Monday, 28 August 2017

Economists have started to take morality seriously

Ben Chu in The Independent
“We don’t do God,” Tony Blair’s press secretary, Alistair Campbell, once famously remarked. Similarly, economists don’t “do” morality.

They are a breed concerned with economic efficiency not spiritual uplift; human choices and incentives, not human values. They believe questions of morality can be left to philosophers and theologians.

There’s an element of truth in that stereotype. Economists have indeed tended to leave aside issues of morality. In some cases that’s because they think, on ideological grounds, that it has no place in the discipline.

But even more thoughtful and less dogmatic economists have tended to shy away from the question on the grounds that moral values are tricky to pin down, much less quantify.

That’s not to say that their research agendas have not supported “moral” agendas. They often expose market failures which harm the less well-off. And they defend the right of governments to intervene in markets in ways that might reduce short-term economic efficiency, such as by fining polluters.

They argue for the responsibility of governments to provide public goods like education. And there are also plenty of mainstream economists who justify progressive taxation on the grounds that high inequality is socially undesirable.

Yet their theoretical models themselves have generally had no place for morality.

But things might be changing. Two economic Nobel laureates at a meeting on the German island of Lindau last week outlined a bold attempt to put morality into theoretical economical modelling.

Oliver Hart, a 2016 Nobel winner, presented a paper, co-authored with Luigi Zingales, in which he looked at how the personal morality of shareholders might affect the behaviour of the companies in which they invest, in particular whether those firms will behave in a way that will maximise profits or whether they sacrifice some profit for the sake of behaving in a socially responsible manner.

To give an example, it’s perfectly legal for the American supermarket giant Wal-Mart to sell automatic weapons. But its executives could, in theory, choose not to do so. So what determines the corporate decision?

The Hart model raises the possibility that the incentives in the system of stock-market listed companies – the psychology of shareholders and the pressures on managements – might be behind an “amoral drift” in corporate behaviour.

In a similar vein, Jean Tirole, who won the Nobel in 2014, outlined at Lindau a theoretical framework in which he, along with Armin Falk, tries to model behaviour taking into account how certain popular “narratives” can inhibit people from doing what they would normally consider the right thing. A good example of such a narrative in the British context might be popular opposition to the admittance of Syrian child refugees on the false belief, pushed hard by the right-wing media, that they are all really adults pretending to be children.

“Economics is fundamentally a moral and philosophical science, embedded in the larger social sciences,” Mr Tirole said, urging other economists in the audience to join in the project of trying radical new approaches.

It remains to be seen whether this particular research agenda gets anywhere. There are plenty of holes that one can pick in the very simple models presented by Hart and Tirole and the broad-brush assumptions they make about people’s decision-making processes – something they both readily acknowledged.

It may turn out that the particular value that economics adds does indeed lie more in analysing the behaviour of broadly self-interested individuals in markets (whether competitive or not) rather than trying to build models that factor in more complex human motivations.

Yet those who criticise the “dismal science” for assuming that we are all self-interested robots should at least acknowledge these efforts by some of the luminaries of the field.

And this work is also a useful rebuke to the charge that by analysing human behaviour as narrowly self-interested the economics profession is implicitly encouraging people to behave in that selfish way, that the axioms of classical economics have a “normative” impact on society. 
And in a sense this is a return to older ways of thinking. Seventeen years before he wrote The Wealth of Nations in 1776 Adam Smith produced The Theory of Moral Sentiments.

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it,” wrote the revered father of economics.

Some of Adam Smith’s successors, at least, are taking those insights seriously.

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