The ‘inefficient’ economics of Fathers’ Day

A good sign
Recently I, along with many others no doubt, received a Fathers’ Day card. I found this particularly gratifying as I had told the sender, wee Jimmy, that he didn’t have to send me a Fathers’ day card – I had hoped he would want to send a card. The fact that the gift was not required, but offered freely, makes it the more valuable.

Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves; consider, the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient as Waldfogel makes clear in The Deadweight Loss of Christmas.

The extra value imbued in a gift is something with which neo-classical economists have difficulty. Certainly, Adam Smith doesn’t mention it in the Wealth of Nations:

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest.

The appeal to self-interest as a sufficient incentivising factor is often taken to mean that no other motivating factor is required. Commonly self-interest is incentivised with monetary payment. It has been suggested, for example, if we want nurses to show more compassion, pay them more if they hit that target; if we want to boost student grades, pay teachers more if that target is hit.

Yet, according to Maslow’s eponymous Hierarchy, human beings are not motivated solely by mercenary self-interest, but have higher goals, for example, self-actualisation. It may well be that neo-classical economics has it about the wrong way about: We might pay compassionate nurses more, but that is not the same as buying (the appearance of) compassion.

Limiting the debate

There are several difficulties which arise when we consider self-interest to be people’s sole motivation. Firstly, we limit the potential of human interaction. If we consider all interactions are market transactions, it follows all friends are fair-weather-friends. Such an outlook has been shown to have a detrimental impact on our mental health.

Secondly, we limit the scope of the policy debate. Many human interactions take place in a social, not a market, context. Yet, if we consider only monetary self-interest as a motivating force, it suggests government limit itself to market-based solutions, rather than considering social solutions. There is also the potential error of equating price with value: Often those things freely given are the most valuable; however, priceless items pose a problem for neo-classical economic analysis.

Thirdly, we risk undermining our economy. Economists have shown policies which favour the individual pursuit of self-interest undermine morality and the development of trust and cooperation. As well as limiting human capacities and engagement, this limits the potential for economic growth, which depends, in part, on trust.

Ultimately, we limit human expectations. Behavioural economists have shown that tolerating, even encouraging, greed is likely to lead to an increase in amoral behaviour while reminders of moral codes are likely to discourage cheating. There is also evidence that greed and bad behaviour are contagious, yet it is generous people who are more likely to be happy.

No one, of course, would deny the existence of financial self-interest, particularly in the field of business – though it is by no means clear we should encourage it even there. However, if we promote a solely mercenary focus in human interactions we risk crowding out higher and more satisfying motivations.

There is an alternative

An overemphasis on limiting consideration of human interactions to those described by self-interest operating in a market context runs the risk of alienating us from each other and from our own individual, social and economic potential. Yet Adam Smith never supposed that, just because he had to pay for his dinner, that was the sum total of his feasible human interactions. As he wrote in The Theory of Moral Sentiments:

To feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists their whole grace and propriety

Many of the best things in life are not necessarily “free”, but neither can they be bought and sold: They arise from our relationships. In short, thanks for the Fathers’ Day card, wee Jimmy.

Kevin Albertson

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