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Time: Monday, December 17, 2018 15:30 – 17:00
Location: Auditorium, School of Economics and Management, Tsinghua University
2014 Nobel Laureate in Economics
Honorary Chairman,Toulouse School of Economics
Professor Tirole opened by quoting Edmund Burke who wrote in 1793 that ‘The age of chivalry is gone. That of sophists, economists, and calculators has succeeded; and the glory of Europe is extinguished forever.’ Whilst he was speaking of a time far removed from our own, Professor Tirole explained how in practice not much has changed. The times we live in are increasingly complex with precarious political situations and environmental threats, which require effective management by economic scientists. Throughout his lecture, Professor Tirole highlighted the importance of economists whilst questioning whether markets are moral, the role of economists in public debate and social responsibility.
Professor Tirole started by touching on some of the misconceptions about economics, including that it is about ‘laissez-faire’, glorifying financial success, rational behaviour or adulation for incentives. On the topic of incentives, he discussed their benefits, as well as the conflicting views on their efficacy from psychological, sociological and legal perspectives. Incentives have the power to change how society behaves, for example regarding environmental protection, and also reflect the sometimes-controversial social values of a country, such as the death penalty. On the other hand, incentives can have negative social impacts, for example payment for blood donation can reduce volumes donated by confusing the otherwise altruistic act of donation with more mercurial motivations. Whilst there are caveats to when they should be used for maximum effect, overall Professor Tirole viewed the role of incentives in effective market function as positive.
To introduce the topic of morality, Professor Tirole then brought in the idea of the Veil of Ignorance. The concept that if we were totally ignorant of our environment (race, religion, gender, education level, genes, parents, social welfare, siblings, etc.) prior to birth, then what sort of world would we like to live in. The role of economists, in Professor Tirole’s view, is to help shape public policy to try to achieve a society as close to this as possible. He quoted Michael J. Sandal to illustrate his point; this means that certain things should not be commoditised, including babies for adoption, surrogate motherhood, sexuality, drugs, military service, votes, and organs for transplantation, friendship, admission to elite universities or Nobel Prizes. Allowing a market for any of these creates externalities that can negatively impact society as whole. It is the duty of economists to manage such externalities morally.
Professor Tirole also discussed the reputation of economists in society today. Following the 2008 financial crisis, the general public has harboured resentment and mistrust towards economists. However, Professor Tirole likened their role to that of a seismologist or medical doctor. Like a seismologist or doctor, an economist will be able to highlight possible threats to stability in public policy, but not exactly when a crisis may hit, much like a doctor can identify that smoking is bad for a patient’s health, but not exactly pinpoint when they will develop an illness. To counter this mistrust of economists, Professor Tirole identified the need for them to both communicate better and also be more precise about what they say in the public sphere to reduce misunderstanding.
Professor Tirole highlighted social responsibility again in another form. In market societies, the state is relied upon to correct market failures. However, Professor Tirole questioned what should be done when both the state and the market fail. An example of this, he suggested, is the environment where neither the market nor states globally have acted with sufficient strength to make a difference. At this stage, economists need to drive corporate social responsibility to make the necessary changes in society to reduce carbon emissions and other pollutants. Professor Tirole closed by emphasising that despite various pitfalls economists may encounter, they play a critical role in shaping an ethically sound society and should be proud of what they do.
By Holly Holdsworth