The pandemic tests a new policymaking benchmark that includes civil
society and social norms
Many workers deemed essential during the pandemicsuch as those in
eldercare, supermarkets, and distribution warehousesare unable to make ends
meet even in good times. And during the COVID-19 crisis the threat of
serious illness has been added to low pay. Employers have required people to
report to workin meat-packing plants and restaurantsat grave risk to
themselves and their families; their only recourse is to walk away from
their jobs, risking their livelihoods.
These wrenching choices represent the collateral damage of the pandemic.
Moral discomfort with the situation has spread even into economicsforcing
the profession to confront ethical concerns that in ordinary times are
consigned to religious leaders and philosophers. Along with the climate
emergency, the pandemic has made it clear that market failure is now the
norm not the exception, rendering the standard economic model anachronistic,
much as massive and persistent joblessness in the Great Depression did for
the idea that labor markets will equate supply to demand, eliminating
The fallout from the pandemic will alter how we think about the economy and
public policynot only in seminars and policy think tanks, but also in the
everyday vernacular people use to talk about their livelihoods and futures.
What students today care about hints at what a new economics paradigm might
look like. Between 2016 and 2020 we asked 9,032 students in 18 countries, at
the very beginning of their introduction to economics course, to name the
most pressing problems todays economists should be addressing.
The behavioral revolution in economics has taught us that people
are neither omniscient nor entirely self-interested, but are
moved by moral sentiments.
Their responses are shown above; the size of the font indicates the
frequency of the response. The economics students cited inequality, climate
change, and unemployment as top issues of concern between 2016 and 2020. A
new benchmark model that is increasingly widely taught is already
encouraging young people who care about these issues to stick with
A new economic model alone will not change minds and policies. The successes
of both the Keynesian New Deal and neoliberalism have taught us that a new
economic model becomes a force for change when it is integrated into a
powerful moral framework, illustrated by emblematic policy innovations, and
articulated in everyday conversations.
Classical liberalism, for example, rested on commitments to order, equal
dignity, anti-paternalistic liberty, and utilitarianism, which were
synergistic with its economic model characterized by competitive markets,
division of labor, and specialization. Free trade and antitrust policies
were its hallmark. Ordinary discourse took up its truths, as when Alice
whispered to the Queen (in Alice in Wonderland), Its done by
everyone minding their own business.
More recent economic paradigms were also founded on a synergy of
complementary values and economic models.
For Keynesian economists, a commitment to reducing economic insecurity and
raising the incomes of the less well-off through government programs and
trade union bargaining was combined with a set of propositions about saving
behavior, automatic stabilizers, and aggregate demand. Both the coherence
and the rhetorical power of the Keynesian paradigm depended on the
beliefvery plausible under the circumstancesthat the pursuit of its
advocates egalitarian values through economic policy and organization would
improve aggregate economic performance by supporting higher and more stable
output and employment.
In like manner, what has come to be called neoliberalism advanced two
normative pillars. The first was freedom from government coercion (rather
than a more expansive freedom to and the absence of domination in private
or public spheres). The second was a procedural view of justice, which deems
outcomeshowever unequalas fair so long as the rules of the game are fair.
Cementing neoliberalisms philosophy to its economics was a view that people
are individualistic and amoralalong with a representation of how they
interact in the economy; namely, through exchange in competitive markets
under complete contracts. Complete contracts, which cover all aspects of the
exchange of interest and not only those of the exchanging parties, ensured
against market failures arising from spillovers or external effects,
such as epidemic spread or greenhouse gas emissions.
Extending the assumption of self-interested agents to the public sphere gave
neoliberalism a view of public choice in which governments and other
collective actors, such as trade unions, were simply special interest groups
using up scarce resources in order to get a larger slice of a smaller pie.
In this model of the economy, the limits on government that were advocated
on philosophical grounds were also necessary for a well-functioning economy.
The values and the model were brought together in emblematic policies such
as school vouchers (allowing school choice) and a negative income tax
(replacing antipoverty programs with direct government cash payments) and in
memes such as The government that governs best governs least.
But integrating economic models and ethical values in a complementary manner
does not alone allow a paradigm to succeed: for the advocated policies to
work, the economic model must be a reasonable approximation of the empirical
economy. Just as a changing economic reality spelled the demise of classical
liberalism following the Great Depression, the Keynesian paradigm was
challenged by the stagnant growth combined with inflation (so-called
stagflation) of the 1970s. Similarly, disenchantment with neoliberalism
strengthened after the global financial crisis of 2008, which appeared to
many as the price to be paid for the market deregulation advocated by
neoliberals. Disenchantment with laissez-faire individualism has since
mounted in the face of growing inequality, the climate crisisand now the
To serve as a component of a new paradigm, a new benchmark economic model
must take a position on fundamentals, including the economy as a component
of the social system and biosphere, how we represent people as economic
actors and decision makers, the key institutions that govern our
interactions, and the characteristics of the technologies that underpin our
livelihoods. Contemporary economicsthe economics that researchers use and
graduate students routinely are taughtprovides a response on each of these
The behavioral revolution in economics has taught us that people are neither
omniscient nor entirely self-interested but are moved, as Adam Smith put it,
by moral sentiments as well as material interests. Among those moral
sentiments are dignitythe desire not to be taken advantage of by othersas
well as ethical convictions and concern for others. These include not only
altruism and reciprocity but also parochial intolerance and tribal
The way economics represents interactions among people has also undergone a
fundamental transformation: we now recognize that most contracts are
incomplete. The information economics pioneered by Friedrich Hayek and
greatly extended in the past four decades to become a pillar of contemporary
economics makes it clear that neither government nor private parties can
stipulate in an enforceable contract the full range of what matters.
Effects on othersnot covered by contractual provisionsare the rule, not
the exception. These include not only the familiar market failures affecting
our interaction with the biosphere, such as pollution, but also the central
markets in a modern capitalist economy: for labor, credit, and information.
In the labor market, for example, of great concern to both employees and
employers is how hard and carefully a worker works. But there is no way to
enforce or even specify this in a contract. In the credit market the promise
to repay a loan can be included in the contract but may not be enforceable.
The incompleteness of contracts has wide-ranging consequences. Where they
are incomplete, there will typically be excess supply or demand, even in
highly competitive markets. Employers, for example, choose to pay wages
higher than a workers next best alternative. This confers what economists
call a rent on the worker, which means the worker is better off with the job
than without. Fearing the loss of this rent is a powerful motive for the
worker to implement the employers request to work hard and follow
instructions. If it is costly to lose your job, then there must be potential
workers who would prefer to have a jobnamely, the unemployed.
In these interactions the exchange is governed in part by some combination
of the contract, social norms (such as a work ethic on the part of the
employee or truth telling by the borrower), and the exercise of power by the
employeror, in the case of the credit market, by the lender. Eight decades
ago, Ronald Coase famously defined the employment contract as a transfer of
power from the worker to the employer. An economic model recognizing this
transfer of powerand able therefore to incorporate the abuse of employers
private powersgives policymakers a framework for addressing the plight of
low-paid essential workers forced to choose between their livelihood and
their health. Policy initiatives in this area range from expanding workers
individual rights on the job to support for those who stay home so as to
minimize the epidemic spread.
By extending economics to a new set of motivationsa commitment to justice,
the demand for dignity and voicethe new benchmark economic model opens up a
broader set of policy options. It offers changes to the rules of the game
that can be implemented not only by market and government instruments but
also by the exercise of private power and social norms.
As a result of the pandemic, ethical considerations are unavoidable,
especially those of fairness and solidarity, even among strangers. Debates
about who should have priority access to vaccines, and about which workers
are essential during a pandemic, make it clear that we cannot rely on the
price system or indeed compliance with government fiat to capture the values
that matter to us.
The expanded space offered by the new economics benchmark provides an
analytical framework integrating these ethical concerns with an economic
model appropriate to a world in which people are connected not only by
markets and contracts but also by the private exercise of power, the spread
of infection, effects on the biosphere, ties of in-group membership, and a
concern for the common good.