A couple of weeks ago, I mentioned that I wanted to do a series of posts on American Public Policy. This first post will be about America’s economic policy. As a disclaimer, I should say, economics can be a very academic field, in that there are hundreds of programs around the world that offer doctoral study in economics, so anything that I can say about economics in 1000 words or less is going to pale in comparison. However, I do think I’ve stumbled upon a possible explanation as to the economic “mess” that American economics finds itself in…
I was watching some of the older videos posted by the RSA, (I’ve mentioned them before), and I came across one by a couple of author’s whose blog is rated quite highly. I’ve read Freakonomics, but I haven’t read Superfreakonomics, so if the connection I’m going to make is made in the book (but not in this 10-minute video), you’ll have to forgive me. Anyways, in the video, they are talking about altruism as it relates to economics, but not necessarily to economic policy. Take a look:
The most interesting parts are the last 2 and a half minutes. The speaker is explaining studies done by John List where he has participants, in this case, called dictators, who have the ability to give up to $10 to an unwitting stranger (who won’t know the person who is giving them the money and therefore, is unable to thank them afterwards). On average, people gave around $3. List then altered the experiment to allow ‘dictators’ to also be allowed to take up to $1 from the stranger (again, the stranger would not know the person who is taking the money from them). So, on a range, the dictators could give the stranger anywhere from $10 to ($1) [brackets implying that the stranger is losing a dollar]. List found that the most common choice was $0 (but the average giving was around $1.50). One more alteration… dictators could now give up to $10 or take up to $10 from the stranger. On average, under these conditions, people steal about $1.30, as opposed to giving.
When I first watched this video, I couldn’t help but make the leap to ‘real-world’ examples of these findings at play. I think about what happened leading up to the events of 2008 and I see parallels. I think back to the movie Inside Job and the ‘simple’ way that is explained as to what happened (of course, this is just one perspective as to what happened leading up to the collapse). People of the financial services industry, in my opinion, are not inherently bad. In fact, just the opposite. As I argued that politicians are inherently good, I think the same case could be made for those who were, in part, responsible for the collapse of the financial system.
To make it explicit: people who work in the financial services industry, like the “dictators” in the studies done above, were, in a sense, given the opportunity to take money from strangers without having to face these strangers. On a range of giving money from $10 to taking $10, the people who work in this industry, in my opinion, were able to freely take money from people without having to face any repercussions. It’s not that they were malicious and they wanted to hurt people. I think it’s more that they were given the opportunity (and as the study above shows), given the opportunity, people usually take it. [As an aside: in the video, they talk specifically about students of economics as it relates to the ultimatum game and how they would take 2 cents because 2 cents is better than none. I think this economics-mentality of some money is better than no money is what sways the amount of money that the financial industry took from citizens who were otherwise clueless as to what was happening.]
Moreover, in the dictator game described above, the range was from giving $10 to taking $10. In this real-world example, I think we could “hold” the giving $10 side of the scale, but the taking side of the scale could be moved to “infinity.” Meaning, sure, there is a set number of dollars that they are able to give to citizens, but they are unlimited in what they can take from citizens. As this scale is tipped into the ‘taking side,’ I think we would find that people, on average, are more likely to take a greater number of dollars. I haven’t read any of List’s studies, but it’d be interesting to see if he has done any work where the scale is tipped in the other direction (give up to $1 and take up to $10) to see if that average of taking $1.30 from a stranger changes. My guess is that it would.
I think there are a couple of great documentaries (and hoards of books) that I’ve found rather enlightening on the topic with regard to economic policy. I mentioned Inside Job above and would recommend it to get a different perspective on what happened in the late-2000’s. I also think that Capitalism: A Love Story was educational. I understand that Michael Moore is very liberal and as such, his movies come across that way, but I still think it’s important to take in viewpoints that are different from one’s own. Additionally, and maybe my favo[u]rite on this topic, is The Corporation. It was a Canadian documentary done almost 10 years ago now about the pathological disorders of “corporations” as they are, legally, persons.
Overall, given the information in these documentaries and various books, and the results of the studies done by List, I think that this speaks to a broader issue with regard to economic policy. We can’t necessarily fault those who, when given the chance to take money, do so. Instead, I think we need to put regulations (read: public policy) in place. These regulations would limit the scope of people’s ability to take money. To put it in terms of the dictator game, instead of having people able to give or take up to $10 from a stranger, I’d like to see the limit be that they can’t take anything from the stranger. Let’s limit their ability to be able to give up to $10 and take nothing. As List found, on average, given these conditions, people are more likely to give around $3 — to complete strangers.