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Wednesday, June 10, 2009

2009 Reith Lectures: Markets and Morals

Have markets overstepped their societal bounds? Here's the radio broadcast from the BBC, and here is a (much shortened) transcript of Michaels Sandel's attempt to make the case that we need "a politics oriented less to the pursuit of individual self-interest and more to the pursuit of the common good" (also, I wish I had read this before writing the post below this one on financial community norms, his point that "norms matter" - see the Grand Canyon and Kyoto examples - is along the lines of what I was trying to say):

Reith Lectures 2009: A New Citizenship, Presenter: Professor Michael Sandel, Lecture 1: Markets and Morals: SUE LAWLEY: ...This year’s lecturer believes we need to think afresh about what we mean by ‘the common good’... He’s one of today’s most eminent philosophers and political thinkers. His course on justice at Harvard University is one of the most oversubscribed in the history of the place. And his books have received worldwide acclaim. So I ask you, please, ladies and gentlemen, to welcome the BBC Reith Lecturer for 2009: Michael Sandel. ...

[Y]ou’ve told me that you ... were thinking about, as you were becoming an academic, of studying Economics further; and then you decided, you decided it was “a spurious science”. Your words. Why? ...

MICHAEL SANDEL: It’s a spurious science in so far as it is used to tell us what we ought to do because questions of what we ought to do in politics or as a society are unavoidably moral and political, not merely economic questions, and so they require democratic debate about fundamental values. Economists can inform us about possible implications of policy choices, but they can’t tell us - and they don’t really claim to tell us - what’s right and wrong, what’s just and unjust. So I decided to veer into that line of work.

SUE LAWLEY: But we’re hoping that’s what you’re going to tell us during the course of these lectures. Hence, your first salvo: markets and morality. Michael, can I invite you to deliver Lecture number one? Thank you.

MICHAEL SANDEL: Well thank you, thank you very much. ...

We live in a time of financial crisis and economic hardship - everybody knows that - but we also live in a time of great hope for moral and civic renewal. ... Whatever reforms may emerge, one thing is clear: the better kind of politics we need is a politics oriented less to the pursuit of individual self-interest and more to the pursuit of the common good. That at least is the case I shall try to make in these lectures. ...

Which brings me to ... this first lecture. We’re living with the economic fallout of the financial crisis and we’re struggling to make sense of it. One way of understanding what’s happened is to see that we’re at the end of an era, an era of market triumphalism. The last three decades were a heady, reckless time of market mania and deregulation. We had the free market fundamentalism of the Reagan-Thatcher years and then we had the market friendly Neo-Liberalism of the Clinton and Blair years, which moderated but also consolidated the faith that markets are the primary mechanism for achieving the public good. Today that faith is in doubt. Market triumphalism has given way to a new market scepticism. Almost everybody agrees that we need to improve regulation, but this moment is about more than devising new regulations. It’s also a time, or so it seems to me, to rethink the role of markets in achieving the public good. There’s now a widespread sense that markets have become detached from fundamental values, that we need to reconnect markets and values. But how?

Well it depends on what you think has gone wrong. Some say the problem is greed, which led to irresponsible risk taking. If this is right, the challenge is to rein in greed, to shore up values of responsibility and trust, integrity and fair dealing; to appeal, in short, to personal virtues as a remedy to market values run amuck.

We might call this diagnosis ‘the greed critique’. But the greed critique is flawed or, at best, partial. Markets have always run on self-interest. ... Greed is a vice in personal relations, but the whole point of markets is to turn this vice into an instrument of the public good. ... This was Adam Smith. So it’s tempting to say that all we need to do is rein in greed and restore integrity among bankers and business executives and politicians, but this response is ... not really much help in rethinking the role that markets play in our societies. So what’s the alternative? The alternative is to re-think the reach of markets into spheres of life where they don’t belong. We need a public debate about what it means to keep markets in their place. And to have this debate, we have to think through the moral limits of markets. We need to recognise that there are some things that money can’t buy and other things that money can buy but shouldn’t.

Looking back over three decades of market triumphalism, the most fateful change was not an increase in the incidence of greed. It was the expansion of markets and of market values into spheres of life traditionally governed by non-market norms. We’ve seen, for example, the proliferation of for profit schools, hospitals and prisons; the outsourcing of war to private military contractors. We’ve seen the eclipse of public police forces by private security firms, especially in the US and the UK... Or consider some recent proposals to use market incentives to solve social problems. Some New York City schools are trying to improve academic performance by paying children 50 dollars if they get good scores on standardised tests. ...

Or consider the vexed issue of immigration policy. Gary Becker, the Nobel Prize winning free market economist at the University of Chicago, has a solution: to resolve the contentious debate over whom to admit, the US, he says, should simply set a price and sell American citizenship for 50,000 dollars, or perhaps 100,000. Immigrants willing to pay a large entrance fee, Becker reasons, would automatically have desirable characteristics. (LAUGHTER) ...

There is something distasteful about a market in refugees, even if it’s for their own good, but what exactly is objectionable about it? It has something to do with the fact that a market in refugees changes our view of who refugees are and how they should be treated. It encourages the participants - the buyers, the sellers and also those whose asylum is being haggled over - to think of refugees as burdens to be unloaded or as revenue sources rather than as human beings in peril. What this worry shows is that markets are not mere mechanisms. They embody certain norms. They presuppose, and also promote, certain ways of valuing the goods being exchanged. Economists often assume that markets are inert, that they do not touch or taint the goods they regulate. But this is a mistake. Markets leave their mark. Often market incentives erode or crowd out non-market incentives.

Let’s go back to the case of cash for kids who make good test scores. Why hesitate to pay a child for getting good marks or for reading a book? The goal, after all, is to motivate the child to study or to read, and the payment is an incentive to promote that end. Economics teaches that people respond to incentives, and while some children may be motivated to read books for the love of learning, others may not. So why not use money to add a further incentive? Economic reasoning would suggest that two incentives work better than one, but it could turn out that the monetary incentive undermines the intrinsic one, leading to less reading rather than more, or to more reading in the short-run but for the wrong reason. On this scenario, the market is an instrument but not an innocent instrument. What begins as a market mechanism becomes a market norm. The obvious worry is that the payment may habituate children to think of reading books as a way of making money, and so erode or crowd out or corrupt the intrinsic good of reading. ...

When we impose a fine for littering, we’re saying that littering is wrong. Tossing a beer can into the Grand Canyon not only imposes clean-up costs; it reflects a bad attitude that we want to discourage. Suppose the fine is 100 dollars and a wealthy hiker decides it’s worth the convenience. He treats the fine as a fee and tosses his beer can into the Grand Canyon. Even if he pays up, we consider that he’s done something wrong. By treating the Grand Canyon as an expensive dumpster, he’s failed to appreciate it in an appropriate way. ...

At the Kyoto conference on global warming in 1997, the United States insisted that any mandatory emission standards would have to include a trading scheme, allowing countries to buy and sell the right to pollute. ...

At the time, I wrote an opinion piece in the New York Times arguing against the trading scheme. I worried that letting countries buy the right to pollute would be like letting people pay to litter. We should try to strengthen, not weaken the moral stigma attached to despoiling the environment, I thought. I also worried that if rich countries could buy their way out of the duty to reduce their own emissions, we would undermine the sense of shared sacrifice necessary to future global cooperation on the environment.

After my piece ran, The Times was flooded with scathing letters - mostly from economists (LAUGHTER), some from my own university. I utterly failed to understand the virtue of markets, they said, or the efficiencies of trade, or even the most elementary principles of economic rationality. Amidst the torrent of criticism, I did receive a sympathetic email from my old college Economics Professor. He understood the point I was trying to make, he wrote, but could he ask a small favour: would I mind not publicly revealing the identity of the person who had taught me Economics? (LAUGHTER)

I’ve since reconsidered my views about emissions trading to some extent, but I continue to think that in addressing this question most economists miss the crucial point: norms matter. In deciding how best to get global action on climate change, we have to cultivate a new environmental ethic, a new set of attitudes toward the planet we share. We’re unlikely to foster the global cooperation we need if some countries are able to buy their way out of meaningful reductions in their own energy use. ...

My general point is this. Some of the good things in life are corrupted or degraded if turned into commodities, so to decide when to use markets, it’s not enough to think about efficiency; we have also to decide how to value the goods in question. Health, education, national defence, criminal justice, environmental protection and so on - these are moral and political questions, not merely economic ones. To decide them democratically, we have to debate case by case the moral meaning of these goods in the proper way of valuing. This is the debate we didn’t have during the age of market triumphalism. As a result, without quite realising it, without ever deciding to do so, we drifted from having a market economy to being a market society. The hope for moral and civic renewal depends on having that debate now. It is not a debate that is likely to produce quick or easy agreement. To argue about the right way of valuing goods is to bring moral and even spiritual questions into public discourse. Is it possible to bring moral and religious disagreements into public life without descending into intolerance and coercion? That is the question I’ll turn to in the next lecture. Thank you very much. ... [...followed by long Q&A session...]

    Posted by on Wednesday, June 10, 2009 at 01:36 AM in Economics | Permalink  TrackBack (0)  Comments (63)

          

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