Why Economics Needs a Moral Dimension

Summary

The conversation explores the distinction between incentives and bribes, questioning the morality of using financial incentives to alter behavior, such as in health programs. It critiques mainstream economics for its inability to assess the ethical implications of market demands. The discussion delves into financial speculation versus productive capital formation, highlighting concerns about the social utility of modern financial systems. The guest, Rob Johnson, shares personal reflections on leaving the financial world for a more meaningful life, challenging the economic notion that love and virtue are scarce commodities.

Takeaways

• 🤔 Mainstream economics may struggle to distinguish between incentives and bribes, with bribery seen as taking someone where they wouldn't want to go.
• 💡 The example of health insurance companies offering money to quit smoking or lose weight raises questions about whether these are bribes or incentives.
• 🤷 Economics doesn't fully consider human psychology, often assuming people make rational decisions, while many act on unconscious emotional impulses.
• 📚 The relationship between price incentives and moral behavior is unclear, and economics doesn't evaluate the preferences underlying demand.
• 🔍 Markets can't always be trusted to serve the public good because they don't account for destructive behaviors or self-destructive impulses.
• 🧐 Financial speculation, in its extreme forms, may not contribute to capital formation or productivity growth, becoming more akin to gambling.
• 💼 The financial system receives significant protections and subsidies, despite not always contributing to social good or productivity growth.
• 📉 Much financial activity is unproductive, and there's concern that society guarantees the downside for banks without sharing in the upside.
• 👨‍👧‍👦 The speaker left the financial world to focus on his family and a broader purpose, feeling that his financial success allowed him freedom to explore other life paths.
• ❤️ The idea that love and civic virtue are scarce and should be conserved is challenged, with the speaker arguing that these qualities can expand and grow.

Q & A

What distinction does Rob Johnson make between an incentive and a bribe?

Rob Johnson distinguishes between an incentive and a bribe by suggesting that a bribe tempts someone to go where they wouldn't want to go, potentially overriding their conscience, while an incentive motivates someone to move more quickly toward a path they should be on.

How does Rob Johnson view incentives related to health, such as paying people to lose weight or quit smoking?

Rob Johnson views such incentives as an alteration of behavior using a price incentive. He notes that it depends on whether it is taking someone in a negative direction (as with a bribe) or a beneficial direction (as with a health incentive).

What does Johnson believe about the economic model of consumer behavior?

Johnson disagrees with the economic model that assumes people always act in their best interests based on their knowledge and preferences. He believes humans often operate on unconscious, emotional bases and have self-destructive impulses.

Does Johnson believe it is better to bribe people or educate them to make healthier choices?

Johnson admits he doesn't know what works better, whether it is bribing or educating people. He finds this a deep philosophical question and points out that humans don't always act in their own best interests.

What concerns does Johnson have about the relationship between price incentives and moral behavior?

Johnson expresses concerns that there is no clarity about how price incentives relate to moral behavior. He also questions whether markets are delivering societal benefits if the preferences behind demand aren't properly evaluated.

Does Johnson think economics can evaluate the preferences that underlie demand?

Johnson believes economics cannot properly evaluate the preferences behind demand. He thinks that economics oversimplifies human behavior and doesn't delve deep enough into psychology or moral foundations.

Can economics be a moral science, according to Johnson?

Johnson argues that economics cannot be a moral science without engaging in moral investigation. He believes it needs to explore the deeper psychological and societal foundations that drive demand and human behavior.

How does Johnson view the interaction between individual desires and societal impact?

Johnson is skeptical of the notion that satisfying individual desires is always socially good. He argues that personal impulses might be beneficial to the individual but harmful to society, thus merely aggregating demand does not solve societal challenges.

What is Johnson's view on financial speculation and its relationship to societal benefit?

Johnson notes that financial speculation is supposed to relate to capital formation and productivity growth, benefiting society. However, he believes much of financial activity today is disconnected from these goals and offers little societal benefit.

Why did Johnson leave the financial world, despite achieving success?

Johnson left the financial world because he wanted to prioritize his family and personal well-being. He felt that continuing in finance would detract from his role as a father and his desire to pursue broader, more meaningful goals in life.