The Moral Economy: Why Good Incentives Are No Substitute for Good Citizens

"Sam Bowles is somebody who has got a reputation, I suppose, for being an ‘outsider’ economist. He’s been at UMass Amherst for a long time, which has always had a radical economics department. He’s done a lot of work on understanding economic history, institutions and how things actually work in factories — but also thinking about complexity approaches to economics, because he’s also at the Santa Fe Institute. They do complexity science, which is about the interactions between very large numbers of entities, with non-linear relationships where they affect each other. So the economy is a really good example of what you might think of as a complex system. He’s got a really unconventional way of thinking about economics, but also, as the title of the book suggests, he thinks of it as a social science. It’s about human relationships, it’s about social institutions, it’s about politics. “What kind of moral universe does the global economy operate in? And how on earth would you change that from the one we’ve had that creates all those terrible losers from globalization and technology?” So he’s got this very interesting combination of an unconventional, technical modeling approach and a very humane sensibility. Both of those are non-mainstream. But I sense that his time has come: because of all these issues we’ve been talking about, because of this sense that economics had become unrooted from the real world. This interdisciplinarity, this openness to new modeling approaches, and, above all, this awareness of the importance of moral values, which is what this book is about. In a way, it’s the same territory as Michael Sandel’s book about the limits of markets. Economists do what we do, we think about incentives and how those affect people’s decision-making. Bowles’s argument, in this book, is that this is not really enough when you’re thinking about economic policy. People don’t only make decisions on the basis of economic incentives, and you shouldn’t be expecting them to and analyzing the economy in that way. If you think about the morality of it, your conclusions for economic policy might be very different. Because they thought they were purchasing the extra time. It’s a really interesting illustration and a great example of the fact that the analysis in terms of incentives was wrong in both senses: it was wrong morally and it was wrong factually, as it turned out. I’ve always been intrigued by the fact that small changes can sometimes have small consequences and sometimes really big consequences. We don’t know which it will be. Another example I like is the introduction of broadband. I said to someone—who is now an economist at the University of Oxford—that this was going to be amazing, that it would absolutely transform the way we do things. He said it wouldn’t, since we’d already got the internet. Broadband was just going to make it a little bit faster, so there’s a very small change in transactions cost, and that’s not going to change anything. But of course that very small change in the transactions cost—the 3 seconds extra between dialup and broadband—had a huge effect on people’s behaviour. It’s another illustration of the way that simple-minded thinking about incentives can really lead you astray. He doesn’t have an ABC of how to do policy this better way. It’s quite hard to do that, because it’s so context-dependent. Values will vary from time to time and society to society. So you probably can’t analytically define when you use which kind of approach. But I think the lesson to take away from it is that economic analysis is really powerful and important, but we shouldn’t repeat the mistake of thinking that only what we do is important. I see it as a reminder of the importance of interdisciplinarity and broadening public policy, of thinking about values and about what’s right. It’s really old-fashioned, but Aristotelian virtue ethics… And wouldn’t it be nice if we had some Aristotelian politicians around at the moment…"