Todd J. Zywicki

Was Hayek Right about Group Selection after All?: Review Essay of Unto Others: The Evolution and Psychology of Unselfish Behavior, by Elliott Sober and David Sloan Wilson

One of the most controversial aspects of Hayeks social theory was his acceptance of the concept of cultural group selection. The publication of Unto Others: The Evolution and Psychology of Unselfish Behavior provides an opportunity to revisit this much-maligned component of Hayeks thought. Sober and Wilson are concerned with biological group selection, but much of their argument is equally applicable to cultural group selection. This essay revisits Hayeks views on cultural group selection in light of the model proposed by Sober and Wilson. Comparing their model to Hayeks model suggests that group selection theories are more plausible than traditionally thought and that their viability in any given situation is an empirical, not an a priori, question. So long as there are benefits to a group from greater levels of altruism and cooperation, and so long as free rider problems can be mitigated, group selection models are plausible.

Behavior, Paternalism, and Policy: Evaluating Consumer Financial Protection

This paper examines the relationship between behavioral law and economics (BLE) as a policy prescription platform and its influence on the regulations emerging from the Consumer Financial Protection Bureau (CFPB). We show how these regulations are inconsistent with the intent and purpose of improving consumer choices. We further demonstrate that the selective modeling of behavioral bias in the BLE framework causes an overestimation of the ability of regulators, who in actuality use inefficient, heavy-handed rules based on little if any real empirical findings of “consumer irrationality.” Accordingly, the broader lesson on the misapplication of behavioral economics goes beyond the ill-considered policies emerging from the CFPB.

Debit, Credit and Cell: Making Canada a Leader in the Way We Pay

Canadians are avid users of debit and credit cards and other electronic payment options. Compared to consumers in other countries, they are among the heaviest users of debit cards to make purchases at retail stores. But Canada’s payment system has fallen behind – cell phones with payment capabilities have been around for years in some countries, but are only starting now to make inroads in Canada. Cheques, which are relatively costly and slow to clear, are still widely used, with about one billion of them written annually in Canada. And Canadian debit cards lack features taken for granted in other parts of the world, such as the ability to use them for many online transactions and at stores located abroad. In this Commentary, we argue that the country’s current payment technologies and governance infrastructure must change.

Consumer Use and Government Regulation of Title Pledge Lending

Recent years have seen growth in the use of certain types of nontraditional lending products, such as payday lending and auto title lending, and a relative decline of others, such as finance companies and pawnbrokers. Congress is currently considering major new regulations on short-term lending products, such as title lending, that could produce their demise - even though there is no evidence that such products were related in any way to the financial crisis. This study examines the question of who uses title pledge lending and why. The results are surprising. I find that title pledge lending is used predominantly by three distinct subgroups of borrowers: First, moderate-income borrowers with impaired credit who are excluded from superior credit products such as credit cards and who use title pledge lending in preference to payday loans (the next-closest alternative). Second, unbanked consumers, often immigrants, who are unable to access other credit products (especially payday loans) because access to more mainstream credit products requires having a bank account. Third, independent small businesses such as those who run a landscaping or handyman business who use title pledge loans as a source of working capital. Each of these three groups of borrowers use title loans for very different purposes and raise very different questions as a matter of regulatory policy. Yet current regulatory policy, and proposed new regulations by Congress, treat them all with a one-size-fits-all form of regulation. Ill-fitting one-size-fits-all regulation of title pledge lending could have severe negative consequences for consumers. By making this particular form of credit less available or more expensive, poorly conceived regulation could force many borrowers to greater use of less preferred types of credit, such as payday loans or pawnshops, greater use of products that are inappropriate for their situation, such as credit cards, or even increased use of illegal loan sharks. Greater regulation may also interfere with the simple pricing structure of title pledge loans, which is one major appeal of the product to many customers. Finally, by drying up an important source of short-term working capital for small, independent businesses, regulation could stifle entrepreneurship and economic recovery.

Gordon Tullock's Critique of the Common Law

This article is part of a symposium on the work of Gordon Tullock, to be held in connection with the presentation to Tullock of the Lifetime Achievement Award of the Fund for the Study of Spontaneous Orders at the Atlas Research Foundation, for his contributions to the study of spontaneous orders and methodological individualism. This contribution to the symposium studies Tullocks critique of the common law. Tullock critiques two specific aspects of the common law system: the adversary system of dispute resolution and the common law process of rulemaking, contrasting them with the inquisitorial system and the civil law systems respectively. Tullocks general critique is straightforward: litigation under the common law system is plagued by the same rent-seeking and rent-dissipation dynamics that Tullock famously ascribed to the process of legislative rent-seeking. This article reviews Tullocks theoretical critique and empirical studies on both issues. The article concludes that Tullocks critique of the adversary system appears to be stronger on both theoretical and empirical grounds than his critique of the common law system of rulemaking.

Reconciling Group Selection and Methodological Individualism

Methodological individualism underpins economic analysis. In his paper in this volume, however, Douglas Glen Whitman demonstrates that group selection can be reconciled with methodological individualism. This essay extends Whitman’s analysis in two ways. First, it summarizes and restates the necessary conditions for group selection to play a role in the evolution of human preferences and societies. Second, it discusses the role of group selection in Hayek’s thought, with a particular focus on the role of group selection in the evolution of legal rules and the rule of law. The viability of group selection is demonstrated to be an empirical question.

The Past, Present, and Future of Bankruptcy Law in America

This essay reviews David A. Skeel, Jr., Debts Dominion: A History of Bankruptcy Law in America. Although nominally a book about the history of bankruptcy law in America, Skeels book is a comprehensive analysis of the past, present, and future of bankruptcy law in America. Skeel divides the history of bankruptcy law in America into three historical stages: the Nineteenth Century, the era of the 1898 Bankruptcy Act and the Great Depression, and the modern era of the 1978 Bankruptcy Code. As Skeel notes, the shape of bankruptcy law and practice throughout American history is at least as much a factor of political considerations and influence as economic considerations. To develop his point, Skeel draws on the fields of public choice and social choice, both of which apply the assumptions and tools of economics to the study of political science. Skeel uses these tools to shape his narrative, giving his argument an analytical edge that prior historical studies of American bankruptcy law have lacked. In particular, American bankruptcy law can be understood as resulting from the clash of three sets of interests: pro-debtor ideological interests (often spearheaded by law professors), creditors, and bankruptcy professionals (including bankruptcy judges). Although the outcome of this three-way struggle is unclear at any given moment, the dominant course of evolution of American bankruptcy law has been towards increasingly-generous bankruptcy laws that provide strong incentives for both individual and corporate debtors to file bankruptcy. Building on Skeels insights, I then offer my own impressions of the current debate over the bankruptcy reform act as well as the future of bankruptcy law in America. Although largely explained by the factors identified by Skeel, the current debate over the bankruptcy reform act has introduced a new element to the traditional debate - an ideology of personal responsibility ushered in by the Republican takeover of Congress in 1994 that has offset the traditional dominance of prodebtor ideology. At the same time, the bankruptcy system has become sufficiently unbalanced in a prodebtor direction that creditors have been able to overcome the collective action problems that have undermined prior reform efforts. These historical developments have made bankruptcy reform possible, unlike reform efforts in the past. With respect to the future of bankruptcy law, this essay argues that the likely result will be global convergence on efficient bankruptcy laws. Building on prior work demonstrating convergence on efficient corporate law rules in the American federal system, this essay argues that globalization will drive a similar convergence on efficient bankruptcy laws. This will encourage countries with excessively prodebtor laws, such as the United States, to adopt less-generous laws; it should also induce European countries to loosen their laws so as to encourage greater entrepreneurship and risk-taking.

Do Americans Really Save Too Little and Should We Nudge Them to Save More? The Ethics of Nudging Retirement Savings

The contention that consumers systematically “undersave” for retirement is a frequent example provided by adherents to behavioral economics and behavioral law and economics to purportedly illustrate their theories. Although frequently asserted, the claim that people systematically undersave is rarely assessed empirically. This article, written for the Georgetown Institute for the Study of Markets and Ethics Symposium on “The Ethics of Nudging,” examines available data on how many people fail to save and the reasons why they do not. According to available evidence, the overwhelming number of households saves enough or more than they need for retirement; only a small minority does not seem to save enough. Those who do not save for retirement lack the money to do so or allocate available resources to paying down consumer and student loan debt. Behavioral economics theories explain little of the observed patterns of saving or non-saving behavior. Moreover, behavioral economics itself suggests that many people probably oversave for retirement and makes no effort to reconcile these offsetting biases. More fundamental, once it is recognized that there is an opportunity cost to saving more—one must consume less today, borrow more, or work more—the theoretical validity of the claim that people undersave because of behavioral biases is suspect. Given the inherently subjective nature of opportunity cost, a central planner cannot be confident that he can make people better off by influencing their consumption expenditures across time than he could by shifting consumption expenditures across different goods and services today. It is concluded that there is little reason to believe that people would be made better off by nudging them to save more for retirement.

Rent-Seeking, Crony Capitalism, and the Crony Constitution

In the United States, the term “crony capitalism” refers to a political-economic system that resembles traditional political “corporatism.” As used here, it describes a system in which government, big business, and powerful interest groups (especially labor unions) work together to further their joint interests. Government protects and subsidizes powerful corporations and in (implicit) exchange, the government uses those businesses to carry out government policies outside of the ordinary processes of government. Unlike simple models of political rent-seeking, in which businesses use government to advance their own interests in exchange for electoral support, under crony capitalism politicians and regulators use businesses to advance the interests of politicians and interest groups in a symbiotic relationship: government creates rents and then distributes them to itself and favored interests. Many of the relationships that grew up during the financial crisis and its aftermath through legislation such as the Dodd-Frank financial reform legislation illustrate the differences between crony capitalism and mere rent-seeking. Given the mutually reinforcing benefits created by this system, it is argued that prospects for reform are dim unless constitutional structures are built to restrain this system.

The Changing of the Guard: The Political Economy of Administrative Bloat in American Higher Education

The cost of higher education in the United States has risen dramatically in recent years. Numerous explanations have been provided to explain this increase. This paper focuses on one contributing factor: The dramatic growth in the size and expense of non-academic administrators and other university bureaucrats, which has outpaced the growth of expenditures on academic programs. Given that university faculty are typically viewed as the constituency that primarily controls universities, this growth of non-academic employees and expenses appears to be anomalous. Some theories are provided to explain this transition.