Towards a new man?

“Man is wolf to man“

Plautus

“‘Give me a child until he’s seven, and I’ll give you the man“

Jesuit proverb

How can economic regulation be more effective? According to a John Roemer’s recent article the (obvious?) answer is by promoting  more solidaristic preferences.

Given the unrealistic assumptions of the perfect competition market models (complete markets, perfect information…), the well-known result of Pareto-optimality in market outcomes losses strength and credibility for the professor in Yale. The situation becomes even worse when we are dealing with greedy agents who -following the behavior assumed in the models!- take advantage of opportunities or flaws in regulation to act in a selfish way. The problem situation is specially worrying when such attitudes result in bad social outcomes. An example? The current financial crises…

All right. Everything would be easier if people is less greedy. Probably economic regulation could be driven by simpler rules leading to better outcomes… but is it possible?! how can we reach such a potential “paradise on Earth”? I think Roemer’s answer is twofold praiseworthy. First, Roemer has a positive answer to the first question by avoiding a purely deterministic view of human nature (“man is wolf to man”) and by recognizing that “preferences of individuals are in large part determined by their social conditions”. Secondly, the mechanism that Roemer develops to explain changes in preferences avoids any naif believe in a miraculous change of human nature or in a spontaneous “conversion of  souls”. Instead, the point of departure is the following: during a crises (and if the exposure to risks is sufficiently generalized) self-interest will lead to demand a greater amount of public insurance (against health, unemployment…). Once these insurance innovations are implemented, there’s no way back: people discover the beneficial effects of such policies and demand more and more changes in this direction. The result is a more solidaristic and equal society. The author uses the example of potential positive effects of a policy that we extensively commented in the past (here or here, for example): universal health insurance:

“[When implementing a universal health coverage] A more pleasant society will then evolve: people will be under less stress from the fear of losing their health insurance when unemployed, or because they contract a major disease; emergency rooms will be less clogged with poor, uninsured persons; insurers will have incentives to urge people to undertake more healthy life styles (to keep costs down), and so on. There is a good chance that citizens generally will like these changes—not only because of their own increased financial security, but because civility will increase, and poverty will be, at least along one dimension, less glaring”.

The argument seems to me persuasive, provocative and stimulating enough. True, some empirical evidence will be needed in order to check the validity of this theory, but for the moment maybe even during this harsh financial crises we can argue that every cloud has a silver lining.

PS: If the first link gives you problems to download the paper, I think that a free-access version is available here.