So we learned something by being willing to suspend our disbelief and trust that people know what they want. Becker and Stigler however want us to go a step further—to assume preferences are stable, in the sense they are not influenced by whatever is going on around us. Neither schools, nor the exhortations of parents or preachers, nor the stuff we read on billboards or on our many screens, in this view, change our true preferences. This rules out conforming to social norms and being influenced by one’s peers, like getting a tattoo because everyone else has one, wearing a headscarf because it is expected of one, buying a flashy car because the neighbors have one, and so on.
Becker and Stigler were too good as social scientists not to realize this was not always the case. But they believed it was more useful to ponder why a particular seemingly irrational choice might actually make sense, rather than to close our minds to its potential logic and attribute it to some form of collective hysteria. This view was enormously influential; many, perhaps most, economists bought into this agenda of sticking to what have come to be known as standard preferences, meaning preferences that are coherent and stable. For instance, many years ago Abhijit was living in Manhattan and teaching at Princeton, and thus often found himself on a train. He noticed people often formed lines at specific places on the platform to wait for their train, but as often as not, the front of the line would be nowhere near a door to the train. It was a fad.
A natural conclusion might have been that people just went with the flow because they preferred doing the same as everyone else. This would have violated the idea that preferences are stable, because their preference for one place on the platform over another depended on how many people were there. To explain why people join fads without simply assuming they happen to like behaving like everyone else, Abhijit constructed the following argument. Suppose people suspect that others know something (perhaps the train door will open at a particular spot). They would then join the crowd (perhaps at the cost of ignoring their own information that the train is likely to stop somewhere else). But that would make the crowd bigger, and so the next person coming along would see an even bigger crowd and be even more likely to think this conveyed useful information. They might also join the crowd, for the same reason. In other words, what looks like conformity could be the outcome of rational decision making by many individuals with no interest in conforming, but who believe others might have better information than they. He called it a “simple model of herd behavior.”5
The fact that each individual decision is rational does not make the outcome desirable. Herd behavior generates informational cascades: the information on which the first people base their decision will have an outsized influence on what all the others believe. A recent experiment nicely demonstrates the power of random first moves to generate cascades.6 Researchers worked with a website that aggregates advice on restaurants and other services. Users post comments, and other users add an up- or down-vote. In their experiment, the website randomly chose a small fraction of comments and gave them one artificial up-vote as soon as they were posted. They also randomly chose another small batch to get a down-vote. The positive up-vote significantly increased the probability that the next user also gave an up-vote, by 32 percent. After five months, the comments that had received one single artificial up-vote at the beginning were much more likely to get a top grade than those that got a single down-vote. The influence of that original nudge persisted and grew, despite the fact that the posts had been viewed a million times.
Fads, therefore, are not necessarily inconsistent with the paradigm of standard preferences. Even when our preferences do not directly depend on what other people do, the behavior of others can convey a signal that alters our beliefs and our behavior. In the absence of a strong reason to believe otherwise, I might infer from other people’s actions that a tattoo does look good, that drinking banana juice will make me slim, and that this harmless-looking Mexican man is really a rapist at heart.
But how can we explain that people will sometimes do things they know not to be in their immediate self-interest (for example, getting a tattoo they find ugly or lynching a Muslim man at the risk of being arrested) just because their friends do it?
COLLECTIVE ACTION
It turns out that just as fads can be rationalized by standard preferences, so can sticking to social norms. The basic idea is that those who violate the norm will be punished by the rest of the community. And so will those who fail to punish violators, and those who fail to punish those who fail to punish those who fail to punish, and so on. One of the great achievements of the field of game theory is the folk theorem, a formal demonstration that this argument can be made in a logically coherent way and can therefore be a candidate for explaining why norms are so powerful.7
Elinor Ostrom, the first (and so far the only) woman to receive a Nobel Prize in economics, spent her career demonstrating instances of this logic. Many of her examples were drawn from small communities—cheese makers in Switzerland, forest users in Nepal, or fishermen on the Maine coast or in Sri Lanka8—who live by a norm about how community members were supposed to behave that everyone stuck to.
In the Alps, for example, Swiss cheese producers had for centuries relied on common ownership of a pasture for cattle grazing. If there had been no communal understanding, this could have led to disaster. The land might have been overgrazed to barrenness since it belonged to no one and everyone had a reason to want to feed their own cows more, potentially at the expense of the others. However, there was a set of clear rules for what cattle owners could and could not do on the common pasture, and those rules were followed because violators were excluded from future grazing rights. Given that, Ostrom argued, collective ownership was actually better for everyone than private property. Dividing the land into small parcels, each owned by a separate person, increases risk, since there is always the possibility of some disease hitting the grass in any given small area.
This kind of logic also explains why, in many developing countries, a part of the land (for example, the forest abutting the village) is always held as common property. As long as the common land is used sparingly, it provides a resource of last resort for those villagers whose own economic plans have hit some headwinds; foraging in the forest or selling grass cut from the common land helps them survive. The intrusion of private property into these settings, generally inspired by economists who don’t understand the logic of the context (and love private ownership), has often been a disaster.9
It also suggests a selfish reason for why people in villages often seem to help each other out; it is probably partly in anticipation of receiving similar help when they need it.10 The punishment sustaining the norm is that those who refuse to help will themselves be excluded from the community’s help in the future.
Systems of mutual help are vulnerable to collapse if some community members have opportunities outside. Then the risk of being excluded is not that terrifying anymore, making it tempting to default on obligations. Anticipating this, community members may be more reluctant to help, further increasing the temptation to default. The whole system of mutual support may unravel totally, leaving everyone worse off. The community is therefore very alert to, and protective against, behavior that seems to threaten the communal norms.
COLLECTIVE REACTION
Economists have generally emphasized the positive role communities play.11 But the fact that norms can be self-enforcing does not necessarily make them good. The discipline they impose could be directed toward some reactionary, violent, or destructive cause. A now classic paper showed that both racial discrimination and India’s notorious caste system can be sustained by the same logic, even if no one actually cares about race or caste.12
Suppose no one actually gives a damn about caste, but anyone who crosses caste lines in sex or marriage is charged with miscegenation and treated like an outcast, meaning nobody will marry into their family and no one will befriend or associate with them. And finally suppose that anyone
who defies this norm and marries an outcast also becomes an outcast. Then as long as people are sufficiently forward-looking, and that they do want to get married, this will be enough to stop everyone from breaking the rule, however arbitrary everyone feels it is. Of course, this could shift if enough people start defying the norm. But there is no guarantee it will ever happen.
This is very much the story at the heart of Samskara, a wonderful 1970 Indian film directed by Pattabhi Rama Reddy, in which a Brahmin (and hence a member of the so-called highest caste) becomes “polluted” by sleeping with a low-caste prostitute. When he suddenly dies, no other Brahmin is willing to cremate him for fear of being polluted by contact with him. His body is left to rot in public.The norm becomes a perversion of the community’s rules precisely because the community is stuck in enforcing its own standards.
THE DOCTOR AND THE SAINT
This tension between the community that binds and the community that bullies is of course age old and universal. And it translates into the tension between a state that protects the individual and a state that undermines the community, which is at the heart of a battle ongoing in countries as diverse as Pakistan and the United States. The fight is partly against the bureaucratization and impersonality that come with state interventions, and partly to preserve the right of the community to pursue its own goals. Even if these goals include, as they often do, discriminating against people with different ethnicity or sexual preferences, as well as the enforcement of religious diktats over those of the state (teaching creation science, for example).
In the Indian national movement, Gandhi famously represented the view that the new Indian nation should be based on decentralized self-reliant villages, havens of peace and fellow-feeling. “The future of India lies in its villages,” he wrote. His most remarkable opponent in the movement was Dr. B. R. Ambedkar, the man who would eventually draft the Indian constitution. Born into the very lowest caste, not allowed to enter the classroom in the local school, he was so brilliant that he nevertheless ended up with two PhDs and a law degree. He famously described the Indian village as “a sink of localism, a den of ignorance, narrow-mindedness and communalism.”13 For him, the law, the state as its enforcer, and the constitution from which it derived its force, were the best guarantors of the rights of the underprivileged against the tyranny of the locally powerful against the community.
The history of independent India has been a reasonable success in terms of integrating the castes. For example, the wage gap between the traditionally disadvantaged castes (SC/STs) and others dropped from 35 percent in 1983 to 29 percent in 2004.14 This does not look so spectacular, but is more than the improvement in the wage gap between blacks and whites in the United States over a similar time period. In part this is the result of the affirmative action policies Ambedkar put into place, which gave historically discriminated groups privileged access to educational institutions, government jobs, and the various legislatures. Economic transformation also helped. Urbanization, by making people more anonymous and less dependent on their village networks, has permitted greater mixing of the castes. New jobs lowered the importance of the caste network in finding employment opportunities and increased the incentives for young people from lower castes to get educated. In part the village community was also perhaps less bad than Ambedkar had feared. Villages have proven capable of collective action that transcends caste lines, for example, when they embraced universal primary education and free school meals for all children, regardless of caste.
This is not to say the problem of caste has been solved. At the local level, caste prejudice is alive and well. A study of 565 villages in eleven Indian states found that despite legal bans, some form of untouchability continued to be practiced in almost 80 percent of the villages. In almost half of the villages, Dalits (members of the lower castes) could not sell milk. In about a third of them, they could not sell any goods on the local market, they had to use separate utensils in restaurants, and access to water for irrigating their fields was restricted.15 Furthermore, while traditional forms of discrimination are weakening, upper castes also react with violence to the perceived threat of the economic progress of lower castes. In March 2018, a young Dalit man in the state of Gujarat was killed for owning and riding a horse, something apparently only upper castes are allowed to do.
To complicate matters, a newer pattern of conflict is emerging; caste groups now see each other as closer to equals but also as potential rivals for power and resources.16 In politics, there is increasing caste polarization in voting; an increasing fraction of the votes of the upper castes go to the Bharatiya Janata Party (BJP), the one party not committed to affirmative action.17 Other parties have emerged to cater specifically to different caste groups. This polarization has consequences. In Uttar Pradesh, India’s most populous state, the complexion of politics changed drastically between 1980 and 1996. Areas dominated by lower castes voted more and more for the two parties identified with the low castes, whereas the areas dominated by upper castes continued to vote for the parties traditionally associated with them. During the same period, corruption exploded. An increasing number of politicians had a case opened against them, some even fighting (and winning) reelection campaigns from jail. Abhijit and Rohini Pande found there was a connection: corruption increased the most in areas where either the upper castes or the lower castes were a large majority.18 In those areas, as a result of caste-based voting, the candidate of the dominant caste was all but assured to win, even when he was extremely corrupt and the opponent was not. Nothing like that happened in areas where the population was balanced.
At the same time, the importance given to caste loyalty also allows the community to exercise control over its members, often in clear violation of the law of the land. For example, the caste panchayats (essentially local caste associations) have actively resisted the state’s writ on sex and marriage in the name of tradition. In a grotesque incident in the state of Chhattisgarh, a fourteen-year-old girl who had been raped by a sixty-five-year-old man was advised by the local caste panchayat not to go to the police about it. When she persisted, she was thrashed by some of the elders of the community, both male and female. A strong community can oppress its weakest members (the Dalits yesterday, today the young woman), and the state is largely powerless to stop it, in part because a majority of community members find it in their interest to uphold community control. As long as they conform, the caste collective offers members access to a web of support and comfort in time of need, and while its brutal underside might bother them from time to time, it takes a brave man or woman to take on the entire community.
“BLACK GUY ASKS NATION FOR CHANGE”19
This 2008 headline from the satirical newspaper the Onion captures just how remarkable Barack Obama’s presidential candidacy was for the United States. The play on words highlighted the contrast between the stereotype of a black man as a freeloader (begging for small change) and Obama as an inspirational leader (asking for cultural change). It is easy to forget there were fewer than forty-five years between the Freedom March and the election of the first African American president. Much has changed in race relations in the years since the civil rights movement, a lot for the better. This made it possible for the country to elect Obama, just as the president and the prime minister of India in 2019 were from the erstwhile backward castes, something equally unthinkable forty-five years ago.
On the other hand, while the African American population today is much better educated than it was in 1965, the income gap between white and black men with similar education has been growing and is now as much as 30 percent, more than that between the scheduled castes and the other castes in India.20 Black Americans have substantially lower rates of upward mobility and higher rates of downward mobility than whites.21 This clearly is related to the much discussed large gap in incarceration rates between black males and everyone else,22 but it is also related to a persistent segregation in neighborhoods and schools.
Despit
e the fact that white males seem to have no reason to feel economically threatened by African Americans, there is evidence of rising (or at least more open) articulation of anti-black sentiments in recent years. According to the FBI, the number of hate crimes rose by 17 percent in 2017. It was the third consecutive year they increased. They started rising in 2015, after a long period when they had been flat or declining. Three out of five hate crimes targeted a person’s ethnicity.23 Nine candidates who were self-described white supremacists or had close ties to white supremacists ran for office in the congressional elections in 2018.24
THIS TIME IT’S DIFFERENT
The dominant story in the United States since the 2016 elections, however, is not the mistrust of African Americans, but the open rage against immigrants, which goes well beyond purely economic resentment.
Immigrants do not only “take” “our” jobs; they are “criminals and rapists” who threaten the very survival of whites. Interestingly, within the US the fewer immigrants there are living in a state, the less liked they are. Nearly half of residents in states with almost no immigrants—like Wyoming, Alabama, West Virginia, Kentucky, and Arkansas—believe immigrants represent a threat to American culture and values.25
This suggests the worry has more to do with identity than with economic anxiety. The logic seems to be more that in the absence of much contact, it is easy to imagine that the unseen group is fundamentally different.
Good Economics for Hard Times Page 13