US Congress has passed the Wall Street bailout by a vote of 263 to 171.

There has been much debate (...well, as much as there could have been within 2 weeks!) concerning what impact, for better or worse, the bailout will likely have on the American, and world, economy.

But here I want to bring attention to concerns that I have not heard many raise. That is, what the consequences of the bailout might be on the already strained trust that Americans have in their government.

So I want to draw upon the insights that evolutionary biology (and increasingly the social sciences) have provided political scientists in recent years. The debate over human nature (e.g. whether we are naturally altruistic or self-interested) is a long debate in political thought, but social scientists have started to turn to the findings of evolutionary biology to help make sense of the fact that humans display behaviour that is best described as what Alford and Hibbing call "wary cooperators". Alford and Hibbing (2004) summarise the theory of wary cooperation as follows:

Humans are cooperative, but not altruistic; competitive, but not exclusively so. We have an innate inclination to cooperate, particularly within defined group boundaries, but we are also highly sensitive to selfish actions on the part of other groups. This sensitivity leads us to cease cooperating when that cooperation is not reciprocated, to avoid future interaction with non-cooperators, and even to engage in personally costly punishment of individuals who fail to cooperate. (709)

When people perceive others to be violating a norm of reciprocity (as in the ultimatum game) they often display altruistic punishment. That is, wary cooperators are willing to sacrifice their own monetary rewards in order to punish noncooperators.

Now I think these empirical insights, if they are valid, can tell us some very interesting things about the Wall Street bailout. Even if it is true, as those defending the bailout maintain, that bailing out Wall Street benefits Main Street, Main Street might still have a preference for punishing Wall Street because people are wary cooperators rather than rational maximizers. And so a government that pushes through legislation that contravenes the innate and genetically heritable behavioural predispositions of the members of society runs many risks.

What are those risks likely to be? A government that justifies a policy like the bailout by focusing solely on the monetary "end result" (e.g. are you financially better or worse off with the bailout) runs the risk of undermining the trust needed for the populace to accept authoritative decisions. And the Wall Street bailout has all the hallmarks of a policy that compromises the things wary cooperators are looking for with authoritative decision-making. Like the fact that the legislation was rushed through without much substantive, reflective debate concerning the merits of the plan (especially from leading economic experts). Or the fact that the process was tainted by Presidential politics; and that the revised Bill had last minute "pork barrel" add-ons, worth hundreds of millions of dollars. All of these facts would lead me to believe that the passing of this Bill, in the fashion that is was passed, will cause real a democratic deficit for America.

This deficient may just result in greater apathy about the political process. Or it might even mean that taxpayers will refuse to engage in altruistic behaviour in the future (for truly laudable causes, like healthcare reform). So I believe that it is possible that the Democrats might have sacrificed a great deal by supporting this Bill. To deny altruistic punishment, at this particular moment in time (when the rich have already enjoyed enormous tax cuts and the Bush Administration is at record low-level of approval), might have dire consequences for the legitimacy of American politics (for a Democratic or Republican President and Congress/Senate).

Are those harms more dire than the purported financial harms of not passing the Bill? I don't know. Only time will tell. But I think many have assumed that the only stakes that really matter in this issue is the monetary "end result". And I think that is a big mistake.

Findings from evolutionary biology, experimental economics, behavioural anthropology and social psychology tells us that most people are not rational maximizers. They are wary cooperators. And so the actions of the Senate and Congress this week might have quite a profound negative impact on the attitudes Americans take to their economic and political institutions (even if the Bailout was the correct financial decision, which is debatable).