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.

Indianapolis Wins 2012 Super Bowl

Good news for Indianapolis.

Yeah, I’m feeling a little bit of civic pride since Indy will host the Super Bowl. It’ll be good for this kinda dorky city to get national exposure, and it should bring a lot of money to the city.

That’s all great.

But what I find most intriguing about the Super Bowl in Indy is that the city is using this opportunity to try to redevelop the Near East side of the city, which is in dire need of help.

The city’s plan is to build upon efforts already going on in a neighborhood where 36 percent of the households live below the federal poverty level and that was devastated in June 2006 by the killings of seven family members in a home robbery on Hamilton Avenue.

“The plan is to make us a neighborhood of choice rather than a neighborhood of last resort,” said Tracy Heaton, president of the Near Eastside Community Organization.

It (the legacy project) calls for turning around an area twice the size of Fall Creek Place, a redevelopment project in a 17-square-block area near Downtown that transformed a crime-ridden neighborhood into one that attracted $75 million in private investment.

I work on the Near East side of Indy. As a neighborhood, it’s a total fucking nightmare, full of abandoned houses, drugs, and violence. If the project helps to rebuild the area while allowing low-income families to stay in their homes, the Super Bowl might be 100 times better for the city than I thought it would be.

Here’s hoping that the Super Bowl in Indy will mean a lot more than a football game and street parties in the middle of winter.

Best Road to Happiness? Give Away Your Money

As a student of philanthropy, I often find myself engaged class-room discussion about why people give to charities since it’s not a rational act in the economic sense. My contention has always been that giving is a rational act as donors gain quite a bit of satisfaction by giving to a worthy person, cause or organization; that kind of satisfaction is often greater than what they would have gotten by keeping all of their money.

It’s nice to see my theory backed up:

New research reveals that when individuals dole out money for gifts for friends or charitable donations, they get a boost in happiness while those who spend on themselves get no such cheery lift.

Scientists have found evidence that income is linked with a person’s satisfaction with their life and other measures of happiness, but less is known about the link between how a person spends their money and happiness.

“We wanted to test our theory that how people spend their money is at least as important as how much money they earn,” said Elizabeth Dunn, a psychologist at the University of British Columbia.

Later in the article it’s noted that income is not a determining factor in this equation since poor people who give tend to be as happy than more affluent philanthropists, which is an important point as some of the least happy people I know have quite a bit of money and are misers while some of the happiest people I know don’t earn much, but who really like to give.