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Comment by dalek_cannes | Hacker News Reader

> He's pointed out that capitalism is flawed -- that inequality is not an unintended result, but rather an inherent feature of it.

One could argue, though, that the flaw is not in capitalist ideology per se, but that you can never fulfill its requirements perfectly:

1. Market information is never disseminated perfectly, i.e. to all parties, equally, at the same time with full accuracy.

2. Human beings are not rational.

3. Human rationality takes a nosedive if a person's wealth vs. time curve take a sudden upswing.

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2 and 3 are probably a consequence of 1 because a human being with fewer information will look irrational to someone with more information.

You missed the biggest one, bud:

4. Governments are guaranteed to interfere. Either to help, or impede.

And 5. Physical location matters, even if you are legally located in US, if you live/work outside the richer centers it is difficult to earn more.

Agreed. This has historically always been the case. There is a reason that early cities formed around navigable waterways, trade-routes, or near specific wealth-making resources. One need only look to the middle east that was almost entirely desert and small-towns a short while ago (relatively speaking) to get a more recent and visible example of this.

Equality is the exception, not the rule throughout history, including the recent "enlightened" one.

> 2. Human beings are not rational.

I think I now heard this meme/statement/mantra/whatever way too often. Sorry.

First of all, I fundamentally do agree that this is the case. Deep down, I cannot fully figure out my emotions, that what drives me, in a completely rational sense. I like certain things, and I dislike others.

BUT I would still argue that using the idea 'human beings are not rational' in the generic form I see it being used and for any form of policy is very dangerous. Although I believe we cannot completely figure out who we are and what we want, we CAN certainly reflect on our thoughts and actions rationally.

Using this statement is very often basically saying: Humans believe 1+1=3, therefore we have to make policy x/y/z.

Agreeing to this statement in this blanket form often thus means:

a) Humans are not rational

b) Therefore anyone discussing this statement is not rational

c) Any rational argument about policy is essentially lost in this weird post-modernist black hole, by jumping back to a)

Addendum: Or, said in a more concise way: We finally figured out that we are simply stupid primates (as if that is news at all). Because we are stupid primates, we cannot think. Because we cannot think, we have to base our policies on that.

Isn't it surreal that one can appear to use deductive reasoning in this kind of 'argument'?

I think you have missed what people are getting at with "humans are not rational". The argument behind Capitalism is that people will do what is in their self-interest, and more generally will be rational actors, and as such the outcome of the market will reflect what people want.

However, people often act against their self-interest either naturally or because of manipulation, and short term self-interest can conflict with long term self-interest.

A good example of this is "austerity" in hard economic times. When times are bad the reaction of many people is to "tighten their belts" and decrease spending, and in the short term that provides some protection against things like being laid off. However, if large numbers of people start doing this then the amount of economic activity is significantly reduced and those people who reduced their spending now risk being laid off.

That might all be true. However, the question is not discussed in a vacuum. It is discussed in the context of policy, seemingly often used as a core premise.

Thus the question remains: What kind of policy one exactly wants to base on 'human's irrationality'. And whether it is good to base policy on irrational behavior.

It is also important to consider that there will always be people who are more rational in their profit/money/power-maximizing than others.

A policy based upon irrational behavior might create an inefficiency that will be exploited by those with more rational behavior.

That's why I am wary about lines of reasoning along 'people are just irrational'.

I believe it creates system(s) of thought where somehow, we account for people's irrationality and thus make it more just/less cyclic/less prone to capital accumulation.

Yet, those who simply, coolly maximize their own gains, those who sort ideas like 'complex, advanced policy informed by the irrational behavior of humans' into the religion bin etc. will still come out ahead.

In other words: We generate complex systems of thoughts, especially in fields like economic policy. Rational actors will play with those systems, circumvent them, be creative, etc.

To turn the argument around: Given that human's rational behavior is limited, is it a good idea to create complex policy that makes it even less likely for humans to understand it and act rational?

>Thus the question remains: What kind of policy one exactly wants to base on 'human's irrationality'. And whether it is good to base policy on irrational behavior.

That isn't what people are saying. What people are saying is that Capitalism is predicated upon the notion that people are at least mostly rational actors who act in self-interest, and so a free market will give people what they want. The criticism of Capitalism is that humans are not mostly rational, and regularly don't act in self-interest, and this leads to large amounts of human suffering.

People like Piketty aren't looking to eliminate the disparity between "irrational actors" and "rational actors"^, or to increase the amount of "rational" behaviour, but to eliminate the human suffering that Capitalism is supposed to eliminate if it worked as claimed.

^ Which is not a synonym for "wealthy". What Piketty is talking about is wealth accumulating to the point where the skilled and hard working don't have upward mobility. The hereditarily wealthy don't need to be particularly "rational actors", they just need to not spend their wealth faster than it accumulates.

P.S. Even "rational actors" suffer losses caused by the irrationality of the market.

But is the wealth they inherited the problem - or rather the abuse of power that comes with it?

If you agree that it is the abuse of power: Does this need additional complexity to address - or is it simply something to be addressed with (tax) laws?

Also, I think that the idea of 'eliminating human suffering' is a sure sign of an ideology. Human suffering can be reduced, certainly, but 'elimination' is utopian, an unreachable extreme.

For example, I would argue that a large property and luxury tax could alleviate most the problems that unwise wealth causes.

Further down in this thread, the user 'StandardFuture' more eloquently says what I think am trying to say - people are people and they just game whatever system is in place.

I think that in some sense, the idea of 'fixing the damn system' can actually be a trap. It may make one busy trying to think outside the box, to be busy inventing very advanced ideas for solving a problem that in the end boils down to 'people are people'.

I've seen this argument over and over again, and it's ridiculous. Saying "humans are not rational" is not the same as "humans are never rational"

The statement is made about perfect rationality. No, humans are not perfectly rational, but it does not follow that humans are never rational or unable to be rational.

It's also conflating "irrational" with "unreasonable".

We actually have a quite decent understanding of that irrational behaviour too - prospect theory is hardly a new or controversial theory.

Is it a good idea to assume non-rationality in policy, though?

As I also wrote in my other post, I think one can easily argue that 'more informed policy' that 'accounts for human's partial rationality' actually creates complexity which makes it even harder for humans to act rational.

*edit: grammar

This isn't exactly what the statement means. I highly recommend you read Thinking Fast and Slow, it gives an excellent analysis on this topic.

The statement "human beings aren't rational" doesn't mean "human beings are stupid", but rather we're really terrible at statistical analysis, and are very susceptible to manipulation.

The science leading up to the statement "human beings are not rational" was actually used to explain why classical economic theory didn't accurately predict human behavior in (close to) free markets.

Although some people may use this deduction to make laws about protecting people from their stupid selves, really this conclusion leads to protecting people against dishonest behavior, or subtle manipulation. Humans can only make rational decisions when the information is comprehensive, and presented in an non-influential form.

Would "Humans are not always perfectly rational." be preferable?

(meaningin this case that in a large enough group, it is very likely that a portion of the group will make sub-optimal decisions)

Whereas some economic models would model every person as always making the optimal choice.

So expressing the idea of this assumption being false might be useful, and ideally if one is talking about it often, it would probably be good to be able to refer to the concept in a concise way.

Hence, as a shorthand, saying "humans are not perfectly rational."

I think that's correct reasoning?

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