A Reply: Economics and Ethics
from Peter Radford
A correspondent of mine suggests we need to define both economics and ethics better if we are to resolve my ongoing angst with the state of the two combined.
This is true.
Ethics is, I think, well defined. The literature is full of notions of ethics and its evolution. Behavior that was once ethical is no longer so. Behavior that was once unethical is now acceptable. Clearly ethics is a relative and socially determined concept with changing views altering where its boundaries are. Currently there are behaviors falling outside those boundaries that economists seem blithely to continue to accept. This I attribute to the general out of date nature of the discipline. Remember that economics has successfully sealed itself off from reality, other disciplines, and society at larger for a while now. Instead it has taken on board its own vision of society, its own view of human nature, and its own calculus of how people interact. This allows it to have its own ethical standards separate from those being developed in the outside world.
Thus economists can genuinely argue that competitive pressures will reduce the incidence of unethical behavior. After all they invoke those pressures to resolve practically every other social problem, so why not ethics? Those of us less convinced by the ubiquity and efficacy of market forces would prefer to see a more interventionist element to ethics – a set of rules perhaps – to establish boundaries of behavior.
This is problem enough. More problematic is defining what economics is at all.
I don’t see a generally accepted definition that can survive close scrutiny.
The current orthodox definition is extraordinarily restrictive. It focuses the discipline only on the market and the supposed market forces that allocate resources within the market. Thus a whole host of other obvious features of a holistic economy are ignored. Such features include things like the institutional structures of an economy, the impact of class, gender, networks, and the business firm even though all these have notable and deep effects on the allocative outcomes of markets.
The single minded focus on markets represents, itself, an ethical stance. Or, perhaps, it is better understood as an ideological statement. It biases the language used and shapes discussion. Thus perfectly normal occurrences are called “market failures” with a negative connotation from the outset rather than being treated neutrally pari-passu with markets. Worse the supposition that markets when left to their own devices trend back towards an equilibrium throttles any ability to study non-equilibrium regularities in an economy. They are “unexpected” precisely because of the a priori assumption of equilibrium. They are thus not studied as deeply. Even though they are frequent or endemic in real world economies. Hence the ability of orthodox economist to deny the existence of bubbles even in the midst of one.
As ever, the language we use to describe a phenomenon plays a considerable part in limiting or enabling our ability to comprehend it. Economics seems particularity prone to this restriction. Looking back at the history of the discipline it has morphed and adapted to its political milieu, its social role, and the outcomes desired by the elites most invested in it. Thus it has variously produced ideas to attack or defend capitalism. It can bolster free trade or to explain the damage that such trade can do. It allows exponents of government intervention to co-exist along side libertarians. The contradictions are endless. There is no coherence to the subject through time with various ideas, and thus definitions, achieving temporary prominence as it serves the socio-political environment within which it seeks to add value.
The only exception to this chameleon like nature is the market focus of orthodoxy which has existed in one form or another since the discipline’s inception.
Given the slippery nature of its definition it is no wonder that its practitioners find it hard to coalesce around a common set of ethical standards.
I am not sure we can resolve this any time soon.
I remain disheartened by the lack of willingness to engage in discourse about ethical behavior within the discipline. Too often the topic of ethics slides towards a discussion of the social outcomes of economic policy advice – and hence the theory upon which that advice was based. This is valid since, surely, no discipline should willingly cause harm in society. Yet I see the larger challenge as being setting sound boundaries for personal and professional behavior. I acknowledge that such boundaries would then affect the subject’s content, or at least the way in which that content is taught.
Let me end this response to my correspondent with one example.
I do not see how anyone can be called an economist if they are not thoroughly steeped in the subject’s various components. As I have mentioned above the subject is diverse and almost defies description as a coherent body of thought. It is all over the lot. Thus to call someone an “economist” is misleading and a disservice to the public for whom the arcane and intricate differences of opinion within the discipline are irrelevant. The current dominance of market forces-eqilibrium-rational expectations orthodoxy, and the restriction of the subject by its adherents, ought to be made transparent to the public. So too should the subject’s constant defiance of empirical outcomes, its dependence upon other-worldly assumptions – Friedman notwithstanding – and its inability to construct a more comprehensive, inclusive, and noticeably reality based set of theories.
What I find most repugnant about economics, whatever that may be, is that it represents itself as knowing something that it palpably doesn’t know. That it continues to peddle advice based upon that ignorance without admitting its manifest failure. And that it attempts to hide its confusion behind a veil of rigor undeserved by its state of development. Yes, economics has brought order to some important ideas, intuitive and counter-intuitive both, but it falls well short of having understood its basic topic: the economy as we live it.
But there I go imposing my own definitions.
Maybe we should just leave economics alone as its current melange of assumption, rhetoric, and ideology.
Doesn’t that make getting some ethical standards of behavior even more important?
Peter–
Can you cite any studies with the problems you suggest? Statements like “Thus economists can genuinely argue that competitive pressures will reduce the incidence of unethical behavior.” are problematic when you’re not founding them on a critique of, say, an actual paper, rather than a straw man of how you believe economists think.
“Thus a whole host of other obvious features of a holistic economy are ignored. Such features include things like the institutional structures of an economy, the impact of class, gender, networks, and the business firm even though all these have notable and deep effects on the allocative outcomes of markets.”
What are you talking about? Acemoglu has done work on institutions, there’s a ton of work on gender and class issues in development economics, networks are far and away the “next big thing” of sorts due to new access to social network data (there’s an interesting paper from Arun Chandrasekhar on issues with network analysis here http://economics.mit.edu/files/6909), and the theory of the firm is old news.
Your insistence on economics being only about markets ignores the work of Becker and, more recently, Levitt and Wolfers, on the economics of the family and household.
“Thus to call someone an “economist” is misleading and a disservice to the public for whom the arcane and intricate differences of opinion within the discipline are irrelevant.”
The public doesn’t care for arcane and intricate differences of opinion within any discipline. Should we stop calling historians or sociologists that for the same reason?
I don’t disagree that there hasn’t been a push for a standard set of ethics in the discipline, but you characterize it as a willful resistance. I would say that economics is still young, and it just hasn’t happened yet. Rome wasn’t built in a day. In the meantime, I recommend you do a little more reading. I don’t expect critics of the discipline to have read every journal article in the world, but I would expect them to at least not be ignorant of the last half-century of research the way you are. Isn’t that the ethical thing to do?
The German Nobel Prize Laureate Otto Hahn in 1937 wrote a letter to the even more famous Max Planck: Acknowledging that science is not incompatible with religion, he added, “But there are many areas where religion and science have nothiing to do with each other. Science is a stranger to all ethical questions.” He did not say scientists are but science is. So iif economics is a a science, it is a stranger to ethical questions, qua science. This is what neoclassical economisfts claimed when talking about their subject being a formal science (like mathematics). After WWII, impressed by operations research, economists borrowed heavily from its methods including linear programming devised by people in he Rand Coporation under contract for he US Air Force and game heory developed by the gifted mathematician Neuman — in order to turn economics into a prescriptive science and not just a formal one. Did they succeed? I discussed this question 25 years ago in a well-received book (1989) (economists ignored it) with the conclusion that they did not. The debable in finance, whose methods are based on those imported into economics from Operational Research, reinforces this conclusion. So, if economics is a science, ethics should be excluded. If it is not, then it should be included. But how? I suggest if we think there is no economics, or that economics is only what economists say it is,we let the economists themselves in their self-criticism do the job of ethical policing. But to do that economics has to be a big tent operation.
As I am probably the correspondent Peter is referring to, I’d better answer him, starting with radical disagreement with his statement that ethics is well-defined (meaning for him: defined often in the literature). What he is taking as ethics is morality. The one motivates us to do good to others; the other defines what rulers see as good in terms of not doing what they see as bad, laws establishing the mores of their societies accordingly.
To use Peter’s argument against himself, “I do not see how anyone can be called an [ethicist] if they are not thoroughly steeped in the subject’s various components”. To understand the difference between ethics (genus) and morality (species), one needs to at least understand the difference between Aristotelian and Christian ethics (achieving virtue/social harmony as against loving others/putting right each other’s inevitable errors) and the Hobbes/Hume arguments that even acceptance of Leviathan’s rule is better than dog-eat-dog competition, and Laws founded on democratic agreement are better than that. (Though in practice – all our democracy does is temporarily agree on a succession of Leviathans whose ideas of what is acceptable conduct differ unacceptably). Morality (what one intends not to do) can be well-defined, but not what to do when one does that anyway. One can define what one intends not to do, but only one’s motivation in the case of unexpected events like doing it anyway. The ethic encourages one to learn from others and whatever morality is in vogue, generating thereby a harmonious social ethos; but it also enables one to be creative rather than rule-bound .
Says Peter: “Behavior that was once ethical is no longer so. Behavior that was once unethical is now acceptable”. What he is saying is that social mores have changed, not that the willingness to do what it takes to become competent at one’s job, and to put right what is going (or has gone) wrong, has become unacceptable. Whereas, says Thomas Case in his introduction to ‘The Advancement of Learning’, Bacon’s prospectus for modern science, “Bacon’s ethics are founded on the distinction between private and public good, and the subordination of the former to the latter” [p.xvi] , that’s not now the norm, especially among the governing class. Despite what the detractors of Bacon say, “The English Machiavellian is Hobbes, not Bacon”.
Let me now restate Peter’s position in its economic context: “I do not see how anyone can be called an economist if they are not thoroughly steeped in the subject’s various components”. Well I do – in much the same way as we’ve just seen how a generic ethic can generate a specific morality. The point is that some of the various components of economics are generic, others specific to a particular economy. If a person is steeped in all the GENERIC components which make up an economic system, and sees how they fit together in a way which is consistent with economic behaviour, he has a basis from which he can understand omissions and variations in specific existing systems.
Now an economic system does something, therefore the generic components are not abstractions or generalisations, but real. In the basis I have developed, different types of people do different jobs involving different motivations and mores, the transactions between them are partly real and partly information (which may or may not all be true and meaningful to them), and the channels directing them are at once both physical and procedural (e.g. roads and banking) and specialist’s habits (neural pathways programmed by laws, traditions and aims). Taken together, an economic system also has a purpose: a complex purpose not merely to maintain the closure of the cycle of transformation that will perpetuate itself, but to also to regenerate the ability of its components to effect that.
I may not be steeped in the differences between the numerous schools of ‘what economists think about the nature of the economy’, but I am steeped in systems and information theory and in the history and philosophies of science, technology and mathematics; in how people work and differ, in how communication, control systems and in particular PID servos work or fail to work. (A PID servo is the generic, information-processing part of an information-based error control system with an aim and three types of error feedback). Granted these foundations, my theory of the economy is quite simple. Adam Smith’s “invisible hand” is a control system, but the controllers are human and the rest of the system a specific and not entirely functional case of a PID servo. When this is not realised, the economy can be directed to private just as easily as Bacon’s public good simply by switching the real aim of “feeding the kids” with an error information feedback, i.e. monetary “profits”.
In practice, being an information system, the economy has tended to become whatever successive generations of economists have persuaded us to believe it is, pursuing ends they have hidden with impunity since we don’t know what is error, what misconception and what deception. My prescription is simple (and therefore easily understood) in theory and entirely possible in practice: interpret the economy as a PID servo and use SSADM, an established method of information systems analysis, to reveal what functions the economy is performing now, and what needs to change or be added for it to function sustainably as a PID error control system with acceptable aims.
The key outcome of my own analysis has been that money is simply a common carrier of information about value, which misleadingly suggests that it is itself valuable and that all value is positive. Money is currently created by what looks like the creation of debt in the bank’s account to authorise credit in a borrower’s account; it is earned by employers borrowing our labour and repaying it in [ultimately] borrowed money, much of which goes back to the banks to repay mere authorisation of credit with earned money. In fact we all have to live on credit from others until we have been able to earn money, and what we earn almost always represents less than the total real value of what we owe to various others, starting with out parents. Overall, therefore, any money we earn represents not our value or that of our work but a reduction in our indebtedness to society. (Compare these with Aristotelian and Christian ethics).
As to whether economics is scientific, Peter (and Robert?) seem[s] unaware that the empirical scientific method and discounting of ethics now almost taken for granted is not Bacon’s original Christian basis of modern science but a misinterpretation of Newton’s method taken out of context by the Machiavellian non-scientist Hume. “Bacon”, says Case, “is like a great architect, conceiving a vast plan, distributing it into its proportionate parts, and so giving each man his appropriate chamber, in which to direct his mind to the right object in its real relations with the whole of things”. Bacon himself defines the character of real science and foresees the scientism of Hume in the following passage from ‘The Advancement’:
“The strength of all sciences is, as the strength of the old man’s faggot [i,e, bundle of sticks, c.f. strands of a rope], in the bond. For the harmony of a science, supporting each part the other, is and ought to be the true and brief confutation and suppression of all the smaller sort of objections. But, on the other side, if you take out every axiom, as the sticks of the faggot, one by one, you may quarrel with them and bend them and break them at your pleasure”. [5th edn, Clarendon Press, p.32].
Compare that with the way I have supported my scientific approach to economics.
Robert says, “So, if economics is a science, ethics should be excluded. If it is not, then it should be included. But how?”
If, as argued above, ethics is about error correction and genuinely scientific economics a type of error correcting system then there seems to be a third option: economics should embody (one might almost say “automate”) ethics, but (to put it mildly), in its current form it isn’t working very well.
“As to whether economics is scientific, Peter (and Robert?) seem[s] unaware that the empirical scientific method and discounting of ethics now almost taken for granted is not Bacon’s original Christian basis of modern science but a misinterpretation of Newton’s method taken out of context by the Machiavellian non-scientist Hume.”
Not sure about this, dave. I (and most others in economics I’ve seen who talk about this) would argue that the basis of the scientific method in economics comes from Karl Popper’s ideas of falsification.
I’m not going to comment on the methodology you’ve described here except that I’m not sure how it’s necessarily an improvement on standard economic methodology, as it seems to have a level of abstraction itself.
The issue of falsification is worth discussing because Bacon was a lawyer. In court, evidence was used on one side to prove or at least verify a claim and on the other to disprove or falsfy it. Popper’s original position was that one counter-example (e.g. a black swan) is sufficient to falsify a claim, e.g. that all swans are white. The mainstream economics I’ve read doesn’t even attempt to falsify the evidence, it simply makes assertions (sometimes based on lies, damned lies and statistics but very rarely on looking at the reality). If challenged, it softens its claims to the equivalent of ‘obviously, some swans are white’. That is what so irritates heterodox objectors, who quite rightly say that if its doctrines were judged on the basis of Popper’s method they’d be laughed out of court.
There is no standard economic methodology, for economists have long been advised to steer clear of methodology and history, which might falsify their claim that there is no alternative to what they propose.
What I propose is demonstrable in the procedures within procedures in algorithmic programming or even arabic number notation. (The 1′s in ’111′ have increasing significance from right to left). It is essentially Lakatos’s answer to Popper and Thomas Kuhn in ‘The Methodology of Scientific Research Programmes’.
dave,
“The mainstream economics I’ve read doesn’t even attempt to falsify the evidence, it simply makes assertions (sometimes based on lies, damned lies and statistics but very rarely on looking at the reality)”
Can you please give some concrete examples here? I can’t respond to generalizations like this.
“If challenged, it softens its claims to the equivalent of ‘obviously, some swans are white’.”
Yes, that’s true. But isn’t softening your claim to “some swans are white” the honest way to go? The core methodological thing I get out of the swans example is that we continue to try to falsify our proposal, say, by observing swans, and if it is not falsified by evidence, then it is only unfalsified, as opposed to true. This allows for the possibility of future falsification and acknowledges that proof of absolute truth is impossible.
“That is what so irritates heterodox objectors, who quite rightly say that if its doctrines were judged on the basis of Popper’s method they’d be laughed out of court.”
Well, yeah, exactly. That’s the problem with many heterodox objectors. The only alternative I’ve seen is the Austrians’ praxeology, which completely rejects empiricism and thus shouldn’t be taken seriously. Maybe you can suggest an alternative perspective here.
“There is no standard economic methodology, for economists have long been advised to steer clear of methodology and history, which might falsify their claim that there is no alternative to what they propose.”
I’m not sure what you mean when you say that economists have been advised to steer clear of methodology–this is pretty big, especially in the realm of microeconometrics. What would you call Angrist and Pischke (2010) if not a commentary on methodology?
So let the discussion begin, but remember don’t make it too British, Otto Hahn in his comment was not thinking so much of Bacon or Hume as of the great German Immanuel Kant. Despite Ayer, the continental thinkers had something to say about ethics and science too.
Agreed, Robert. Kant was after all responding to the naive epistemology of Hume,though still long before we had much idea of how logic and brains physically work and hence the connection between logical and ethical ‘ought’. If you want to be able to think straight then you must accept the existence of causes is good, if not very physical.
??? @ #6. On your first comment, my apologies for “poetic licence” on my way to bed. I must soften my position from implied “all” to “most”. However, here’s Richard Lipsey saying much the same thing more soberly (and going on trying on to ground his arguments if not his logic):
“All too often economic theory is taught merely as logical analysis, and is, at best, only vaguely related to the world, while applied economics becomes description unenlightened by any theoretical framework”.
You say: “Maybe you can suggest an alternative perspective here?
I keep on saying: a dialectic between physical and behavioural knowledge, as when we judge the probability of a dice throwing six as one sixth on the basis of its apparent symmetry, test that by repeatedly throwing it, perhaps concluding the dice is biassed, then physically investigating the dice to find an explanation of the bias, and so on. That, despite the way statisticians now use it to merge in new data of the same type, is what Bayes’ Theorem was all about; and you might try Bhaskar’s “Dialectic: the Pulse of Freedom”.
“What would you call Angrist and Pischke (2010) if not a commentary on methodology?”
That’s a bit new for me, but it is nice to be told the Critical Realists have got methodology back on the agenda. Last year Terry Deacon even started trying to put a handle on information, if without physical understanding: http://www.teleodynamics.com/wp-content/PDF/ShannonBoltzmannDarwinPt1.pdf.
I’m told the advice against methodology came from Marshall. As I’ve just suggested and GDP surely “proves”, statistical method needs to be correctly understood as well as applied.