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Life philosophy: ethics and economists.

Introduction

The life philosophy series in this journal and in the collection of Michael Szenberg (1992) suggest that a golden age of economics occurred in the twenty-five years following World War II. The series indicates that, with few exceptions, the great economists of that era were motivated by social concerns. They deftly honed available analytical tools to advance these concerns. In contrast, in the past twenty-five years graduate study and research in economics seems to have been propelled mostly by an interest in honing tools. This has been carried out at the expense of interest in the subject matter. The tradeoff should disturb all economists.

Like many of the economists of the golden age that preceded my generation, my interest in economics was grounded in social awareness. Growing up in industrial Western Pennsylvania where recession, structural unemployment, distributive inequity and environmental abuse were commonplace and coming of age in the social and political cauldron of the 1960s, it troubles me to see my fellow economists separate the analytical from the economic and the economic from the political and social. This essay is grounded that concern. It suggests that, at its root, the problem is an ethical one. The essay indicates that, like many problems involving a deterioration of sensitivity, the solution lies in the elevation of individual consciousness.

The essay begins by adducing some of the ethical questions that surround the activities of economists in legal and political policy advising spheres. It then posits that the technique worshiping research methods and materialistic world view of modern economists may be barriers to ethical awareness. It concludes with the suggestion that as these perspectives are replaced with one of service, ethical awareness can infuse the work of economists.

Ethical Concerns and the Activities of Economists As Expert Witnesses and Political Advisors

In legal and political arenas economists are regularly called upon to provide supportive evaluations and recommendations and to critique the evaluations and recommendations that are produced by their peers. The destructive power of unbridled advocacy and criticism in each of these areas should not be lightly regarded.

The grounds for ethical inquiry into the behavior of economists as expert witnesses and political advisors are substantial. As long as our legal and political advocacy systems are structured to reward the bearers of welcomed falsehood, economists will be confronted with glowing incentives to use misleading data and statistics and to misapply their theories. At the same time other economists will have similarly rich incentives to play the role of peer critics. There are ethical pitfalls in both activities.

Economists who testify as expert witnesses in litigation frequently use data whose foundations are, often necessarily, thin and statistics which are replete with biases. On occasion, the application of the data is not even consonant with modern economic theory. For example, in calculating present values for litigation many expert economists generate net discount rates exclusively by employing interest and compensation rate data from historical time periods which bias the results. This is often done on the premise that data from the past are always the best predictors of the future, an assertion that overlooks the availability of inexpensive ways of generating predictions from contemporaneous information and, therefore, is inconsistent with modern rational expectations reasoning.(1)

Ethical concerns also arise from the role of economists as advisors to political groups. Economic advisors and their research networks in academia devote much of their energy in this capacity to selling the policies of their politician mentors. This type of advocacy is commonly accomplished by generating optimistic forecasts of the economic outcomes of these policies.

A pervasive but less widely perceived role for economic advisors and their academic research networks is to legitimate the redistributive programs of their mentors. This is regularly done by cloaking politically profitable redistributions of after-tax income in macroeconomic externalities. As examples, the Keynesian multiplier concept was often invoked to help legitimate the redistributive policies of the 1960's and the precepts of nineteenth century classical economics were invoked under the rubric "supply side" to help legitimate the status quo ante tax cut redistributions of the early 1980s, This political smokescreening would be somewhat more palatable if these macroeconomic externalities were not taken so seriously by ingenuous academics. For example, the supply side agenda dominated the macro public finance research agenda for the better part of a decade and the Keynesian multiplier perspective has biased macro principles textbooks for several generations. These are only a few examples and seasoned economists can likely come up with many more. Nevertheless, a word of caution is in order. Even though the shortcomings of expert economists and economic advisors are substantial, an ethical case can also be made for urging care in attacking them. The ordinary business of life is filled with temptations to criticize. This proclivity is especially acute when one possesses expertise. The greater the level of one's accomplishments in any given discipline, the greater the propensity to judge one's peers. Whether gauged by educational attainment, publications, honors, or their universal correlate, income, worldly success promotes judgmental behavior. There is, however, a fundamental difficulty here. Spiritual sources consistently enjoin against being judgmental. Compassion, they say, is more likely to elicit a corrective response than finger shaking. Thus, metaphysical and religious perspectives might provide a useful foundation for ethical awareness not only amongst expert economists and economic advisors but also amongst their critical peers. Unfortunately, the research methods and world view of economists are often barriers to spiritually motivated ethical awareness. The Research Methods of Economists as a Barrier to Ethical Awareness

Economists should be aware of the pitfalls of professional hubris in research activities. It will be argued here that the research methods of economists lead them away from social and spiritual concerns.

Most economists are familiar with the phenomenon that I shall call "research networks." Each network revolves about the research paradigm developed by a handful of "masters." Young economists receive employment and promotion benefits by associating with the research program of a master. Such intimacy is largely achieved through emulation. Success usually arises from a disciple's ability to advance a master's research paradigm.

Increasingly economists rely on the manipulation of mathematical and econometric techniques within a paradigm. The business of economic research is nowadays rather thoroughly grounded in a research network exclusivity that is driven by the mastery of technique. Research paradigms typically evolve in the direction of more sophisticated technique with little reexamination of their historical, institutional, social science, and complementary economics premises. As a consequence they tend to be evaluated by narrow, internally generated, criteria. Because they are isolated from ongoing developments outside their parochial domain and overspecialized in technique tinkering, modern research paradigms tend to become endangered species, surviving in a rarefied niche and, when exogenously shocked, periodically suffering abrupt declines which exterminate entire generations of lemming-like disciples. There are numerous contemporary examples of swift paradigmatic decay. In macroeconomics alone in the past score of years the array would include the demise of large scale structural macroeconometric models and the decline of optimal control models of macroeconomic policy. Disciples in each of these areas soared to heights of formalistic virtuosity, even as their paradigm's link to its broader sustaining environment was becoming more tenuous.

In each of these two areas the immediate environmental shock which seemed to precipitate attenuation would appear to have been the rational expectations "shift in microfoundations." However, from a broader perspective, these "shifts" reflect the difficulty of neoclassical mechanics in dealing with the fact that institutions (which in neoclassical mechanics are either ignored or simplistically parameterized) as well as firms and market participants undergo fairly continual learning and adaptation. Large scale models had the fundamental flaw of being unable to deal with a behavioral structure that changed over time as agents learned more about the (policy) environment. Optimal control models were similarly conditioned on the assumption of an unchanging behavioral structure. The methodological weakness shared by both examples was neoclassical mechanics' premise of a fixed structure and an attendant narrowness of focus that prevents specialists from taking a broader view of what the structure is. Thus, the research outlook of macroeconomists causes them to be out of touch with their subject matter.(2)

By this reasoning, today's offshoots of the overarching neoclassical paradigm in macroeconomics, such as game theoretic models of macro policymaking, will also tumble into extinction, even though they have recently been dominating the pages of several major journals and the macro research agenda of the NBER. For example, the institutional premises of game theoretic macro policy models are conspicuously flimsy. The essential actors in these models are a mythic apolitical and monolithic policymaker and atomistic market participants between whom election-centered, equilibrium-generating games are played in inflation-unemployment space. There is little recognition of interest group lobbying, policymaker misdirection, private sleuthing and the resultant ongoing learning and adaptation that characterize our macro policy institutions. Moreover, there is little sensitivity to the social costs associated with these activities. These models will descend into oblivion whenever their devotees finally become aware that they are imposing a fixed structure which bears little resemblance to reality. At that time the adherents will invariably cast about in their impoverished neoclassical habitat for new "microfoundations." It may be more fruitful for them to look elsewhere, and to consider developments in history, the sister social sciences and, even complementary areas of economics.(3)

Traditional emphasis on erudition in mathematics and econometrics is causing an increasing premium to be placed upon imaginative involvement in economic subject matter. As indicated the premium is the result of simple substitution of technical proficiency for other types of knowledge and the weakness of neoclassical mechanics at dealing sensitively with the learning and adaptation in the evolution of real world institutions. Economists are not vigorously responding to that premium. As a result, genuine concern for the social problems of inefficiency, waste, and injustice seems to have become increasingly tangential to the research game. Research agendas fired by the broadness of vision and social concerns of a Veblen, Keynes, Friedman, Buchanan or Boulding are on the wane. To paraphrase Knut Wicksell, more attention is being paid to the scalpel than the patient.(4)

At this point, we take the leap from methodology to metaphysics. From a spiritual perspective, the paucity of heartfelt social concerns amongst researchers is correlated to their egoism. Because there is increasingly so little sensitivity to social concerns in economics research, its antipode, egoism, would be expected to prevail. Ubiquitous examples of market failure show that the pursuit of egoistic self interest does not generate the best ethical outcome. Moreover, the great spiritual traditions teach that egoistic behavior can never directly serve higher purposes because with egoism comes the belief that worldly achievement is the only source of power. Nowhere in the humanities and social sciences is this belief more pronounced than in economics. Unfortunately, transcendent religious and metaphysical motifs insist that attachment to things outside one's self is antithetical to true power, inner power.

The World View of Economists as a Barrier to Ethical Awareness

It has been argued that the research perspectives of economists lead them away from social and therefore spiritual concerns. This, however, is not the only barrier to their progress. The world view of economists also obstructs ethical advance. Economists are often accused of viewing the world in distinctly narrow and hard headed terms.(5) Outside the physical sciences, the social sciences are more likely to deny the role of the spiritual than the humanities and within the social sciences economics is probably the least spiritual and the most materialistic and atheistic (its antipode in the social sciences is perhaps anthropology).(6)

A primary source of legitimacy for the free market is its ability to confer wealth and power on those who master its workings. Thus, economists deal with a world in which the perception of power as external has shaped most institutions. Political and economic hierarchies and individual and interest group competition in the economy and the polity are premised on this perception. Those who embrace this perception would normally tend to believe that an absence of external power leads to insecurity and deprivation.

In contrast, the great spiritual perspectives teach, rather paradoxically, that the perception of power as external brings only fear, disappointment, pain and destruction. From their point of view, genuine ethical behavior can emerge only when individuals abandon this perception of power.(7) The spiritual masters teach that one must learn to relinquish his or her worldly attachments. Ethical awareness may allow individuals to avoid the pain and destruction that often precedes such learning.

Religious and metaphysical thinking teaches reverence, not only for one's fellow man but for all creatures and the planet itself. Reverence is the experience of accepting that all life is of value. From this disposition, power does not arise from fearfully dominating, manipulating, and controlling life but from having reverence for it. From this perspective, the businessperson's service to others is made possible by profit and the politician's service to others is made possible by electoral success rather than the other way around.(8) The perspective of service could also advance the work of economists. The step could be a difficult one because of the relative lack of social concerns, attendant egoism, and materialistic world view (of power) that may seem essential to the study of economics.

Ethical Precepts for Economists

A revolution in science and academia would take place if scholars reflected on the question "How might I serve?" Consciousness would change almost immediately and out of the ensuing agendas healing could occur. For example, the great economic problems confronting mankind often seem to emanate from man's destructive abuse of the planet and his negative-sum competition with his fellow man. If economists as experts and as policy advisors premised their activities on service, they would become sensitive to these problems and the human implications of subsequent policies would be spotlighted.(9) If research economists premised their activities on service, they too would become more sensitive and would surely be better able to develop innovations for abating man's destructive activities, not only from increased proficiency in the manipulation of technique but from, simple caring.(10) From a perspective of service economists would have fewer problems in justifying what they do and in motivating creativity in their research networks.

Hard-headed realists may object that self interest is inconsistent with service and decry the absence of incentive mechanisms to promote service. What is the appropriate response to such realists? The spiritual traditions invoked in this paper imply an ethics of individual character.(11) According to these traditions the self interest that prevails is that of the higher self, one that is consonant with service. These traditions do not suggest that professional organizations should intervene when accepted conventions are violated nor would they prescribe incentive structures or canons for ethical decision making. Rather, these perspectives indicate that if commitment to service were embraced by economists, they would make responsible decisions, choices that take into account their consequences and choices that follow from high-mindedness. Economists would realize that not serving one's highest self in legal testimony, policy advising, or research is not aligned with an attitude of service. They would see that the sides in legal, policy or research conflict are not really opposing, but aspects of the same reality; this perspective advances compassion.(12)

What about those economists who remain "unenlightened," the "irreverent?" Cynics are bound to contend that, while ethical injunctions might cause professional discord to decline, the self serving will thrive at the expense of the serving. What is the appropriate ethical demeanor toward colleagues who would persist in deceptive practices? How can one be properly critical in such circumstances? The great spiritual sources do not require that one be passive or disregard wrongdoing. They insist, however, that one look with compassion upon the wrongdoers even as one challenges their activities. This protects one from creating negativity and permits one to see that the first place to eliminate wrongdoing is within oneself.

Concluding Comment

Recent research in monetary policy indicates that when it comes to political ideology economists are extremely reliable (Havrilesky and Gildea, 1991). In the area of ethics, however, modern economists are not similarly stalwart. They seldom venture intellectually into that ethereal realm.(13) As discussed in this paper, the neoclassical technique worship, attendant egoism and materialistic world view of economists militate against such forays. Nevertheless, as Alfred Marshall long ago recognized, the activities of economists can never be exempt from ethical inquiry.

Notes

1. For further details see Thomas Havrilesky (1989A).

2. The examples chosen here reflect the author's research focus, monetary policy. This begs the question as to whether equally good examples are found in other subdisciplines.

3. For more specialized criticism of the general mechanistic neoclassical paradigm in microeconomics, see Mirowski (1987).

4. The life philosophies of many of the prominent economists who matured professionally in the quarter century following World War II were strongly propelled by social concerns. See Szenberg (1992).

5. Sen, (1987), pp 1-2. A likely reaction to this statement is "What else could be expected from the utilitarian precepts of economics?" However, with regard to English neoclassicists of the nineteenth century this assertion is contestable. For instance the work of Alfred Marshall is fraught with ethical considerations. See A. W. Coats (1990).

6. Bloom, (1987), pp. 356-363.

7. "No one who has been hoaxed into the belief that he is nothing but his ego. . ., can be chivalrous." Watts, (1966), p. 125.

8. Zukav, (1989).

9. The Catholic Bishops' Report on the U.S. economy suggests the following three criteria for evaluating economic policy: (a) what does it do for people? (b) what does it do to people? (c) how do people participate?

10. Watts, op.cit. p. 102.

11. The work of MacIntyre is (1988) especially useful in this regard. Among the life philosophies of great economists of this century, this perspective is closest to that of Kenneth Boulding, Szenberg, op.cit., p. 9. 12. Hanh, (1976), p. 95.

13. The book by Sen, op.cit. applies ethics to welfare economics and vice versa but does not consider ethical behavior by economists.

References

Bloom, Allan, The Closing of the American Mind, New York: Simon and Schuster, (1987).

Coats, A. W., "Marshall and Ethics" in Rita McWilliams Tueberg (ed.) Alfred Marshall in Retrospect, Elgar, (1990) pp. 153-177.

Havrilesky, Thomas and John Gildea, "Reliable and Unreliable Partisan Appointees to the Board of Governors," Public Choice, May, 1992, pp. 397-414.

Havrilesky, Thomas, "A Compassionate Solution to Distributional Conflict." Challenge, May/June, 1989B.

Havrilesky, Thomas, "Those Who Rely Only Upon the Past May Be Doomed to Repeat its Errors," Journal of Forensic Economics, December 1989A.

MacIntyre, Alasdair, After Virtue, Notre Dame, Ind: University of Notre Dame Press, (1984).

Mirowski, Phillip, "Shall I Compare Thee to a Minkowski-Ricardo-Leontief Metzler Matrix of the Mosak-Hicks Type? Or, Rhetoric, Mathematics and the Nature of Neoclassical Theory," Economics and Philosophy 3, April, 1987, pp. 67-96. Pastoral Letter on Catholic Social Teaching, Economic Justice For All Washington: National Conference of Catholic Bishops, (1986).

Sen, Amartya, On Ethics and Economics, Oxford: Basil Blackwell, (1987).

Szenberg, Michael (editor), Eminent Economists: Their Life Philosophies, New York, Cambridge University Press, (1992).

Thich Nhat Hanh, The Miracle of Mindfulness, Boston: Beacon Press, (1976).

Watts, Alan, The Book, New York: Vintage, (1966).

Zukav, Gary, The Seat of the Soul, New York, Simon and Schuster, (1989).
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Author:Havrilesky, Thomas
Publication:American Economist
Date:Sep 22, 1993
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