The Ethics of Economics

by on January 27, 2011 at 11:31 am in Economics, Philosophy | Permalink

Ed Glaeser has a good post, The Moral Heart of Economics, on the underlying ethical theories of economics. Tyler and I also discuss this isssue in our chapter on ethics in Modern Principles.

Even though the predictions of economics are independent of any ethical theory, there are ethical ideas behind normative economic reasoning. An economist who rejects the idea of exploitation in kidney purchases, for example, is treating the seller of kidneys with respect–as a person who is capable of choosing for himself or herself even in difficult circumstances.

Similarly, economists don’t second-guess people’s preferences very much. If people like wrestling more than opera, then so be it; the economist, acting as economist, does not regard some preferences as better than others. In normative terms, economists once again tend to respect people’s choices.

Respect for people’s preferences and choices leads naturally toward respect for trade–a key action that people take to make themselves better off. As we saw in Chapter 9 on externalities, economists recognize that trade can sometimes make the people who do not trade worse off. Nonetheless, the basic idea that people can make decisions and know their own preferences leads economists to be very sympathetic to the idea of noncoercive trade.

Economists also tend to treat all market demands equally, no matter which person they come from. Whether you are white or black, male or female, quiet or talkative, American or Belgian, your consumer and producer surplus count for the same in an economic assessment of a policy choice.

None of this it to say that economists are always right in their ethical assumptions. As we warned you in the beginning, this chapter has more questions than answers. But the ethical views of economists–respect for individual choice and preference, support for voluntary trade, and equality of treatment–are all ethical views with considerable grounding and support in a wide variety of ethical and religious traditions.

Perhaps you have heard that Thomas Carlyle, the Victorian-era writer, called economics the “dismal science.” What you may not know is that Carlyle was a defender of slavery and he was attacking the ethical views of economics. Economists like John Stuart Mill thought that all people were able to make rational choices, that trade not coercion was the best route to wealth, and that everyone should be counted equally, regardless of race. As a result, Mill and the laissez-faire economists of the nineteeth century opposed slavery, believing that everyone was entitled to liberty. It was these ethical views that Carlyle found dismal. We beg to differ.

1 cournot January 27, 2011 at 7:44 am

Surely Glaeser understands the distinction between treating all demands equally — from a formal perspective (i.e. without loss of generality) — versus doing so normatively. The latter requires some claims about standing. Even formal theory in international trade includes welfare discussions which are often couched in terms of the home country utility ignoring the loss to foreigners.

That we teach econ 101 saying that we do not impose claims on relative preferences does not mean we treat preferences for mass murder or torturing animals as equal to those of the average citizen. It is precisely the mistake of many libertarian/liberal economists to slip from formal claims about preferences to normative claims about equal preferences.

2 Mario Rizzo January 27, 2011 at 7:56 am

I think "Cournot" is largely right. In fact, I would say that the idea of treating preferences equally (let's put aside the "meddlesome" preferences for the moment) has nothing to do with valuing freedom or some normative notion of equal respect.

Even the idea of valuing "welfare" in the terms that the agents see it is not normative. As Lionel Robbins said about maximizing utility (in the Benthamite sense): Even if it could be shown that, say, redistributing income could accomplish this, there is nothing *in economics* that commends it.

What economists should find interesting about individual conceptions of welfare based on their preferences is that these affect individual's behavior! Interferring with people's attempts to improve welfare as they see it might have results many people don't like, however.

Now, as a classical liberal, I attach normative weight to people's preferences. But that is something different.

3 Elliot January 27, 2011 at 8:11 am

Economics also doesn't care about distribution of income. Its very utilitarian. A monopolist is inefficient not because it moves consumer surplus to its own producer surplus, but because it causes the pie to shrink. If the monopolist were a perfect price discriminator, it would move all the consumer surplus to itself and there would be no welfare loss from the monopolist. Economics doesn't care who has each part of the pie, only on the size of the pie.

4 Chris January 27, 2011 at 8:29 am

I thought it was Malthus' point that Carlyle found dismal, not Adam Smith's.

5 Jameson January 27, 2011 at 9:42 am

"Free markets are clearly the natural, neutral state of markets." Neutral, maybe–in the sense of being unguided by a commanding agency. But in what sense do we mean "natural," here? And in what way is the demand to leave this "natural" state unperturbed not a moral demand?

6 Matt January 27, 2011 at 9:56 am

Sadly, it's not true that Mill thought that "all people were able to make rational choices". While still much better than the vulgarly racist Carlyle, Mill, too, thought that "natives" needed white men to make choices for them. This was lucky thing for Mill to believe, given that he worked for the East India Company most of his life. It's true that (unlike Carlyle) he didn't think this as an uncorrectable aspect of being non-white, but nonetheless, reading Mill's discussions of colonialism and imperialism is a sobering and depressing affair.

7 Anon. January 27, 2011 at 12:11 pm


It's not so much a demand to not change it as it is that there can exist no legitimate arguments to change markets from their "default", free state.

8 Steve Sailer January 27, 2011 at 12:49 pm

Surely, economists ought to realize that the "economists' professional ethics" will continue to strike the well-informed as an oxymoron until the profession imposes some sanctions up Andrei Shleifer for engaging in corruption in Russia in the 1990s while he was under contract to Harvard and the U.S. government to provide the Russian government with disinterested advice?

How can we take the concept of ethical economics seriously until economists' do some self-policing?

9 Max M January 27, 2011 at 2:24 pm

Would love to see a study on how much "worth" people put on received surpluses from various out-groups. For example, if policy x creates 10$ of surplus for a stranger in China and 1$ of surplus for an American, is this better or worse than a policy which only creates 5$ of surplus for a Chinese but 2$ for an American? What is the "in-group preference multiplier" here?

10 kjm January 27, 2011 at 4:23 pm

Mill & ilk applied a _categorical imperative_ in that regard, sometimes seen by the cynic and the wise as utopian indeed. It has languages too, law, trade, mutualism perspectives, win/win, sometimes too innocent, also the realm of wonder. consider music. peace, reciprosity, wealth creation not zero-sum game. Deft with potential hazards, subjectivity. considering the state of the universe, humanity has been quite amazing indeed. whatever the life force is it is a wonder. different languages you need to convey, evidence of the senses — abstract, an invitation to extrapolation, where there is none, yet profoundly apparent in other degrees. a compliment. Classical Liberals aren't easily boxed, but the notion of unit the individual, and how it applied out into the array, , the catallaxy, et al., presented generic dictate on much commonality, travail, abidance and mutual advantage.
Something that perhaps far off or not so far off into the future can't be but a big asset — a multiplicity of individuals, a quantum of intelligence.

(ran on a little long there)

11 kjm January 27, 2011 at 6:53 pm

i'd agree Lionel Robbins set out a bridge of very formidable collection of classical liberal thought. His presentation of threads of discourse were pithy journeys. A fortunate combination of events with LSE? Reading that level of dialogue was a privilege. Benthem's out of the mechanical age — you knew it was going to be there, but so many ways to go astray. a commensurate with many deficiencies quickly — yet modernly Judge Posner cuts such a composite of convincing arguments, with a paucity of assumptions.

12 Casey January 27, 2011 at 9:49 pm

On rereading, the first clause of your book excerpt makes my point more succinctly:

"Even though the predictions of economics are independent of any ethical theory"

How can it possibly make sense to interpret something fundamentally orthogonal to ethics as being rooted in ethical ideas?

13 Keith January 28, 2011 at 5:36 am

"Economics suffers from the moral myopia of only treating as equal things which are marketizable."

Yet Another Huben EPIC FAIL!

14 Anon. January 28, 2011 at 10:52 am

Dear Supreme,

For my entire life, and almost certainly for the remainder of it as well, cognitivists have been telling me who I can fuck, what I can smoke, how much of my product has to be redistributed, and who I can trade with. Because of *their* silly beliefs. So I think being a dick is sort-of justified…

15 Otto Maddox January 29, 2011 at 8:51 pm

I've never seen so many strawmen as I did when I read the comments of the original NYT article. There is a visceral misunderstanding and hatred of economics out there.

16 TGGP January 30, 2011 at 4:46 pm

Odotnq, I'd say Thomas Macaulay's optimistic Whiggish predictions were astoundingly good.

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