 Today, I'd like to invite you to join me in a discussion of one of the great moral and civic questions of our day. What should be the role of money and markets in our society? Today, there are fewer and fewer things that money can't buy. If you should be sentenced to a jail term in Santa Barbara, California, if that ever happens to any of you, you should know that if you don't like the standard accommodations and if you can afford it, you can buy a prison cell upgrade. It's true for how much do you suppose? What would you guess? It's about $90 a night. Or suppose you're going to Washington DC. You want to sit in on a congressional hearing, but you don't want to stand in the long line that sometimes forms for the free public seats. You can now go to a line-standing company, engage them, and they will hire for you a homeless person or someone else who will stand on the line maybe overnight if it's a popular hearing so that you can take your place just before the hearing begins. You can do that also to hear oral arguments before the Supreme Court, hire a line-stander. Or suppose you want to contribute to alleviating a tragic social problem in this country. Every year, thousands of babies born to drug-addicted mothers. There is a charity you could contribute to that uses a cash incentive to try to solve this problem. The charity offers any drug-addicted woman $300 to undergo sterilization, the use of a market incentive to try to solve a social problem. Or suppose you're a pharmaceutical company and you have a new drug that you want to bring to the attention of consumers. By now it's commonplace that you can market directly to consumers with ads on television. You've seen them, I'm sure. If you watch sporting events or the nightly news on television, you could be forgiven for thinking that the greatest health crisis in the world today is not malaria or river blindness or sleeping sickness but a rampant epidemic of erectile dysfunction. Marketing drugs directly to consumers. Or if you want to fight a war but you don't have enough soldiers, you can hire private military companies to do the job. In Iraq and Afghanistan, there were more paid military contractors on the ground than there were US military troops. Over the past three decades, we had drifted almost without realizing it, from having a market economy to becoming a market society. The difference is this. A market economy is a tool, a valuable and effective tool, for organizing productive activity. Market economies have brought prosperity and affluence to countries around the world. But a market society is different. It's a place where almost everything is up for sale. It's a way of life where market thinking and market values reach in to spheres of life previously governed by other values, non-market values. Take education. And here's where I'd like to begin our discussion. There are many school districts around the country that are struggling with the challenge of improving the academic achievement of kids from poor backgrounds. A number of experiments are being done in major school districts, urban school districts primarily, to try to lift up academic achievement through the use of cash incentives, pay for grades. This has been tried in New York and Washington DC and here in Chicago. A few years ago, there was a pilot program with 20 Chicago schools that offered kids payment for good grades, $50 for an A, $35 for a B. In Dallas, they have another version. They pay second graders $2 for each book they read. I'd like to see what you think about this use of cash incentives to try to improve academic achievement. People disagree about it. So let's see what you think. Let's imagine that you are the head of the Chicago public schools. And to make things simple, let's assume someone comes to you with a proposal to pay young children $2 for every book they read. Let's begin with a poll, a survey of opinion in the room. How many think it's an idea worth trying and how many would be opposed? Let's see first, how many would be in favor or at least think it's an idea worth trying? Raise your hands. In favor, keep your hands up. And how many are opposed? How many would reject the idea out of hand? All right, let's start. The majority in this hall are against. Let's start, and we have runners with microphones so that we can hear from you. Let's start with those of you who would reject this proposal. Why would you object to it? What's wrong with it? Who will get our discussion started? Yes, stand up and we'll get you a microphone. Yes, please. And give us if you would your first name. My name's Leslie, and I would worry that we're going to drive the wrong performance because we're using the wrong incentive and the wrong behavior, and they'd figure out a way to read stupid books or things that wouldn't really get at what we're trying to change. So I think the incentive isn't measuring the right thing. It's not measuring the right thing, says Leslie. Let's hear from someone. Do you agree or disagree with Leslie? Go ahead, stand up and tell us your first name. Hi, my first name is Karen, and I'm an early childhood educator. And I believe in developing passions and love for things. And you cannot buy those things. They're prices. So those things are developed by good parenting, good values, and mores in the society, good teachers, and good principles. Passion, wait, stay there. Passion and the love of learning for its own sake. And money can't buy that? No, those things can't be bought. Certain things just can't be bought by money. You can be rich in job and poor in paycheck. And being a school teacher develops the love and the passion for learning. What grade level do you teach? Early childhood. Well, I'm not teaching right now. Early childhood. I was really three, four, and five years old. Really early childhood. Really young kids. So you wouldn't pay them money to read books? No. No. How did any of them teach? All right, stay there. It's Karen? Karen Harris. OK, now let's hear from someone on the other side. Someone who, as superintendent of the schools, sees a problem and thinks it might be worth giving it a try. Yes, tell us your name. Hi, Ivan. Ivan, Ivan, what would you say? Speak directly to Karen, and tell her why you think this is a plan worth trying, even in her school. So to put it in context, I'm not an educator. I know relatively little about education. But my daughter has started kindergarten recently. The kids get green, red, or yellow based on behavior every week. All the kids who are green get to pick out a prize at the end of the week. And the teacher said ever since she's instituted this process, all the kids have been green every week for years. And would you go from green to the other kind of green, cash? Well, I mean, this is a physical prize. So in their world, in the kindergarteners' world, this is currency. It's as valuable as cash. And so what about when they reach fourth, fifth, sixth grade, ninth grade? Then would you start paying that they don't want little tokens? Will you pay them cash, Ivan? I think that it all depends on execution. It goes back to your point, or someone's point, about reading dumb books. If they're paying $2 and they can game the system, then I would say no. If there's a clear way to align financial incentives with the overall educational goals, I would absolutely support those financial incentives. What do you say, Karen? I think that children should love to go to school. They should be running into their school. It's a place that should make them feel safe and happy and want to participate in the things that are intriguing and interesting around their classroom and the people who are teaching in that classroom. So I can't relate to that sort of, but we're talking about perhaps two different types of communities. Did you see what I'm saying? All right, let's hear from someone else who favors this proposal as a way of motivating the kids. Who else? All right, turn the back. Yes, stand up. Stand up and tell us your name. My name is Xavier Smith from Epic Academy, and I do favor this because I love reading books, and why not get paid for reading something that you love? So wait, wait, tell me your name again. Xavier Smith. Xavier says, why not the best of both worlds, Karen? He reads books, he's learned to love reading, but Xavier also likes to make some money on the side. Why not? All right, here, let's get her back to Karen. I think the wrong value is being set about passion. No, but Xavier has the right value. He loves learning, he says. Well, but you love learning, but maybe you should get a job too, a part-time job, I don't know. Well, I can't relate to those. Xavier, all right, all right, what do you say? It's a different sense of value. I find that if you are reading a lot and then you do read more rigorous books and you keep doing them and you're getting money, obtaining it, and you keep going, you're going to love to read them more. All right, who agrees with Xavier and would like to go for the financial incentive? And is there someone who would like to add to that side of the argument? Go ahead, yes. Hi, I'm John. We have children. We don't love TV in our home during the week because we love to read, we promote reading. But we also believe in financial incentives. And I was on vacation with my kids and my wife on an overseas trip. And we were having a little difficulty motivating them to read their books. And how old are the kids? Eight and 10. Eight and 10. So we said, we will pay you $20 for each book that you read. Wow. Guess how many books they read on that vacation? How many? 15 each. That was an expensive vacation. Much more expensive than I expected. But I will say, I don't expect to pay my kids to read books for the rest of their lives. But it absolutely motivated them in a unique way. They could earn that. And I think it was a good jump start to help them grow in their love of learning. Over time, they won't need that. All right, it was a jump start to cult. And I'm sorry, what's your name again? John. John. John says the money was a jump start to get them to love learning. Yes. What do you say? We'll pass the microphone down. Hi, my name's Zoe. I'm a high school student at Global Citizenship Experience. I have to say something about my belief in the way we raise our children now. And I'm 17, so I'm still being raised. But I think that this kind of, and I'm not saying that I don't love Mr. Rogers, but this idea of everyone's special. And we're raised with this soccer trophy. Everyone gets a trophy for just showing up type mentality. And I don't think that that's fair. I think that you should. Did you vote for or against the cash incentive? I'm not sure. You were in the middle. I'm in the middle. But you've heard the arguments now. Have you been swayed? No. No? What about John's example, where the $20 per book got his kids to read 15 books each? But that's saying that because you're doing something, you automatically get a reward. And I don't think that's fair. I think that you have to earn what you're doing. And by telling students that if you read a book, if you just do this little thing for me, you're going to get $20. That's saying that they're going to expect a reward for everything they do. And I don't think that that's the real world. Uh-huh. Yes. Go ahead. On the side. Hi. My name is Kashanta Dixon. I'm from an organization called Embark. And I am 17, a Harper High School student. And I think you need passion to start off anything. You need progress. So if a second grader don't like to read, you can start them off with paying $2. And then next thing you know, they ain't going to need the $2 no more. They going to want to read anyway. And next thing you know, they probably use the money to buy books. All right. But suppose now you have a lot of faith that once they start reading, motivated by the $2, they're going to learn to love it. Yes. What if they become addicted to the cash and come to expect to be paid anytime they read a book? Doesn't that worry you? All you have to do is maybe stop the cash and see what happens then. And if they keep reading, then you have progress. Well, then you would have progress. OK, so maybe that would be the test. I want to, all right, over here. We'll take one more. Go ahead. He's Najee. I'm from Epic Academy. So I don't believe paying kids is a good way to start them reading books. Because if you start paying them, in their mind, they're going to say, I'm going to love reading books. But in their mind, they're going to say, because I'm going to get money. So if you say, do you love reading books, they're going to say, OK, are you going to give me the money? And if you don't have the money to give them, so that's going to become a problem. I don't believe that. All right, so Najee, you're saying that if you offer kids money to read books, they're going to read books for the love of money, not for the love of reading? Yes. And so you disagree with John's philosophy? Yes, I do. All right. All right, well, this helps. I know there are other people who have things to say about this, but I want to step back and notice something about what's emerged from this discussion. Those who worry about using the cash incentive to improve academic performance worry, as Najee just said, that the money will teach the wrong lesson and cultivate the wrong attitudes toward reading and maybe even obstruct or crowd out the intrinsic love of learning, the higher good. Whereas those, like John, who say money can sometimes help, they argue, well, no, maybe if people start to read, if young people start to read for money, it will kickstart them, it will get them hooked, and they will develop the love of reading and all will be well. A friend of mine pays his children $1 for each thank-you note they write. I've received some of these thank-you notes. And I can tell by reading them that they were written under a certain pressure. My wife and I look a scant at this practice. We wonder how these kids will turn out. And there are two scenarios it could be that by getting paid to write thank-you notes, they'll get in the habit of writing thank-you notes, and pretty soon the habit will take. And they will eventually learn the right reason for writing thank-you notes, namely to express gratitude, and all will be well. Or it could turn out the other way. It could be that the lesson there being taught is that thank-you notes are a chore, a form of piecework that you do if you're paid. And if that's the lesson they learn, then when the money stops, so will the thank-you notes. They may find it difficult ever to learn the virtue of gratitude and their moral education will have been corrupted. It's hard to know. Something similar is at stake in the debate about cash incentives in schools to read books. Actually, in the case of Chicago, the money for grades did lead to somewhat higher attendance and slightly higher grades, though it did not improve standardized test scores. In Dallas, the $2 to the second graders did lead them to read more books. It also led them to read shorter books. But the real question is the one that's been raised, especially by the students who had spoken here. What will happen in the long run? What happens when the money stops? And that, in a way, is a test of whether the attitude the intrinsic love of reading takes hold or whether the money has crowded out, maybe even corrupted the intrinsic love of reading. This tendency or this risk of markets and cash incentives crowding out non-market goods, higher goods, can be seen in many spheres of social life in Switzerland. A few years ago, they were trying to decide where to locate a nuclear waste site. No community wants one in its backyard. They had identified one place as likely to be the safest. It was in a small Swiss town in the mountains. Under the law, the members of the community had to approve the choice. So before it was finally made, some economists did a survey. They asked the residents of the town if the parliament chooses this town, would you vote to approve the nuclear waste site here? Despite the risk, 51% said yes. We would vote to accept. Then the economists asked a follow-up question. They sweetened the deal. They said, suppose they vote to put the nuclear waste site here and offer to pay each resident of the town a financial sum in compensation, a yearly amount as high as $8,000 a year. Now how many people do you think voted to accept? What would you say? 95? 75. Less? What would you guess? The percentage fell from 51% to 25% when the money was offered. Now from the standpoint of standard economic analysis, this is a paradox. Usually if you offer people money to do something, you get a greater willingness, not a lesser willingness to do that thing. So what happened? What do you suppose happened in this Swiss town? What was going on? What explains it? Anybody have an explanation? Just call it. What would you say? Just call it. All right, let's get a microphone. Hi, my name is Terry. I would say probably explaining that phenomenon that if you offer money, it's probably going to be really bad, much worse than what you anticipate. Oh, I see. So therefore I'm going to vote against it. So the people said, gee, now that you're offering all this money to do it, it must really be riskier than I thought. Most likely. That's one plausible explanation. They tested for that. And it turns out that the estimate of the risk was about the same before and after they offered the money. So they asked the people who changed, why did you change your mind when money was offered? They said, we didn't want to be bribed. What seems to have happened is that when the majority were willing, in the first case, without the money to accept the nuclear waste site, it was out of a sense of civic responsibility. The waste had to go somewhere. The country as a whole needed the energy. They were willing to accept the risk and the burden for the sake of the common good. But when money was offered, what had been a sense of civic virtue became a financial transaction. And people were not willing to subject themselves and their families to risk for money. That's why I felt like a bribe. So it seems that the offer of money, in this case at least, crowded out the sense of civic responsibility, a willingness to undertake a sacrifice for the sake of the common good. In Israel, they have every year a donation day where schoolchildren go door to door soliciting funds for worthy causes. One year they did an experiment some economists did. They divided the students into three groups. The first group, they gave them a short talk about the importance of the causes that were being supported and sent them on their way. The second group gave them the same talk, but offered them a 1% commission to be paid independently of the funds they raised. In the third group, they offered a 10% commission. Which group, do you suppose, raised the most money? What would you guess? It was, well, it was the first group. The group that was paid no commission. They raised 55% more than the second group, who got 1%. Offering the 10% commission actually led them to do better than if they only got one. But the group that got nothing for it collected more even than the 10% commissioned group. How to explain it? Again, from the standpoint of standard economic analysis, this is paradoxical. But what seems to have happened is that offering the money changed the character of the activity. What before was a civic and philanthropic endeavor. Now, with the offer of a commission, was redefined for the participants as a deal, as a financial deal, as a kind of job. And so you might think, well, simply adding a financial incentive on top of a civic one or a moral one is additive. Don't two incentives work better than one? Not always, because sometimes turning an activity into a deal, into a financial transaction, may change its character and crowd out or corrupt or erode other values, non-market values, a sense of responsibility or commitment to the cause in this case. What these examples illustrate is that there is a flaw in standard economic reasoning. Many economists assume that markets are inert, that they do not touch or taint the goods they exchange. This may be true enough if we're talking about material goods, flat screen televisions, for example, or toasters. If you sell me a flat screen television, or if you give me one as a gift, the flat screen television is the same. It works just as well. But the same may not be true if we're talking not about material goods, but about social practices informed by values and attitudes and norms worth caring about in education, in health, in family life, in civic life, in criminal law, in national security, in non-material domains such as these. There may be certain goods, certain values, certain ideals and attitudes that are part of the activity that can be eroded or corrupted or crowded out if we turn them into market transactions. What's striking is that during the last few decades, as more and more has come to be for sale in our society, we have not really had a public debate about where markets belong and where they don't, about where markets serve the public good, and where they may crowd out other values. One of the most important values that is, by degrees, being corroded, undermined by the marketization of everything is commonality, a sense of community. Let me give you a small example. When I was a kid, I grew up in the Midwest. I'm from Minneapolis. I was a Minnesota Twins fan, and I would go to the old, outdoor Minnesota Twins baseball stadium. This was in the mid-60s. There were always box seats and bleachers seats, and the box seats cost more. But what do you suppose was the gap, the difference, between the most expensive box seat and the cheapest seat in the bleachers? Anybody remember in the mid-60s? 10 bucks? It was $350 for a box seat and $1 for a seat in the bleachers, even less. The result was that if you went to a baseball game, it was a place where CEOs and mailroom clerks found themselves, more or less, sitting side by side. It was a class-mixing experience. Everybody had to wait in the same long lines for the restrooms. Everyone ate the same soggy hot dogs and drank the same stale beer. And when it rained, everyone got wet. It isn't that way today. If you go to a baseball stadium or most sports stadiums today, there are sky boxes that enable the affluent and the privilege to sequester themselves from the common folk in the seats below. And no longer is it quite the class-mixing experience it used to be. Not everyone has to wait on the long lines for the restroom. And when it rains, not everyone gets wet. Something similar has been happening throughout our society. At a time of rising inequality, the marketization of everything means that increasingly people of affluence and people of modest means live separate lives. We live and work and shop and play in different places. Our children go to different schools. You might call it the skyboxification of American life. It's not good for democracy. Nor is it even a satisfying way to live, not for those down in the bleacher seats and not for those, I think, those of us who may inhabit the privilege of inhabiting the skyboxes. Why not? Democracy does not require perfect equality. But what it does require is that there be places and occasions, public places and civic occasions where men and women from different social backgrounds, from different walks of life, can share common experiences, can encounter one another, can bump up against one another in the course of everyday life. Because this is how we learn to negotiate and to abide our differences. And this is how we come to care for the common good. And so the question of markets, in the end, is not mainly an economic question. It's really a question about how we want to live together. Do we want a society where everything is up for sale or are there certain moral and civic goods that markets do not honor and money cannot buy? Thank you very much.