For the Record - March 15, 2018

This month's For the Record comes from Fellow-in-Residence Åsbjørn Melkevik, whose research focuses on social justice within market capitalist societies.

Interdisciplinarity with Economics Is a Necessity
by Åsbjørn Melkevik

“I have been increasingly moved to wonder,” once said Frank Knight, “whether my job is a job or a racket, whether economists, and particularly economic theorists, may not be in a position that Cicero, citing Cato, ascribed to the augurs of Rome.”1 

It is common to muse over the perils of thinking like an economist. There is, we are told, something missing when we only weigh the costs and benefits of the options before us, and then choose the one that will lead to the greatest utility. There is an ethics of “expediency,” of “calculation,” as Jacob Viner noted, in the field of economics, which troubles many philosophers today. There is indeed a widespread sentiment that we should not think like economists. I disagree. We should instead be concerned with the perils of not thinking like an economist. 

Though I mostly studied political science, and more precisely political theory, I have come to believe that economics is essential for a proper understanding of the many problems we now face. Both philosophers and economists are concerned with the same issue, namely the question of value in society. However, economics examines more specifically the consequences of value judgments, and as such it is an essential feature of any practical proposition. Or at least it should be. There should be more cooperation between political theorists and economists, and therefore we should be wary of belittling the economic way of thinking. We should rather embrace such a general way of thinking that can, and indeed should, complement the other approaches in the humanities.

My primary objection to the presumed perils of thinking like an economist is that there is no one way to think like an economist. We may remember the joke that economics is the only field in which two people can share a Nobel Prize for saying the exact opposite thing, like Friedrich Hayek and Gunnar Myrdal did in 1974. But the objection usually runs deeper. “Even to-day”, said Hayek, “it is regarded almost as a sign of moral depravity if the economist finds anything to marvel at in his science,” to which he added, “And he is bitterly reproached if he does not emphasise, at every stage of his analysis, how much he regrets that his insight into the order of things makes it less easy to change them whenever we please.”2 The problem, it is often thought, is that economics offers us a unidimensional view of human nature: the desire for gain dominates, and the more noble sentiments falter. We see people driven by their desires, independent of their relations to their loved ones, and ignoring the moral features that make them humans. Everything becomes a question of costs and benefits, which the infamous “homo economicus” exemplifies.

There is a tendency, however, to exaggerate the economic man’s lack of ethical influences. The economic man is not “out only for himself”. More importantly, the economic man is only a convenient tool, not unlike the original position defended by John Rawls, in which people are stripped of their particular inclinations, aspirations, and conceptions of the good when deliberating about principles of justice.3 Both are thought experiments that use an assumed psychology to think about the background institutions of society. 

However, whereas Rawls’s veil of ignorance is celebrated, and justifiably so, the economic man is regularly vilified. An intellectual device that draws no ire in philosophy suddenly becomes the proof of the economist’s heartlessness and ethics of expediency. The key point is that although economics is built on the assumption of rationality, it is a mere assumption. We do not know enough about other people, and therefore we use the economic man as a stand-in in order to reach some conclusions about the society in which we live.

Economics is a moral science inasmuch as it is concerned with welfare. The alleged naivety of economists has been greatly exaggerated on that point. Economists are aware of the “mere addition paradox” Derek Parfit introduced, and accordingly they do not only look for ways to maximize aggregate welfare while leaving most poor people behind. We have come a long way since the Benthamite social welfare function, which only considers the sum of individual incomes. Most economists are rather concerned with social welfare functions guided by some values, say the separateness of persons, like the Bergson-Samuelson individualist welfare function W[U1, U2, U3, …]. If one is to use a given value scale, be it welfare, utility, or simply X, one must indeed consider a range of features, behind which there will be a theory of justice. In fact, as Anthony Atkinson noted, economists will examine the following questions:

(i) Diversity – i.e. “different people hold different sets of values,” such that liberty may be more important for one than social justice, and vice versa for another.
(ii) Plurality – i.e. “a single person may bring to bear more than one set of welfare criteria,” such that we must balance, say, greatest happiness with liberty.4

The rivalry of ends is as much a problem for the economist as it is for the philosopher. As soon as the information content of individual preferences is broad enough to include interpersonally comparable cardinal welfare functions, to use Amartya Sen’s words, our value scale must then also consider some distributive features, forcing us to then engage with political theory:

(iii) Intertemporal distribution – i.e. different generations have differing interests, and therefore we must consider the rate at which future utility is discounted.
(iv) Interpersonal distribution – i.e. different people have conflicting interests, and therefore we must also consider the question of distributive justice.

It is not clear exactly how economists have failed to recognize the ethical dimensions of such questions. One can often hear that these are questions which economists are not even willing to discuss, and yet they are fairly common in political economy. There are many ways in which what Aristotle called “eudaimonia”, namely “happiness” or “welfare”, can be understood, and indeed there are many ways in which it has been understood by economists. If “economics is what economists do,” as Viner once said, then there can be little doubt that economics is a moral science, if only because economists will frequently engage with moral issues.

In choosing a given maximand, then, the economist is engaging with the wants of his or her contemporaries. However, given the diversity and plurality of wants, the maximand the economist chooses will also reflect some values, even more so if the economist recommends some policies to maximize it. If one were to analyse the maximands most commonly used by economists, one would find mostly the same values that philosophers frequently praise: growth, of course, but also employment, sustainability, capabilities, wellbeing, social inclusion, flourishing, and equality.

Let me offer one final thought. Many economists are concerned with Marshall efficiency, that is, with net gains in society. Such a concern with efficiency, however, may run afoul of some social justice reform we may want to enact, and indeed it often does. As George Stigler noted, “economists have been the premier ‘pourers of cold water’ on proposals for social improvement, to the despair of the reformers and philanthropists who support these proposals.”5 The problem for the economist is that many of these proposals interfere with the workings of the price system, which will make most people worse-off. Social justice policies will indeed benefit some people, although those who will be made better-off will not always be those we had intended to help in the first place. For example, price ceilings, price floors, minimum wages, and rent control will most probably reduce the community’s real income, ceteris paribus, since they decrease the velocity of business transactions, raise price, or generally interfere with the supply and demand mechanisms. This, in turn, will make poor people even worse-off, in terms of real income, making such policies ill-advised at least in terms of efficiency, but most probably in terms of social justice as well – or so many economists have argued.

The mistake would be to snub economics because it contradicts some of our intuitions regarding the way in which we should pursue social justice. The lessons of economics may often feel wrong – and yet we should not turn away from economics. Quite the contrary – economics is pressing right now. The most urgent moral and political problems we now face in America could all benefit from economics – say, our two-tier healthcare system, poverty and inequality, our overcrowded prisons, or the colossal waste of resources created by rent-seeking. 

I have been increasingly convinced that for any solution to be possible, we must get better acquainted with economic theory and not just political theory. Interdisciplinarity is not merely a display of erudition; it is a necessity. There are, of course, many questions of ends that are better answered by political theory. What is the relative value of liberty or equality, and how should we understand these intricate concepts? But many problems today are rather about the means. How should we ameliorate poverty? How should we deal with the many problems of addiction? How should we build a better carceral system? This is where economics becomes indispensable, and where a better understanding of economic theory can quickly show the errors of our current policies.

We need to give a greater role to economics, perhaps especially, if we are concerned with ethical issues today. As I have argued, it is not the perils of thinking like an economist that we should fear, but rather the perils of not thinking like an economist. 

Notes:
1 Frank Knight, “The Rôle of Principles in Economics and Politics,” American Economic Review 41, No. 1 (1951): 2.
2 Friedrich Hayek, “The Trend of Economic Thinking,” Economica  40 (1933): 124.
3 John Rawls, A Theory of Justice (Oxford: Oxford University Press, 1999): 16.
4 Anthony B. Atkinson, “Economics as a Moral Science”, Economica New Series 76 (2009): 796.
5 George J. Stigler, Memoirs of an Unregulated Economist (New York: Basic Books, 1988): 4.