Posts Tagged ‘ethics’


I know. I wrote I wouldn’t be able to comment on Thomas Piketty’s book, Capital in the Twenty-First Century, until I found the time to read it, which won’t happen until the semester is over.

But the debate about the book is taking off and I simply don’t have the patience to wait until my lectures are over and final grades turned in. So, permit me, for the time being, to comment on the commentary.

Thomas Palley has observed that “Neoclassical economists have always talked of capital (K). The forbidden subject is capitalism.” Yes, but, even in talking of capital, they have a problem, one that was addressed during the 1960s in the Cambridge capital controversy. As Joan Robinson argued (and as my students used to learn in Principles of Microeconomics), capitalist income (total profit as the return on capital) is defined as the rate of profit multiplied by the amount of capital. But the measurement of the “amount of capital” involves adding up quite incomparable physical objects – adding the number of assembly-lines to the number of shovels, for example. That is, just as one cannot add heterogeneous “apples and oranges,” we cannot simply add up simple units of “capital,” unless one knows the price of capital, which is the rate of profit. Thus, you can’t use the amount of capital (as in the neoclassical aggregate production function) to determine the rate of return on capital—unless you already know the rate of profit.

That’s the thorny problem Paul Krugman simply sidesteps in defending Piketty’s use of the aggregate production function. Even Paul Samuelson had to concede the validity of Robinson’s critique.

But Krugman is right in arguing “you really don’t need to reject standard economics either to explain high inequality or to consider it a bad thing.” I agree. What’s interesting is that, as Piketty shows, it’s possible to analyze and criticize inequality using some of the tools of neoclassical economics. Not easy but it’s possible. Which means that neoclassical economists, for the most part, choose not to try to analyze and criticize inequality. In other words, the fact that they don’t spend much of their time—in teaching, research, and offering policy advice—in analyzing and criticizing the grotesque levels of inequality we’ve seen in recent decades is, in part, an ethical question. They could but they don’t.

And that’s perhaps an even more damaging critique of mainstream economics than the capital controversy itself.


Special mention

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I haven’t yet seen a copy of Take Back the Economy: An Ethical Guide for Transforming Our Communities, by J. K. Gibson-Graham, Jenny Cameron, and Stephen Healy. But here’s what a trusted friend wrote:

The book reframes the economy as a site of ethical action, not expert intervention. Not only does it provide a new way of thinking about the economy and our actions within it, it also explores what people are already doing to build ethical economies. The book is accessible and suitable for activists and academics alike.

That’s good enough for me!

These days, political discourse in the United States is governed by what Benjamin Hale calls the “veil of opulence.”

Those who don the veil of opulence may imagine themselves to be fantastically wealthy movie stars or extremely successful business entrepreneurs. They vote and set policies according to this fantasy. “If I were such and such a wealthy person,” they ask, “how would I feel about giving X percentage of my income, or Y real dollars per year, to pay for services that I will never see nor use?” We see this repeatedly in our tax policy discussions. . .

Of course, the veil of opulence is not limited to tax policy. Supreme Court Justices Samuel Alito and Antonin Scalia advanced related logic in their  oral arguments on the Affordable Care Act in March.  “[T]he mandate is forcing these [young] people,” Justice Alito said, “to provide a huge subsidy to the insurance companies … to subsidize services that will be received by somebody else.” By suggesting in this way that the policy was unfair, Alito encouraged the court to assess the injustice themselves. “If you were healthy and young,” Justice Alito implied, “why should you be made to bear the burden of the sick and old?”

The answer to these questions, when posed in this way, is clear. It seems unfair, unjust, to be forced to pay so much more than someone of lesser means. We should all be free to use our money and our resources however we see fit. And so, the opulence argument for fairness gets off the ground.

But, contra Hale, John Rawls’s veil of ignorance is not the only alternative to the veil of opulence. In fact, if we admit we live in a society with different economic classes, the best Rawls’s approach gives us is a somewhat more equal distribution of income. What if, instead, we cast off all veils—of both opulence and ignorance—and started instead with the situation of people where they are within the class structure. Then, we would be able to see that there is a large class of people who work and get insulted and injured and live in poverty or risk falling into poverty and who have little say over what goes on in their places of work or in the political system—in short, who suffer the conditions and consequences of exploitation on a daily basis.

In liberation theology, it’s called the preferential option for the poor. In class terms, it’s the injustice of exploitation. Either way, it’s decidedly neither the veil of opulence nor the veil of ignorance.

The task, it seems to me, is to start from where people are, out in front of any and all veils, and then make that the basis of a universal claim: the idea that ending exploitation will benefit everyone, both those who are currently exploited and those who seem to benefit from the exploitation of others. Just as bourgeois ideology makes a universalizing claim—that everyone is or can become bourgeois—so the claim of working people can be a different universalizing claim, that a new kind of fairness is possible: from each according to ability, to each according to need.

What is the case for taking ethics in economics seriously?

I have argued that the ethical moment of the gift is a product of the uncertainty of gift-giving.

George DeMartino [pdf] makes a similar argument concerning the relationship between ethics and economics: ethics is born out of the uncertainty both of economic knowledge and of the consequences of economic policies.

Economists operate in a context of epistemic insufficiency. We cannot know in advance what will be the full effects of our interventions. There are always unintended and unforeseeable consequences, and sometimes these are more substantial than the intended and foreseen consequences. Moreover, economists exert influence in the world without control over that world. And so they cannot ever be sure that even the best designed economic interventions will achieve their purposes.

I have only one quibble with DeMartino: he presumes that economists “enjoy an intellectual monopoly over a body of knowledge that is vital to social welfare.” I’d put it differently: economists behave as if they had an intellectual monopoly over economic knowledge. But they don’t have such a monopoly. There are plenty of other kinds and forms of economic knowledge, among academic economists (e.g., the differences between mainstream and heterodox economists), among academic noneconomists (from anthropologists to literary critics), and nonacademics (the proverbial person in the street). And it’s precisely because academic economists don’t have a monopoly of knowledge, they spend no small of amount of time both asserting epistemic authority and bashing other economic knowledges.

That epistemic violence is another reason for taking up the issue of ethics in economics.

A year ago, I noted that economists had no ethics and failed to get any in the Denver meetings.

Well, they still don’t have any ethics but, after spending a year studying “the association’s existing disclosure and other ethical standards and potential extensions to those standards,” now they’ve adopted a “statement of principles” regarding publications in the journals of American Economic Association.

Note that the AEA adopted some guidelines, without any penalties or means of enforcement. And, even more important, there was no attempt to think seriously about or adopt any standards concerning the implications of their work for the people who are affected by their teaching or advice and policy analyses.

Economists still don’t have any ethics.

‘Tis the season of gift-giving—and of mainstream economists demonstrating that they don’t understand the gift.

Their argument (made by, among others, Joel Waldfogel) is that purchasing gifts for others represents an inefficient transaction because the giver can’t possibly know the preferences of the recipient. Better to give them money, argues the neoclassical economist, and let them buy their own presents. What Wadfogel and other neoclassical economists don’t understand is the ethical moment of the gift, which is a product of the uncertainty created by the reciprocity associated with the gift. More generally, they miss the important ethical moments of economic theory itself, the idea that, because every theory of exchange is necessarily indeterminate, ethical decisions need to be made about how to carry out the analysis.

The gift is just one among many different examples of how ethical moments—and therefore politics—arise in the midst of the Second Great Depression.

There is, of course, the example of Ebenezer Scrooge [ht: ja], who is not only a miserly consumer and a harsh employer but also an abusive “man of business.”

Scrooge wrapped himself in the comforting rhetoric of “man of business” as a self-justification for his actions. A lot of other misanthropes and predators over time have used “man of business” as justification for their actions, so the acid in the term stings.

We also have the example of corporations, which can be occupied in the name of democracy.

In one important sense, the workers inside every corporation already occupy it. They are the majority inside every corporation, while the board of directors comprises one small minority and the major shareholders another. If the workers occupied the corporation in the different sense of democratizing it, they would transform corporate capitalist enterprises into democratic, workers’ self-directed enterprises.

Faculty members can seize the opportunity and rediscover the ethics of addressing important social issues from their students.

Faculty need to listen to young people in order to try to understand the problems they face and how, as academics, they might be unknowingly complicit in reproducing such problems. They also need to begin a conversation with young people and among other faculty about how they can become a force for democratic change.

Ron Paul has crossed a different ethical line in the name of politics.

The white supremacists, survivalists and anti-Zionists who have rallied behind his candidacy have not exactly been warmly welcomed. “I wouldn’t be happy with that,” Mr. Paul said in an interview Friday when asked about getting help from volunteers with anti-Jewish or antiblack views.

But he did not disavow their support. “If they want to endorse me, they’re endorsing what I do or say — it has nothing to do with endorsing what they say,” said Mr. Paul, who is now running strong in Iowa for the Republican nomination.

Some of the worst economic ideas ever, which were gifts to the 1 percent masquerading as sound economic analysis, gained support in 2011.

At the top of the list for sheer scandalous insensitivity are Herman Cain’s and New Gingrich’s tax plans for America. Cain and Gingrich are both flat tax advocates. . .

Cain’s plan might take in as much money as is now taken in by the federal government. But Gingrich’s plan wins the gold medal: his plan is both regressive and a gigantic revenue loser. His flat tax is 15 percent on incomes, with plenty of deductions like the one for mortgage interest still intact. He would eliminate taxes on capital gains and dividends. Those who earn more than $1 million would make out like bandits, saving an average of more than $600,000 a year, while those earning $50,000 a year would save about $1,000. Meanwhile, the government would forego about $1 trillion in annual revenues by 2015.

An argument can be made for a progressive tax structure not only on the basis of fairness but also efficiency.

Requiring the rich to pay a larger share allows us to have more goods and services than we would have with a more equal tax structure – we can make everyone better off – and this improves economic efficiency.

The fact that there is no one-to-one relationship between inequality and growth does not suggest, at least on my view, that “inequality is the result of the institutional and political structure, not the dynamics of the economy.”

Finally, all it takes is one sentence to debunk the Great Vacation narrative of unemployment.

If the labor demand curve slopes down, then a fall in labor supply should be accompanied by an increase in wages; since wages fell or stagnated in the Great Recession and have grown only slowly ever since, unemployment is not being caused by a decrease in labor supply.

Mainstream economists may think they’re offering a gift to the world but it has been destroyed by a taking: the punishments meted out by more than 4 years of the Second Great Depression.

I still have some pieces of unfinished business. . .

Like the latest report [pdf] from the National Alliance to End Homelessness, which looks at changes in homelessness nationwide from 2008 to 2009. The findings—for example, that homelessness rose (in 31 states and the District of Columbia) after years of declining rates and numbers of homeless people—are certainly not surprising but they confirm the harsh toll exacted by high unemployment and cuts in social services during the Second Great Depression.

And the fact that, according to University of California-Irvine biology professor Diane K. O’Dowd and research professors at Harvard University, Yale University, the Massachusetts Institute of Technology, and elsewhere, “reward systems at universities heavily favor science, math and engineering research at the expense of teaching.” This is one of the unfortunate trends, and not just in the sciences, of the new corporate university.

Then there’s Tyler Cowen’s unfortunate initial dismissal of Michel Foucault’s work (“Most of his books have not held up very well as history, even if he succeeded in drawing people’s attention to some neglected factors.  On top of that, his theoretical framework is incoherent.”), although in a subsequent post he does admit that reading Foucault “is one useful path out of extreme positions of methodological individualism.” Most economists have remained mostly ignorant of Foucault’s writings (not knowing enough to even be dismissive). But I can recommend two useful references: one general, Gary Gutting’s Foucault: A Very Short Introduction (Oxford University Press, 2005); and one specifically for economics, Jack Amariglio’s “The Body, Economic Discourse, and Power: An Economist’s Introduction to Foucault,” History of Political Economy 20 (1988): 583-613.

And Maxine Udall’s unfortunate defense of the “science of economics,” as a critique of David Brooks’s idea of economics as art, in which she conflates economics with the concepts and mathematical models of neoclassical economics. Even on those grounds, she mistakenly assumes (in discussing the economics of health), she assumes that resources are being efficiently allocated to health care—thus putting the economy on its production possibilities frontier and creating a false tradeoff between taking “resources away from health advantaged people in order to give them to health disadvantaged people.” She should know both that are non-neoclassical theories of the economics of health and that current the health care system in the United States is far below its potential.

Finally, there’s George Demartino’s superb summary of the state of discussion within the American Economic Association about conflict of interest and disclosure.

Economists are creative people who love to solve pressing social problems. If we haven’t yet solved the problem of conflict of interest in economics, perhaps it’s not because the problem is so darn difficult. Perhaps it’s because we’ve never really tried.

Done! Now, back to building that bridge. . .

Ethics & economic monkeys

Posted: 11 January 2011 in Uncategorized
Tags: ,

As far as ethics is concerned, mainstream economists have been behaving like monkeys.

But they can’t ignore the problem any longer, especially since the discussion of ethics in economics is now being raised in the media. Just this morning, National Public Radio [ht: rg] did a story about one of the issues in the debate, “Should Economists Reveal Who Pays Them?”

But the issue of financial disclosure is only the tip of the iceberg. As George DeMartino explained,

The most important economists in the world who make decisions that bear on the life chances of millions of people have not had five minutes of training at any point in their professional careers in the ethical issues that arise in economics. I’m not aware of any other important profession about which that could be said.

I was right, and then I was wrong.

I was right about the fact that economists have no ethics. But I was wrong in my prediction they would get a little ethics during the course of the annual meetings in Denver.

Instead, according to the Chronicle of Higher Education, they’ve decided to create a committee “to consider the association’s existing disclosure and other ethical standards and potential extensions to those standards.”

So, let me modify what I’ve written: economists have no ethics but may someday, in the future, after forming a committee and discussing the committee’s findings, consider the possibility of getting just a little bit of ethics in order to challenge the widespread belief that economists have no ethics.