I am familiar with philosopher Michael Sandel mainly because his Justice course is often in competition with Greg Mankiw’s Ec10 for the title of largest undergraduate course at Harvard. (I think this is the case because both of them satisfy some sort of Social Analysis core requirement, but I am not aware of the details.) Therefore, it’s somewhat fitting that I read some of his writing and immediately envision a debate between him and a number of economists that goes something like the following:
Sandel: Today, we often confuse market reasoning for moral reasoning. We fall into thinking that economic efficiency—getting goods to those with the greatest willingness and ability to pay for them—defines the common good. But this is a mistake.
Esther Duflo: If this were true, why would I be wasting my time thinking about how best to get stuff to poor people? Clearly they don’t have the greatest willingness and ability to pay for, well, anything. (Editor’s note: While it is true that economic efficiency, as a starting point, is defined by stuff going to those with the greatest willingness and ability to pay, it’s not like all economists are philosophical simpletons who don’t recognize that income inequality and other factors can make interpersonal comparisons of value as measured by willingness to pay difficult. See here for People’s Exhibit A. But that’s an excuse to tweak the models, definitions, and recommended policies rather than throw them out entirely. Furthermore, I think that lump-sum taxes- taxes where everyone pays the same amount regardless of wealth or income- prove nicely that economists do not contend that what is efficient is fair, since I don’t hear any economists calling for this sort of policy.)
(Note: Updated to include additional data points.)
Ben Friedman: Okay fine, I did write a book entitled The Moral Consequences of Economic Growth, and I did make the argument that there are positive moral spillovers from economic growth, but if I just assumed that economic efficiency and moral good were one and the same, would I have bothered to write 592 pages about it? Let’s chat- after all, my office is only a couple hundred feet from yours.
Sandel: Consider the case for a free market in human organs—kidneys, for example. Textbook economic reasoning makes such proposals hard to resist. If a buyer and a seller can agree on a price for a kidney, the deal presumably makes both parties better off. The buyer gets a life-sustaining organ, and the seller gets enough money to make the sacrifice worthwhile. The deal is economically efficient in the sense that the kidney goes to the person who values it most highly.
But this logic is flawed, for two reasons. First, what looks like a free exchange might not be truly voluntary. In practice, the sellers of kidneys would likely consist of impoverished people desperate for money to feed their families or educate their children. Their choice to sell would not really be free, but coerced, in effect, by their desperate condition.
Al Roth: Sigh. *rolls eyes and shines Nobel Prize* On the up side, it’s because of people like you that I am sitting on a pile of Swedish cash. (Editor’s note: So I can go work in a coal mine to support my family but I can’t sell a kidney? I have a feeling I’m going to be pretty pissed off when I look up the rates of negative outcomes for those two cases. Also, by Sendel’s logic, I am coerced to go to work every day, so somebody has really got to step in and protect me from that. Anyone? Bueller?)
Dick Thaler: You’re right in that the market for kidneys is likely not a properly functioning market…but that’s mainly because the endowment effect makes people unreasonably unwilling to part with their kidneys. If only we were “free” to not be irrationally loss averse…
Sandel: The second limitation to market reasoning is about how to value the good things in life. A deal is economically efficient if both parties consider themselves better off as a result. But this overlooks the possibility that one (or both) of the parties may value the things they exchange in the wrong way. For example, one might object to the buying and selling of kidneys—even absent crushing poverty—on the grounds that we should not treat our bodies as instruments of profit, or as collections of spare parts. Similar arguments arise in debates about the moral status of prostitution. Some say that selling sex is degrading, even in cases where the choice to do so is not clouded by coercion.
Every Economist Ever: The “wrong way?????” Who in the hell are you to tell people what they “should” be valuing? Some economists may try to account for tastes, but none of us are presumptuous enough to tell anyone what their tastes should be. (Editor’s note: As a personal example, people can tell me that I *should* value a white picket fence and 2.2 kids, and I might even see the logic in the argument. That doesn’t mean, however, that such items would actually make me happy. If there were significant positive externalities to me having the fence and the kids, I might understand and accept being herded to this outcome, but, absent those side effects, I find little justification, moral or economic, to legislating based on values.)
Behavioral Economists: Okay, we get it, people are sometimes irrational and don’t always act in their long-term best interests. We’re working on understanding the nature of short-sightedness and how people could be helped by various forms of commitment devices or nudges to better align their incentives with their long-term happiness. But that is very different from saying “I arbitrarily think that this is immoral, therefore you shouldn’t do it.”
Sandel: Increasingly, we accept this way of thinking and apply it to all manner of public policies and social relations. But the economistic view of the world is corrosive of democratic life. It makes for an impoverished public discourse, and a managerial, technocratic politics.
Every Economist Ever: You object to the term “incentivise” but just willingly used “economistic?” (Or were you coerced? By your logic, it’s hard to tell sometimes.) Also, people would have to listen to economists and think way more like economists than they actually do in order for this claim to be credible. But hey, thanks for giving us the benefit of the doubt on our public relevance.
Sandel: Consider the growing use of cash incentives to solve social problems. The NHS is experimenting with what some have called “health bribes”—cash rewards to people for losing weight, quitting smoking, or taking their prescribed medications. In the United States, some school districts have tried to improve academic achievement among disadvantaged students by offering them cash rewards for good grades, high test scores, or reading books. A charity that operates in the US and the UK offers drug-addicted women £200 to be sterilised, or to accept long-term birth control devices.
As ruler of the world, I would not necessarily abolish these schemes. But I would insist that we ask, in each case, whether the cash incentive might degrade the goods at stake, or drive out non-market attitudes worth caring about. For example, if we pay kids to read books, do we simply add an additional incentive to whatever motivations may already exist? Or, do we teach them that reading is a chore, and so run the risk of corrupting or crowding out the intrinsic love of learning?
Behavioral Economists: DO YOU NOT READ OUR BLOG???? (picture them saying that a la Barney in How I Met Your Mother) As People’s Exhibits B and C, we would like to point you to the following:
The standard model of labor is one in which individuals trade their time and energy in return for monetary rewards. Building on Fiske’s relational theory (1992), we propose that there are two types of markets that determine relationships between effort and payment: monetary and social. We hypothesize that monetary markets are highly sensitive to the magnitude of compensation, whereas social markets are not. This perspective can shed light on the well-established observation that people sometimes expend more effort in exchange for no payment (a social market) than they expend when they receive low payment (a monetary market). Three experiments support these ideas. The experimental evidence also demonstrates that mixed markets (markets that include aspects of both social and monetary markets) more closely resemble monetary than social markets.
Economists usually assume that monetary incentives improve performance, and psychologists claim that the opposite may happen. We present and discuss a set of experiments designed to test these contrasting claims.
We found that the effect of monetary compensation on performance was not monotonic. In the treatments in which money was offered, a larger amount yielded a higher performance. However, offering money did not always produce an improvement: subjects who were offered monetary incentives performed more poorly than those who were offered no compensation. Several possible interpretations of the results are discussed.
Put simply, these are but two examples where economists are trying to understand exactly what it is that you claim we assume away- namely, the ways in which monetary compensation crowds out intrinsic motivation and satisfaction. The difference is that we’re busting our humps trying to actually gather data in order to understand how people think rather than just speculate on how they might think and then suggesting using such speculation as a blunt policy tool.
Sendel exhibits a consistent theme of wanting to revamp economics textbooks in order to incorporate philosophy and moral reasoning. Based on what I’ve read, what he really seems to want is economics textbooks to incorporate more of what economists actually think and actually do.