Joe: Most people think economics is about money, stocks, and greed. But what if it’s actually a tool for empathy? A way to care about the millions of people you’ll never see, not just the one person whose face is on the news. Lewis: Empathy? Wow. I usually associate economists with cold, hard spreadsheets, not feelings. That’s a pretty bold claim, Joe. Where are you getting that from? Joe: That very idea is at the heart of the book we're diving into today: Economics for the Common Good by the Nobel Prize-winning economist Jean Tirole. Lewis: A Nobel laureate, huh. So this isn't just some pop-econ book. I've heard he wrote this specifically because he was frustrated with how misunderstood his field is, especially after the 2008 financial crisis. It’s like he’s trying to defend his life’s work to the public. Joe: Exactly. He's trying to build a bridge from the ivory tower to the real world. And he starts by asking a question that completely reframes how we think about fairness and building a better society.

Lewis: Okay, I’m intrigued. What’s the question? Joe: He asks you to perform a thought experiment. Imagine you’re in a waiting room before you’re born. You get to help design the rules of the society you’re about to enter, but there’s a catch: you have no idea who you’ll be. You could be rich or poor, healthy or sick, from a privileged background or a marginalized one. He calls this thinking from behind a "veil of ignorance." Lewis: Huh. That’s a clever way to force you to be impartial. You’d want to build in safety nets because you might be the one who needs them. You’d want to ensure fairness because you might be the one getting the short end of the stick. Joe: Precisely. It’s not about left-wing or right-wing politics; it’s about creating a system that you’d consider fair regardless of where you land. And this leads to Tirole's central point: the quest for the common good isn't about hoping people will suddenly become saints. It’s about designing institutions that reconcile individual self-interest with the general interest. Lewis: Okay, but that sounds a bit idealistic. In the real world, people are driven by self-interest. You can’t just design that away, can you? It feels like a philosophical game. Joe: You’re right, you can’t wish it away. And trying to do so can be catastrophic. This is where Tirole brings up one of the most chilling historical examples: the Soviet Union’s attempt to create the "New Man." Lewis: The New Soviet Man. I’ve heard of this. The idea was to forge a citizen who was purely collectivist, who would always put the community's needs before their own, right? Joe: Exactly. It was the ultimate expression of prioritizing good intentions. The state believed that by eliminating private property and market forces, they could eliminate selfishness. They thought altruism would just... emerge spontaneously. Lewis: And how did that work out? Joe: It was a complete and utter disaster. When you ignore personal incentives, you don't get a society of selfless angels. You get corruption, because people will find ways to work the system for their own benefit. You get black markets, because the official system is inefficient. You get widespread cynicism, because everyone knows the official ideology is a lie. The system didn't create a "New Man"; it created a totalitarian state that impoverished its people. Lewis: Wow. So the lesson is that ignoring human nature is not only naive, it's dangerous. Joe: That's the core insight. You can't build a better world by pretending people aren't motivated by incentives. You have to acknowledge those incentives—material, social, everything—and then build a system that channels that energy toward the common good. Lewis: That makes so much sense. It’s like a company that offers "unlimited vacation" but the culture implicitly punishes anyone who actually takes a long break. The official rule is nice, but the real incentives are all wrong. You have to design for how people actually behave, not how you wish they would. Joe: And that failure to see how people actually behave is part of a bigger problem Tirole points out—our brains are wired with cognitive biases that make it almost impossible to see the full economic picture.

Lewis: What kind of biases are we talking about? Joe: The most powerful one is what he calls the "bias toward the identifiable victim." We are profoundly moved by a single, personal story, but our brains can't process a large, abstract statistic. Lewis: Oh, I know this feeling. It’s the difference between seeing a picture of one suffering child versus reading that a million children are suffering. The picture hits you in the gut. Joe: Exactly. And the most powerful example of this in recent history is the story of Aylan Kurdi. In 2015, a photo of this three-year-old Syrian boy, who had drowned and washed up on a Turkish beach, went viral. Lewis: I remember that photo. It was absolutely heartbreaking. It felt like the whole world suddenly woke up to the Syrian refugee crisis. Joe: It did. That single image changed public opinion and policy debates across Europe overnight. But here’s the tragic paradox Tirole points out: thousands of other children had died on that same journey. Their deaths were statistics. Aylan Kurdi became an identifiable victim, and his story had more power than all the data combined. As Stalin grimly put it, "The death of one man is a tragedy. The death of a million men is a statistic." Lewis: That’s a chillingly accurate quote. It explains so much about public outrage and media coverage. We focus on the story we can see. So how does an economist fight that powerful, emotional bias? Joe: By training themselves to see the unseen. Tirole gives a fantastic hypothetical to illustrate this. Imagine an NGO fighting elephant poaching confiscates a large shipment of illegal ivory. What should they do with it? Lewis: My gut reaction is to burn it. Make a big public show of it. Send a message that ivory has no value. Joe: That’s what most people would say. It feels morally right. But an economist is trained to ask: what are the unseen consequences? What happens next? Lewis: Okay, I’ll bite. What are the unseen consequences? Joe: Well, think about it. If you destroy that ivory, you reduce the supply on the black market. Basic economics says that when supply goes down and demand stays the same, the price goes up. A higher price makes poaching even more profitable for the traffickers. So, your well-intentioned act of destroying the ivory could inadvertently lead to more elephants being killed. Lewis: Whoa. I never would have thought of that. So what’s the alternative? Joe: The counter-intuitive economic argument is to consider selling the confiscated ivory discreetly on the market. This would increase supply, drive the price down, and make poaching less profitable. Plus, the NGO could use the millions of dollars from the sale to fund more anti-poaching patrols, better equipment, and intelligence gathering. You could save more elephants in the long run. Lewis: That feels so wrong, but when you lay it out like that... it makes a terrifying amount of sense. It’s like you need economic X-ray vision to see the second and third-order effects that our gut instincts completely miss. Joe: That’s the perfect way to put it. Economics, when done right, is a tool to see the invisible victims and the unintended consequences. It’s about looking beyond the immediate, emotional story to understand the entire system.

Lewis: Okay, so we need to design smart systems that account for incentives, and we need to use economic thinking to see the unseen consequences. But this brings up the big, messy question: who does the designing? This sounds like it gets right into that classic, endless political fight: more government or less government? Joe: And that’s the exact trap Tirole wants us to avoid. He argues the "state versus market" debate is a false dichotomy. It’s not about a big state or a small state; it’s about a smart state. The goal isn't for the state to replace the market, but for the state to be a good referee for the market. Lewis: A referee. I like that analogy. So the state sets the rules of the game, but doesn't play the game itself? Joe: Precisely. And the best example of this in action is the story of how the U.S. government allocated radio spectrum licenses. For decades, this incredibly valuable public resource—the invisible airwaves that our cell phones, radio, and TV signals travel on—was given away in the most bizarre ways. Lewis: How so? Joe: At first, the FCC would hold these elaborate hearings where companies would argue why they deserved the license. It was a beauty contest. Then, to make it "fairer," they switched to a lottery system. They were literally pulling names out of a hat to decide who got a license worth potentially billions of dollars. Lewis: Hold on. You’re telling me the government was handing out a multi-billion dollar resource for free, based on a lottery? That is completely insane. It’s like owning a gold mine and just handing out nuggets to whoever wins a raffle. Joe: It’s exactly like that. The problem was that the government had no idea who could make the best use of the spectrum or what it was truly worth. They lacked the information. So, in the 1990s, economists convinced them to try something new: an auction. Lewis: Let the companies bid for it. Joe: Yes. Instead of trying to guess the best user, the state created a market. They designed a sophisticated auction that forced companies to reveal, through their bids, how much they truly valued the spectrum. The company that could generate the most value from it would be willing to pay the most. Lewis: And what was the result? Joe: It was a staggering success. Since 1994, these spectrum auctions have generated over sixty billion dollars for the U.S. Treasury. That’s sixty billion dollars that went to the public good instead of just being a windfall profit for some lucky lottery winner. It’s the perfect example of a smart state. It didn't try to pick winners; it created a fair, transparent system that revealed crucial information and aligned private interests with the public good. Lewis: That story is incredible. It completely changes how I think about the role of government. It’s not about controlling everything or doing nothing. It’s about being the clever architect of the system.

Joe: And that really ties everything together. We've gone from a philosophical idea about fairness behind a "veil of ignorance," to the cognitive biases that stop us from achieving it, and finally to the practical design of smart institutions like spectrum auctions. Lewis: It’s a powerful journey. So, after all this, what's the one big takeaway for us? When we're listening to the news and hearing politicians promise some simple fix to a huge problem, what should we be thinking? Joe: The big lesson from Tirole is to be deeply skeptical of anyone who appeals only to good intentions. The most compassionate policies are often the ones that look past the visible tragedy to account for the invisible consequences. It's about being smart, not just being nice. The real common good is built with a clear head, not just a bleeding heart. Lewis: That’s a fantastic way to put it. So next time we hear a simple solution, we should ask ourselves: "Who is the invisible victim here? What are the unseen consequences of this plan?" Joe: Exactly. That’s the question an economist would ask. We'd love to hear your thoughts on this. What's an example you've seen where good intentions led to a bad outcome? Find us on our socials and join the conversation. Lewis: This is Aibrary, signing off.