Economics For Ethics
What Can Economics Do For Ethics?
By Professor Thomas Wells (University of Groningen)
Strangely enough this is also approximately how most moral philosophers and economists think about the relation between their disciplines, as a result of a tacit agreement to perpetuate mutual ignorance and antipathy. Ethicists think economists are clumsy buffoons with an impoverished view of human nature and morality, obsessed with incentives and markets as the answer to everything. Economists think ethicists are obsessed with discovering mystical intrinsic values, at the expense of systematically thinking through their real world relevance. These are caricatures with some truth to them. But to the extent that they prevent ethicists and economists from taking each other seriously, they block the real scope for mutual learning.
Although the learning can and should go both ways, it has generally been a one-way road. Moral philosophers have been reprimanding economists for their lack of ethical reflection since even before economics was founded as an independent science. They have rightly criticised economics for evading its responsibility for explicit ethical reasoning in favour of a scientistic identity of strict neutrality; its impoverished and flawed normative theories (rational choice for individuals; welfare economics for society); and the arrogance with which economists such as Gary Becker and Steven Levitt have promoted a narrow and repetitive method for understanding ‘all we need to know’ about the human condition.
The trouble is that because moral philosophers have so many reasonable complaints about economists they rarely take what economists do and how they think seriously. So this post will follow a path less travelled and ask what economics can do for ethics, and without ever talking about markets. First, ethicists should recognise that a great deal of economics is concerned with ethical issues, often ones surprisingly neglected in mainstream ethics. Second, theoretical economists have developed a sophisticated approach to ethics – a form of logistical consequentialism – together with specialised analytical tools that can be directly employed in mainstream ethics.
I. Economics is about ethics
Understood properly economics is an ethical science, an important branch of applied moral philosophy. For it concerns how to understand, manage and fulfil the heterogeneous and often conflicting values, interests, and capacities of large numbers of individuals operating within the constraints of limited resources in a particular community. That system-level attention to the key aspects of heterogeneity, conflict, and scarcity within a community should be a central concern of moral philosophy, but it generally isn’t (except for some political philosophers).
Most moral philosophy focuses instead on different kinds of question: meta-ethics concerns the ultimate nature and meaning of ethics; normative ethics is about articulating theories of the right and the good, like utilitarianism or deontology; and applied ethics is focused on the rights and wrongs of controversial issues, like abortion or animal testing. Society and its complications are generally absent. This lacuna frequently leads moral philosophers to wish away or parenthesise (idealise) those aspects of heterogeneity, conflict and scarcity unavoidable in a moral community.
Economists as social scientists have been working on this area for a very long time, and have much of importance to say about it. For example, economists have addressed the centrality of scarcity by developing the concept of opportunity cost. Given scarce means you will not be able to do everything you want. For example, you may not be able to give $500 to the Somalia famine appeal and also take your long planned trip to visit your ailing grandmother. The cost of choosing one rather than the other is not the money. Money is not important. It merely represents your purchasing power constraints – only an idiot would try to acquire money for its own sake. Rather, the cost of choosing charity over filial piety is the full value (including the full ethical value) of the alternative you thereby give up. Moral philosophy rarely considers the full costs of actions in this broad sense and is the poorer for that.
The economist’s understanding of values in terms of choice under constraints also leads to another interesting conceptual innovation from which moral philosophy can learn. Economists present individuals as having not simply values, but preference relations between those values. In other words, people are assumed to evaluate not only whether things are valuable or not, but also to work out how valuable they are in relation to other valuable things, to work out ‘better than’ comparative relationships.
This puts the individual in a strong position to make choices in a rational way in those rather common circumstances when we cannot have everything we would like. In contrast, much of moral philosophy is concerned with merely identifying sources of intrinsic value, for example of Nature or communitarian identity. That leaves out entirely the question of how to relate these moral discoveries to our other moral values, such as fairness, autonomy, well-being, and so on. Moral philosophers here assume an investigative identity (in what does value consist?) that seems to come at the expense of practical relevance (what’s the right thing to do?).
II. Economics can provide logistical support to ethics
Economics’ particular contribution to practical ethics is a sophisticated form of consequentialism concerned with the systemic mapping of both the implications of our ethical claims and the unintended but foreseeable consequences of our actions. It does this by ‘modelling’ what might happen to the things we are concerned about under various counterfactual conditions.
Economic modelling allows us to test the robustness of particular ethical principles as principles of action and thereby to clarify our practical moral reasoning. The deductive form takes axioms we believe to be plausible and develops tight formal arguments (‘proofs’) that follow from them using mathematical techniques economists have honed over the past hundred years. Such analytical consequentialism can be used generally to identify and clarify the ambiguities and difficulties of moral reasoning whenever the claims can be formulated in a formal (mathematical) way.
For instance, social choice theory is a sub-discipline of economics concerned with aggregating the interests (or preferences, or judgements, or views) of different persons (or groups) in a particular society. i.e. it is concerned with heterogeneity and conflict. It works by showing the logical implications of the combination of various apparently plausible ethical premises (‘axioms’). Sometimes the analysis shows that the premises are inconsistent in ways that were not perceptible by the standard philosophical means of testing them against our intuitions and common sense (as in Kenneth Arrow’s famous (im)possibility theorem). Sometimes it shows that premises we found agreeable lead unavoidably (by deduction) to unpalatable conclusions (as in Amartya Sen’s Impossibility of a Paretian Liberal). Thereby we are brought to reconsider the plausibility and/or ethical status of our initial ideas.
Economics is not only good at analysing the logical implications of concepts and values. It is also good at quantitative logistical analysis, at figuring out what is likely to happen if we try this or that well-intentioned idea. Economists model the interaction of significant causal mechanisms to map the likely long-term extended consequences of changes in agent behaviour or government regulation in a complex but closed system. By doing so economists can identify and assess the unintended but predictable consequences of a sensible seeming proposal.
Attending to logistics is essential. In a closed system normally good behaviour can have bad consequences. Keynes for example identified the ‘paradox of thrift’: that the aggregate result of individuals acting prudently (even ‘morally virtuously’) by increasing their rate of saving in uncertain economic times can be catastrophic for society as a whole. On the other hand, an aggregate increase in prosperity can be catastrophic for some individuals, as when an economic boom causes house or food price increases which leave those who didn’t benefit from the boom much poorer than they were before.
Economic modelling can be used to map the distributive effects of such economic events or government policies, and thus to identify vulnerable individuals and socio-economic groups in advance, allowing a society that cares about such things to intervene. For example, carbon taxes may be effective, but they are also unfair because they have a particularly big impact on the purchasing power of the poor. We shouldn’t sacrifice the poor to achieve our carbon goals, important as they are. Economics can identify ways to compensate the poor so that we can have our cake and eat it too.
Sometimes bad behaviour may have good consequences. This is the sneaky Mandevillian side of economics, the analysis of how private vices can generate public virtues. For example, Kaushik Basu (as chief economist to the Indian Government) proposed legalising paying harassment bribes (when officials demand money for doing their job, such as issuing identity documents or schooling certificates). People have little choice about paying these, but they really don’t like it. If they could get what they needed and then report the crime, many of them might do so. Knowing this raises the risks (cost) to officials of demanding a bribe in any particular situation. So, counter-intuitively, legalising the paying of bribes may be expected to reduce levels of corruption.
Economists take human agency seriously, if at times narrowly. This leads them to a rather different perspective on politics and policy than most political philosophers. For political philosophy the problem of government concerns making and scrutinising proposals for just rules and institutions. Once these are found it is assumed that everyone in society will recognise their justice and comply with them in the spirit they were intended. (Rawls, for example, generally assumes full compliance with his social contract, though, under the influence of economist colleagues, he also included the ‘difference principle’ to motivate more productive people to work harder.)
In contrast, economists are concerned with the actual effectiveness of rules and institutions, and that requires incorporating how they interact with the opportunities and interests of wily human agents. Their view of human nature may be shallow and distorted, yet it may still be more realistic in these circumstances than the homo justicius deployed by political philosophers. For instance, economic modelling can be used to test whether the intended form of a regulation provides agents with financial incentives to act in ways that undermine the intentions of the policymakers, such as the case of service-fee basis of doctors’ earnings in the US. And it can be used generally to explore whether a ‘just’ rule is likely to be successful in getting people to act as they are supposed to. For instance, do sports governing bodies have an interest in enforcing drug bans? Do no fault divorce laws enhance women’s equality or make them more vulnerable? Does corporate social responsibility increase the costs of doing business and hence increase oligoly? Would changing voting rules from first past the post to proportional representation lead to ‘more democratic’ social choice? In addressing such questions, economists try to work with people as they are, not as how they ought to be.
Finally, quantitative logistics can introduce a sense of proportion, whether about the benefits of intellectual property protection (contested) or the benefits to the world’s poor of removing all immigration barriers (incredible). That can helpfully inform and focus our public deliberations as a society, as well as the work of academic ethicists, towards issues that really matter.
Interestingly, although the aspects of economics that I am promoting here are descended from utilitarian moral philosophy, they can make contemporary self-professed utilitarians look rather shallow. Take Peter Singer’s famous moral parable of the shallow pond.  The argument goes like this: You’re walking by a pond and see a child drowning. What do you do? Jump in and save him of course! Ending world poverty is like that. Gosh, is world poverty really that simple to solve? If only we had known that the only problem was our lack of motivation.
The economist would ask for rather more information and logistical analysis before jumping into Singer’s shallow pond of good intentions. Economists get called boring, cynical, and even cold-hearted for taking this approach, but it seems a more consistently utilitarian position to take. Utilitarians, after all, are supposed to maximise the good they actually achieve, not the goodness of their intentions. For utilitarians, inefficiency is a vice. To be a good – efficient – utilitarian you need to understand and employ the best logistical techniques, and the place to get them is economics.
Economists are shy about introducing explicit moral arguments of their own and much prefer to analyse the value systems they can derive from their observations. But that doesn’t mean that their analysis of the values we reveal in our actions has no moral bite. Without promoting any values of their own economists can confront us with the moral implications of our own actions in a way that can be extremely discomforting – no one likes to have their complacencies and hypocrisies exposed.
The disciplined rigour of cost-benefit analysis can be used to reveal striking discrepancies in what we are prepared to pay to save a life in one context (e.g. air travel or terrorism) rather than another (e.g. driving accidents or diabetes). What we pay doesn’t have to be money. For example, we can apply the same method to state surveillance. If we wouldn’t give up privacy rights to reduce minor risks of death in other contexts (like installing government cameras in every bathroom to save people from bathtub slips), what rational reason do we have for giving them up to reduce the risk of terrorism from almost nothing to possibly slightly less? This kind of perspicuous contrast reveals the vacuity of the popular political argument that the loss of our privacy is a small price to pay for preventing terrorism and saving lives.
Elsewhere, health economists have shown that the main determinants of bad health are factors like inequality, poverty, social exclusion and so on. Not especially a lack of health care. So if we as a society really value good health, we should reconsider why we direct so much government spending and subsidies to health care interventions chasing incremental increases in longevity for terminally sick people when spending that money on poverty alleviation and preventative interventions would be so much more efficient. Of course we may have other concerns, including moral concerns, than merely maximising the number of people who are able to live the healthiest lives possible. But such an analysis is an open challenge to society to justify our policy choices (and to bioethicists to justify the narrowness of their research focus on things like euthanasia and informed consent).
Economists are used to being told that what they do is non-ethical or even anti-ethical. I hope they may take heart from seeing their subject as already an ethical science, with its own sophisticated resources, perspective, and contribution to make to ethical thinking. Economists do not have to put up with the sneering disdain of ignorant philosophers. Nor do they have to surrender the ethical ground to the ‘real’ experts.
But this essay is not intended to let economists off the hook. Economists should be much more sensitive to the perspectives that moral philosophers can bring, and much less eager to retreat into positive theory and scientific neutrality (as they have been more or less since the Marginalist revolution). Economists greatest ethical problem is not their lack of ethical interests and analysis, but their belief that economic scientists shouldn’t talk about ethics. And they need to talk about their ethics, to each other, to the public, and to moral philosophers. Not only in the direct technical advice they give governments but also indirectly in their training of undergraduates and their choice of research questions and techniques, what economists do and say matters for society in a way that subjects like physics does not. The challenge for economists is to make their ethical science better: to understand both the capacities and limits of their economics ethics, to incorporate that understanding more fully into their work, and to articulate this to sceptical philosophers and public alike.
Moral philosophers on the other hand should be much more humble in their interaction with economists. If they listened as well as they talked, they would see that economics has developed sophisticated analytical tools that can be usefully employed in many areas of moral philosophy (as economists like John Broome and Amartya Sen have been demonstrating for some time). They would see that economics can deliver insights into significant moral issues of our time, particularly those involving heterogeneity, conflict, and scarcity in a community (elsewhere I have tried to show how that might go in the case of global warming).
The single most important bridge between ethics and economics relates to the pragmatism that drives the logistical techniques of economics. Moral philosophy embodies a particular perspective and attitude, standing back from common-sense presumptions about a situation or relationship, and then wondering out loud about how to see it truly. Its central question is, Shouldn’t we think about that too? Economics is about proportion, about looking closely at how important things really are when considered as part of a complex closed system. Its central question is, How much does it matter? Good judgement needs both sense and sensibility, both proportion and perspective.
Footnotes and references
 A great paper on this, though not by an economist: Scott Wisor, “Against shallow ponds: an argument against Singer’s approach to global poverty,” Journal of Global Ethics 7, no. 1 (April 2011): 19-32.