The story of the convict ships hints at a second lesson that runs throughout this book: When self-interest aligns with the broader public interest, we get good outcomes, but when self-interest and the social interest are at odds, we get bad outcomes, sometimes even cruel and inhumane outcomes. Paying the ship captains for every prisoner who walked off the ship was a good payment system because it created incentives for the ship captains to do the right thing, not just for themselves but also for the prisoners and for the government that was paying them.

It’s a remarkable finding of economics that under the right conditions markets align self-interest with the social interest. You can see what we mean by thinking back to the supermarket example. The supermarket is stocked with products from around the world because markets channel and coordinate the self-interest of millions of people to achieve a social good. The farmer who awoke at 5 AM to tend his crops, the trucker who delivered the goods to the market, the entrepreneur who risked his or her capital to build the supermarket—all of these people acted in their own interest, but in so doing, they also acted in your interest.

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In a striking metaphor, Adam Smith said that when markets work well, those who pursue their own interest end up promoting the social interest, as if led to do so by an “invisible hand.” The idea that the pursuit of self-interest can be in the social interest—that at least sometimes, “greed is good”—was one of the most surprising discoveries of economic science, and after several hundred years this insight is still not always appreciated. Throughout this book, we emphasize ways in which individuals acting in their self-interest produce outcomes that were not part of their intention or design, but that nevertheless have desirable properties.

Markets, however, do not always align self-interest with the social interest. Sometimes the invisible hand is absent, not just invisible. Market incentives, for example, can be too strong. A firm that doesn’t pay for the pollution that it emits into the air has too great an incentive to emit pollution. Fishermen sometimes have too strong an incentive to catch fish, thereby driving the stock of fish into collapse. In other cases, market incentives are too weak. Did you get your flu shot this year? The flu shot prevents you from getting the flu (usually) but it also reduces the chances that other people will get the flu. When deciding whether to get a flu shot, did you take into account the social interest or just your self-interest?

When markets don’t properly align self-interest with the social interest, another important lesson of economics is that government can sometimes improve the situation by changing incentives with taxes, subsidies, or other regulations.