Economics for ethics

Ethics and economics have a troubled relationship. The public is generally under the impression that ethics is about being nice or fair to other people, while economics is about the machinery of translating individual selfishness into general wealth. One should not ask what each can say to the other, but which one we should choose. Strangely enough, this is also approximately how most ethicists and economists think about the relation between their disciplines, as a result of a collective tacit agreement to perpetuate mutual ignorance and antipathy. Ethicists think economists are clumsy buffoons with an impoverished view of human nature and morality, obsessed with incentives and markets as the answer to everything. Economists think ethicists are constitutionally unable to give a straight answer to anything and are obsessed with pursuing mystical intrinsic values at the expense of systematic thinking through of their implications. These are caricatures with some truth to them. But to the extent that they prevent ethicists and economists from taking each other seriously, they block the real scope for mutual learning.

Although the learning can and should go both ways, it has generally been a one-way road. Ethicists have been reprimanding economists about their lack of ethical perspective since before economics was founded as an independent science. They have rightly criticised economics for evading its responsibility for explicit ethical reasoning in favour of a scientistic identity of strict neutrality; its impoverished and flawed normative theories (rational choice for individuals; welfare economics for society); and the arrogance with which economists such as Gary Becker and Steven Levitt have promulgated a narrow methodology to understanding 'all we need to know' about the human condition.

The trouble is that because ethicists have so many reasonable complaints about economists they rarely take what economists do and how they think seriously. So this post will follow a path less travelled and ask what economics can do for ethics. Firstly the subject matter of economics is in great part ethical, so what economists are doing is ethics, whether or not they call it that. Secondly theoretical economists have developed a sophisticated approach to ethics - a form of logistical consequentialism - together with specialised analytical tools that can be helpful to ethics (and are in fact widely used in developing theories of justice). Thirdly the substantive 'bourgeois' values of economists provide a solid moral compass that deserves to be taken seriously, and contrasts positively with the flighty cloud-castle building or extreme relativism often found in professional moral philosophy.

1. Economics is about ethics
Understood properly economics is an ethical science, an important branch of moral philosophy. For it concerns how to understand, manage and fulfil the heterogeneous and often conflicting values, interests, and capacities of large numbers of individuals operating within the constraints of limited resources. That system-level attention to the key aspects of heterogeneity, conflict, and scarcity should be a central concern of moral philosophy, but all too many moral philosophers are content to focus on the micro-level: identifying objects of intrinsic moral status e.g. friendship; or exploring particular kinds of relationships e.g. the nature of exploitation. Moral philosophy combines a high-minded concern for finding and testing the right abstract moral theory with an individualistic understanding of the phenomenology of morality as something akin to self-exploration and discovery. Society is surprisingly absent. This lacuna frequently leads moral philosophers to wish away or parenthesise (idealise) those aspects of heterogeneity, conflict and scarcity unavoidable in a moral community. Economists as social scientists have been thinking about this subject for a very long time, and have much of importance to say about it.

For example, economists have addressed the centrality of scarcity by developing the concept of opportunity cost. Given scarce means you will not be able to do everything you want. For example, you may not be able to give $500 to the Somalia famine appeal and also take your long planned trip to visit your ailing grandmother. The cost of choosing one rather than the other is not the money. Money is not important: it merely represents your purchasing power constraints and only an idiot would try to acquire money for its own sake. Rather, the cost of choosing charity over filial piety is the full value (including the full ethical value) of the alternative you thereby give up. Moral philosophy rarely considers the full costs of actions in this broad sense and is the poorer for that.

2. Economics can provide logistical support to ethics
Economics' particular contribution to practical ethics is a sophisticated form of consequentialism concerned with the systemic mapping of both the implications of our ethical claims and the unintended but foreseeable consequences of our actions. It does this through pragmatic model building to see what might happen to the things we are concerned about under various counterfactual but plausible conditions.

Deontological rigour
Economic modelling allows us to test the robustness of particular ethical principles as principles of action and thereby to clarify our practical moral reasoning. The deductive form takes axioms we believe to be plausible and develops tight formal arguments ('proofs') that follow from them using mathematical techniques economists have honed over the past hundred years.  Social choice theory for example is concerned with aggregating the interests (or preferences, or judgements, or views) of different persons (or groups) in a particular society. i.e. it is concerned with issues of heterogeneity and conflict. It works by showing the logical implications of the combination of various apparently plausible ethical premises ('axioms'). Sometimes the analysis shows that the premises are inconsistent in ways that were not perceptible by the standard philosophical means of testing them against our intuitions and common sense (as in Kenneth Arrow's famous (im)possibility theorem). Sometimes it shows that premises we found agreeable lead unavoidably (by deduction) to unpalatable conclusions (as in Amartya Sen's Impossibility of a Paretian Liberal). Thereby we are brought to reconsider the plausibility and/or ethical status of our initial ideas. Such analytical consequentialism can be used generally to identify and clarify the ambiguities and difficulties of moral reasoning whenever the claims can be formulated in a formal (mathematical) way.

Better utilitarianism
In addition to deducing logical implications - i.e. proving existence theorems - the economic method also allows a quantitative logistical analysis. It attempts to map the consequences of agent behaviour or government regulation in a complex system by using models that focus on the interaction of the most significant causal mechanisms. By doing so it can identify and assess unintended consequences, for example of setting up a regulation which provides agents with incentives to act in ways that undermine the intentions of the policymakers (such as the service-fee basis of doctors' earnings in the US, or guaranteed prices for farmers). It can map the diffusion of costs and benefits through a system and consider who gains and who benefits (e.g. will certain institutional arrangements create a rentier class?). It can introduce a sense of proportion, whether about the benefits of intellectual property protection (contested) or the benefits to the world's poor of removing all immigration barriers (incredible) that can helpfully inform democratic, or even philosophical-ethical, debate.

Interestingly, although many economics methods are descended from utilitarian moral philosophy, they can make contemporary utilitarians look rather shallow. Take Peter Singer's famous moral parable of the shallow pond.* The argument goes like this:

You're walking by a pond and see a child drowning. What do you do? Jump in and save him of course! Ending world poverty is like that.

Hmmm. Sounds like we are being asked to assume the traditional missionary position of good intentions and moral duty towards those poor Africans. The economist would ask for a bit more information and logistical analysis before jumping into that pond. Call him boring, critical, or even cold-hearted, but it seems a more consistently utilitarian position to take. Utilitarians are supposed to maximise the good, not good intentions; which makes inefficiency a kind of vice. To be a good utilitarian you need to get with the necessary empirical techniques

Perspicuous contrasts
Economists are shy about introducing explicit moral arguments of their own and much prefer to analyse the value systems they can derive from their observations. But that doesn't mean that their analysis of the values individuals and society reveal in our actions has no moral bite. Economists often confront us with the implications of our own actions in a way that can be extremely discomforting (no one likes to have their complacencies and hypocrisies exposed). Without promoting any values of their own they can introduce a comparative analysis that allows for perspicuous contrasts. For example, while cost-benefit analysis rests on contentious assumptions about the weighting of values and their aggregation, economists can use it not only to argue that a bridge is worth building, but also to identify inconsistencies in social evaluations. A standard cost-benefit analysis of public expenditure on health may identify an implied value of a human life of several hundred thousand dollars per Quality Adjusted Life Year (QALY) for certain kinds of cancer, versus an implied value of a few hundred dollars per QALY implied by society's expenditure on certain 'unsexy' preventative health measures. Such an analysis is an open challenge to society to justify our choices.

3. Economics has a solid bourgeois moral compass
Many ethicists reject the contributions of economics because they think its consequentialism lacks a moral compass, or has the wrong one of catering to the organised selfishness of business. It is true that much modern economics has built excessively on exploring what follows from the assumption of individual selfishness. But that is to miss a great deal of the substantive ethical commitments built into the foundations of contemporary economics. It's one thing to criticise these as too narrow, poorly thought through, bourgeois, etc. But all too frequently one finds the simple assertion that economists are amoral or vicious, and this is mere prejudice. Economists are basically enlightenment liberals (of the boring modernist kind). They believe in old-fashioned clunky values like justice, equality, liberty, and (material) prosperity.

Justice 
Economists are generally pro-capitalism because they think markets are great. They show how a productive and sustainable economic order can form spontaneously in society (in the right conditions - which economists still contend about) without direct political control. The form of justice it focuses on is the liberal form built up from voluntary agreements between free individuals against the background of a sensibly formulated and neutrally applied rule of law. Such a 'market order' view of justice is not limited to strictly economic goods. JS Mill famously used it in The Subjection of Women to argue that restrictions on what women were allowed to do could not be justified on the grounds that women were naturally inferior to men.

The anxiety of mankind to intervene on behalf of nature...is an altogether unnecessary solicitude. What women by nature cannot do, is quite superfluous to forbid them from doing.

For if women were really incompetent then they would never succeed in those universities or careers anyway - 'the market' would select them out. And so long as the restrictions were maintained, it was impossible to tell where nature left off and institutional conditioning took over, and so the truth of the claim could never be established. Rather, the only way to discover the truth about women's abilities would be to set them free to compete on their own merits in the marketplace of life.

Liberty
Economists standardly make the descriptively false assumption that individuals are rational. Why? Not because they are such terrible scientists that they haven't noticed its falsity. Rather, individual rationality is a normative presumption that economists build into their theories out of respect for the principle of individual autonomy. One of the central tenets of contemporary economics, despite its utilitarian foundations, is that every person's utility function is private and its origins lie outside the economist's models and calculations. That's also why economists are so reluctant to preach about the good life, and why their self-identity is of the engineer: you tell us what you want to do, and we'll tell you how to do it efficiently.

Equality
Everyone is equal because everyone is the same. Economists don't see race or gender or religion; they see productivity and effective demand. For example, economists think poor people are the same as rich  people (i.e. us), except that they're poor. They believe that the unfortunate condition of poor people is the result of circumstances rather than innate moral or intellectual deficiencies, and that starting point naturally generates a practical agenda for economic development. That stands in contrast to the patronising if not illiberal positions of many critics of economics. Thomas Carlyle, to take a particularly extreme example, coined the famous phrase the dismal science of economics in the course of a rabidly racist diatribe against political economists like JS Mill who wanted to end the institution of slavery. Economics was dismal for wanting to substitute the cash nexus of labour markets for the natural master-slave relationship, and for naively believing that black people or the Irish could ever understand their own interests enough to work for money rather than the benevolent whip (see here for a great discussion of this by Levy and Peart).


Prosperity
The reason economists are so committed to economic growth is that they believe it is a good thing that people have more options about how they live their lives. This is what prosperity actually means: the greatest possible number of people having the greatest possible freedom to choose. Whether you use that prosperity to travel around the world getting to know other cultures, write poetry and novels, or stay home and watch porn all day on your superbig plasma screen TV is up to you. Economists just think it's important that you have such choices.

Economists should be proud of these bourgeois values. They are the core values that unify economics from Adam Smith to the present, even while the nature of the economy, and the questions and analytical tools of economists have changed dramatically. They contrast with the tendencies of moral theorists towards relativism and ideal theory building. And this is not surprising because economics, unlike ethics, has consequences in the real world and for the lives of real people. Not only in the direct technical advice they give governments, but in the knowledge they produce (studying some things and not others; choosing techniques that make some questions easier to ask than others, etc) what economists do and say matters. Economists need an ethical backbone to support the dramatic responsibilities of their professional duties, and these bourgeois values are much better at providing the necessary moral compass than any proper ethical theory, whether Kantian or Utilitarian or Contractarian. First, they are directly relevant to the central concerns of economists - heterogeneity, conflict, and scarcity. Second, they have weight (which some might call ideology) which means they can help the economist stay upright amidst the winds of populism, politics, and self-interest. Third, they have a pragmatic character suited for dealing with messy real world problems: concrete enough to serve as guides to reasoning, but not so precise that they try to give an exact answer to what to do, as if ethics were a matter of following the right theoretical formulae (something moral theory is prone to - previously).

Conclusion

Economists are used to being told that what they do is non-ethical or even anti-ethical. I hope they may take heart from seeing their subject as already an ethical science, with its own sophisticated resources, perspective, and contribution to make to ethical issues. Economists do not have to put up with second rate philosophers making them the butt of their insults and bad jokes. Nor do they have to surrender the ethical ground to such 'experts'. But this essay is not intended to let economists off the hook. Economists should be much more sensitive to the perspectives that ethicists can bring, and much less eager to retreat into positive theory and scientific neutrality than they have been more or less since the Marginalist revolution. The challenge for economists is to make their ethical science better. To understand both the capacities and limits of their economics ethics, to incorporate that understanding more fully into their work, and to articulate this to sceptical philosophers and public alike.

Ethicists on the other hand should be much more humble in their interaction with economists. If they listened as well as they talked, they would see that economics can deliver insights into certain moral issues, particularly those involving heterogeneity, conflict, and scarcity in a community (for example, global climate change). That economics has developed sophisticated analytical tools that can be usefully employed in many areas of moral philosophy. That economists have an implicit professional ethics worthy of respect and engagement, not insults. 

The single most important bridge between ethics and economics relates to the pragmatism that drives the logistical techniques of economics. Ethics at its best is all about perspective, about standing back from our first order intuitions about a situation or relationship in order to properly appreciate its subtleties and nuances. Its central question is, Shouldn't we think about that too? Economics at its best is all about proportion, about looking closely at how important different aspects of a problem really are when considered as part of a complex system. Its central question is, How much does it matter? Good judgement needs both perspective and proportion, which means that neither ethics nor economics can be very successful if it neglects the skill the other specialises in. 

*I just read a great paper on this, though not by an economist: Scott Wisor, “Against shallow ponds: an argument against Singer’s approach to global poverty,” Journal of Global Ethics 7, no. 1 (April 2011): 19-32. Gated, unfortunately, but that's academic publishing for you.

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