Moral intuitions serve to guide us as to the quality of our behaviors. That’s my take on Harvard professor Michael Sandel’s Tanner Lecture on Human Values on Tuesday.
Typically, life insurance is an agreement between an insurer and someone who has a direct interest in the livelihood of a person and wants to ensure financial stability in the case of said person’s death.
However in the 18th century, a new and somewhat derivative conception of life insurance quietly arose in a London tavern. Sailors and non-sailors alike would gather to make bets on whether the boats and crews preparing to embark just outside the tavern door on trade voyages would reach their destinations safely and successfully. Unlike typical life insurance today, these were essentially bets on the lives and fortunes of men in which the bettors had no direct interest — a dark and nefarious form of life insurance more akin to gambling.
This was the story Sandel told Wednesday night at Kingsbury Hall in his lecture on human values. The author of “What Money Can’t Buy: The Moral Limits of Markets,” Sandel sought to draw parallels between the unsettling “life insurance” market that arose in that 18th century London tavern and an eerily similar market that has arisen in today’s economy — that of derivatives.
Much maligned as a cause of the recent housing crisis, derivatives, although often complex in practice, are essentially bets on the performance or well-being of anything in which the “investor” has no direct interest.
For example, in the housing crisis, many people on Wall Street made millions on their bets that vast numbers of Americans would default on their mortgages. The people on Wall Street had no direct interest in the mortgage contracts. Their bets were derivative to the actual mortgage market.
In his lecture, Sandel suggested the derivative market, like London’s “life insurance” market, should prompt us to ask whether we as a society should permit the persistence of secondary markets driven solely by others’ misfortune.
Does having a positive interest in the misfortune of others undermine character and degrade the democratic ideals of community and virtuosity? Should we allow the derivatives market to persist as is? Finally, in an economy increasingly driven by markets totally unrelated to production, is there any “good” sacred enough to be beyond commoditization, valuation and the reach of market forces?
These are questions that have gone unasked, yet they must be addressed in order to maintain the integrity of our society and economy.
In answering them, here is an instance in which I think moral intuitions are a good guide to the right answer.