USA: The Economics of Loneliness

. NEW YORK, NY / The New York Times / Business / August 25, 2009 The Economics of Loneliness By Edward L. Glaeser Do economists underrate the value of human interactions? An excellent new book by the psychologist John Cacioppo on loneliness contains the following sentence: “[A]ll the same, the Hobbesian idea of the rugged individual clawing his way out of the mire in ruthless competition persists, from Ayn Rand’s ‘virtue of selfishness’ to Milton Friedman’s reverence for unfettered markets.” The book is an eloquent summary of a vast amount of compelling research documenting the extent to which human beings need each other. Being lonely is associated with bad health, eating poorly and all-round misery. Yet I fear this sentence captures a widely held and mistaken view that economists are oblivious to mankind’s social nature. Economists are not believers in the virtues of lone wolves. Economics should be seen as a discipline that has spent centuries chronicling the enormous gains that come from people connecting with each other. Ayn Rand’s heroes, like the architect Howard Roark, may have been distinguished by their lack of standard social connections. But the heroes of Adam Smith or Alfred Marshall or even Milton Friedman are not isolated. Adam Smith’s “The Wealth of Nations” begins with the famous line

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.

Division of labor requires human interaction. A group of 10 people working together is more productive than a solo operator, because larger groups allow people to specialize. Smith wrote his own warning against social isolation: “In the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, every farmer must be butcher, baker and brewer for his own family.” Smith and Friedman’s arguments for free markets are, at their heart, arguments about the advantages of human interaction. The argument against fettering free trade, made by both Smith and Friedman, is that when countries, or people, trade with one another, they benefit by taking advantage of each other’s talents. Free-market economists don’t oppose government intervention because every man is an island, but because interpersonal exchange makes everyone better off. A market, “unfettered” or not, is a social organism — a collection of people—that generally can survive only if it improves the lives of its members. Friedman’s distaste for corporate charity did not reflect a dislike for altruism but rather a belief in keeping one’s word. Corporate executives have a fiduciary duty to the investors. When they use their investors’ money to look like big shots at charity events, they are abusing their shareholder’s trust. Economists, like Friedman, got their reputation for missing mankind’s social side because we often assume that people usually prefer more money to less. This assumption guides theories of finance where economists assume that there are enough greedy financiers to bid up the prices of undervalued assets. It also plays a major role in economic theories of wages which conclude that people typically need more pay to make up for bad working conditions or years spent in training. Economics follows the tradition of Occam’s Razor, and prefers simpler to more complex explanations. For example, it is possible that public transit ridership rose when gas prices spiked last year because of increased sensitivity to the environment, but a simpler (and probably more correct) explanation is that thrifty consumers just wanted to save money. But when economists turn away from financial markets, and move into topics like the family or inter-ethnic violence, our models rarely omit social motives. Friedman’s star student, Nobel laureate Gary Becker (who taught at least two of your Economix daily economists) pioneered the economics of the family. In those models, economics continues to celebrate the gains from interpersonal interactions, and altruism, not money, takes center stage. As an urban economist, I focus in my research on the advantages that cities create by connecting people to one another. Cities facilitate trade and learning and even friendship, by bringing people literally closer together. It is somewhat ironic that Rand chose Frank Lloyd Wright to be her model for lone wolf Roark. Wright is better seen as an example of the virtues of social learning, for he was part of a chain of connected Chicago architects — including William LeBaron Jenney, Daniel Burnham and Louis Sullivan — who learned from each other and collectively gave us, among other things, the skyscraper. The enduring strength of cities reflects the social nature of humanity which Professor Cacioppo so ably demonstrates. But the social nature of mankind — the fact that we depend on one another– helps make the case for the value of institutions like markets that help us work together. Fettering trade doesn’t respect the social nature of mankind; it works against it. [rc] Copyright 2009 The New York Times Company