Some economic models rely on the assumption that people are completely selfish. But these models tend to be internally inconsistent, as they often presuppose an economic regime that could not possibly exist if people had no regard for the larger society. At a minimum, a market economy requires at least some willingness on the part of people to refrain from rent seeking in the form of barriers to trade.

People are somewhat selfish. Most people care too much about their own interests, and less about the interests of strangers they have never met. Nevertheless, people often engage in activities (such as voting) that are difficult to explain from a narrow interest perspective. People seem to have at least some sense of solidarity with others, expressing a willingness to fight for one’s country or pursue philanthropic causes.

A Bloomberg article What caught my eye about the power crisis in California:

A timely mobile alert could have prevented hundreds of thousands of Californians from being plunged into darkness in the middle of a heat wave Tuesday night.

Just before 5:30 p.m. local time, California’s grid operator ordered its highest level of emergency, warning that a blackout was imminent. Then, at 5:48 p.m., the state’s Office of Emergency Services sent a text alert to people in the target counties, asking them to conserve power if they could.

The grid emergency was over within five minutes.

This graph shows the effect:

It is possible that some electricity consumers wrongly assume that their decision to turn off the AC will have a significant impact on the blackout risk. That decision would be consistent with selfishness. Given California’s huge population, however, any personal energy reduction would be a drop in the bucket.

I’m sure that at least something California consumers realized that their decision to turn off their AC would have little effect on the risk of blackouts and did so in solidarity with society as a whole. How can I be sure? Because I received this text message, at one point the temperature outside was in the 90s. I immediately turned off our central air conditioner. I doubt other people had the same thought process.

Homo economic A reasonable approximation for some purposes. A more realistic economic model, however, would assume that people care much more about their own interests and place a much lower but still positive weight on the utility of their fellow citizens. Additionally, people tend to bond more with people who live nearby than those who live far away.

Countries with high levels of solidarity, such as Denmark, tend to have more effective governance than countries where most people have low levels of solidarity with strangers, such as Afghanistan. More specifically, countries with high levels of solidarity tend to be more market-oriented than countries where people’s solidarity with strangers is low.

In 2008, I wrote a paper which touched upon these subjects, which began as follows:

The Great Danes: Cultural Values ​​and Neoliberal Reform

Virtually every commercial transaction has an element of trust. . . It can be reasonably argued that much of the world’s economic backwardness can be explained by a lack of mutual trust.(Kenneth Arrow, Gifts and Exchange, Philosophy and Public Affairs, 1972, p. 357.)

I don’t know if Arrow is correct, but the anecdote below may help explain the idea Arrow had in mind. While traveling in northern Michigan this summer I noticed roadside farm stands selling cherries. Often, no salesperson was present. One simply placed a five-dollar bill in a small metal box and left with a quart of cherries. This system makes one realize that there is a huge waste of labor resources waiting for someone to stop motorists on the side of the road to buy cherries, and this may be one reason why high-trust societies tend to be relatively prosperous.

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