Thoughts on The Ethics Of Economics

Allow me to offer an ill tempered tirade:

Medicine has its famous injunction: first do no harm. Economics ought to abide by that rule too. It is a massive evasion of responsibility for the profession to continue to plod along as if a few hundred more earnest papers will do the trick. They won’t. The error is profound. It is deep. It is decisive. Economists everywhere: stop what you are doing. Stop researching. Stop teaching. Stop advising. Stop writing. And above all stop pontificating. There are no clothes on this particular emperor, and it is high time we admitted as much. So, instead of all those activities, consider this: what are you doing to rehabilitate economics? Now. Not tomorrow.

I found this comment, by a non-economist, buried deep in a Krugman blog post about the effect of wage cuts:

“I wish that you economists had the equivalent of a bar exam so that the incompetent among you could be prevented from practicing. As far as professional credentials are concerned, you seem to be operating like medicine in the eighteenth century, PhD‰Ûªs notwithstanding.”

Precisely.

I am tired of all this introspection. It is time to do something. Before economists do any more damage.

Let’s attack this by asking: What is the point of producing more economists? And, just what exactly is economics anyway?

First, What is Economics?

Whatever you want it to be. Economics is organic. It responds to contemporary issues. It seeks to resolve problems that crop up in society and then to advocate solutions. But it is more than this: it has also become an academic filed of study. So it tries to theorize and produce more lasting ideas that have relevance through time. It is consequently bifurcated. It is a profession akin to medicine, and it is an academic discipline akin to biology. Both at once. This bifurcation creates great confusion. And creates an ethical dilemma. The endeavor to be a “science” has dominated for years, and, as a result the professional or practical side has lingered with its relationship with society undiscussed.

If you visit the web site of the American Economics Association you will find three well known quotes, each trying to summarize what economics is about. Here they are verbatim:

“Economics is the study of people in the ordinary business of life.”– Alfred Marshall, Principles of Economics; an introductory volume (London: Macmillan, 1890

“Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses.” ‰ÛÒ Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: Macmillan, 1932)

Economics is the “study of how societies use scarce resources to produce valuable commodities and distribute them among different people.” ‰ÛÒ Paul A. Samuelson, Economics (New York: McGraw Hill, 1948)

The problem with these quotes is that only the middle one truly pertains in most of what passes nowadays for economics.

Marshall cast the net far too widely for his successors. The real study of people in the ordinary business of life would include all sorts of things no longer considered as being economics. Remember he was writing before the great splintering within the social sciences – before, for instance, Talcott Parsons led sociologists off on their own pursuit of part of that wider study.

Samuelson, in contrast, tries to keep faith with the broader notion of economics, but pays due reverence to the notion of scarcity that sits at the heart of the contemporary subject. The problem with his articulation of what economics is that most, if not all, economists pay no attention at all to the actual production of things. Nor to the infrastructure of distribution. Nor to the desirability of the distribution we end up with. The Samuelson project has been gutted. The problem was, his successors decided, that those issues – actual production and distribution – threw too much grit into the wheels of equilibrium. Production is a process through time. It entails all sorts of compromises with uncertainty. It introduces the possibility of error and a reliance on judgements that cannot easily be resolved into, or reflected within, the equations of classical machinery. So study of such stuff was outsourced to the lesser people in the organizational and management studies schools.

That leaves us, by and large, with Robbins. Constrained allocation. As if that was the only goal of economics.

In my mind this definition is so narrow as to be worthless. It asks us to focus on a set of “given ends”. What on earth are they? How could we possibly know? These ends inevitably remain a mystery to be revealed magically as whatever outcome occurs. It is a leap of faith that what happens is concurrent with what is potentially desired. We have no way of knowing the difference so we march on secure in our faith. Having set off down this mechanical path we allow ourselves to offer up a definition of ends that suits our process. We borrow the notion of utility from Bentham and then twist it about to squeeze it into our desired analytical framework. A useful metaphorical or philosophical idea suddenly morphs, in the hands of economists, into a highly precise tool upon which everything depends. It was never designed to be thus. It cannot carry the load. But there it is: up front and center.

And those “scarce means”? This seems to be a binding constraint, of Malthusian proportions. But we need to limit ourselves if we are to stay within our analytical boundaries. No wonder innovation and technology have been sore subjects for economics. If there is one characteristic of the entire capitalist era it is that what was once scarce is now less so because we have invented better ways to produce more from our available resources. Yet a strict Robbinsian approach places the study of innovation outside the boundaries of “true economics”.

This is why the subject can seem so sterile. According to the American Economics Association much of what most of us think of as economics turns out not to be. Business firms, entrepreneurs, institutions, culture, gender and other relations, technology, geography, and a host of other things that an ordinary observer may think of as legitimate subject matter for economics, or at least of great influence on an economy, are excluded from the pure definition. What’s left, of course, is the study of the efficacy of markets, and the supposedly general general mechanisms allegedly within them.

But economists, many of them anyway, are not that stupid. Some of them set off on various heretical journeys to study the impact of these interesting oddities. They were all cast out for their pains, but at least their work is there waiting to be incorporated into a more general notion of economics if we can make our way back out of the desert.

Meanwhile, the profession is teeming with highly educated folks who have no inkling of large parts of economics. They have been taught just one strand of a multi-strand web of ideas. They stand on a small island within an archipelago and imagine they inhabit a vast continent. They believe, profoundly and erroneously, that they know economics. In fact they are functionally ignorant, and deeply immersed in only one thing. Oblivious to all others. They are thus not professionals, they are academics. Their training is a license to train others. It is not a license to give advice. This is where the ethical problem crops up: they have proliferated not just in economics departments of universities, but any other institution in need of the wisdom expected from someone steeped in economics.

Driven on by hubris of economics, the self proclaimed “queen of the social sciences”, with its faux accuracy and its bag of apparently clever analytical tricks, the economics world view has been imported into those outsourced disciplines like management and organizational theory. In other words economics has falsely blended its theoretical and practical aspects. Its academic practitioners pretend to have clean hands with respect to giving advice, but, in fact, they are educating and influencing whole generations of erstwhile practical people. These practical people think they are being taught useful real world and deeply applicable knowledge. Some of them end up running major corporations. Others occupy places of great influence in government. Yet more advise politicians. This is advising through the back door.

This allows many economists to elide the need to discuss and take on board the ethical relationship all advisors have withy their clientele. When pressed to discuss the ethics of such a professional relationship most economists claim academic privilege. They claim they should be allowed to pursue their vocation wherever it leads. Ethics, they tell me, is for doctors, accountants, and attorneys. Economics is different.

But that’s not tenable. Not at all. Especially after the recent crisis and its indictment of much of what was held as established wisdom within the subject.

Economics, no matter how abstract and theoretical it may appear at one end, is perceived by the public as deeply practical and worldly at the other. What economists argue over matters. What they disagree over matters. What economics is and isn’t matters. What economists teach matters even more. It is distressing, to me at least, that economics remains the only social science not to take seriously its relationship, as a center of expertise of interest and value to society, with the society within which it operates, and whose operations and wealth it affects with its opinions.

Yes this needs to be said. Again.

There is, I believe, a general opinion – I stress the word “general” – about what an economist knows. That is to say out that there in the great wide world people have expectations of economists. There is a skill, or set of skills, attaching to the word “economist’. When people seek that skill, as in when they hire an economist, they are justified in imagining they have secured the services of someone who is well briefed in the subject and who is capable of providing a well rounded response to problems based upon that set of skills.

What they get nowadays, too often, is a very narrow mind largely ignorant of economic history, the history of economics, the context of its ideas, society at large, and, crucially, any notion of the limitations of the economic world view. This world view is based upon the absurd assumptions and naive psychology of economic orthodoxy which propagates reductionist methods and methodological individualism even where they are wildly inappropriate.

And then there is the problem of politics.

Economics is inextricably tied up with politics. This is evident every day when we read of phalanxes of well known economists proffering competing opinions that directly contradict each other. The vaunted scientific project of economics is revealed to be nothing but an adjunct of a particular political point of view. There is, apparently, a well crafted economic theory to justify every point on the political spectrum. There is no right and wrong, just a gaggle of opinions.

But at least they are opinions backed up with fancy math. Which is what influences the public most. I would wager that the image the word economist conjures up most is akin to a slightly more sophisticated accountant. Someone versed in more complicated math. Someone who can be trusted with difficult computational problems. Someone steeped in the tradition and values of objective clinical analysis. An applied mathematician in other words. Not an economist.

Yes: our schools are producing, deliberately, ill educated people and presenting them as the complete article. This is an ethical failure on the part of those schools. It fails the community who has every right to expect those places to produce well rounded, fully educated professionals who will, in fact and not just in theory, “do no harm”.

In other words economics is a rotten enterprise when viewed as an activity producing professionals who add value to society at large. Economists are not bad people. They are simply the product of a broken system. Rehabilitation is in order.

One of the more enjoyable moments I had this summer was reading Sylvia Nasar’s excellent history of economics titled “Grand Pursuit”. She brings to life some of the varied personalities who tower over the progress of economic thought, particularly up until the 1930’s. I, like Krugman, had no idea that Irving Fisher invented the Rolodex. Her approach is revealing: she ignores everything after Samuelson – other than a long discussion of Sen. This is highly deserved and telling. There has been remarkably little progress since 1948. In my more draconian moments I would say there’s been none. On the contrary, the subject slid backwards. What was known as efficacious in 1948 has been disregarded and “unlearned” since.

This is an extraordinary disservice to society and is akin to medicine “forgetting” how to cure smallpox simply because that cure no longer conforms to contemporary ideas about what a cure ought to look like. It isn’t that we don’t want to cure. Nor is it that the cure doesn’t work. It is the nature of the cure, which isn’t congruent with individualist thinking and is thus set aside as old fashioned. And since all economics has been reconstructed on the absurd and flimsy base of its micro foundations, most, if not all, macro ideas have been deliberately forgotten. Tried and true cures were cast aside for the sake of ideological purity. Faith triumphed over reason. Which is odd in the extreme given the perverted place rationality plays in the workings of that faith.

This quote from Blaug tells it far more succinctly than I can:

“At this point, it is helpful to note what methodological individualism strictly interpreted‰Û?would imply for economics. In effect, it would rule out all macroeconomic propositions that cannot be reduced to microeconomic ones, and since few have yet been so reduced, this amounts to saying goodbye to almost the whole of received macroeconomics. There must be something wrong with a methodological principle that has such devastating implications.”

In my words: economics forgot some of its cures because they were inconsistent with the purity imposed after their discovery. Damn the patient, economics sought its ideal. It had to forget anything not fitting within this ideal. That this forgetting could cause harm, serious long term, and very real, harm, out there in the actual economy was of no consequence. That real human families could be broken up, could lose their homes, and could be ground down by relentless poverty was of no consequence. The pursuit of the ideal, that elegance so marveled at, that wonderful and difficult mathematics, that narrow but beautiful construction of market magic, that consistency so prized within orthodoxy, all trumped, by far, any notion of retaining cures that did not fit. That this ideal was populated by robots bereft of humanity was also not a consideration. Nor was the required impossibility of the calculations presumed performed by those robots. Nothing, absolutely nothing, was allowed to stand in the way of the pursuit of the ideal.

I do not think for a moment that students entering an economics education desire to emerge as narrow minded and potentially dangerous to society. On the contrary, most want to learn something useful and view economics as socially beneficial. They are unaware of the amnesia that bedevils the subject, its intellectual poverty and the naive view of humanity that infests its models despite the glitter of their math.

As for my second question: What is the point of producing more economists?

I don’t know.

It depends on what economics is. And that question is what got me into this trouble to start with.

Whatever the answer, they should do no harm.

Can we say that now?