The morality of economics

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Tyler Cowen has an article in the New York Times about the egalitarian tradition of economics.  It is genuinely an effort to promote economic analysis and rationale as THE tool for social analysis, since it is the only value-free objective way to look at society.  My experience in the profession gives me strong reasons not to be easily convinced.  In fact economics has a very distinct moral alignment, and even the basic notion of utility reflects an individual’s interpretation of contemporary morals.

Cowen builds this backdrop of value-free objectivity as a foundation for his pro-immigration arguments (by the way, some good comments are made on Mark Thoma’s site and Cowen’s own blog).

Let’s take it one point at a time.

Economic analysis is itself value-free, but in practice it encourages a cosmopolitan interest in natural equality.

What is “natural equality”? No seriously.  What is it? A recent paper that has caught the attention of some serious thinkers in the profession basically admonishes the discipline for being unable to incorporate the concept of equality in core models.  “Why has mainstream neoclassical economics traditionally had little to say about the causes and effects of inequality? … the blindness is inherent in the very structure of the discipline. If you think of representative agents maximizing utility in a competitive environment, inequality has nowhere to come from unless you impose it ad hoc, say in the form of “skilled” and “unskilled” workers.”

So why frame the discipline as value -free and interested in natural equality if the core theories have nothing to say at all about equality?

Turning to the next key claim.

Many economic models, of course, assume that all individuals are motivated by rational self-interest or some variant thereof; even the so-called behavioral theories tweak only the fringes of a basically common, rational understanding of people. The crucial implication is this: If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.

Behavioural theories that economists themselves accept could be considered minor tweaks – by definition the discipline won’t accept a rewrite of their fundamental belief structure. A genuinely objective, or value-free, observer of the behavioural tradition would reject the notion of rational self-interest, especially rationality as defined by consumer theory.

Further, treating all individuals the same in theory is not what economists have set out to do, but what they are required to do to gain mathematical tractability of their core model.  It is equivalent to assuming a single person is the average of all – a representative agent.  Economic models can and do treat different people and groups differently.  For example the overlapping generations model. To claim this as some kind of value-free foundation is obviously misguided.   It is rather a mathematical simplification that allows for aggregation in the form of ‘representative agents’. Unfortunately this simplification also means that questions about inequality cannot be addressed by these models, as Foster and Markey-Towler so clearly point out.

And what of the role of economists in history? Cowen writes:

 And the classical economists Jeremy Bentham and John Stuart Mill promoted equal legal and institutional rights for women long before such views were fashionable. Their utilitarian moral theories placed individuals on a par in the social calculus by asking about the greatest good for the greatest number.

Bentham and Mill didn’t support personal liberty in every instance — Mill was a proud imperialist when it came to India, and Bentham’s idea for a Panopticon prison was a model of state-sponsored surveillance. But they prepared the way for dissecting the prevailing defenses of hierarchy and injustice.

So basically if you look hard you can find instances where economists historically appeared to be value-free or egalitarian, but if you look even harder you realise that this is perhaps simply by chance, and you are equally likely to find what we would now regard as value-laden analysis.

But what of more contemporary economists?

Gary Becker, the Nobel laureate who is one of the founders of this approach, used the economic method to lay bare the selfish motives behind racial and ethnic discrimination.

In my view Thomas Schelling was perhaps more influential on the motives, or lack thereof, necessary to generate systematic discrimination. But of course doesn’t identify as an economist, so his ideas can be dismissed.  Also, Becker’s modelling “often includes a variable of taste for discrimination in explaining behavior”.  So if people have a taste for it, they derive utility, the economic answer is that discrimination is good.

At this point Cowen turns to immigration and makes the point that we should include the benefits to immigrants in the cost-benefit analysis of immigration, rather than just the current citizens.

The obvious but too-often-underemphasized reality is that immigration is a significant gain for most people who move to a new country.

In fact the key point of the whole article is in the following two paragraphs:

In any case, there is an overriding moral issue. Imagine that it is your professional duty to report a cost-benefit analysis of liberalizing immigration policy. You wouldn’t dream of producing a study that counted “men only” or “whites only,” at least not without specific, clearly stated reasons for dividing the data.

So why report cost-benefit results only for United States citizens or residents, as is sometimes done in analyses of both international trade and migration? The nation-state is a good practical institution, but it does not provide the final moral delineation of which people count and which do not. So commentators on trade and immigration should stress the cosmopolitan perspective, knowing that the practical imperatives of the nation-state will not be underrepresented in the ensuing debate.

I can tell you a good answer why to report costs and benefits only for the US when considering new laws, particularly with respect to trade and immigration.

Imagine you analyse the ‘with’ and ‘without’ immigration cases.  Since you don’t draw the line at national borders so you need to include potential immigrants staying in their home country to understand the current situation.  But you don’t know who they are. So you have to take the whole origin country, and since you don’t know which countries immigrants will all come from, you have to take all countries.  If you can’t draw the line as Cowen argues, you have to conduct a global analysis of every decision.

If, as Cowen suggests, there are massive benefits from immigration at destination countries, then there may very well be massive costs to emigration from origin countries. Yet Cowen expressly ignores these in his supposedly value-free analysis, even though they may very well be higher in welfare terms because of wealth disparities – small benefits are valued more highly the lower your wealth.   One could imagine a doctor migrating to the US from a developing country.  Good for the doctor, by probably not good for their native country, which may very well be receiving medical services via foreign aid from the US anyway.

So much for value-free analysis then.  How about we actually consider important issues like immigration from a moral standpoint instead? At least then we are debating our shared group values rather than using economic analysis to disguise one particular moral judgement.

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Comments

    • I agree with Gunnamatta – every rent-seeking interest will be found to have some “expert economist” providing an analytical fig leaf for it. Possibly the most egregious example is the perversion of “Ricardian” land rent theory to claim that rationing of the supply of land for one particular use has no effect on the price of land in that particular use…….!

    • Rumplestatskin

      I’ve read it, and am now sharing it around the university. Once you have convinced yourself of the objectiveness of economics it is difficult to see the discipline from an outsiders perspective.

    • And it is certainly not just the “science” of “economics” either, that is perverted by the involvement of vested interests, whether financial or political. Possibly mathematics is untainted as yet…. but look at all the disputes about conflicting “studies” on colonial history, on diet, on gender differences, on the effects of fatherlessness, etc etc.

      One of the things I think we need to develop a much more healthy suspicion of, is the role of bureaucracies. Most people never suspect that bureaucratic empire building, promotion, perks, job security, etc are virtually the sole determinants of the position that bureaucrats will take on any particular issue. These people actually do NOT “work for the public” at all, they work for “themselves”.

      Lee Kuan Yew was amazingly wise to establish the principle for the Singapore public service, that tenure would be 3 years, after which employees were back out into the private sector.

      Even FDR refused to allow public servants to “unionise”, because of the potential for corruption.

    • Bugger, I bought it off Amazon US when Amazon UK had previously had it for about 10% of the price, but we Australians can’t buy from Amazon UK (without using VPN’s or some such to circumvent the regional monopolies of copyright holders and the abuse by some of them of monopoly pricing power).

  1. “Jake89” gave us this quote a couple of days ago:

    “….‘Nobody is as dangerous as an economist who knows only economics except a moral philosopher who knows no economics at all.’….”

    – Peter Boettke

    Thomas Sowell’s writings are full of insights about utopian political movements whose adherents inevitably are distinguished by lack of the most basic understanding of economics. While I agree that economics often degenerates into abstruse formulae and navel-gazing, a simple statement like “incentives matter” will sort out the utopian economic ignoramuses from the rest.

    Before the term “economics”, there was “political economy”, and before that, there was something known as “dialectics”. That is, in my own words, “how policies and culture act and react on each other to produce outcomes”.

    “Economics” writers like Adam Smith and Joseph Schumpeter could write books of good solid observations of history and basic common sense arguments with not a formula to be seen.

    • “Thomas Sowell’s writings are full of insights about utopian political movements whose adherents inevitably are distinguished by lack of the most basic understanding of economics.”

      Pete Boettke also contributes something on this: “economics puts parameters on peoples’ utopias” (p. 12 of link below).

      An understanding of good economics is essential and its what the Left probably needs, and a lack of good economics by mainstream economists makes the Left’s critiques of economics so powerful.

      I agree we can get a lot from Adam Smith, Hume, Hayek, Schempeter, etc and we can do some from their contemporaries, such as Pete Boettke. Its a crying shame that the history of economic thought is practically gone from undergrad economics degrees in many unis, and people like our very own Steve Keen have been vocal in criticising this shift.

      http://www.independent.org/pdf/book_excerpts/living_economics_ch1.pdf

  2. Anybody who argues ‘value-free’ is so unsophisticated they do not really understand intellectual developments since Jeremy Bentham, which is where most economic thought, neo-classical at any rate, is still firmly lodged. It’s a puerile argument that seems plausible because it seems to suit many so-called natural inclinations, which are, after all, concepts of a society at a given time.

  3. Wow morality and economics in the same sentence, I must be n the wrong site, no Aussie could possibly confuse the two.

  4. No economic analysis is value free. We can see this in the very existence of the major political parties which by and large use the same economic frame work and come to differing conclusions.

  5. Stephen Morris

    These argument were addressed

    HERE

    last October in terms of “Coasian Symmetry”. Every “right” (i.e. enforceable preference) creates an externality in the form of annihilating its symmetrically opposite “right”.

    Moreover, there is no objective way of assigning cardinal values to preferences in such a way as to enable the cardinal comparison of the preferences held by different people.

    Throughout the ages there have been Believers who seemingly think that they can transmute their subjective preferences into objective truths by processing them through some form of analysis based on criteria. Inevitiably, their analyses are never any better than the subjective criteria which they assume as their starting point.

    We are forced to conclude that such Believers either:

    a) are so solipsistically narrow-minded that they genuinely cannot conceive that their own beliefs could be anything other than objective truths; or

    b) known full well that those beliefs are not objective truths but wilfully choose to insult our intelligence by pretending that they are.