Lans Bovenberg: Trust is the foundation of prosperity

May 12, 2025

The NVO and Me Judice websites refer to you as a world-renowned expert, partly due to the 'double dividend' model you developed. Could you provide some background information on this?

'My academic career has four phases. I started out as an economist specializing in public finance, after which I switched to the field of sustainable economics, particularly at the intersection of taxation and the environment. In the third phase, I concentrated on pensions and aging. Now I am mainly concerned with the relationship between ethics and economics.

The double dividend model dates from the second phase of my career. In the 1980s and 1990s, economists increasingly came to believe that higher taxes on environmental pollution, also known as pricing negative externalities, could serve two purposes: greater sustainability and a better functioning labor market. However, our model showed that it was difficult to achieve both goals at the same time with environmental taxes. More specifically, environmental taxes turned out to be less beneficial for the labor market than expected. After our paper, a whole series of scientific studies were conducted to investigate under which circumstances the double dividend could apply and under which circumstances it could not. Please note that our work does not refute the usefulness of environmental taxes. In fact, they are useful in the context of the climate transition, for example. But they do not seem to be able to serve multiple goals at the same time. Some people argue that environmental taxes are heaven on earth in many respects, while others argue that they are useless. Neither of these extreme positions is correct, which is something I, as someone who often seeks the golden mean, can live with just fine.'

Nevertheless, environmental taxes have been difficult to implement.

'The main reason for this is the lack of confidence that the tax revenues will be returned to the citizens. This is, in fact, a lack of trust in the government. People dislike paying taxes when they do not know what happens to them. There is a lack of trust in reciprocity, a fundamental phenomenon that concerns me greatly now, in the fourth and final phase of my career.'

In various interviews, you have said a lot about the state of economics education and the role of economists as scientists in society. What is going well and what is not?

'Current economics education, especially in secondary schools, is still based on an outdated view of human nature that has been disproved by science. Since the 1930s, and especially since the 1980s, economic science has become increasingly broad. In the past, economics was only about money, but today's economic science is about all the choices people make in an environment of scarcity. Economists are increasingly concerned with non-financial choices, even relationships and forms of marriage. Yes, even love. In doing so, economic science has increasingly imported concepts from other sciences.

Critics of economic science or the current capitalist system still refer to the image of 'homo economicus', the rational, utility-maximizing human being who only serves his own interests. Although this concept can still be useful in certain circumstances, especially if all negative externalities were priced in, economic science has now developed much further.

It is clear that people are by no means always rational in their decisions. They make errors in judgment and attach importance to social and ethical issues such as justice, sustainability, and reciprocity. When people give something, they want something in return. Conversely, when people receive something, they are willing to give something in return. The label 'homo ethicus' or 'homo moralis' is much more appropriate. It is important, however, that people can trust that there is reciprocity. And that starts with a government we can trust.

It is logical that education lags behind science, but it is now lagging far behind. Change is apparently not ingrained in human nature. We can also see it as the 'principle agent problem': managers in education do not have the same interests as students, their parents, and other citizens. This undermines the legitimacy of economics education in secondary schools.'

 

I am a strong advocate of linking economics not only to the exact sciences, but also to the humanities.

 

It was not for nothing that Adam Smith wrote The Theory of Moral Sentiments alongside Wealth of Nations!

'It is indeed remarkable that schools do teach Smith's theories from Wealth of Nations, such as the division of labor, comparative cost advantages, and the invisible hand, but not, or much less, how social interactions influence human behavior. Smith, of whom I am a huge fan, also introduced the idea of the 'invisible hand of morality', whereby most people are naturally inclined to take others into account if they can rely on reciprocity, even in a market economy. Not only Smith, but also other well-known economists such as Milton Friedman are now greatly simplified in their theories, reduced to 'greed is good', which is unjustified. 'Greed is good' is not a scientific concept at all, but has unjustly gained cult status in neoliberalism. Economics education would also become much more relevant to students if the broader story about trust and reciprocity were told. Due to its narrow focus on selfish, amoral human beings, current economics education is actually harmful in three ways: to students, to society, and to the legitimacy of the wonderful science of economics itself.'

In various statements, you have linked theological insights to economic views. Can you give a few concrete examples of this?

'I am a Christian and a scientist, and I have actually been trying to connect the two my entire life. We know of three forms of science: the humanities, the exact or natural sciences, and the social sciences, which also include economics. I am a strong advocate of linking economic science not only to the exact sciences, but also to the humanities. So, not just looking extrospectively at how people behave in an economy, but also introspectively: how people think and according to which values and virtues they want to live. Economics is primarily about cooperation, in all kinds of households. Theology, as an alpha science about human thinking about God, has much to offer us in this regard, because 'faith', in whatever form, is an important source of courage to cooperate, despite the potential downside risks of cooperation. We were just talking about the lack of trust in reciprocity. If that trust is not there, selfishness lurks. Freedom cannot exist without responsibility. I argue that faith can help restore this trust. Smith's Calvinism also resonates strongly in his theory of moral sentiments. In this theory, humans are also different from animals. As Smith rightly said, 'I never see a dog trade a bone with another dog.' I see trust in institutions eroding due to polarization and regional power blocs that distrust each other. The lessons of the benefits and values of reciprocity and cooperation must be passed on as much and as often as possible. Trust in the value of reciprocity is the basis of prosperity. As I said, these lessons should already be taught in secondary education.'

You also won the Dutch Prize for Public Administration. What do you think of the current global debt accumulation? Have we entered a new normal? What are the possible scenarios?

'The credit crisis and later the coronavirus crisis were resolved by incurring debt in order to stimulate demand. However, we have now entered a period of supply problems. This is likely to continue for some time. Specific to the Netherlands, given the tense labor and housing markets, is the problem of the euro being too cheap. Foreign demand for Dutch products is too high, putting pressure on investment. We should actually raise our wages. That would appreciate our real exchange rate. A temporary deterioration in our competitive position would create room for domestic investment that could increase our prosperity. As for the accumulation of debt around the world, there are three scenarios: inflation, unemployment, or even worse, stagflation, all of which are confidence problems. It is not illogical that investors are looking for other 'sources of confidence', such as cryptocurrencies, gold, and real estate. The rise of conservative populism is in fact an expression of a lack of confidence in the state as a cooperative entity. Donald Trump's embrace of cryptocurrencies fits perfectly into this picture. Ultimately, faith in institutions and money as a promise of the state must return. Otherwise, the consequences are incalculable, for example for inflation and unemployment.'

You are also involved in Netspar. In your opinion, what are the most important topics of the present day that have been researched and discussed here?

'Netspar is a legacy from the third phase of my career, when I was working on pensions. I contributed to the pension reform, the biggest advantage of which is that we can invest more tailored to participants. The challenge is to identify participants' preferences in terms of risk and investment beliefs, tailor portfolios accordingly, and then communicate this effectively. I also think that more thought needs to be given to how to invest during the accumulation phase and then during the payout phase. But I'll leave that to others.'

You are now Professor Emeritus. What personal ambitions do you still have as a scientist, as a person, or possibly in politics?

'The question of what exactly 'broad prosperity' is, in which the economy connects with psychology and sociology, is currently occupying my mind. My mission is also to improve economics education and to clarify the relevance of Christianity as a source of trust in love, also in relation to the economy. Finally, at my age, the question of what I want to pass on to future generations is becoming increasingly pressing. My desire to write a book about love and economics fits into this picture. I believe in love as the strongest creative force in the universe. As far as I am concerned, this is an important message in the current era of cultural pessimism, in which faith in the creative power of forgiving love is under pressure.'

 

BIO Lans Bovenberg (1958) is a leading Dutch economist. He obtained his Master's degree in Econometrics at Erasmus University Rotterdam and his PhD at the University of California, Berkeley. He has held positions at the IMF, the Dutch Ministry of Economic Affairs, the Netherlands Bureau for Economic Policy Analysis, was Professor of Economics at Tilburg University, and co-founder of Netspar. For his scientific contributions, he received the Spinoza Prize in 2003 and honorary doctorates from the universities of Ghent and St. Gallen. He retired in 2023 but remains involved with the Erasmus Economics & Theology Institute.

Attachments

• FI-2 - 2025 - RedInt Lans Bovenberg.pdf