May 2 (Bloomberg) -- In September 2009, Steven Strongin of Goldman Sachs Group Inc. went before a U.S. congressional subcommittee to discuss a delicate subject: death bonds.
The hearing captured a dilemma coursing through Michael Sandel’s cogent new book, “What Money Can’t Buy.”
The official topic that day was “Recent Innovations in Securitization.” The real issue was life-insurance policies bundled into bonds for investors, who receive income as the original policyholders die.
Ghoulish to some, efficient to others, these securities highlight what Sandel calls the “moral limits of markets.” Even at a time when market mechanisms have spread high and low in the U.S. -- home of the college football skybox and land of the for-profit prison -- death bonds engender moral disquietude, as the hearing showed.
“The idea of institutional investors profiting from a person’s death seems, to say the least, unsettling and immoral,” said the panel’s chairman, Representative Paul Kanjorski, a Pennsylvania Democrat.
Strongin, testifying as a Goldman Sachs managing director, stated three times that the bank had never done this kind of securitization. Why, I wonder, did he repeat that? Was he concerned that Goldman might be seen as a sinister bookie taking bets on the lives of strangers?
Death bonds illustrate how far market values have seeped into society in recent decades, says Sandel, the Harvard University government professor whose book “Justice” spawned television series in the U.S. and U.K.
“We live at a time when almost everything can be bought and sold,” Sandel writes. He flicks through examples.
Want to shoot an endangered black rhino? You can do so legally for $150,000 in South Africa. Looking for a clever way to advertise your online casino? Pay a single mother $10,000 to have your website tattooed across her forehead.
Sandel isn’t questioning the success of the market as a mechanism for producing and distributing goods and spreading prosperity. He is, rather, seeking to provoke a debate about the proper place of markets in society: “We need to ask whether there are some things money should not buy.”
This is especially true when it comes to placing a value on things that raise moral or political questions, such as civic duties. The debate is needed, he says, partly because market reasoning, being nonjudgmental, “empties public life of moral argument.” When price is the only issue, we stop discriminating between what is admirable and what is base.
As in “Justice” and his online course in political philosophy, Sandel digs below the surface of things we take for granted. Consider the transformation of baseball into “moneyball,” as Michael Lewis called it.
It’s true that general manager Billy Beane used market thinking to turn the Oakland Athletics into a winning team. Drawing on statistical analysis, he identified underpriced players and inefficient practices.
Once Beane determined that a hitter’s batting average mattered less to winning than his on-base percentage, the A’s began hiring players who drew walks. Discovering that base stealing reduced the chance of scoring, he discouraged the practice.
Before long, teams with deeper pockets adopted the same strategies. Baseball became more economically efficient. It also grew less exciting, Sandel says.
“A game littered with long at bats and lots of walks is usually a tedious affair,” he writes, challenging the sway of what he terms “the moneyball faith.”
Market incentives can prove counterproductive. In one Swiss mountain village, Sandel says, economists asked residents if they would vote to accept a nuclear-waste dump in their community. A narrow majority of 51 percent said yes.
What if they were compensated with annual cash payments? In that case, only 25 percent would vote in favor. Why? Though the residents were willing to bear the risk for the good of the nation, the monetary offer felt like a bribe.
When it comes to blood collection, Sandel writes, a system that relies entirely on voluntary donors has been found to work better than one in which some supplies are purchased, typically from the poor. The latter results in “chronic shortages, wasted blood, higher costs and a greater risk of contaminated blood,” he says.
Sandel doesn’t offer definitive answers. He instead supplies “a philosophical framework” for weighing promised economic benefits against potential societal costs.
Life insurance, for instance, was long restricted to those who had an “insurable interest” in the person insured. Gambling on the lives of strangers was banned.
That taboo has now been breached, as death bonds show. Though trading on mortality has been justified in the name of free markets, there’s a moral price to pay, says Sandel.
“When markets in death become familiar and routine, the moral opprobrium is not easy to retain.”
Or even to recall.
“What Money Can’t Buy: The Moral Limits of Markets” is published by Farrar, Straus and Giroux in the U.S. and by Allen Lane in the U.K. (244 pages, $27, 20 pounds). To buy this book in North America, click here.
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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