Economics as Ethics
Here are the axioms:
1. Economics' role is to find the best way to allocate resources.
2. The "free market" is the best way for these allocations to occur.
By "free market" I don't necessarily mean one free of all regulation. I mean one that is free to run within the rules set up by society. So a market would be "free" by my definition if, say, monopolies were prohibited. I think extreme free marketeers and libertarians might disagree with this, but they aren't being consistent. I'll give an example. I go to an open air market to buy vegetables with a loaded gun pointed at the vendor. We negotiate a "fair" price. The vendor, rightly, demands protection from intimidation. What he is demanding are rules. Every human interaction has rules, some are just so common they aren't noticed.
OK, so we have our axioms, now I'm going to add an initial condition.
3. The commodities being traded are in short supply. So short that there isn't enough to go around. Those who don't get an adequate amount will die. This is not a far fetched situation, it exists presently in many refugee camps and also in areas of famine. Loss of land and water through environmental degradation is also leading to cases where there isn't enough to go around.
So what is the economic answer to the problem. Notice that because of axiom 1 there is supposed to be a "best" way. So whatever solution is proposed must include an ethical component. Frequently one hears things like "women and children first" when on a sinking ship. But in the case of resource depletion maybe it should be healthy men who can farm most efficiently would be the best choice since they could extract the most production out of whatever resources remained.
Now in the situations that economists like to talk about there are always escape hatches. One of the favorites is substitutability. If there isn't enough rice then buy wheat. If there is too little of something then the price will rise and consumption will moderate. Even if the situation is not as dire as the one I used as an illustration, the implication is still the same, the choice of what to do includes an ethical component. If rice is the preferred food stuff, and there isn't enough, then the poor will have to buy the less preferred substitute. Why should this be? Why not arrange it so that everyone gets a similar fraction of the rice and the wheat? In both cases the outcome is the same at the macro level, but not at the individual level.
My conclusion:
Economics is not an objective discipline but uses unstated ethical preferences to determine the suggested course of action.
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Comments :
Well, rdf
at the risk of you taking this the wrong way, I'll give a quick assessment.
The two "axioms" you stated are not "axioms" here.
#1 is simply a "truthy" yet inaccurate definition of economics that creates a bad premise for the rest of the post.
#2 is a tentative general conclusion among economists whose clarity of the meaning and implications are disputed since the ramifications of the broadest sense of that conclusion mean different things from different points of view.
I'm sorry if that sounds vague but I'd rather not be more specific at the risk of doing what you did.
I won't go any further for now because the rest is built on these fallacies and riddled with problems.
Try this
I think you will find this fairly typical.
http://www.msu.edu/course/aec/829/Efficient_Allocation_of_Resources.htm
I've also been told explicitly by several of the economists who run blogs that policy recommendations are to be based upon maximizing "efficiency".
There are two types of economics, if you like: descriptive and proscriptive. I'm not interested in the descriptive, that's like comparing botany to genetic research.
Right now economists are listened to when many policies are decided. If their premises are wrong then it can have serious consequences. Just look at the discussions going on right now over what the Federal reserve should do next to best help the economy. These actions will be justified by reference to economic theories.
--- Policies not Politics
economics
is the study of the allocation of scarce resources that have alternative uses. That's a bullet-proof definition.
Now yes, you can tinge that and make the definition more normative than positive. I really did not want to go there just yet.
But I think you're putting the cart before the horse here. Descriptive or positive economics is tantamount to being able to devise normative or proscriptive policies. If you don't give positive analysis its proper due, normative ideas will be even more of crap shoot than it already is.
And no, positive economics is not like you say at all. Much like a mechanic or a doctor, positive must preclude normative. Otherwise, prescriptions will suffer.
In this case, you would never have written much of what you wrote in the first post, if you cared about basic positive economics.
And yes, I am a positivist first and foremost. Normative ideas that I may cautiously have are based on my positive understanding.
But we're getting away from ourselves here.
You're construct in the original blog entry is not even at the level of distinguishing positive and normative. To me, it appears more at a level of not heeding the basics before building into something else.
I read 8 economics blogs thru my Google Reader. 5 are libertarian, 3 are more liberal. I thoroughly enjoy the liberal blogs. I like learning about where they differ from the libertarians and in their own words. My favorite is Dani Rodrik
of Harvard. I actually just got his recent book today and look forward to reading it. Reich's latest book was kinda boring me. I'll finish it at a later date.
Bottom line, though, is that economists differ greatly on complex policy recommendations. A lot of this is because of severe differences that are most often grounded in a different perspective...positive vs. normative and not other reasons. Aside from this, some complex theories that are at odds with others can form other battle lines between policies.
That said, I think you should try again on an example that illustrates your point because what you said doesn't really pass the smell test for me.
Economics is not ethics. But when policy reccomendations are crafted with ethical considerations, more than just economics is at play. It's also political.
to be continued..... I have company.
A little more...
I pretty much agree with John, but just to apply the point to this specific example:
Positive economics does *NOT* attempt to decide what you, I, or we "should" or "ought to" do in this "refugee camp" scenario, should it arise. It merely makes predictions about what *will* happen. Its predictions aren't intended to have any moral content: they are simply predictions.
You seem to be claiming that "economic efficiency" is a normative, not a positive, concept. Well, that may be the case, depending on your precise definition of "economic efficiency." (Not everyone uses the same definition.)
But we can always throw this objection out the window by insisting on a particular, narrow definition of efficiency: Pareto efficiency. If we can make at least one person better off without making anyone worse off, then surely the outcome is not optimal.
For example, if we can prevent one person in the refugee camp from starving to death without hurting anyone else's well-being, then surely this is an improvement. This requires no controversial moral judgments about whether a child's life is more important than an adult's life, or anything of the sort.
Well, we economists have an evil trick up our sleeve. Once you accept Pareto efficiency, you've basically accepted (without realizing it) a somewhat broader version of economic efficiency, because we can (under certain assumptions) make any efficiency-improving policy change a Pareto improvement through the right set of lump-sum wealth transfers.
The classic example is trade. Trading with foreign countries has net economic gains: there are losers, but the winners gain more (on net) than the losers lose (on net). Well, so what if we took some of the would-be winners' gains and used them to buy off the would-be losers? The result would be a better outcome even by the narrow standards of Pareto efficiency.
The same argument could be used for the abolition of farm subsidies. Ending farm subsidies would help most people but hurt (some) farmers. Well, if we could just "buy out" the farmers -- just give them a pile of cash today in exchange for a permanent end to the subsidies -- then we could end the destructive policy without pissing anyone off. Unfortunately this is easier said than done; the Republicans tried doing exactly this in 1996, and unfortunately they lacked the political will to actually end the subsidies (and ultimately ended up making them even bigger).
well said, John. With regard
well said, John. With regard to public policy, economics is just a TOOL for achieving goals that are a function of our ethics/values/morals/priorities. Economics (meaning positive economics) helps us understand trade-offs available to us (by providing "what if" scenarios for policy alternatives), so that we can then apply our ethics/values/morals/priorities to choose from among the set of availabel trade-offs. It seems that rdf is missing that distinction.
It so happens that often the trade-offs we face involve policies that are anticipated to cause (or at least result in) a net benefit to one set of people and net harm another set of people, and we need to measure these harms and benefits (and that's where economics comes in) and then apply our ethics, values, priorities (etc.) as we choose which trade-offs are most desirable. For example, shifting to a more strongly pro-growth set of economic policies may be anticipated to result in a net benefit to most members of the population, but at the expense of greater harm to the poor. Economics can inform our choices regarding who is likely to gain and who to lose, why, and by how much. It's up to us, based on our ethics, values, priorities, etc. to then decide.
genetic research or genetic engineering?
I assume you wanted to make the contrast between botany and genetic engineering, not genetic research (which is a science just as much as botany).
In my expert opinion, you should do what I tell you to do.
Good points
Economics then, by deduction, is a subjective discipline. It is not nessecarrily about supplying a demand, ie; meeting a human need, but increasing an individuals capital, the subject. That is the only preference, but as you say it is hardly ethical in the majority of cases.
The problem with substitutability is what happens when the poor can't afford the lowest priced commodity? They go without. Ownership over the means of production at its' most basic is by extension ownership over the means of reproduction. Who lives, who dies? They decide.
Economists
In the real world economists are asked to give policy advice all the time. Right now there is a lot of discussion about how best to aid the developing countries.
I don't see much difference between saying "if you do X then Y will happen" or "I suggest you do Z". The claim that Y will follow from X is based upon a model which may or may not be based on observation. Even if is based upon prior observation, the conditions in the new case may not correspond to those used to create the model, the world is a complicated place.
A perfect example can be seen on Dani Rodrik's blog;
http://rodrik.typepad.com/dani_rodriks_weblog/
He's an economist specializing in developing countries. Look at his most recent postings and you will the amount of uncertainty within this economic community.
Things like Pareto efficiency are mostly of academic interest,. In the real world there are usually losers in every policy decision. So if you have to disfavor one group how do you decide? I claim that such decisions have an ethical component which is generally unacknowledged.
I don't this is such a radical idea. How was the idea that farm subsidies are "good thing" arrived at? Good for whom?
One can argue, as I do frequently, that the powerful decide who benefits, but this is just another way of saying that it is their ethical choices that determine policy.
--- Policies not Politics
politics, not economics
I don't understand why you wanted to conflate "economics" with "political decisions made by economists". It seems that everything is clear enough when you define "economics" as the science of how people allocate resources, and then admit that economicsts make predictions about how policy changes will affect the allocation of resources, without supporting or oposing those policy changes.
Once those predictions have been made, then it's a political decision to decide how policy should be structured...just as it would be a political decision to "rob Peter to pay Paul", in the absence of any complicated economic model.
In my expert opinion, you should do what I tell you to do.
"best" and "free market"
I think that the real issues have already been discussed, but I'll throw in a few thoughts about the axioms.
1) This seems to assume that there is some objective meaning to "best". This idea was touched on with "Pareto efficiency", but in the absence of some definition like that, we could just say that political economics is the struggle of competing interest groups to have their own interests favored at the expense of others. Really, that's politics, not economics.
2) I don't see why you feel the need to redefine "free market"; it sounds like you are simply referring to "rule of law". Anyway, the difference between your definition of "free markets" and the standard definition is that the standard definition addresses pre-market rules then allows the market to act without further interference, while your definition incorporates post-market outcomes, allowing the rules to be modified in response to market conditions.
FWIW, I think that there are pre-market rule-sets that make monopolies impossible (such as the anarchist "use=ownership"), but our current rule-set allows for monopolies, which is why we backed away from free-market principles in order to prevent the development of monopolies.
In my expert opinion, you should do what I tell you to do.