Why did Main Street hate the bailout plan so much? Evolutionary psychobiology has an answer.
Last Monday, in the worst financial crisis in a century, the House voted "no." The representatives of the people, after prolonged deliberation and sometimes rancorous debate, said no, we will not appropriate $750 billion to bail out Wall Street and pick up the tab for years of reckless greed.
The financial press-not to mention the President, the Secretary of the Treasury, the head of the Federal Reserve, and the leadership of both parties-spun it differently. They said that a handful of members of Congress had declined to save the world.
But the Representatives were hearing from the people. In most districts the email and phone calls from Main Street were overwhelmingly—six to one, ten to one, even twenty to one—against the bill, and the anger in those messages was intense.
Financial bigwigs called the people stupid, and the press called the legislators selfish careerists looking only to re-election. And because there were more Republican than Democratic "no's" the Republicans were said to be even more stupid and selfish.
But look closer. First, 95 Dems joined 133 Republicans to defeat the bill; if the bill was bipartisan, so was the defeat.
Second, the plan was no slam-dunk. Two hundred economists wrote to Congress opposing the plan. Some financial gurus said it would give us the Japanese economy of the ‘90s: prolonged agony instead of the short, sharp, cleansing pain of failure, followed by a healthy recovery.
Third, to say it was conceived in haste is the understatement of the fiscal year. The original plan submitted by the Treasury was 2½ pages long. As one opponent put it, she and her colleagues got a letter from Henry Paulson saying Dear Congress, Give me $750 billion. Love, Hank.
Fourth, the accusers showed little grasp of the Constitution. It designed a bicameral legislature with an upper chamber facing re-election every six years and a lower chamber facing the folks back home biannually.
They wanted the Senate to be above the fray of day-to-day politics, an elite group acting in reasoned judgment, not fear of popular whim; the House would be close to the people, its members more like common people themselves. If the Founders had wanted them to be un-political, they wouldn't have them facing election almost constantly.
So we can forget the idea that they should have courageously ignored their "stupid" constituents. But why so much anger and opposition from Main Street to a plan that was supposed to save Main Street?
The answer lies in a key concept of evolutionary psychology and game theory: altruistic punishment. The simplest version is the Ultimatum Game. I am given ten dollars, of which I can give you any portion. You can only accept or reject my offer, and in the latter case both players get nothing. Even when the game is played anonymously and one time only, many players reject low offers.
This makes rational choice theorists queasy. You are offered a couple of dollars free and clear, and you say no? As my mother used to say, you are cutting off your nose to spite your face. Or as game theorists put it, you are irrationally paying two dollars for the privilege of letting me know what you think of my lousy offer, even though you can't directly benefit; by inference (and this is shown in more complex games) you are paying a price to benefit others who might encounter this unfair person.
The tendency to reject unfair offers is cross-culturally very widespread, and individual variation is genetically influenced and associated with physiological measures such as activity in the insula, which mediates the relationship between emotions, including disgust, and decision-making. Artificially lowering serotonin levels (the opposite of what anti-depressants do) increases rejections.
So rejecting unfair treatment is part of human biology. In other games, players routinely pay to impose a cost on others they think have acted unfairly. Are they stupid? Perhaps in an absolutely rational calculation, but that is not what we are designed to make.
We evolved in face-to-face groups where we could count on many further iterations of the game, and it was indeed rational to punish unfair people, making them less likely to act unfairly again. Not surprisingly, people in small-scale societies are if anything more sensitive to unfair treatment than others. We are not prepared for the artificial game in which we will never see those people again.
But the people on Main Street are in an ongoing game against the fabulously wealthy, unfathomably powerful, and infuriatingly unfair players of Wall Street. People spent their time and money letting Congress know of their anger, even though their actions would benefit millions who didn't write or call. It's not that Main Street was too stupid to realize it would pay a high price for rejecting the plan; Main was willing to pay that price to punish Wall.
Just spite? I don't think so. As in the Ultimatum Game, the Wall Street player doesn't get to keep his eight dollars after giving you two; you reject the offer, and he loses his gains. You end up with nothing but satisfaction, as he loses what he would have had if you'd said yes. You have paid to teach him a lesson, both for your own future benefit and that of others.
Main Street had enough of Wall Street's greed, and was ready to pay to slap it down. The shocked look on the faces of the big financial players after that vote Monday was worth a lot of Main Street pain.
By Friday, strings had been pulled, explanations given, compromises made, and a new bill passed. We will never know how bad the crisis would have been without it. But we'll soon know how bad it will be in spite—so to speak—of this massive government bailout.