A Failure of Economics – Or the Economics of Nice People

Interesting:

Sam Bowles argues in Science June 20 that economics will get it wrong then, sometimes badly so. He points to new experimental evidence that people do often act against their own personal self-interest in favor of the common good, and they do so in predictable, understandable ways. Poorly-designed economic institutions fail to take advantage of intrinsic moral behavior and often undermine it.

I’m glad someone is doing some work on this point. In economics classes, we were always told that people behave in their own “rational self-interest.” When we brought up people behaving kindly through philanthropy or whatever, that kind of behavior was dismissed as “extra-rational.”

More:

Take this example: Six day care centers imposed a fine on parents who picked their children up late. The effect? Tardiness doubled, and it stayed high even when the fine was removed. Parents, it seems, stopped seeing lateness as an imposition on teachers, and instead saw it as something that could be purchased with no moral failing.

Another example is a study this year which showed that women donated blood less frequently when they were paid for it than when it was an act of charity.

These examples show that economists ignore human altruism at their peril. Standard economic theory assumes that incentives that appeal to self-interest won’t affect any natural altruism that may exist, but that assumption is clearly wrong. Bowles discusses the research to date that helps to explain when and why that assumption breaks down.

As the world becomes more interconnected and the resulting challenges to humanity increase, learning to harness these altruistic impulses becomes even more important, Bowles says. So the economists’ “holy grail,” to learn to design institutions and policies to direct the selfish impulses of individuals to public ends, “will be necessary but insufficient,” Bowles says. “The moral nature of humans must also be recognized, cultivated, and empowered.”

Humans have natural altruistic impulses? Selfishness may not be a virtue?

If Ayn Rand weren’t dead, this would kill her.

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2 responses to “A Failure of Economics – Or the Economics of Nice People

  1. This is similar to what I’ve seen with the open source movement (http://en.wikipedia.org/wiki/Open_source_software for more info). Basically, there are thousands of programmers worldwide that write software and release it for free on the Internet. There is little, if any, compensation for their work (well, some of them have an ax to grind because of Microsoft). Yet, they are happy to contribute and create some rather impressive software packages. If it wasn’t for this altruism, major projects such as Linux would have never been.

  2. Yeah, people really do have altuistic impulses, and an economist might say that’s because of the
    “warm fuzzies” they might feel by acting altruistically, but you bring up an excellent example of people working for the common good rather than self-interest.

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