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Economists cannot avoid making value judgments

Economists cannot avoid making value judgments

AMID the name-calling and bluster that mar many fights between economists are a few common tactics. Belligerents may attack the theory used to support a claim, or the data analysis used to quantify an effect. During the debate over President Donald Trump’s tax bill, to take a recent example, economists bickered over which side had more credibly calculated the economic effect. They did not, for the most part, argue about whether it was morally acceptable to pass a regressive tax reform after years of wage stagnation and rising inequality. To do so would strike many economists as entirely un-economist-like. Yet economics has not always been so shy about moral philosophy. As well as “The Wealth of Nations”, Adam Smith wrote a Theory of Moral Sentiments”. Great 20th-century economists like Paul Samuelson and Kenneth Arrow also took questions of values very seriously. Their successors would do well to take several pages from their books.

Modern economists have attempted to strip value judgments out of their policy analyses. Policies are judged on how they are likely to affect economic variables such as income and its distribution, and how those changes would affect overall welfare. If the models suggest that one policy choice—a top tax rate of 40%, say, rather than 50%—leads to greater welfare than another, that is usually good enough for an economist.

This approach is enormously valuable. It disciplines thinking, produces useful information and makes it easier to build professional consensus about what is known and which questions remain unanswered. Though cost-benefit analysis is not perfect, is often the best route to getting informed experts to agree.

Used in isolation, however, it can lead to trouble. In a paper presented at the annual conference of the American Economic Association (AEA) in January, Matthew Weinzierl, of Harvard University, notes that the world is too complicated to be modelled with anything like perfect accuracy. Many knock-on effects from policy shifts are unknowable beforehand. He suggests that in the absence of perfect foresight, policymakers could turn to social principles or rules that have evolved over time. These may reflect accumulated knowledge about some choices’ unintended consequences. He gives an example. Governments might choose to increase redistribution based on evidence that high inequality creates feelings of envy, and envy reduces the welfare of the non-rich by making them feel worse. Yet survey evidence suggests that people are largely opposed to redistribution that is motivated by envy. Validating envy through tax policy could prove socially corrosive, in a way that economists’ models fail to capture.

Put differently, Mr Weinzierl contends that economists should take moral concerns more seriously. That is something close to professional heresy. At the AEA conference Alvin Roth, a Nobel prizewinner, delivered a lecture on his life-saving work in the field of market design. To donate an organ, one must share a blood-type with the recipient. Someone who would be willing to donate a kidney to a friend or family member might be stymied by a difference in blood-type. Mr Roth circumvented this problem by developing matching markets, in which one person donates to a compatible stranger and in turn receives another stranger’s compatible organ for use by the donor’s ailing loved-one. Such swap groups can include scores of donors and recipients, who might otherwise have died awaiting a transplant.

Yet demand for healthy organs vastly outstrips supply. Were it legal to buy and sell organs, many more people might donate, helping to alleviate the deadly shortage. Moral qualms generally discourage governments from legalising the trade. This is an example of what Mr Roth calls a “repugnant market”, one which is constrained by popular distaste or moral unease. Repugnance, he laments, tilts the political playing field against ideas that unlock the gains from trade. He recommends that economists spend more time thinking about such taboos, but mostly because they are a constraint on the use of markets in new contexts.

These social rules also contain insights. In a paper discussing the organ trade Nicola Lacetera, of the University of Toronto, argues that there may be important reasons for moral objections to repugnant activity, and costs to abandoning such objections. Though studies show that telling people that payment encourages organ donations increases support for legalising payments, other examples work in the opposite way. Giving women information about the health and safety benefits of legalising prostitution seems to reduce support for legalisation—perhaps because women worry about the consequences of applying a cost-benefit approach to areas relating to their status within society.

Do the right thing

Not all economists avoid ethical considerations entirely. Jean Tirole, another Nobel prizewinner, devoted a chapter of his recent book, “Economics for the Common Good”, to “the moral limits of the market”, for example. He says economists should respect society’s need to set its own goals, then help devise the most efficient ways to attain them. But, as Beatrice Cherrier of the Institute for New Economic Thinking argued in an essay addressing Mr Roth’s lecture, these questions are fundamental to economics. The hard sciences deal much better with the ethical implications of their work, she says. And moral concerns affect human behaviour in economically important ways, as Mr Roth found to his frustration. To be useful, economists need to learn to understand and evaluate moral arguments rather than dismiss them.

Many economists will find that a dismal prospect. Calculations of social utility are tidier, and the profession has fallen out of the habit of moral reasoning. But those who wish to say what society should be doing cannot dodge questions of values.

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