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Economics and the challenge of moral values

david thesmar
David Thesmar
Professor of Financial Economics, Sloan School of Management (MIT)
Key takeaways
  • The importance and plurality of moral values is a challenge for economics because they are very difficult to rationalise.
  • When morality is incorporated into economic models there is often a tendency to favour the “win-win” standpoint.
  • But defending our values can come at a high price, and we must admit that they often conflict with economic efficiency.
  • The reality of moral values also conflicts with the value system of economists, who consider that the world will be better when everyone maximises their pleasure and minimises their pain.
  • It is therefore in the interest of economics to better think about the confrontation between efficiency and values, and to draw on authors who have seen the world differently.

In the history of economic science, there was a moment, exemplified by Gary Becker (Nobel Prize winner in 1992), when economists began contributing their methods and solutions to new fields (the family, crime, the city). Your work seems to be part of a reverse movement, where economics is drawing on other disciplines for inspiration.

The tra­di­tion of inter­dis­ci­pli­nar­i­ty has exist­ed since Adam Smith, who was both a philoso­pher and an econ­o­mist. Part of eco­nom­ics has always been inter­est­ed in the con­nec­tion with soci­ol­o­gy and phi­los­o­phy. Yet, in the last twen­ty years, it is psy­chol­o­gy that has nour­ished our dis­ci­pline, with the trend of behav­iour­al eco­nom­ics which attempts to use lab­o­ra­to­ry exper­i­ments to study the appar­ent­ly ‘non-ratio­nal’ behav­iour of agents. Our work is part of this inter­dis­ci­pli­nary tra­di­tion, which encom­pass­es Gary Becker’s work, but we have turned our atten­tion to an issue which, rather than a promise of cross-fer­til­i­sa­tion, is a chal­lenge for our dis­ci­pline: the impor­tance of moral val­ues, and espe­cial­ly their plu­ral­i­ty with­in the population.

Why is this a chal­lenge? Because this plu­ral­i­ty can­not be reduced to the ‘altru­is­tic pref­er­ences’ which econ­o­mists refer to. When we look at the plu­ral­i­ty of val­ues, we come across phe­nom­e­na that are much more dif­fi­cult to ratio­nalise. For exam­ple, peo­ple val­ue free­dom for its own sake, with­out nec­es­sar­i­ly using it. Or they have a vari­able geom­e­try altru­ism, which favours the group, the com­mu­ni­ty. Or, accord­ing to the psy­chol­o­gist Jonathan Haidt, puri­ty. There are also cul­tur­al or nation­al dif­fer­ences. For exam­ple, when pre­sent­ed with options for reg­u­lat­ing traf­fic in the city cen­tre, the French are more hos­tile to pay­ing tolls than the Amer­i­cans and Ger­mans and are more in favour of reduc­ing the num­ber of park­ing spaces. Behind these pref­er­ences, there are values.

Eco­nom­ic analy­sis strug­gles to take into account the plu­ral­i­ty of these val­ues, even though econ­o­mists know that it is not only effi­cien­cy that counts. They under­stand that human­i­ty is not just made up of ratio­nal cal­cu­la­tors and that there is a form of altru­ism. But in the util­i­tar­i­an tra­di­tion of Jere­my Ben­tham, they see this altru­ism in an abstract and uni­ver­sal form. In oth­er words, econ­o­mists them­selves have a par­tic­u­lar val­ue sys­tem, yet they are tempt­ed to project it onto the rest of the pop­u­la­tion. And the dif­fer­ences are very significant. 

What inter­ests us are the val­ues that resist both pro­jec­tion and gen­er­al­i­sa­tion into col­lec­tive pref­er­ences. Those, in short, that can­not be reduced or absorbed by our dis­ci­pline. For exam­ple, when asked about the alter­na­tive between a car­bon tax and envi­ron­men­tal stan­dards for car man­u­fac­tur­ers, 92% of econ­o­mists sup­port the car­bon tax, com­pared with only 22% of Amer­i­cans. There is clear­ly a con­flict here between two forms of justice.

The title of your book, The Price of Our Values, suggests a meeting point, however: to resolve frictions, we could always agree on a price. Isn’t this the traditional approach to economics, which reduces everything to the market?

I would say that it is a ‘mid­dle ground’ approach, even if poten­tial­ly the price of our val­ues can be infi­nite (no com­pro­mise pos­si­ble). There is a ten­den­cy today to favour the “win-win” approach. Par­tic­u­lar­ly in polit­i­cal debate where pro­pos­als involv­ing val­ues are sup­posed to be eas­i­ly pal­pa­ble. For exam­ple, the ener­gy tran­si­tion, dri­ven by con­cern for future gen­er­a­tions, will pro­duce growth. Or again: the respon­si­ble com­pa­ny sat­is­fies its con­sumers, investors, and employ­ees, so it is doing very well. But in many cas­es, defend­ing our val­ues can come at a high price, and rather than telling our­selves that all will be well in the best of all pos­si­ble worlds, we must admit that they are in con­flict with the econ­o­my. The dilem­mas posed by the inva­sion of Ukraine illus­trate this: are we pre­pared to turn down our heat to stop the war? And above all, to what extent?

So, this tension is not going to be resolved?

Not in the sense that every­thing would even­tu­al­ly fall into line. We men­tioned behav­iour­al eco­nom­ics above. This field explores the idea that peo­ple do not max­imise their mate­r­i­al well-being, that they make sys­tem­at­ic mis­takes (they extrap­o­late past trends too much, lack self-dis­ci­pline, etc.). But behav­iour­al eco­nom­ics deduces that peo­ple must be taught to opti­mise their lives bet­ter, or even forced to do so! How­ev­er, this ambi­tion is a very ques­tion­able philo­soph­i­cal posi­tion. It pro­motes the hedo­nis­tic way of life pro­mot­ed in the 19th Cen­tu­ry by the econ­o­mist Jere­my Ben­tham with his ‘util­i­tar­i­an’ phi­los­o­phy: the world will be a bet­ter place when every­one max­imis­es their plea­sure and min­imis­es their pain. 

This is the val­ue sys­tem that many econ­o­mists apply to their analy­ses. But there is no evi­dence that this is the val­ue sys­tem of the peo­ple. A par­tic­u­lar­ly glar­ing con­tra­dic­tion con­cerns free­dom: econ­o­mists are lib­er­als in the sense that free­dom is an instru­ment for achiev­ing eco­nom­ic efficiency.

Behav­iour­al eco­nom­ics deduces that peo­ple must be taught to opti­mise their lives bet­ter, or even forced to do so.

Peo­ple do not only have effi­cien­cy in mind, and they are will­ing to pay for it. We inves­ti­gat­ed the fol­low­ing sit­u­a­tion: in order to sup­port a local man­u­fac­tur­er and pre­serve 1,000 jobs, it is pro­posed to buy trams at a high­er cost by increas­ing the sub­scrip­tion price. Three groups, each with a dif­fer­ent price increase, are asked to rate the project (from 0 for com­plete dis­agree­ment to 10 for com­plete agree­ment). The aver­age score is 7.4 for the group sub­ject to a 5% increase, 6.6 for those sub­ject to a 10% increase and 6.1 for those sub­ject to a 50% increase. The val­ue of sol­i­dar­i­ty with­stands even a sub­stan­tial increase. 

In the world of econ­o­mists, the mar­ket with its free indi­vid­u­als could be replaced by a com­put­er capa­ble of allo­cat­ing resources. On the con­trary, in real life the val­ue of free­dom is strong, but it is also the free­dom to make ‘bad’ choic­es. And it is a free­dom in itself, dis­con­nect­ed from any idea of effi­cien­cy. In a word, it is a moral value.

This critical review of your discipline and its philosophical premises leads you to explore visions that are completely alien to the individualistic tradition with which economics is associated. For example, you refer to the father of sociology, Émile Durkheim.

Durkheim high­lights the exis­ten­tial vac­u­um into which indus­tri­al soci­ety plunges indi­vid­u­als, because it pro­motes the max­imi­sa­tion of indi­vid­ual inter­ests to the detri­ment of the group. Durkheim believes that util­i­tar­i­an indi­vid­u­al­ism is a ‘soci­o­log­i­cal hell’: it chills hearts and caus­es despair. For econ­o­mists like us, this is a very het­ero­dox thought, but an enlight­en­ing one. It helps us to mea­sure what resists our meth­ods. And the moral val­ues that are at the fore­front of his world­view are pre­cise­ly those that are least tak­en into account by our dis­ci­pline. They help us to devel­op our research programme.

But the cen­tral chal­lenge remains to enrich eco­nom­ic think­ing. Even in its most tech­ni­cal and spe­cialised aspects. My aca­d­e­m­ic spe­cial­i­ty is finan­cial eco­nom­ics. There is a lot of talk about respon­si­ble invest­ment and social­ly respon­si­ble busi­ness. Of course, investors are pri­mar­i­ly moti­vat­ed by prof­it, by return, but more and more, soci­etal, or envi­ron­men­tal con­cerns are becom­ing impor­tant, to the point where they will end up erod­ing the pure log­ic of prof­itabil­i­ty. It is a fas­ci­nat­ing subject.

Eco­nom­ic thought has every­thing to gain from con­sid­er­ing this con­fronta­tion between effi­cien­cy and val­ues. This will enable it to bet­ter inform polit­i­cal debates. We start from the prin­ci­ple that peo­ple should be asked what they think, in a seri­ous man­ner, so as to reveal ten­sions and bring out con­tra­dic­tions. But if peo­ple are will­ing to pay a lot of mon­ey to reduce pol­lu­tion, to take con­trol of their com­mu­ni­ty (through decen­tral­i­sa­tion) or to do with­out Chi­nese imports, why not? There is a need to inform some of the debates by tak­ing into account peo­ple’s moral pref­er­ences, and by mea­sur­ing what this means economically.

Interview by Richard Robert