Can Modern Economics be an Ethical Science?

By Payam Sharifi

The subject and discussion of Ethics for economists is a recent but welcome phenomenon.  The creation of the documentary “Inside Job” highlighted the ethical issues facing economists.   Various outlets, consisting of many from outside the economics profession as well as some inside, have been demanding that economists and economics itself adopt a code of ethics.  Many articles, blogs, and academic papers since that time have been beating the drum for a code to be adopted, as a simple Google search will show.  The recent Reinhart and Rogoff flub has also reinvigorated this debate.  The objective of this exposition is to show why economics (as it exists currently) cannot, and will not, ever be able to adopt that code of ethics.  Well, why not…as I’m sure some of you are asking.  Many other professions have a code of ethics that they adhere to…why is it that economics cannot do the same?  There are in fact many reasons why this is so.  I also advance another approach to economics that has existed for decades, if not longer, in the search to answer the question that forms this essay.  Another, but seemingly unrelated topic that is sometimes debated among mainstream economists is the need for economic theory itself to change.  As we seek to answer the question of whether Modern economics can be an Ethical science, we will find that the question of economic theory is in fact related. 

The first step to understanding why Economics and Ethics mix like oil and water involves the narratives we produce to understand human action, not only for those actions that we see but also to understand how we conduct ourselves.  Human life is understood from the narratives we create about it.  That is, to be a narrative means to understand things from a historical standpoint.  For modern economics to do this is to realize (when describing a narrative of human action through theory) that the theory or theories it uses to describe what it terms “economic action” must necessarily be judged in light of the past and the present.  Yet it isn’t done necessarily for purposes of science itself; rather, it is done out of necessity.  The narratives we use to understand human action define everything we understand about the world.  The narrative and hence the tradition that modern economics continues to carry to this day is that human beings are rational actors seeking to maximize some utility function.  There is a continuous march for humans to do so until they reach some level of equilibrium…and what we understand about the individual agent can then be extrapolated to the economy as a whole.

The question becomes whether that tradition progresses or fails to progress in understanding the world around us, to predict the unexpected, and the ability to not only predict but guide human action.  If not, one is required first to understand why that tradition is failing.  Do modern economists make any attempt to do this?  I and many argue that even if there has been some attempt at realizing that the theory has failed, the laziness and reluctance exhibited by almost all of modern economics towards creating a new narrative i.e. theory has been shockingly bad.  Ethics itself also has a history…that is, ethics without context has no meaning.  Likewise with economics…if modern economics refuses to change its theory (and I’m not referring just to its method of analysis) in light of its failures, then by what standard do we believe economists could be ethical?  What standards does economics hold that could be upheld by an ethical code of conduct?  Is there any meaning in one saying that an old and outdated theoretical construct regarding utility maximization, for example, that has little to no bearing on reality be required to have that code of conduct?  Certainly not in my imagination, and hopefully not by anyone else’s stretch of the imagination.

Mark Thoma, an economist who runs a popular economics blog, recently stated that “too many minds in the profession cannot be changed even when the empirical evidence is relatively clear…the politicization of the profession…plays a large role”.  Could it be that this reflects a crisis in economics, which is a crisis in its method of analysis and even the subject matter itself?  Because we direct our lives through some narrative, there should be no doubt that the doubts with the subject matter of economics are having a direct impact on its practitioners.  That is, the context which currently envelopes our present lives has no room in economic theory, and many practitioners are having a hard time reconciling this with the theory they teach with such devotion in the classroom.  This crisis is also reflected in the minds of many in society.  Theories with no context like the theories we use in economics have driven many to have what was once referred to as “Hume’s Disease”, being unable to reconcile what truth is and driving ourselves insane.  Yet the root of this is the fact that we are distrustful of the narratives we create to understand ourselves.  Science, it is thought, has nothing to do with narrative or history and is simply a search for Absolute Truth, Logic, and Reason.  Small wonder, then, that the search for a code of ethics attached to a pseudoscience that has nothing to do with the lives we live is not only nonsensical, but also confusing for economists.  Who will create that code of ethics, and who will accept it?  If Ethics is the application of absolute moral standards for moral practices that MUST by extension apply to human lives, then that code of ethics applied to economics is no code of ethics at all.

Yet there is much more to confirm this idea that Ethics bears no relationship to modern economics.  If all of our lives are created and understood through narrative, then that narrative has an inherent belief or set of beliefs about what the good life consists of.  All narratives have goals.  The goals and aspirations of life should be to achieve happiness, and I don’t believe many could disagree with me here.  What qualities should human life consist of to reach what Aristotle referred to as our telos, or goal which is happiness?  First, like Aristotle, we should understand that human beings are political animals, and that the towns and cities that we live in are a natural development of the human community.  Hence our conceptions, like those conceptions we learn studying economics, cannot be devoid of human goals and aspirations within the context of our particular historical situation.  Ethics as Aristotle understood it should have two kinds of evaluative practice.  Communities need to “recognize and celebrate the qualities of character that help them to meet their goals, and to shun attitudes that are counterproductive” and “determine which courses of action help them to reach their goals, and celebrate these while condemning activities that hinder the pursuit of the common good, including activities that hinder the common good of developing a moral culture that supports the pursuit of the common good”.  Having a moral culture means to have a moral education in “recognizing, knowing, desiring, and choosing actions that make us better as human agents”.

On the other hand, citizens of the modern state as currently characterized (including by modern economic theory) are nothing more than agents who enter society by choice in order to protect his/her own interests.  It’s interesting that Aristotle had something to say about this: that any such citizens that exist are citizens of nowhere, and are barbarians.  So in Aristotle’s mind, how is one best to achieve these ethical standards by which we should live our lives?  To prevent making this a full exposition of Aristotle’s thought, it will suffice to say that he believed that all of the good things that make us human beings can be characterized as the Virtues.  Yet how is one to achieve excellency that defines the Virtues he outlines?  It should be a surprise to many that he does not in fact outline any moral code at all!  Rather, he believes that practical reasoning, that is, the wants and goals of the agent, along with the achievement of that goal, allow one to achieve a moral life.  This can only be done through a practice.  Alisdair MacIntyre defines a practice as
“any coherent and complex form of socially established cooperative human activity through which goods internal to that form of activity are realized in the course of trying to achieve those standards of excellence which are appropriate to, and constitutive of, that form of activity, with the result that human powers to achieve excellence, and human conceptions of the ends and goods involved, are systematically extended”.  Success in practices has a moral dimension, “because we cannot succeed in them unless we are able to commit ourselves to excellence in the practice”.

An example of this is that we seek to achieve things not for some external outcome, such as to earn more money or candy, but for the sake of the activity itself.  A child who wishes to become good at chess do not play it for some external reward (like candy), but for the sake of becoming better at it.  From what has been said thus far about modern economics, can anyone legitimately believe that economists are advancing the science, or in other words, doing it for its own sake?   The fact that I’m writing this article on the subject of ethics should lead one to the conclusion that this is not the case at all.  Rather, it seems that economists are not engaged in any practice at all; rather, they are engaged in the race to be the most recognized, well-connected economist (and hence social scientist) that they can be.  Modern mainstream economics as a science, since it must be reiterated, cannot be a practice because it has little to do with achieving excellence and everything to do with gaining power and notoriety.  It has no conception of history, no conception of the communities and history that make us who we are.  And we expect this science to be ethical?  To have a code of ethics?  Communities themselves set and enforce the standards, the OBJECTIVE standards, which help keep us on the right track.  Yet economics has no community, only an economic agent.  Can you tell a utility maximizing economist how to behave?  Reinhart and Rogoff would rather brush you off as an insignificant insect than to listen to your (to them) subjective rules and standards, which is only limiting their freedom to gain fame, glory, and money.  There should be little doubt as to why so many people in society are distrustful of the “science” they are listening to, as what they hear has no bearing on any of their lives.

There’s more to the story.  MacIntyre argues that modern states lack the basis for a political community because they lack “practical agreement on a conception of justice”.  In fact, modern economics often lays out two competing ideas for justice.  Robert Nozick seeks the preservation of property and finds justice in respect for the inalienable rights of individuals, while John Rawls seeks to meet the needs of everyone, having the redistribution of wealth be acceptable.  Yet both of these theories define justice in terms of the individual, and not the political community.  According to the tradition of the virtues as outlined by Aristotle, “what a person deserves can be understood only in the context of a community, but communities have no place in the theories of Nozick and Rawls, who attempt to define justice for individuals prior to their involvement in any community.”  The attempts of Nozick and Rawls to define a conception of justice no doubt sprung from a need to understand the world around us, but without a larger narrative that defines the good life these stories are nothing but rhetoric.  Modern economics uses this rhetoric to state that everything is subjective, and that hence nothing of value exists except for some utility function which is only in the eyes of each individual.  There is no conception of the good life, no conception of community, and hence no conception of ethics or values.

All of this returns us to economic theory itself.  Many mainstream economists, for the past four or five years, have stated how economics needs to change.  Yet the ideas they lay out as the basis for change are so abstract and without any reading in philosophy, history, or political economy.  That these economists could make such statements without having done any reading in the above they find not the slightest bit embarrassing.  Even more embarrassing is that an alternative research program (or tradition) has been growing slowly but steadily for the past few decades if not longer, and these mainstream economists know this very well.  In fact, competing programs are the only way for old narratives to die sometimes.  Heterodox economics is a vast area of research whose philosophies and views are as diverse as human life itself.  These economists, through much hardship and hard work, do their best to advance economics as a science, a social science.  They engage in their work and enjoy doing so for the sake of itself, not for the sake of meeting some bogus criteria or for fame and glory.  I know this because I’ve been engaged in studying heterodox economics for three years now, and the poverty of mainstream economics in explaining our lives has never been more apparent than it is now.  In a time of austerity, we preach not how the political community can come together and seek the goals of happiness, but how instead we can take more money out of the economy and hence how we can impoverish more and more people to make their lives more miserable.  Reinhart and Rogoff are a shining example of this approach.

To be clear, heterodox economics shares almost nothing in the way they conduct theory with MODERN economics.  In modern economics, there is no questioning the utility maximizing, rational economic man who, in their quest for maximizing utility, approach an equilibrium for themselves through supply and demand and hence for the economy at large.  Heterodox economics leaves room for theory to flourish, and that theory is only acceptable to many heterodox economists if it’s grounded with evidence.  From pricing to our theories of money and banking, heterodox economics is really a foreign language compared to what one learns in Econ 101.  If any clues are given in the discussion above, it would have to be that heterodox economics is an ethical theory because it’s theories and method of analysis does not exclude society and hence the rest of the social sciences.  Heterodox economics is the study of the social provisioning process, and because it understands and (more importantly) practices economics as a social science, space is left for an ethical approach and even a code of conduct to be formed.  Modern economics can never be an Ethical Science, but if one approaches economics as a social science that one cannot separate from the other social sciences, then Ethics can again play an important part in shaping our lives.

For younger people reading this today and wanting to study economics, I encourage you to leave the old paradigm that treats us and our heterogeneous actions and goals as insignificant and come with me on the journey to bettering the human condition.  To live your life among a community through which you define your life, through practices that you seek to become the master at.  A mainstream economist has nothing but contempt for reality.  They’d rather live in the fake models of reality concocted long ago, and through years of education in pseudoscience they seek to convince you of this as well.  Any advances they make are done outside of the science, like with Paul Krugman, who uses political language but not within the confines of economic theory itself.  If you want to live an ethical life, a life seeking excellency internal to practices, and happiness (ie the good life), then come on the side of heterodox economics…because modern economics, like oil and water, leads one down the path not of ethics, but of the life of a (in the words of Aristotle) barbarian.

One last statement must be made.  In Oedipus Rex some of us may remember the riddle of the sphinx.  It asked what walks on four legs in the morning, on two legs at midday, and on three legs in the evening.  Oedipus solved it when he said “man”.  We crawl as an infant, walk as an adult, before hobbling with a cane at old age.  The riddle shows that the independence of healthy adulthood is only one phase in a life marked by dependence in childhood and old age.  The study of ethics, from the analysis I’ve given, is more than simply the study of criteria for the moral decisions of adults, but “a study of the education and care of people who live in human communities that treats the facts of vulnerability and affliction and the related facts of dependence as central to the human condition.”  Until Modern economic theory changes itself to reflect practices that seek these ends, ethics can never exist in the life of an economist or in the study of economics.