 Email
 Print |
The altruism in economics
Standard economic theory states that people are interested only in their own material gain. But new insights from behavioral economics show that altruism rather than avarice is our primary motivation.
The City of Yonkers, New York, wound up in a distressing predicament early this year. The municipal budget was running a deficit and the economic crisis was sorely aggravating the problem. Layoffs were needed and among the casualties were six firefighters, including, most regrettably, a young man who’d recently rescued several children from a burning apartment building. The job cuts were due to go into effect the first week of January.
But then something remarkable happened. The men and women of the Yonkers Fire Department offered to work days free for six months so the city could save money and their colleagues could save their jobs. The deal was approved by 75 percent of firefighters and the layoffs were avoided. “Everyone is aware of what is going on with the economy,” explains Patrick Brady, president of the local firefighter’s union. “We banded together and voted to save our brethren.”
Amid the job losses, the home foreclosures and the bankruptcies of this crushing recession, these sorts of stories provide a rare glimmer of hope. Across the country and around the world, people are sharing jobs or accepting reduced wages in order to help their colleagues and prevent wider unemployment. (See How to avoid layoffs for more stories of recessionary selflessness.) President Barack Obama even lauded these efforts in his inauguration speech, saying it’s “the selflessness of workers who would rather cut their hours than see a friend lose their job which sees us through our darkest hours.”
Indeed, this selflessness is heartening. But such altruism is also evidence that the standard economic theory our financial system has been built upon is hopelessly flawed. For the past 50 years, economic policy has been poisoned by the cynical premise that people are innately selfish and materialistic. This is what has been taught in economics classes; this is what has informed government decisions such as bank deregulation; and this is what has spawned the Wall Street culture of “greed is good.”
Now the basic tenets of economics are being reconsidered. A growing body of experimental work by behavioral economists proves altruism not only exists but is one of our primary motivations, even in financial affairs. And if some progressive economists have their way, we may be on the cusp of a more humane era in which altruism, not avarice, becomes the trait our economic system nourishes. “It is increasingly obvious that people are motivated by morality; people are motivated by ethics,” says Herbert Gintis, an emeritus professor at the University of Massachusetts and one of the leading economists studying altruism. “We may be seeing a possible renaissance of economic theory.”
Economics has long been known as the “dismal science” for its ruthless view that people are motivated solely by their financial or material interests. The roots of this theory can be traced to Adam Smith, who proposed that individuals acting selfishly form an “invisible hand” that creates the best society possible. “By pursuing his own interest,” wrote the 18th-century Scottish philosopher in The Wealth of Nations, “he frequently promotes that of the society more effectually than when he really intends to promote it.” A century later, political economist John Stuart Mill inspired the term “Homo economicus” by invoking man as “a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences and luxuries, with the smallest quantity of labor and physical self-denial.”
These propositions became the pillars of traditional economics and were embraced by George Stigler, Milton Friedman, Alan Greenspan and the other titans who shaped the economy in the second half of the 20th century. Trickle-down theory, laissez-faire capitalism and supply-side economics are all edifices constructed on the foundation that people are rational, self-interested financial actors. Nobody captured the doctrine more succinctly than Stigler, the late Nobel laureate who ignited the crusade against government regulation: “[Smith’s] construct of the self-interest-seeking individual in a competitive environment is Newtonian in its universality,” he wrote.
Alas, all this was a distortion. Smith was actually something of a humanist who, in The Theory of Moral Sentiments, celebrated the altruistic instinct. “How selfish soever man may be supposed,” wrote Smith, “there are evidently some principles in his nature, which interest him in the fortune of others and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” The problem for Smith, and the generations of economists who followed, was that “moral sentiments” were difficult to quantify. So they were ultimately excluded from economic theory.
1
2
3
NEXT >>
view as a single page
| Tools:
Discuss
| Email
| Print
| RSS
| Weekly Newsletter Save/Share: |
Well, not quite so.
What the author misses is that the act of saving thei co-worker was in the self interest of the firefighters. Just because you are helping someone does not mean you are altruist. What makes you one is to live by what others expect from you, not what you want do do yourself. The selfishness exists, it might not be always about the money, it might be about other interests.
posted by fabiolr on 5/29/2009 10:36 am