From John Locke in the seventeenth century to Robert Nozick in the twentieth, libertarians have appealed to individual enforcement as the frontline m… - Joseph Heath

One of my favorite Paul Krugman papers is called “Ricardo’s difficult idea” — on why people have such a hard time understanding the concept of “comparative advantage.” Although the situation is not quite as bad, I’ve been struck recently by how much difficulty many people have trying to understand the concept of a “collective action problem.” Although that idea has a bit more history to it, I don’t think it’s too much of a distortion of the record to call this “Hobbes’s difficult idea.”

What are we to conclude from all this? The most obvious lesson is simply that human psychology is infernally complicated. The standard assumptions that economists have been known to make about human rationality and the way that people respond to incentives represent a gross oversimplification. Sometimes this simplified model produces incredibly powerful, highly generalizable results. But sometimes it generates predictions that are totally off base. Increasingly, economists are becoming aware of this—there has been a significant move toward so-called behavioral economics within the profession. This approach, as the name suggests, pays a lot more attention to how people actually behave. Unfortunately, behavioral economists have yet to generate anything with the explanatory and predictive power of “the model” that is taught in Economics 101, and so the latter continues to exercise its intoxicating (and sometimes toxic) influence on the minds of the young.

Capitalism is not a spontaneous order. The compositional fallacy, however, makes it tempting to believe that it is. Since it is in everyone’s interest to have a system of property rights, or to have the orderly exchange of goods, won’t people just naturally tend to organize their affairs in that way? Who needs government to step in? Yet as it turns out, we do need government to step in, even to secure the most basic conditions for a functioning market economy. Two boys trading marbles in the schoolyard may constitute a spontaneous order, but the capitalist economic system is a highly artificial construct, based upon an elaborate set of social programs that have been refined and tweaked over the course of centuries.