Ethics, or Not, and Economics, or Not

Let’s start with some fun:

How many economists does it take to screw in a light bulb? None. They simply wait for the free market to do it for them. Which is why economists are always in the dark.

I am still waiting, by the way, for the surge in investment and consumption that inevitably follows any reduction in the size of government. The free market is supposed to be delivering that surge any day now …

And I am still waiting for my coffee to be stirred by those same free market forces. The magic is so awesome, so I am told, it can, and will, accomplish absolutely everything.

You think I am joking? Then why are there so many popular books purporting to explain with “freakish” accuracy a whole host of stuff. Apparently those authors think that the magic is real. Or at least the analytical framework that describes the magic can be extended to all sorts of problems most of us never thought tractable to it.

Meanwhile my coffee has grown cold.

Let’s throw in a quote. Guess who said this:

“It is a mistake to limit collective action to state action … norms of social behavior, including ethical and moral codes … [can be] reactions by society to compensate for market failures.”

That’s Ken Arrow. He of Arrow-Debreu, the centerpiece of equilibrium theory, and one of the modern giants of the trade. As an aside, I, as usual, have a perverse reading of Arrow-Debreu: I see it as the perfect negation of equilibrium thinking. The conditions necessary to make it all work are so absurd and other worldly that the entire effort fits only in a Platonic universe far from planet earth. The problem is that economists are so smitten with their favorite shiny bauble that they have lost all ability to realize that Arrow-Debreu actually destroys general equilibrium theory as relevant thinking for a real, live, actual economy.

Oh well. Reality has never been an issue for economists.

What the quote from Arrow made me ponder is this: can economics ever be ethical?

Ethical, that is, in the modern notion of such, with some sort of ethical compass guiding the profession as it seeks to enlighten and provide social value.

The problem is the sticking point that economics has been so impervious to outside influences that it is way behind other professions in accepting that it has a social responsibility at all. Then, when economists wake up as they are now doing, they immediately invoke the notion of magic to protect themselves from actually having to engage in ethical thought as it relates to economic theory and activity. The usual suspects tell us that competition will drive out the bad apples and thus economics is a self-policing and self-cleansing profession in no need of setting boundaries on itself, or of articulating what might or might not be acceptable ethical conduct on the part of its practitioners.

In part this is because economics is a political activity – so much of it relies on pre-existing political questions having been answered. For instance: what does society view government for? Answer this one way and one set of economic theories can be deployed. Answer it another and the polar opposite theory can be deployed. Economists apparently can support any political position. So much for science. And, possibly, so much for ethics. Economists is a very malleable subject. It can thus, easily, become snake oil. It both causes and cures the yips. Now that’s ethical.

I give some economists great credit, they are actually trying to address the ethical problem. They almost immediately run into the usual road blocks. How dare they call economists unethical! After all most economists are jolly good folk trying to do their best. Like the rest of us, they will acknowledge the existence of those few bad apples, but, hey, that’s society for you. Then there’s that invocation of magic that, somehow, works its magic particularly well inside the profession, and thus obviates the need for any formal reaction. Lastly there’s the old problem of who would do the policing. Economics is a highly fractured profession – many of its members don’t recognize it as a profession, preferring to rely on the even older notion of collegiate academia to insulate themselves from the consequences of what they teach and theorize about. Hey, a collective is a collective by any other name. But that’s just me talking. Although Arrow seems to agree.

Like so many of the problems that have led to the profession’s demise in recent years, this denial of the need for an ethical position is largely a result of the fact that economists are massively disengaged from the society they purport to study. They like to hide from the enormous impact their ideas have. I am not new in saying this, but, economists have a disproportionate, and probably undeserved, impact on the livelihoods of their fellow citizens. More so than sociologists, psychologists, and statisticians, all of whom have bitten the bullet and developed ethical codes of conduct for their professions. So economics, from this perspective, is both more influential and more cavalier about it. Who cares how many unemployed there are? My model is internally consistent and wonderfully elegant. That’s all that counts. No. I don’t think so.

Some folks argue that economics is just so complicated that untangling a clear ethical stance is too difficult. I find this a cop out. It presumes that the entanglement of objects of economic interest are less tractable to ethical scrutiny than, let’s say, those covered by sociologists. Again, I don’t think so.

Let me get back to Arrow.

Those of us who decry the contribution economics made to the great destruction of wealth we call the great recession, and who are ashamed of the nefarious activities of the economists called to task in the movie “The Inside Job”, would surely reason that economics has undergone a failure, not a market failure perhaps, but certainly a failure. The response has been abysmal. There has been a great wailing and outpouring of “I told you so”, but not much action. The profession has not cleansed itself: those economists who were dragged into the spotlight by “The Inside Job” still occupy prestigious positions, still write articles for the media, and still command the respect of their peers. In other words, economics appears immune to ridicule and public opprobrium. That is not healthy. It is a sign of a declining and insular, rather than a vibrant and connected, profession. The public, deeply affected by what economists think, is entitled to something more. Especially as those self same economists are still teaching, and thus influencing a new generation of students who will carry forward both the ideas and the ethical stance – or lack thereof – of their teachers.

Let me not belittle what has gone on. In many ways the profession has reacted nobly by undergoing a soul searching and internal debate, but much of that activity has consisted of throwing the same old epithets back and forth, while sticking heads firmly in the sand hoping the storm will pass. This has had the side effect of widening the audience of people aware of the deep rifts within economics, and of the fact that there is no one, scientific, theory they can call into play to help society plot its way through the complex realm of economic activity.

Society is entitled to more than this.

And among the things society is entitled to is something it already receives from other professions: a willingness and effort to police itself with respect to ethical behavior.

Those light bulbs never screw themselves in, we all know markets fail, and economics needs more credible action to rehabilitate itself in the eyes of the public. I happen to think that a code of ethics would be a step in that direction.