Taking Stock: Are the markets fair?

Michael Sandel


Kai Ryssdal: When the financial crisis really hit last fall, and the bailouts to AIG and Fannie and Freddie and all the big Wall Street banks started, there were a lot of people who were really upset. Angry that the folks who got us into that mess were, in effect, being rewarded by being saved. Same questions were asked about helping people who had made bad decisions about their mortgages, when those who did the right thing got nothing at all.

Today, as we continue our series "Taking Stock," occasional conversations with people who can give us the longer view of our current economic situation, Harvard University political philosopher Michael Sandel. For 20 years or more he's taught a course called "Justice," which is also the title of his latest book, "Justice: What is the Right Thing to Do?" Professor, it's good to have you on the program.

MICHAEL SANDEL: Good to be here.

Ryssdal: You have a chapter in this book called "Morals and Markets."


Ryssdal: Speaking broadly, Wall Street sort of represents the market in this country. Were they doing the moral thing the past couple of years?

SANDEL: They were highly questionable. They involved great risk-taking that generated enormous private profits against a background, implicit understanding that if it goes bad, the losses will be shared by everyone. And in terms of the bailout, it was unclear about what justice actually required. In the end, the imperative of trying to save the financial system from a meltdown that would hurt everyone prevailed. People held their nose and supported it. But I think there is a lingering anger, moral outrage about this that we haven't really seen the end of yet. I think that's going to be a part of our politics for a while and that we really need to take it seriously.

Ryssdal: Is that anger out of a sense that Wall Street was greedy or that we are rewarding them for, in essence, having failed at what they were supposed to do?

SANDEL: I think it's both. We heard a lot about greed, but from the standpoint of economic reasoning, it's very hard to distinguish between the aggressive pursuit of self-interest and greed.

Ryssdal: Which is what they're supposed to do, Wall Street, right?

SANDEL: That's what they do. During the boom times, when things were good, were they less greedy? I'm not so sure. So I think part of the anger now was that failure is being rewarded. And not only that, many of the Wall Street investment firms said, "Look, this was a financial tsunami, you can't blame us." But if they're right about that, what does that say about the moral legitimacy of the huge bonuses they reaped when times were good? If they were fully in control then, how can it be that they're not fully in control now?

Ryssdal: So does that outrage and the concept of fairness, and by extension this idea -- around which your book is built, "Justice: What's the Right Thing to Do?" -- does that lend itself to good policy making?

SANDEL: If there is a legitimate complaint, if there is an argument of justice buried in that rage, then those considerations of justice and of fairness should be central to policy. Those who reap enormous rewards, do they really deserve the full bounty that markets bestow? Can I give you one very small concrete example? The chief justice of the U.S. Supreme Court, Justice Roberts, makes about $220,000 a year. There's another judge, Judge Judy, a television judge, you know how much she makes?

Ryssdal: Way more than $220,000.

SANDEL: Twenty-five million [dollars] a year. Now that's the result of markets, market supply and demand. Television program people like to watch. Is there any reason to assume that simply because the market has delivered that outcome, that Judge Judy deserves to make 100 times more than Chief Justice Roberts? I would say not.

Ryssdal: Well, then, are we looking for justice in a system that is not designed to provide it?

SANDEL: If we look at markets by themselves, you're absolutely right. There is no reason to assume that those outcomes have anything to do with fairness or justice, which is why we then have to argue politically and deliberate about how to design the tax system, and the educational system, and the health-care system to reflect considerations of justice and fairness that markets by themselves are not designed to produce.

Ryssdal: You know, some of these concepts that you talk about in the book -- civic virtue and the common good, specifically. If you go to the corner of Wall Street and Broad, and stand outside the New York Stock Exchange, or if you go to the Shanghai Stock Exchange, you're not going to find that anywhere. How do you translate those ideas into the hurly burly of daily market activity in a capitalist society?

SANDEL: Here's what I would suggest: You go up to someone on one of those street corners down by Wall Street. And you ask him or her in a quiet moment, how do you justify this frenzied way of life that you're engaged in? I suspect they would give you in a reflective moment an answer something like this: "By pursuing gain and engaging in risk, we are providing the lubricant for the financial system and therefore for the economic system as a whole. And we are helping contribute to allocating capital to those projects and innovations in the economy that will make everybody better off."

I'm not saying that every single trader on the floor would give you that answer, but I know some people who would. And that can be the starting point, I think, of a wider public conversation about the underlying moral purpose that markets serve. And once we have that conversation, we might also be led to discuss whether there are certain moral limits that markets should respect.

Ryssdal: Michael Sandel is a professor of political philosophy at Harvard University. His most recent book is called "Justice: What is the Right Thing to Do?" Professor Sandel, thanks so much for your time.

SANDEL: Thank you very much.

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Thank you for this excellent piece. Yogi Berra could have said, "half of life is asking the right question and the other half is finding the right answer."

Prof. Sandel asks the right questions. Justice and fairness are the questions that should govern public policy. While such questions may appear to certain rapacious persons on Wall Street to be naive and foolish, they are important nonetheless.

With regard to one commenter striving to find that Prof Sandel's analogy between Judge Judy and Jugge Roberts is not apt, I think the entire point may be been lost to him. Economists start wtih a price, in this case, the price of legal services and assume the price to be rational and just. They then come up with all sorts of reasons to explain the differences in prices - sometimes coherently, sometimes not.

The problem with this apprach is that it misses the larger point - is the price correct, or fair or just?

One way to test whether the market for judicial services dispensed by Judge Judy or Judge Roberts were the "same market", one would have to free Judge Roberts from such quaint restrictions such as ethics or legal restraints on accepting cash for decisions. My guess is that Judge Roberts would find that his job may be worth more than a hedge fund manager's compensation.

However, while such a market would monetize and destroy the value of public trust invested in the Supreme Court, at least the mareket would decide the value of his services. Would such a market outcome be just or fair? Of course not.

Markets are valuable allocators of wealth but they are neither fair, just or necessarily ethical. You need public policy and legal framework to moderate a market's inexorable and blind allocative efficiency. As the professor eloquently descibed, the struggle is always on how to manage that delicate balance between the grinding efficiency of a market in a manner that is consistent with fairness and justice.

I listened with interest to your conversation with Harvard Professor Sandel about morality in the markets. Rationalized, positively spun greed is indeed the Achille's Heel of American Capitalism. Let us not forget that the venerable Adam Smith was first - if not foremost - a moral philosopher!

Whereas Prof. Sandel's begins on the right path, he does not probe deep enough and his interpretations are flawed. I am not only outraged that the Federal Government "bailed out" flawed financial firms, but I don't think it was necessary (much like the WMD that were never found in Iraq). The Government merely propped up a Financial Aristocracy while barring any smaller successful firms from rising up in there place. Prof. Sandel then concludes that capitalism itself is to blame and we should choose a political solution to bring about more "Justice", implying further Government intervension. This is the flaw in his reasoning; the root of the problem we currently have in our economy is the overreaching socialist policies of the Government that remove the consequences from taking irresponsible financial risks. Financial institutions know the Government at the behest of the Taxpayers will bail them out. Much like a teenager texting thousands of words a day on the cell phone provided by his parents.

In addition, though it may seem counter-intuitive, Justice Roberts is probably in a more competitive market than Judge Judy. For the TV court shows, there is probably a very limited number of qualified judges who also have the on-air personality to attract large audiences and generate high revenues for the producers. For the Supreme Court, however, while potential justices are well aware of the relatively limited salary (vis-a-vis private practice), there is no significant shortage of qualified and willing candidates when an opening on the court occurs. Clearly a Supreme Court justice receives ample INtangible compensation.

Prof. Sandel's argument with regard to Chief Justice Roberts' salary is fatally flawed, in that Justice Roberts and Judge Judy do not labor in the same market. Judge Judy is compensated not as a judge of law, but as an entertainer whose role happens to be a dispenser of justice. The networks and the syndicators have clearly established that she creates in excess of $25 million in value for them. Whether Justice Roberts and his peers are adequately compensated or not is another question entirely; it is quite likely that the salaries of judges in the legal marketplace is too low to consistently attract top talent. But comparing their salaries to those of entertainers is not a valid means of establishing appropriate compensation.

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