Evolutionary Economics

Like a lot of people, I am intrigued by evolution as a design system. For decades I believed that evolution was unique to biology. Even after reading The Selfish Genemy understanding of evolution was quite shallow. With the publication of the 30th anniversary edition and a few more Richard Dawkins and other author's books on evolution, biology, and economics under my belt, I have figured out how evolution works its magic on the economy. As politicians and the media are chanting right now, it's jobs, jobs jobs!

Before I jump into how jobs drive evolutionary economics, you will need to bear with me while I layout the components of evolutionary design systems. There are many written books about evolution, but I have a unique way of looking at design systems. I'm a programmer, not a biologist, after all.

The Biosphere

As Dawkins has made clear, evolution is about death. Darwin's unfortunate use of the term "fittest" has clouded people's understanding of evolution ever since he published his seminal book. In software, no single program or software module is so perfectly designed that no others can compete. Experienced programmers know this all too well. Software has to be good enough, not perfect.

Death determines if an organism is good enough to survive long enough for an organism to transfer its genes to another organism, or progeny. Death is biology's occam's razor: the Grim Reaper separates the wheat from the organisms which do not contain genes good enough for wheat. A far superior individual wields no power over the law of large numbers, another component of evolution. Competion only works in large markets.

Death is the judge, and organisms are the judged. Organisms (cells, people, coral, ...) are what carries genes forward. Biological design manifests itself in organisms, which are containers for competing entities called genes. Dawkins explains these core components in the Selfish Gene as:

The gene is the unit in the sense of replicator. The organism is the unit in the sense of vehicle. Both are important. Neither should be denigrated. They represent two completely distinct kinds of unit and we shall be hopelessly confused unless we recognize the distinction.

In my way of thinking, genes survive if their host organisms transfer them to progeny in sufficient numbers before dying. Genes are, however, not an end into themselves. Evolution requires change to progress, or genes would not exist. Putting my programmer's hat on, software design is the process of changing the bytes (genes) of an existing program (organism) into a new program (progeny). If the program is good enough, some of the program's bytes to survive but not necessarily all. An unchanging program cannot survive. It has to adapt to its ever-changing environment. You cannot buy VisiCalc, but some of its bytes (e.g. SUM, A1, B1) have survived and can be found on the computer you are using right now.

The computer is an important component in evolution. Programs cannot survive if they have no place to reside and run (live). The same is true for organisms. Genes themselves are bits of information, the organisms must live somewhere. As far as we know, the only container for biology is the Earth. The general concept of organisms residing in a biosphere is still the same. The fact is there is a single Earth, and it is the only example we have of a biosphere, which we can treat as a closed system. And, finally, I am ready to expand into explaining how the World Economy is the only example we have of a closed evolutionary economic system.

Economic DNA

Many books cover evolution and economics, and I haven't found onewhich explains how evolution applies to the economy. For example, The Ascent of Moneycontains these conflicting statements:

Broadly speaking, the law of the survival of the fittest applies. Institutions with a 'selfish gene' that is good at self-replication and self-perpetuation will tend to proliferate and endure. [...] The evolutionary analogy is, admittedly, imperfect.

Evolution is an all-or-nothing proposition. Without the components I outlined in the previous section, evolution does not apply. It is really that simple. You can't pick the parts of a theory you like (nuclear bombs are great!) and leave out other parts (we will visit other galaxies). Mankind has discovered some extremely profound and useful theories, which have survived years of rigorous testing. These theories (memes) cannot be broken apart, just like the byte sequence "SUM" found in numerous programs has retained its integrity over the years. It has not changed to TOTAL, ADDUP, or any other equivalent english term. SUM is the best (so far) byte sequence programmers have been able to come up with thus far. If the World Economy is an example of a closed, evolutionary system, then the components of evolution must be applied consistently. There have to be bits of information (genes), containers (organisms), progeny, change, and a substrate (biosphere).

In my view, the substrate is the World Economy. People who try to apply bits of evolutionary theory to bits of the World Economy, such as, individual markets (foreign exchange, stocks, employment, ...) are fooling themselves. You cannot separate the wheat from the chaff, they are both produced by the genes of wheat. I think most economists today -- considering effects of recent economic events -- would agree that you cannot decouple the US economy from Brazil or Kenya.

Before we get to the of the World Economy, it's important to remember that the economy does not change on its own accord. People are a critical component, because they hold ideas about the economy. Each person has his own ideas (memes) of how the economy (in micro and/or macro terms) works. Groups of people with similar ideas on how the economy works form economic entities (governments, non-profits, for-profits, families, ...). I am belaboring the point to be clear that people are the organisms of evolutionary economics so that "we shall [not] be hopelessly confused" with this distinction. People are not the genes. We are the containers of the genes.

Dawkins explained memes clearly, and it is clear to me that memes are the genes of economics. People who act on more economically valuable memes than others, do better in the economy. But if it was so easy, why don't all the memes in all the get-rich books and friends who got rich make everybody rich? The memes are being transferred from host organisms (rich people) to other people (presumably poorer people). No doubt that the memes are transferred imperfectly, for we are just humans. More important, no organization has collected the best economic memes and put them to such effective use that it is clear which memes are better than others.

In biology, there are many genes. Most of the genes we have are "non-coding genes" so-called junk DNA or exons. There may be a use for exons. The introns (coding genes) make up our genetic code (eye color, height, intelligence, ...). The same must be true for memes. For example, there is a meme that eight hours is a good night's sleep, but many people sleep much less. While we know the amount of sleep affects how you perform your job, given the wide range of sleep patterns, it is likely that the eight-hour-sleep meme probably does not have that much effect on the economy.

It's jobs, stupid!

It is safe to say there is probably some economic DNA comprised of introns and exons, and it is the introns people carry around which have the most impact. People are not rational actors, as so many economists love to believe, yet they are economic actors. For simplicity, let's say that whenever someone is acting economically, they are doing a job. The way they perform that job depends on their economic DNA. Spendthrifty consumers act differently than miserly savers. If you lived through the Great Depression, you probably carry around more miserly introns than spendthrifts.

Events like the 1930 Great Depression are like plagues. The 1918 Influenza Epidemic claimed some 50 million organisms. Whole genes probably went extinct. In the 1930s lots of economic introns went extinct, too. Introns are not organisms, though. If people are our economic organisms, they would have had to die, which some did, but people did not die in the same numbers as they did in the Influenza Epidemic just a few years ealier.

What did happen is people lost jobs. When you lose your job, you are no longer performing that specific economic act. That particular instance of that job has died. Even when another person comes back to do the "same" job, they do not act in exactly the same way. That new hire has different economic DNA, and the new hire's economic DNA changes as a result of being hired.


Recently I chatted with a friend in Detroit. The US auto industry is getting pummelled right now. Jobs are being lost. One thing my friend said was that "people have stopped complaining at their jobs". That observation is very interesting. During a recession, complain-at-job is not a very useful economic intron, or what I call a jobyte -- I'm a programmer, not a biologist or an economist. A jobyte is a unit of information which makes up a job. It is part of people's jobs as successful economic actors to deploy their mouth-shut jobyte, right now. Just like in droughts, organisms make use of their low-metabolism gene (again, I'm not a biologist).

Jobytes are a class of meme so it can be transmitted between people. Dawkins covers the evolution of memes so just assume that a jobyte can do anything a meme does. People who do the same type of job share lots of the same jobytes. Employees of the same company have similar jobytes, too.

I need to refine what I said earlier. The economic organism is a job, not a person. People often have multiple jobs so they carry multiple economic organisms around with them -- just as humans carry many different biological organisms in their bodies. A simple example of a multi-job person is the CEO and chairman of a company who has at least three different jobs: fiduciary officer, head of the board of directors, and stockholder. The US legal system proscribes the person must act according to each of those jobs. A CEO job cannot, for example, decide to sell the company, because the stockholder (or better yet, stock option holder) job would benefit economically. The previous sentence is pretty awkward, because we tend to identify a person with a job. Unfortunately, that is not true.

Let's take another example. A person who does the Ford auto-worker job might decide to buy a Toyota Prius, because as she is doing her environmentally-friendly consumer job, she thinks it is a the best job. The two jobs inside her head may have a debate. Here's a overly-simplified version:


The more Ford cars bought, the more likely I get to keep my job!


One car is not going to change anything.


My boss says that we have to buy Fords.


That's not a contract, that's peer pressure. You can buy any car you want to.


Fords are better!


If Fords are better, why are people snapping up Priuses? If Ford made more hybrids, I am sure they would sell.


Let's agree to disagree. You do your job, and I'll do mine.

People have these conversations in their heads all the time. This is how we act "rationally". The problem with the rational actor model is the assumption that when we are acting as in our consumer job, our worker job does not have a say. It is just not that simple. Even if the worker job is fired as a result of the consumer job's decision, it still is entirely rational. And, every time a conversation like this happens each job changes a little bit, that is, a jobyte may die ("buy Toyota, get fired") in that job's DNA. Just like a computer program, every change results in a new program. Every economic event results in a change in the way jobs are performed.

Jobytes come and go. When we are kids, we may carry the "be good, get money" jobyte. As we get older, we realize that "be good" has nothing to do with "be paid" -- "good" has too many meanings to be useful, anyway. The kid-job is different from the auto-job. It is clear that the "be good" jobyte hangs around in our heads, because we deploy it in reverse in our parent-job. The "pay child to be good" jobyte is a survivor. The "hit kid to be good" jobyte is going extinct in the US. Yet why isn't there a simple book of jobytes that tells us how to get rich?

Predators and Herds

Rich people get that way one of two ways: investment or speculation. When your finance-actor thinks that GE is going to go up and buys it, it is speculating. There's no way any finance-actor can know that GE is going to go up, if they did, that actor would be the richest person in the world.

Oh wait, there are richest actors. Bill Gates in his programmer-job, for example, programmed at Microsoft for many years to create something people would want. Warren Buffet in his businessperson-job studied companies day and night to the point of failing at his husband-job so that his wife left him. His businessperson-job won out over his husband-job even though his husband-job knew the right thing to do to save his marriage. These two people (and many others) valued one of their jobs more than others. A single human is a tiny resource and cannot do all their jobs equally well.

Most people do not think this way. They want their cake and to eat it, too. The financier-job is as hard work as any other job. I am not doing my financier-job right now. I am doing my writer-job. I do not get paid for my writer-job, nor will I get any money out of operating My actions defy classical economic theories of rational actors (and parenting books!). I am obsessed enough with this trivial point of meaning (evolutionary economics) to spend hours and hours writing something few people, if any will read. Fortunately, my writer-job rarely wins out. Most times, my financier-job wins out.

If I let my financier-job lose out to other jobs (tv-job, reader-job, ...), I would not make as much money and my finance-DNA would lose valuable jobytes. More important to me, my financier-job supports my programmer-job. While I could do my programmer-job at a big company and let my financier-job take a back seat to other jobs I value (parent-job, writer-job, ...), my programmer-DNA would suffer greatly. My programmer-DNA has evolved highly over the years my financier-job has taken an interest in it. My programmer-job gives positive feedback (more money) to my financier-job. The two jobs are happily symbiotic, and I am not struggling. Indeed, this symbosis has the charactistics of a predator: my programmer-job gets things done more robustly and consequently in much less time than other programmer-jobs.

Economic predators are few in number. Warren Buffet is a predator. In his financier-job, he bought Berkshire Hathaway, a cloth manufacturer, and shutdown all its mills. Berkshire Hathaway is now a holding company, and all its fabric-jobs are gone. In his financier-job, Buffet looks for economic entities he can take over. Often as a result of these take overs, jobs are lost. For example, GEICO was an early acquisition. GEICO uses the direct-sales to lower costs by cutting out the insurance-agent-job. The bigger GEICO grows, the fewer insurance-agent-jobs there are.

As you may have guessed, most jobs reside in herds. There are millions of programmer-jobs all over the world. These jobs disappear in recessions (droughts, plagues, ...) and reappear in booms (times of plenty). There existence is necessary, because predators like Buffet and myself cannot survive if we compete against each others. Wolf genes would not survive if there were a cannibal gene. Probably more relevant, wolves eat deer, because it is easier. As long as they do not eat too many deer, that symbiotic relationship is stable as it was until the last century, when a bigger predator came into town.


Wolf genes also survive due to their pack gene. Humans are social animals, too. Yet we do not seem form economic packs easily. One of the biggest problems in investment clubs, for example, is that people do not get along. The same is my experience with programming teams. When we talk about economics, we say things like "dog eat dog" and "rat race". Evolutionary biology tells us otherwise. Dogs do not eat dogs and rats do race each other to food. Both of these animals are social, too.

Perhaps evolution economics has a use for "dog eat dog" jobs. I know that in Russia, it was very important for the leaders of a group of oppressed people to stop group members from sticking out. Conformity is very useful in certain environments. Switzerland and Japan are notable examples of where conformity is a useful survival technique. On the other hand (what economics essay would be complete without this phrase!), it may be that conformity simply keeps the herds strong so that the non-conforming predators can compete economically.

The team-jobyte is certainly not prevalent in herds. When under attack, employees of large companies rarely band together. They scatter. Even when they do band together (unions) they do not act to preserve the group, for example, by taking job cuts even when threatened with being without jobs (strikes or bankruptcy). Unions are dying as an economic entity for some reason, perhaps the team-jobyte has something to do with it.

The opposite seems to be the case with successful economic predators. Bill Gates' side-kick was his college roommate. He founded the Bill and Melinda Gates Foundation, and Melinda is very much involved. In fact, the many successful predators seem to operate in teams with longevity: George Soros & Jim Rogers; Larry Page, Sergey Brin, Urs Hoelzle, & Eric Schmidt; Andy Bechtolsheim & David Cheriton; and Warren Buffet & Charlie Munger.


Probably the most valuable jobyte I have seen is the patience-jobyte. I was not raised to understand the patience-jobyte. Indeed, I didn't begin to incorporate it into my financier-job until the last decade. My financier-job told me to buy oil stocks and then sell them quickly in the 1980s, to sell my Sun stock too early, and so on.

Now that I have had some financial success as a result of deploying some useful jobytes consistently over a long enough period of time, my job-DNA has morphed to emphasize my patience-jobyte in almost all my jobs (parent, financier, programmer, writer, ...). Perhaps this jobyte was always there, and it simply needed activation, just like my low-metabolism gene is activated when faced with low-nutrition. Maybe the patience-jobyte is a natural part of what some people call wisdom.

Via Rob 4/11/2009