Monday, September 3, 2012

I Am Mad At Economists (Part 2 of 2)

J. S. Mill (1806-1873).  Mill is the opposite of what I'm mad about, because he was explicit about basing his economic principles on his ethical ones.
If you're just tuning in, this is Part 2 of why I'm mad at economists.  In Part 1 I started by explaining a bunch of things I'm not mad at economists about.  I'm not mad about the whole "economics isn't a science" business.  I'm not mad about the use of false idealizing assumptions like "rational actors" and "perfect information."  I'm not mad about the use of mathematical methods originally designed for other things. 

What I am mad about -- well, the first thing, as I said in Part 1 -- is the utterly misplaced confidence with with economic conclusions are put forward.  That argument was addressed to economists in their role as empirical researchers -- that is, as people saying what will follow from what.  Like if you put into place policy A or regulation B or tax C, such-and-so will be the result.  My point was that in a complex science in which you don't really know how your false idealizing assumptions and mathematical tools affect the accuracy of your conclusions, no one really knows what will result.  But you never hear anyone saying that -- least of all economists.

This post is a little different, and concerns what I call the ethics bait and switch.  It applies in a somewhat different way, to economists who put forward arguments for one policy or another.  Sometimes those are economists acting qua economists -- as scholars and researchers who have opinions on what is best to do.  Sometimes those are economists acting in a role as a policy maker or advisor.

When economists promote a policy in what they like to think of as a neutral mode, typically they imply -- and I think they are best interpreted as saying -- that the given policy will increase overall financial prosperity.  This is offered as basic, unprejudiced, neutral cost-benefit analysis. 

Is there a reason to do the thing that will bring about the most overall increase in prosperity?  In ethics, the idea that one ought to do the thing that will bring about the best consequences overall is known as utilitarianism.  One of the most striking things about utilitarianism is that things like fairness, respect for autonomy, and equality are not directly valuable or relevant to decision making.  Those other values are good only when, and insofar as, they promote good consequences -- which they might do in some situations and not others.  So we can interpret economists as appealing roughly to a utilitarian outlook in deciding what to do.

Yet one seldom hears a defense of the idea that overall gains are the only thing that matters.  I think one reason is that most people, including most economists, do not really believe it.  That is, as people, they do not think ethically that overall gains are the only thing that matters.  They also believe in things like fairness, liberty, and (maybe) equality. 

And indeed, when economist X wants to promote policy P and overall prosperity wouldn't result, sometimes the arguments shift:  all of a sudden it would be unfair to tax the rich/burden small business/let farmers go bankrupt or whatever. 

OK, fine, I'm all for fairness.  But you can't pick and choose.  If fairness matters sometimes, it matters all the time, and you can't go around pretending you're just doing cost-benefit analysis.  You'd have to have a whole debate about what's fair, and when fairness does and doesn't include equality, and why -- a debate, I take it, the Occupy protestors were/are trying to have, and they just keep getting shut down, by asshats like P. J. O'Rourke who said they failed Econ 101.  Needless to say, I didn't see a lot of economists defending them. 

Occasionally, when economist X wants to promote policy P they might bring in the liberty argument.  This argument attempts to justify economic policies on grounds that certain alternatives don't respect individual autonomy -- they're coercive. 

Again, OK, I'm for respecting autonomy.  But just like with fairness, if you're going to make this argument,  it's clearly not a cost-benefit-analysis argument, and you have to be prepared to have a discussion about ethics.  You're going to have to talk about the nature of rights and duties, why the freedom to die from lack of health care is an important freedom to protect, and most importantly, why liberty matters so much while other common sense moral values -- like fairness, benevolence, and loyalty -- do not.  I'm sure there are economists prepared to have this discussion.  But those in the public eye seem to do everything they can to avoid it. 

Even cost-benefit analysis can lay no claim to ethical neutrality.  For one thing, as we've seen, it takes into account one value -- overall economic prosperity -- while leaving aside others, like fairness and respect for autonomy.  But the problem goes even deeper than that.  If you're weighing consequences, why count dollars?  Why not count well-being?  Certainly ten dollars to a poor hungry person is a much more dramatic increase in overall well-being than ten dollars to a rich person.  Economists doing cost benefit analysis treat those gains as the same, which, whatever you want to say about it, is clearly not an ethically neutral thing to do.

J. S. Mill, pictured above, knew that:  he tried to count overall well-being, and he tried to show why that was the right thing, ethically, to count.  I don't agree with him, but it's the right kind of argument to be making. 

My sense is that most people care about all of the things I've mentioned:  the overall size of the pie, the fairness of the slices in terms of rewards and so on, the relative equality of the slices, the freedom of people to negotiate with others for the size of their particular piece, and the increased well-being that results from benefits to the worst off.  They value all of these. The question isn't "which one matters."  The question is how to make sensible tradeoffs among all of them, which compromises make the most sense. 

No one wants to talk about that question, because it has to do explicitly with ethics, and we live in modern Western liberal society where it's like OH NOES you can't justify something with ETHICS -- people might have different views and policies are supposed to be NEUTRAL!  

Also, economists tell us, to get anywhere, you have to think like a "cold-hearted economist," not a "warm-hearted humanist" (this phrase adapted from Levitt and Dubner's passage against Gore in Freakonomics).  Those dumb humanists, always getting in the way of our science!

But in this context, there is no neutrality.  Every way of proceeding rests on some conception of value.  Even cost-benefit analysis isn't neutral.  The fact that ethics is always present in some way supports one of the conclusions I came to in Part 1, that organizations like the IMF should leave people in different countries alone to work out their economics as they see fit, instead of strong-arming them into free-marketism.  If it's values all the way down, you have to grant that other people might have different ideas about how to do things, and they have a prima facie right to put those ideas into practice. 

I suppose you could say, "Oh, these things aren't the fault of economists.  Public discussion being f-ed up is everyone's fault."  Well, you know, in one sense, sure.  But in another sense, no.  Insofar as they lay claim to being scholars, researchers, and scientists, rather than just policy shills, it's the whole job of economists to understand these things in depth and to promote truth, honesty, and rationality.  Every time the overconfidence thing happens or the role of ethics in policy discussions is obscured by economists, they're failing in that job.

So those are the things I'm mad about.  I expect I would also be really angry about intellectual fraud and lying in the study of economics -- and finance -- if I knew more about it.  But I don't.  It's OK.  I have enough stuff to be angry about already.


Daniel said...

Hi Patricia,

Me again.

Thanks for part 2!!

I had to do a little research on the IMF. It was your one example in both posts, so I wanted to know more about it. Seems like there is criticism of the current quota system, and / or the fact that it favors "neoliberal" policy recommendations because the U.S. has the most power within it.

I wonder if countries or other institutional interests that would prefer other sorts of policy recommendations, or looser ones, or whatever, could make a foundation that excludes the U.S., or maybe includes only the investors from the U.S. who do not promote free market policies. Maybe that's already happening.

In terms of the resistance to discussions of ethics by economists and makers of economic policy, I'm curious to know what place precedence or predictability is important in your view. I am sympathetic to the discussion of important consideration of ethics, yet I find it difficult to understand how principles, which can help with understanding who should get a loan and what its conditions should be, for example -in other words, help make it predictable, and fair in that sense - would arise in such a context. Perhaps there would be a board of 10 experts or something who sift through each case?

Thanks for such an interesting series of posts!


Daniel said...

Oops, I meant to write, in the third paragraph: "what place precedence or predictability HAS in your view."


Patricia Marino said...

Hi Daniel, what I had in mind was that ethics ought to inform the decisions we make about policies, and I take it that is compatible with having general principles. So I have nothing against predictability and consistency. For example, John Rawls argued (roughly) for a particular way of prioritizing between the values of prosperity, equality and liberty. He came up with two very general principles that encode that prioritization. (E. g. inequalities are justified only insofar as they function to make the worst of person better off). So that seems to me predictable and doesn't require any case by case reasoning. There could be other ways of doing it, of course. I'm just giving him as an example of someone who appealed to multiple values and defended general principles.

As to the possibly more difficult question of how, theoretically, one can know whether a prioritization among conflicting values is being applied in a way that is consistent from case to case, that is one of the main subjects of the book I'm writing, _Moral Reasoning in a Pluralistic World_!.

Daniel said...

I look forward to the book, Patricia.

I am a little skeptical, though, of the abstractness of something like the Rawls setting out of values. To me it seems so divorced from the reality of the institutions of government that it becomes nearly impossible to imagine HOW it would ACTUALLY HAPPEN. When the values are put sort of side by side like this, abstracted from legal and political institutions, it seems pretty weird. I sort of get the impression that Rawls wouldn't really care how it actually happens, that it's the ends that matter. Maybe I'm wrong, though.

Daniel said...

Tiny addendum: I just saw that Rawls writes about "institutions" all the time. I don't mean it in the way he does. I mean it more in terms of the PROCESS versus the end state sort of stuff. Perhaps that was clear, though.