As economic beings, are we wired for fairness or for greed?
One of the 20th Century’s most influential economists, Milton Friedman, spent a lifetime advocating that business has no legitimate goal except the pursuit of ever-greater profits. Should we be guided solely by self-interest or even greed in the pursuit of our economic lives?
It’s not just an idle question. It goes to the heart of public policy questions about accumulation of wealth, progressive taxation, corporate social responsibility, and social safety nets.
The fundamental free market belief is that everyone is driven, or ought to be driven solely by self-interest. If we buy that belief, then it’s only a small leap to the next one, which says that the only true goal of business is the maximization of profit. But maximizing profit also means maximizing individual income and wealth. And that pretty much brings us to where we are today, where 20% of the population owns 85% of everything worth owning in America.
What becomes of fairness and justice in a world driven by self-interest?
There’s a new field of economic study called Behavioral Economics, and it was created to answer these kinds of questions – not by listening to what we say, but by looking at what we do.
The Ultimatum Game
A famous study from Behavioral Economics – called the Ultimatum Game – casts an interesting light on the idea that we are driven solely by self-interest. It also hints at the reasons behind our current culture wars against the wealthy.
Here’s how the Game works. Two people are approached with an offer to split a significant sum of money. There are a couple of conditions. One person will make an offer to the other about how the money will be divided. The other person either accepts or rejects. If the second person says no, the deal is gone for good – no negotiations, no discussions, no do-overs.
Classical economic theory proposes that we always rationally pursue our self-interest. Therefore, if we hold position number two, we should accept any split above zero dollars. After all, any amount of new money in our pocket leaves us better off than we were before.
But that isn’t what happens in practice. When the split for person two drops to $30 or less, the offer is almost always refused. This experiment has been run dozens of times in different circumstances, but the results are virtually the same. People would rather turn down money than accept a deal that isn’t fair.
The British consultant and lecturer James Thirtle expresses it this way: “Fairness allows societies to exist …we still feel very strongly when another individual is treating us unfairly, and will act in a way designed to demotivate that behavior – even if it costs us personally. It’s necessary because ensuring others act fairly is necessary to keep society functioning and that society is much more important in the long term than the short term loss of some money.”
We Crave Fairness
So, we seek economic fairness – economic justice – as avidly as we cherish the liberty to pursue our own interests.
Liberty and Justice – we crave them both. It’s why our Founding Fathers and Mothers saw fit to pair up two virtues so opposite in intent. We hold them in our mind as one, Liberty and Justice, barely mindful that each of the virtues is the other’s opposing twin. Liberty and justice dance together in uneasy partnership. Each wants to follow its own urges, but each is necessarily limited by the other.
Entrepreneurial freedom – the opportunity to be all that you can be and get all that you can get – is embedded deeply in the American Myth and in the national psyche. But so too is its opposite twin – the idea that all citizens are entitled to some fair share of the national wealth. And the cry out for fairness is not simply a wayward impulse towards socialism, as its detractors like to think. It is instead a cry for balance that is deeply rooted in ethical, moral and social principles.
Most of us would agree, for example, that allowing a few people to accumulate too much power or too much money usually results in less freedom for all. That was so obviously the case, for example, in the recent sub-prime mortgage scandal. The lure of quick bucks at every juncture of the mortgage business nearly sank the entire banking system. And, when the whole mess finally imploded, it dried up credit all around the world. Everyone who depends on credit got hammered as a result.
The Mystery Grist
To repeat Thirtle’s point, fairness is a fundamental principle for a civil society. We drum it into our children again and again, in words that echo from every play space and playground: “If you aren’t willing to share, then you don’t get to play.”
This clash of opposites is the mystery grist for the human mill. We each carry the seeds of greed and generosity, self-interest and self-effacement, darkness and light, guns and roses, war and peace, saints and sinners, Ma Barker and Mother Teresa. Each of us is a part of it all, and a part of each other as well.
Life seems best lived in an uneasy balance of opposites. Freedom and fairness – we’re wired for both.
