Saturday, 10 May 2014

When the Economist Does Bad Philosophy

Authors:  Erin Nash and Joe Seydl

In an article in the New York Times in December 2011, Gregory Mankiw, Chair of Harvard University’s economics department, asserts that “like most economists” he doesn’t “view the study of economics as laden with ideology”.

However, his piece last month in the New York Times entitled “When the Scientist is also a Philosopher” indicates that there has been an evolution in his thinking. He effectively retracts his 2011 statement by admitting to the (in his words) “dirty little secret of economists who give policy advice”, which is that “When we do so, we are often speaking not just as economic scientists, but also as political philosophers. Our recommendations are based….on our judgments about what makes a good society”.

But the reality is that the vast majority of economists are not also trained in political philosophy during their undergraduate education, let alone able to be considered ‘political philosophers’. This is just one of the reasons why more than 42 groups across 19 countries in our global network are rethinking economics and seeking changes to the way economics is taught at universities. 

Political philosophy is a separate academic discipline with a much longer and richer history than economics, replete with its own body of knowledge, skill sets and methodologies, and importantly, many complex ongoing debates. Mankiw fails to acknowledge and respect this, and through the philosophical mistakes and omissions he makes in his proceeding analysis, it is evident that we should view Mankiw himself as an economist and not also as a political philosopher.    

For example, Mankiw instructs practicing economists and students to “be sure to apply the principle “first, do no harm”. But just what is a harm? Mankiw presupposes a common acceptance of a definition of harm where no consensus exists, especially among academic philosophers. This is the first indication that Mankiw is smuggling morally-loaded material into methodological prescriptions he conveys as morally neutral.  

For Mankiw, the ultimate harm is interfering in what he calls the voluntary agreements made within free markets. This is a type of libertarian philosophy most famously propounded by Harvard philosopher Robert Nozick in the 1970s, but that is very easily countered.

The first key counter argument relates to fairness and inequality. This argument interrogates the background conditions within which so-called voluntary transactions are carried out. If someone is desperate (hungry, homeless, ill, needing to provide for their dependents) or they do not possess the knowledge and ability to bargain on fair terms, then the transaction cannot be considered to be without a type of coercion, and therefore does not count as voluntary. This is one is one justification for not allowing people to sell themselves into slavery, and perhaps one of the key reasons why a society may choose to mandate a minimum wage. Mankiw’s colleague at Harvard University, Political Philosopher Michael Sandel, outlines the fairness and inequality argument in his latest book, ‘The Moral Limits to Markets’.

The second key counter argument relates peoples’ rights. By not intervening in voluntary transactions we can sometimes fail to uphold certain human rights. What is and is not a human right is also somewhat of an open philosophical debate. However, there are compelling arguments that universal access to a certain standard of health care is a human right, and that through providing this we value and respect humans in an appropriate way. This relates to the second key argument within Sandel’s book regarding how we ought to value certain things within society, and how these things can be degraded or corrupted if we engage in economic or market reasoning about them.  

Mankiw may even accept these counter-arguments and agree that ideology lurks underneath his advice. However, he might attempt to argue that economics itself still remains ‘value-free’ because it is only in the application of economic models and the provision of policy advice based on this economic information that the economist is forced to make value judgments. But this does not hold for the following two reasons.

First, the construction of some types of the economic models very obviously demand value judgments on behalf of the economist. For example, discount rates are parameters used within some modeling that represent the rate at which society as a whole is willing to trade off present benefits for future benefits. The discount rate therefore effectively places a value on the welfare of current and future people. In calculating the appropriate discount rate to use, the economist must decide what we owe to future generations. What discount rate economists ought to use in their models is therefore tied up in moral and political philosophy and cannot be answered by using economic data alone.

Second, economists study social phenomena, which in essence is created and then attempted to be understood by humans. As such, economic phenomena are continually manipulated and directed by new ideas, beliefs and assumptions which generates an intrinsic feedback loop between the ideas proffered by social scientists like economists, and the way in which those ideas eventually manifest within, propagate through, and affect the very social world some of these scholars claim to be studying objectively. Many economists are not aware of or do not understand this important relationship. Thus the ontology of the social world mandates that the endeavors of economists are fundamentally not positive, but normative.

Our arguments in response to Mankiw highlight the secondary nature of economics in providing answers to these policy questions and the predominance of political and moral philosophy. It therefore seems there are two options open to society: either economists are cognisant of the boundaries of their discipline and engage and defer to the expertise of philosophers on certain matters; or economists also play the role of a political philosopher.

Both of these solutions necessitate a change to the way economics is currently taught at universities to somehow encompass moral, political and economic philosophy, so that as a minimum, the economist is aware that economics is not an objective, positive science, and that economics and its application are entangled with ideology. It is critical that we understand this and are adequately equipped to navigate the implications that follow with due care.  

Authors: Erin Nash and Joe Seydl – International Organisers for Rethinking Economics in London and New York.  Erin's Twitter handle is @ErinJNash.


Unknown said...

Small addition:
Not only the size of the discount rate, but also the exponential form of the discount function includes a big value judgement.
One could dozens of other forms of discounting, there is nothing "true" about exponential functions, unless you assume a natural law of eternal exponential economic growth...

Unknown said...

Thanks for your addition Karl.

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