Do Economists Need a Code of Ethics

Cross-professional comparison: Economics and Ethics looks at the recent film, Inside Job, about the economic meltdown and asks if economists need a code of conduct.  

Comments

[Patrick S. O'Donnell]

Economics needs ethics and economists need to practice intellectual and moral responsibility but as long as we have a capitalist system there will always be an abundance of pressures and incentives to engage in behavior not conducive to individual ethical flourishing and the common good (a fact libertarians are ideologically unable to appreciate). Why? In short, "Under capitalism life is not lived under the Authority of the Good, but under the aristocracy of capital"(Michael Luntley). For what this means for those of us in a "capitalist democracy," see Joshua Cohen and Joel Rogers' classic work, On Democracy (New York: Penguin, 1983).

[Patrick S. O'Donnell]

I thought to be so bold as to proffer a few titles by way of beginning to think through this topic in a fundamental fashion:

·Amadae, S.M. Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism. Chicago, IL: University of Chicago Press, 2003.
·Anderson, Elizabeth. Value and Ethics in Economics. Cambridge, MA: Harvard University Press, 1993.
·Elster, Jon. “Self-realisation in work and politics: the Marxist conception of the good life,” in Jon Elster and Karl Ove Moene, eds. Alternatives to Capitalism. Cambridge, UK: Cambridge University Press, 1989: 127-158.
·Hausman, Daniel M. and Michael S. McPherson. Economic Analysis, Moral Philosophy, and Public Policy. Cambridge, UK: Cambridge University Press, 2nd ed., 2006.
·Luntley, Michael. The Meaning of Socialism. La Salle, IL: Open Court, 1990.
·Mirowski, Philip. Machine Dreams: Economics Becomes a Cyborg Science. Cambridge, UK: Cambridge University Press, 2002.
·Sen, Amartya. On Ethics and Economics. Cambridge, MA: Blackwell, 1987.

There are a some helpful titles from the Economics and Ethics website that John linked to but I’d be loath to add any ‘market-based’ orientations insofar as they’re unable to fully appreciate the extent to which capitalist structures and processes have historically undermined and continue to disrupt and dismantle the references groups (communities of a kind) and civil society institutions that are the locus and repository of our conceptions of the “good life” in a classical Greek (eudemonistic), Platonic, or Marxist sense. In other words, in capitalism, economic relationships trump if not dominate and displace all others, as all relationships and relations are, in time, subject to processes of commodification in particular and economization generally. The “laboring subject” disfigures our conceptions of freedom and autonomy insofar as the economic system requires a commodified labor market, thereby assuring existential alienation from the moral norms generated by communities outside the economic system, as society is organized first and last according to the needs of Capital or those in control of capitalist investment. As Luntley reminds us, labor power is an abstract property of human beings defined by our potential for producing economic value when placed in a work environment:

“For it to remain a property of human beings it must be considered secondary to those properties [or, as Martha Nussbaum would say, ‘general human capabilities’] that constitute human life. If the labour power of humans is given precedence to those properties that constitute human social life, it is no longer a property of HUMANS, for it has then become constitutive, a defining property, of its supplier. The labour power of a human being is NOT its defining or constitutive property: treating it as such dehumanises us literally. In treating it as such the economic arrangement of agents replaces and overshadows the arrangement of agents in a civil society. But when we live in an economy organized under the aristocracy of Capital, our labour power MUST become our defining property on pain of failure of that economy.”

Incidentally, this is one reason why the first question asked of another at an intimate social gathering tends to be, “And what do you do [for a living]?” In such social settings we initiate the process of coming to know one another through our identity as “laboring subjects.”

[Mark D. White]

Partick, I'd be interested in your opinion on the work of Deirdre McCloskey and others arguing that markets are consistent with classical ideas of the good life, eudaemonia, etc. (Feel free, of course, to comment in a relevant post on the Economics and Ethics blog, such as this one: http://bit.ly/gWLaeL+)

[Mark D. White]

Sorry, I meant Patrick. (D'oh!)

[Mark D. White]

Also, George DeMartino has a book coming out next summer recommending a formal code of ethics for economists: http://amzn.to/fNHuQI.

[Patrick S. O'Donnell]

Mark,

I’m not opposed to markets per se or in principle, except for labor markets or, for instance, financial markets left to their own devices (i.e., sans strict national and international regulation), believing, therefore, that markets need to be “socialized” in the sense outlined by Diane Elson (and advocated by the late Michael Harrington generally) in a classical article for New Left Review back in 1988 (which means, in part, paying attention to the social conditions in which markets operate).* And my view of markets with regard to socialism is very much in the “social democratic” tradition: wherein it is envisioned that the “social surplus product” will be democratically distributed in an egalitarian fashion, perhaps, for instance, by some sort of Basic Income scheme; that there will be a movement for more decentralized forms of social ownership; and that human choices will not be dominated by those of high income and wealth (as it is now, markets are mechanisms for, as Michael Harrington wrote, ‘transmitting the desires of the privileged’). Hence I imagine “decommodification” not to rid of us what Polanyi termed “genuine” commodities but rather some or all “fictive” ones, like “labor” (until such time, I see things like Thomas Geoghegan in his book, Which Side Are You On? Trying to be for Labor When It’s Flat on Its Back (2004 ed.)). I therefore side with the “market socialists” in this well-known debate among socialists (see, for instance, the volume edited by Bertell Ollman, David Miller’s Market, State, and Community: Theoretical Foundations for Market Socialism (1989), and the works of the so-called ‘analytical Marxists,' like Elster and Roemer).

The uncritical deference to markets is what permits self-interest to be economistically ontologized in ways that preclude the full univeralisaztion of the conditions for eudaimonistic human development, including the realization of basic human capabilities (Nussbaum again). And thus I agree with the late G.A. Cohen that

“it is good for the political prospects of socialism that market socialism is being brought to the fore as an object of advocacy and policy; these socialist intellectuals, even some of the fashion-driven one, are performing a useful political service. But I also believe that market socialism is at best second best, even if it is the best (or more than the best) at which it is now reasonable to aim....”

I very much like McCloskey's take on economic rhetoric (the subject of her three best books!) but I don’t share her commitment to some of the basic premises of neo-classical economics. And my conception of (revisionist, reconstructed) eudaimonism is closer to Nussbaum’s and David Norton’s, as expressed in the following from the latter:

“[T]he mature, self-responsible, self-actualizing individual is self-governing, and this self-government requires strategies, techniques, and acquired, organized skills. In short, it is obliged to be an art or science. This self-government is for eudaimonism the paradigm of good government, and the primary purpose of good collective government is to generalize the opportunity and the occasions of it among the constituency. [….]

As a developmental outcome, self-directed individuality has preconditions, some of which cannot be self-supplied by individuals. If persons are morally responsible for self-discovery and self-actualization, then by the logic that ‘ought’ implies ‘ought to be able to,’ they are entitled to these necessary preconditions. Here are persons’ primary moral rights. When the conditions are such as cannot be self-supplied by individuals, responsibility for provision is…social. In cases of universal entitlement to necessary, non-self-suppliable conditions (e.g., of children to an appropriate education), responsibility for supply is not a community option and requires to be institutionalized by the state. [….]

[Even at the stage of autonomous, self-directed living]…[t]here can be no utopian reliance on an ‘invisible hand’ of complementarity to protect rights, settle disputed claims, enforce the law, defend the nation, and so forth.”

In other words, markets are not everywhere and always reliable institutions (in part, owing to the wide berth accorded the discretion of capitalist investors and in part owing to their susceptibility to periodic and unpredictable crises, panics and crashes) for providing the minimal conditions necessary for self-development and human flourishing. We should not mistake the voluntary character of such development with these conditions, for that would be to mistakenly suppose

“that whatever characterizes self-development must likewise characterize its conditions. To say that self-development is voluntary is to say that it is optional. If it has necessary conditions [as Marx assumed and well-understood], then self-development is only an option when these conditions prevail. And this is to say that for the option of self-development to exist, supply of its necessary conditions is mandatory [i.e., not subject to the vagaries of the marketplace]. But conditions that must be furnished to individuals by external agencies do not partake of the voluntary character of self-development [as Kant famously appreciated in his conception of law and legality]. Recognition that their presence is mandatory commensurates the provision of them with the coercive nature of government, while respecting the voluntary nature of individual self-development: individuals remain free to avail themselves, or not, of the provided conditions. It is mandatory, of course, that individuals contribute (notably through taxes) to the government that provides the necessary conditions that individuals cannot self-supply.” (See David L. Norton, Democracy and Moral Development: A Politics of Virtue (1991)).

*For several ways to re-make and socialize markets by way of truly universalizing the conditions of freedom and eudaimonia please see, first, Bob (Robert) Hockett’s intriguing proposal, “Three (Potential) Pillars of Transnational Economic Justice: The Bretton Woods Institutions as Guarantors of Global Equal Treatment and Market Completion,” in Christian Barry and Thomas W. Pogge, eds., Global Institutions and Responsibilities: Achieving Global Justice (Malden. MA: Blackwell, 2005): 90-123, and the articles here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=931049 and here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1108226

With regard to markets and the reality and rhetoric of “free trade,” my views are shaped by the following representative works: Ernst-Ulrich Petersmann’s article, “Human Rights and International Trade Law: Defining and Connection the Two Fields,” in Thomas Cottier, Joost Pauwelyn, and Elisabeth Bürgi, eds. Human Rights and International Trade (2005): 29-94, Roberto Mangabeira Unger’s Free Trade Reimagined: The World Division of Labor and the Method of Economics (2007), and Raj Bhala’s Trade, Development, and Social Justice (2003) (for further discussion within the constraints of a blog post, see here: http://ratiojuris.blogspot.com/2009/01/wto-core-ilo-labor-standards-human.html ).

[Mark D. White]

Thanks for the very extensive reply, Patrick - a lot to think about here. I think we actually agree on some broad themes, but disagree on some specifics, some of which I've wrriten about. Let my mind turn this over for a bit, and I hope to provide a worthy (if not entirely satisfactory) reply!

[Patrick S. O'Donnell]

Mark,

I look forward to reading whatever you have to say on the subject. (I'll have to refrain, regrettably, from engaging in any further discussion or debate, at least for now, owing to other work commitments.)

Erratum: In the Petersmann article title above please read "...Defining and Connecting the Two Fields."

[Mark D. White]

Sorry it took so long to reply, Patrick (and anyone else who is reading this), and apologies too for the possible superficiality of my remarks - there's simply so much in Patrick's comment, and I wanted to reply to some extent rather than waiting until I could compose the perfect reply (which would be sometime around the 12th of never)...

Where to start...

At the risk of oversimplification, I think the easiest way to categorize our difference of opinion on this is to use Nozick's procedural justice vs. historical justice dichotomy. You and I seem to agree on the importance of the overall, holistic well-being of persons, but disagree on how to assess that--you take an egalitarian approach, whereas I take a libertarian approach. (This would seem to translate well into some work I'm doing on care vs. respect with regard to paternalism and the ethics of care - these ideas are swirling around in my head lately, and I'm actually writing a presentation on it today, so I will think more about them soon.) You interpret well-being in the more traditional way (though more elaborate and classically oriented), while I look at it more in terms of autonomy itself, being able to pursue one's goals as freely as possible (consistently with all others doing the same).

We also seem to agree on the normativity of autonomy, though we understand that concept differently. I tend to be individualistic, probably radically so in some people's opinion, but I take that position based on respect for the (Kantian) dignity of persons (which also, in my understanding, rules out positive rights, of which I take you to be strongly supportive). And in my view, markets are the only institution for impersonal economic allocation that respects the autonomy, dignity, and choice of persons, consistent with all other doing the same, within basic rules of justice. (My paper entitled "Markets and Dignity" on SRRN elaborates on this, generally and with regard to health care, and "We've Been Nudged," also on SSRN, does much the same with regard to financial reform.)

I've elaborated on much of this in my published work, the more recent of which is on SSRN, and the older of which is collected/reworked in my forthcoming book from Stanford, Kantian Ethics and Economics: Autonomy, Dignity, and Character. And as I said above, I'm also developing the care vs. respect theme along several lines right now, one in direct response to Dan Hausman's recent article in Economics and Philosophy critiquing the idea of gross national happiness as an alternative to traditional welfare economics. This is very much a work in progress for me, and your comments have been a great kick-in-the-pants, Partrick, thank you.

[Patrick S. O'Donnell]

Mark (and Other Indulgent Readers),

As I said, I can’t reply in detail (on top of everything else I now have papers to grade). I especially would like to discuss at a later date the fatal problems with Nozick’s conception of justice insofar as its thought to be grounded in or highly compatible with deontological ethics, all the while justifying purely negative liberties.

For now, I’ll not directly address your points in the interest of time but simply ask readers to consider why the welfare state arose historically in those states in the northern hemisphere emblematic of the apogee of capitalism. In other words, consider the myriad reasons why even the most economically advanced and sophisticated markets have historically failed and continue to fail (largely, but not only as a result of externalities), or where markets don’t suffice to address our deepest values and ethical concerns. Ask the millions unemployed and underemployed if labor market conditions are respecters of their autonomy and dignity, of their capacity for self-determination. Ask those harmed and excluded from the processes of capitalist urbanization and recent hyper-industrial development in China what they think about the virtues of market forces. Ask the Indian laborers leaving behind families and communities in India to work in the Arab states of the Persian Gulf. With Amartya Sen, it is important to appreciate the fact that

“the appropriate role and reach of markets cannot be predetermined on the basis of some grand, general formula—or some all-encompassing attitude—either in favor of placing everything under the market, or of denying everything to the market. Even Adam Smith, while firmly advocating the use of markets where it could work well (and denying the merits of any GENERAL rejection of trade and exchange), did not hesitate to investigate economic circumstances in which particular restrictions may be sensibly proposed, or economic fields in which nonmarket institutions would be badly needed to supplement what the markets can do. [….] [For example, Smith] wanted to have legal restrictions imposed by the state on the maximum rates of interest that could be charged…. In Smith’s interventionist logic, the underlying argument is that market signals can be misleading, and the consequences of the free market may be much waste of capital, resulting from private pursuit of misguided or myopic enterprises, or private waste of social resources.”

Market conditions and forces generate various sorts of inequalities (absolute and relative) that can lead to feedback loops that gain momentum on the order of the “Matthew effect” (hence the conditions of inequality in this country having reached Depression era levels). What is more, an idealized conception of the market mechanism as a respecter of dignity and freedom of choice and the like runs up against a real world in which people enter markets with disparate level of skill, talents, and resources. As Liam Murphy and Thomas Nagel have explained: “[Individuals] have some responsibility for what they make of their situation through their employment, investment, and expenditure decisions, but it is responsibility against the background of unequal starting points or circumstances of choice.”* This implies that problems of equality of opportunity and distributive justice require separate treatment. Consider, for instance, this seemingly innocuous but revealing scenario from Sen:

“A person’s ability to command food—indeed, to command any commodity he wishes to acquire or retain—depend on the entitlement relations that govern possession and use in that society. It depends on what he owns, what exchange possibilities are offered to him, what is given to him free, and what is taken away from him. For example, a barber owns his labour power and some specialized skill, neither of which he can eat, and he has to sell his hairdressing service to earn an income to buy food. His entitlement to food may collapse even without any change in food availability if for any reason the demand for hairdressing collapses and if he fails to find another job or any social security benefit. Similarly, a craftsman producing, say, sandals may have his food entitlement squashed if the demand for sandals falls sharply, or if the supply of leather becomes scarce, and starvation can occur with food availability in the economy unchanged. A general labourer has to earn his income by selling his labour power (or through social security benefit) before he can establish his command over food in a free-market economy; unemployment WITHOUT public support will make him starve. A sharp change in the relative prices of sandals, or haircuts, or labour power (i.e. wages) vis-à-vis food can make the food entitlements of the respective groups fall below starvation level.”

Thank goodness Indian public servants had the good sense to abandon the government’s basically non-interventionist famine policy by the end of the nineteenth century. For it was the market mechanism that led to food being EXPORTED from famine-stricken countries or regions, as has occurred both inside and outside India, notoriously, an instance of the latter in a famine dear to my heart: the Irish famine of the 1840s. As Sen writes,

“[T]here’s nothing extraordinary in the market mechanism taking food away from famine-stricken areas to elsewhere. Market demands are not reflections of biological needs or psychological desires, but choices based on entitlement relations. If one doesn’t have much to exchange, one can’t demand very much, and may thus lose out in competition with others whose needs may be a good deal less acute, but whose entitlement relations are stronger. [….] Thus food being EXPORTED from famine-stricken areas may be a ‘natural’ characteristics of the market which respects entitlement rather than needs.”

We might also consider why the provision of public goods, is rightly, i.e., with ample reason, not left to the vagaries of the marketplace, even if what the precise scope of what public goods encompass is up for debate. Finally, it’s important to take notice of the complex social and legal background conditions for the functioning of contemporary economic markets, conditions that leave individuals with significantly different assets and degrees of knowledge that makes their participation in markets troubling from the several vantage points: economic efficiency, fairness principles, and basic liberal freedoms.

By way of closing my contribution to the discussion (one I hope we can continue elsewhere at a later date), I’ll indulge my habit of recommending (in this case, broadly) relevant reading material on the topic: Debra Satz’s Why Some Things Should Not Be for Sale: The Moral Limits of Markets (2010).

*Historically and globally speaking, consider the following from Thomas Pogge:

“Severe poverty is by far the greatest source of human misery today. Deaths and harms from direct violence around the world—in Chechnya, East Timor, Congo, Bosnia, Kosovo, Ethiopia and Eritrea, Rwanda, Somalia, Iraq and so on—provoke more publicity and handwringing. But they are vastly outnumbered by deaths and harms due to poverty.

The official position articulated by the United States and practiced by the developing countries can...be characterized by these three elements: We are able to reduce severe poverty and the hunger and diseases associated therewith at modest cost; we are willing to spend a tiny fraction of our national income toward such a reduction, but we are not legally or morally obligated to give any weight at all to this goal.

[T]here are at least three morally significant connections between us and the global poor. First, their social starting positions and ours have emerged from a single historical process that was pervaded by massive grievous wrongs. The same historical injustices, including genocide, colonialism, and slavery, play a role in explaining both their poverty and our affluence. The affluent countries and the elites of the developing world divide these resources on mutually agreeable terms without leaving ‘enough and as good’ [the so-called Lockean proviso] for the remaining majority of humankind. Third, they and we co-exist within a single global economic order that has a strong tendency to perpetuate and even to aggravate global economic inequality.”

In other words,

“Our world is arranged to keep us far away from massive and severe poverty and surrounds us with affluent, civilized people for whom the poor abroad are a good cause alongside the spotted owl. In such a world, the thought that we are involved in a monumental crime against these people, that we must fight to stop their dying and suffering, will appear so cold, so strained, and ridiculous, that we cannot find it in our heart to reflect on it any further. That we are naturally myopic and conformist enough to be easily reconciled to the hunger abroad may be fortunate for us who can ‘recognize ourselves,’ can lead worthwhile and fulfilling lives without much thought about the origins of our affluence. But it is quite unfortunate for the global poor, whose best hope may be our moral reflection.

1. The worse-off are very badly off in absolute terms.
2. They are also very badly off in relative terms—very much worse off than many others.
3. The inequality is impervious: it is difficult or impossible for the worse-off substantially to improve their lot; and most of the better off never experience life at the bottom for even a few months and have no vivid idea of what it is like to live in that way.
4. The inequality is pervasive: it concerns not merely some aspects of life, such as the climate or access to natural beauty or higher culture, but most aspects or all.
5. The inequality is avoidable: the better-off can improve the circumstances of the worse-off without becoming badly off themselves. [....]
6. There is a shared institutional order that is shaped by the better-off and imposed on the worse off.
7. This institutional order is implicated in the reproduction of radical inequality in that there is a feasible institutional alternative under which severe and extensive poverty would not persist.
8. The radical inequality cannot be traced to extra-social factors (such as genetic handicaps or natural disasters) which, as such, affect different people differentially. [....]
9. The better-off enjoy significant advantages in the use of a single natural resource base from whose benefits the worse-off are largely, and without compensation, excluded. [....]
10. The social starting positions of the worse-off and the better-off have emerged from a single historical process that was pervaded by massive grievous wrongs.”

[References available upon request]