Economics and Ethics Diverge

Today on Greg Mankiw's Blog, he links to a series of articles discussing the point at which economics and ethics diverge. Here is the link: http://gregmankiw.blogspot.com/2012/11/michael-sandel-and-his-critics.html The arguments included are worth reading because they deal with a fundamental aspect of public policy, namely that market economics drives social outcomes that are not based on moral principles. What I mean is that free markets are mostly concerned with creating the largest possible bill of goods, but it distributes those goods according to ability to pay which not everyone believes is a morally justifiable outcome. This bothers many ethicists, and specifically bothers Michael Sandel (the author of the first article linked by Prof. Mankiw).

In Sandel's article, and in a book that he has written, he argues that economics text books and the study of economics should be rewritten to include moral discussions of market outcomes. His first example is that of organ trafficking. Namely, imagine a free market society where there is a market for human organs. People can exchange their organs for goods and services at a market determined price. His argument is this is not a moral outcome because the desperation that would lead someone to sell a kidney is coercion and not a free exchange. I.E. only the most desperate would sell a kidney, and that desperation is what makes the exchange unfair. It is this idea of a person's situation in life causing them to be coerced into making bad decisions that supervenes in this article and makes him want to include ethical discussions into economic text books.

Prof. Mankiw's second link is to an article reviewing Mr. Sandel's book (which the first article summarizes) in which the above debate is fleshed out to a greater degree. The review, by Deirdre McCloskey, who summarizes this view as: "His moral thoughts in fact are two only, and thin versions even of these: that equality is good; and that the sacred can be corrupted by the profane." What McCloskey means by sacred and profane is essentially the argument that we have listed above, that market pressures and poverty can make people do things for money that can be viewed as immoral (i.e. selling organs or prostitution). McCloskey answers this charge by discussing the actual history of global market economics and how, historically speaking, it has been the single most effective means for increasing social welfare for the abjectly poor. The criticism is that this fact is not adequately addressed by Sandel.

The last article Prof. Mankiw links to takes a different approach and instead attacks the reasoning that leads Sandel to believe that selling some things are truly immoral. This article, by Jodi Beggs, is made in the form of a dialogue between Mr. Sandel and a variety of famous economists. One of the most poignant criticisms from this article comes when Beggs imagines a retort by economist Al Roth which states: "So I can go work in a coal mine to support my family but I can’t sell a kidney? I have a feeling I’m going to be pretty pissed off when I look up the rates of negative outcomes for those two cases. Also, by Sandel’s logic, I am coerced to go to work every day, so somebody has really got to step in and protect me from that." The point being that all economic decisions are coerced in some way by the human condition. I.E. that our need for food, water, shelter and companionship make us do things like go to work, earn a living and participate in a market economy. What makes the organ trafficking and prostitution immoral but makes going to work everyday moral? This question goes unanswered.

So, despite Sandel's best efforts, the problem remains as to how to incorporate moral ethics into market economics. This question implies that market outcomes are inherently amoral or immoral. I.E. if Sandel thinks that we need to incorporate ethics into economic reasoning, it implies that he thinks ethical reasoning is absent from such decisions. This though I believe is a false reading of basic economics. Economics believes at its base that all people act to maximize their perceived benefit from any given transaction. It also believes that since all people are different, they will value things differently, and that they are the best judges of their own situation. Thus, at its basis, economics assumes that people will make their own moral and ethical judgments about economic activities and make decisions accordingly. It is true though that in order for this to work out perfectly you need perfect information (something which does not exist in the real world) and many a bad decision has been made by not knowing all the facts. That does not make the decision immoral though, just misinformed.

Here, I believe, Sandel would step in and say, how do you explain why people choose to sell their kidneys, engage in prostitution or do a variety of other immoral activities. After all, while they may not have perfect information, they surely know that such actions are morally wrong. The problem here is that he is substituting his own judgment for that of the individuals. Because he views these outcomes as immoral, he believes that the people were not properly weighing the costs and benefits of their actions and making poor choices. Of course, this is still subject to the Beggs/Roth response that these outcomes are no different, or perhaps even preferable, to working in a coal mine or many other equally dangerous and unhealthy jobs. But the real problem is that, in substituting his own judgment, Sandel would remove an option from the very poor. In artificially restricting the market, he is restricting their choices and distorting the outcome. An outcome he might be happier with, but the individuals involved might not be. In fact, market analysis has shown that restricting market options makes the remaining options more expensive and thus puts the poor in an even worse situation than they were before.

In the end Sandel is merely trying to substitute market coercion with Government regulation. But this seems to beg the underlying question, namely, is government intrusion a more moral way to allocate resources than market economics. The problem here is he does not analyze this question. He takes it as a mater of fact that such interventions are in everyone's benefit. Without making a cogent argument that this is in fact the case, he is unlikely to win over many people who did not already favor market intervention (again, along the same lines as the McCloskey criticism).