Masel’s Bypass Wall Street: A Biologist’s Guide to the Rat Race

Bypass Wall StreetTyler Cowen described Joanna Masel’s Bypass Wall Street: A Biologist’s Guide to the Rat Race as “Darwin plus Fred Hirsch on positional goods as applied to finance and portfolios. Unorthodox, interesting.”

I agree with Cowen’s description of the book as unorthodox and interesting, although I was looking forward to more Darwin and more of a biological lens. As the title of the book implies, it provides a biologist’s view on savings and investment, and Masel’s background as a biologist – she is Associate Professor of Ecology & Evolutionary Biology at the University of Arizona – has likely guided her as to what arguments she is sympathetic to.

But the examination is not on the face of it from a biological perspective. Only two biological arguments directly referenced. The first is the distinction between absolute and relative competition. Relative competition can lead to wasteful arms races that are, on net, destructive of value. The second is a brief pointer to the competition between siblings for their parents’ finite attention and resources. If you asked someone to read Masel’s book and Robert Frank’s The Darwin Economy and guess who is the economist and who is the biologist, they’d likely guess their occupations the wrong way around.

A stronger influence has been some of Masel’s reading in economics. In the preface, she points to two books to which she owes an intellectual debt – Keynes’s The General Theory of Employment, Interest and Money, and Fred Hirsch’s Social Limits to Growth. Her analysis of savings and investment rests heavily on Keynes, and Hirsch’s views on positional goods provides a hook for her biological intuition that competition can be wasteful and zero sum.

The main thread of the book is the journey of “Jen” (a thinly disguised Masel?) as she decides how she should invest for her retirement. Masel builds up the analysis from near first principles and works through a set of possible investment options. She asks whether Jen should invest in stocks? Which stocks? Index funds? What are the future prospects of the stock market? If returns are unlikely to be strong, what are the other options? Is there a way to tap into areas traditionally the domain of public investment, such as health and infrastructure? What of more unorthodox options? And so on.

I won’t go into detail about where Masel lands – in some ways the most compelling part of the book is wondering just where Jen will end up – except to say that I doubt many people are going to find much guidance relevant to themselves. There are some points along Jen’s journey where I’m not convinced I agree, but they mostly relate to the finer points of what exactly savings and investment are, how it flows, and the like.

There are many moments in the book where Masel channels arguments argued in detail elsewhere – even though there is no sign that Masel has read these other sources. She shares Tyler Cowen and Robert Gordon’s view that many of the big innovations are over as part of her view that the stock market may be overvalued (although she is closer to Gordon’s pessimism). There are also many times where I could hear Robert Frank talking out of the pages, with her views on relative competition and public investment reflecting those of Frank.

On that point, the book is quite reference light – something Masel admits was deliberately done to avoid it becoming a heavily footnoted academic tome. I have some sympathy for that, but there are occasions in the book where I was longing for Masel to put up complements or counterpoints to her thinking and to discuss them.

Despite the different paths to get there, Masel often lands on conclusions that I have a lot of sympathy for. For example, she points out the crudeness of regulation defining “sophisticated” investors based on income or assets – which limits investment options for those who don’t meet the threshold. A university lecturer, who has likely forsaken material income in their career choice, does not meet the threshold despite likely being much more sophisticated than others who do.

She also mounts a strong argument for setting retirement accounts free. Today’s poor need the money now. There are many vested interests keen to keep people’s money locked in retirement accounts because of the fees they can charge. (As an aside, in Australia you can self manage your compulsory retirement savings – you can’t access them before retirement, but you have effective control on the asset allocation and who takes a cut.)

One other argument I have sympathy for is the role of education as a signal. Education can become susceptible to arms races, leading to over-investment compared to that which would optimally be obtained absent the relative competition.

To close, I will suggest a short reading list for Masel. Maybe she has already read some of these, but I expect she will find a lot of material of interest.

One comment

  1. As the author, I’m happy to reply to Jason’s questions and reading suggestions.

    • Robert Frank: Yes, I have read The Darwin Economy and Choosing the Right Pond (but not Luxury Fever). Frank and I indeed agree on the importance of the relative/absolute distinction and its biological inspirations. But beyond that, the policies we advocate are diametrically opposed on many counts, eg he advocates rather strong incentives to increase allocations to retirement accounts and other instruments administered by the financial oligopoly, while I call to abolish them. The key is in identifying which competitions are relative and which are absolute. I think everyone who has thought about the topic can agree that luxury spending is largely relative. But Frank thinks that if the money were saved instead, efficient capital markets would channel that into investment instead of consumption, and that investment would lead to absolute rather than relative advances. I disagree with that analysis for reasons laid out in my book, and would rather simply tax the rich regardless of their savings vs consumption choices, and spend it on public infrastructure and other public absolute opportunities. To give another example, Frank and I (and you Jason) agree that a lot of education is relative. But Frank (and I don’t know about you) seems to think that it is ALL relative, whereas I think that there is ALSO a non-negligible and, more importantly, potentially variable component of the absolute in education.
    • Veblen: I read and loved the Theory of the Leisure Class, but didn’t mention it because ultimately I find Hirsch’s version of the ideas to be more refined. I don’t think there is any disagreement between my views and Veblen’s, except Veblen was more cuttingly destructive (of what needs to be destroyed) than constructive. The ideas in my book may be difficult to implement, but I was trying to avoid only analyzing the problems, without proposing any solutions at all. BTW, I also love Veblen’s The Higher Learning in America, and strongly recommend it.
    • I have read Cowen’s The Great Stagnation, and I hope I am familiar with Gordon’s ideas although I never got around to reading the original. I haven’t read the counterpoint in the original either, just followed some of the arguments back and forth on the blogosphere, and found the Cowen/Gordon side of things far more persuasive. My biggest influence on the this issue was reading Alex Field’s “A Great Leap Forward: 1930s Depression and U.S. Economic Growth”. To get perspective on something close, the information deficit is usually not about the thing close to us, but on the points of comparison. You can chalk this up to my perspective as a biologist if you like: studying evolution makes you respect the importance of history, and the dangers of glorifying the thing right in front of you instead of seeing it as one instance of a perhaps typical phenomenon. While my book makes it clear that I broadly agree with the Cowen/Gordon diagnosis, I think the Hirschian lens adds another layer of meaning to it. Perhaps as a result, I may disagree somewhat with Cowen about prescribed treatments.
    • Thanks for the headsup on The Case Against Education, I look forward to it! As for what biology adds, let’s see if I can give you the short version of my not-yet-written-up-anywhere ideas on this. I’ll skip over the diagnosis of the problems, where I suspect we already agree that signaling theory plays a big role. So jump to a thought experiment: if Stanford were to open up the Stanford Testing Service and charge $5-10K for a thorough evaluation and accreditation, it would probably work amazingly well as a business model, given the declining signal quality of most university degrees and the fact that qualified professionals could easily do a better job at assigning signals, especially if they didn’t also have to do the teaching. But they haven’t done it: instead, Western Governors University is a “major” player in this limited arena. Why is this? Why is money being left on the table? I believe the answer has to do with human status-based behaviors and relationships. As they say about academics, we teach for free and they pay us to grade. Listening to signal-seekers closely enough to evaluate them is a low status activity. I could expand on this, but that’s the short answer.
    • Nelson & Winter: haven’t read it, I’ll add it to my reading list.

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