BY NEW YORK TIMES : Edward L. Glaeser: The Moral Heart of Economics – NYTimes.com
Economists often present a cold public persona, emphasizing dollars and sense over the rousing rhetoric of moral argument. But by appearing as technocrats who seem concerned only with the bottom line, we allow ourselves to be portrayed as people without a sense of right and wrong.
Two weeks ago, I wrote about ethics and economics, calling for appropriate steps that economists could take to disclose conflicts of interest. Today, I focus on a larger issue: the complaint that economics is a discipline without a moral core.
Modern economics began with Adam Smith and the Scottish Enlightenment, a movement full of ethical debate by thinkers like David Hume, Francis Hutcheson and Lord Kames. Smith himself, who followed his teacher Hutcheson in the chair of moral philosophy at the University of Glasgow, wrote “The Theory of Moral Sentiments,” which included such ideas as “to feel much for others and little for ourselves, that to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.”
As Smith moved from moral sentiments to political economy, his focus changed from the perfection of private nature to the improvement of public systems. Most economic writing since then has typically shied away from offering moral advice to individuals and instead focused on improving public institutions and policies.
But that shift doesn’t mean that there isn’t a deep moral tenet – a belief in the value of human freedom – at the core of our discipline.
Some economists made that belief explicit. In the 18th century, Smith wrote, “Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so.”
In the 19th century, John Stuart Mill asserted, “The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”
In the last century, Milton Friedman offered “freedom is a rare and delicate flower” and “a society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom.”
Economists, like Friedman, often made the case that freedom had instrumental value — it achieved other aims, including equality and prosperity. But no one should doubt that Friedman and Mill and Smith saw freedom as a fundamental good, a thing to be valued for itself. That is, after all, how freedom is treated at the very heart of economic theory.
Because our teaching is so mathematical and formal, it’s easy to miss that we start by making a huge leap, that is basically moral, not mathematical.
Teachers of first-year graduate courses in economic theory, like me, often begin by discussing the assumption that individuals can rank their preferred outcomes. We then propose a measure — a ranking mechanism called a utility function — that follows people’s preferences.
If there were 1,000 outcomes, an equivalent utility function could be defined by giving the most favored outcome a value of 1,000, the second best outcome a value of 999 and so forth. This “utility function” has nothing to do with happiness or self-satisfaction; it’s just a mathematical convenience for ranking people’s choices.
But then we turn to welfare, and that’s where we make our great leap.
Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices.
When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice.
Our opponents have every right to contend that economists are unwisely idolizing liberty, but they err by saying we sail without a moral North Star.
Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending.
Many regulations can even be seen as force for freedom, like financial rules that help give all investors the freedom to invest in stocks by trying to level the playing field.
The belief in freedom does, however, create a predilection for human interaction and trade. As Friedman wrote, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” For many economists, defending free trade isn’t just about gross domestic product; it’s fighting for core values of freedom and human interdependence.
As Smith said, “To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation.”
Economists are often wary of moral exhortation, as many see the harm so often wrought by arguments that are long on passion and short on sense. But don’t think that our discipline doesn’t have a moral spine beneath all the algebra. That spine is a fundamental belief in freedom.
This Smaghi fellow is no friend of Ireland or the EU. Even Merkel is prepared to discuss the European Insurance Policy being sold to Ireland. It can’t be called a bailout anymore since every bondholder and economist knows that we will default at a given point, probably in 2016.
For the banking vested interests, led by their rottweiler ECB chums, to expect us to pay a 100% interest mark-up on a loan where 20% is retained by the lender to maintain the AAA rating of the bonds issued to raise the money is the sort of credit-craic that got us into this shambles in the first place.
We need to go back and go back hard with people who know what they are talking about. Whatever about a national government, we need a national monetary committee chaired by David McWilliams and staffed by experts in international finance to deal with these pawnbrokers.
Incidentally, wasn’t it grand to see FG and the ILP engineer the finance bill through the Dáil? Talk about Irelands Pontius Pilate moment. Now Leni gets blamed for everything, Ditherer gets away with waxing lyrical about stadiums and a FG/ILP government wrings their hands about austerity, whilst crying “It wasn’t me Guv, honestly”. Complete chicanery.
And now it turns out that NAMA is selling back discounted loans to agents of those who produced the original bad debt so they can generate cash to pay off the massive legal fees.