Economists sometimes neglect the discipline’s ethical dimensions by 1) ignoring the distributional impact of policy and growth and 2) relying on people’s revealed preferences to guide their policy direction.
Economics is often much like studying a map: it can help you understand how to get somewhere but tells you little about where exactly you want to go. It is on this basis that John Broome’s (2009) essay argues for a re-focus on the ‘ethical’ side of economics: no matter how good your map is if your destination is a dump, a dump is where you will go.
Broome focuses on the two following ways economists sometimes neglect the discipline’s ethical dimensions:
Ignoring distributional impacts: economists often assess an economy’s performance based on its aggregate performance (e.g. GDP, IP, disposable income). The reason for these measures’ popularity partially is convenience, as they result in the reduction of many data points to a single figure. However, by focusing on aggregate measures, one can easily miss the distribution of wins and losses. As a result, one risks of missing the ethical question of “who should the economy support”, being instead presented with an artificial reality in which everyone wins. Arguments surrounding free trade are a clear example of this, with the so-called ‘efficiency gains’ occasionally presented as a universally good thing. In reality, however, in the absence of worker re-education, such policies can lead to higher structural unemployment: some jobs are not required if better products can be imported. A similar argument can be made with respect to manufacturing automation: consumers win from a cheaper product, but workers lose via redundancies. Of course, this is not to say that there should be no free trade agreements and technological development: it is just to say that there need to be some ethical guidelines over how to treat the losers.
Relying on people’s preferences to deduce their ‘world vision’: every policy decision is intricately linked to a vision of how the world should be. A good example of this can occasionally be observed with regards to onshore wind and forest preservation. Wind energy proponents emphasize their vision of a carbon-neutral future, whereas conservationists emphasize the area’s importance for wildlife, beauty, etc. Furthermore, the debate is likely to be inconclusive as each group values each thing very differently. The way economists sometimes deal with such situations is by trying to quantify the value people put on different things and subsequently deciding which thing should be given a higher priority. This can be done via a variety of ways, the most straightforward one being calculating people’s willingness to pay: how much one values conservation is indicated by how much they are willing to pay for it. This way, economists transform the ethically heavy question of “how should the world be” to a methodology question of “how should we measure people’s willingness to pay”. This method can help deduce whether people prefer apples to oranges (people who would pay more for apples are likely to prefer apples) but when it comes to questions of the value of natural beauty and human life, the method breaks down. People simply do not know how to value such things and, as a result, the questionnaire data becomes problematic, leading to nonsensical conclusions. This effect is indicated by research showing people underinvesting in health insurance as they fail to quantify the value of their own health. As a result, an ethical emphasis on policymaking may be a more appropriate tool to guide decision-making.
Overall, economics needs to rely on some form of ethical theory in relation to wealth distribution and ‘world vision’. Furthermore, it is important to highlight that by ignoring ethical theory one does not avoid its implications: by ignoring distributional effects and siding with one side of society according to people’s ‘preferences’, the discipline makes implicit ethical decisions about the world it envisions. And by making them implicit instead of explicit, it risks of blindly moving towards a non-desirable world vision.
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