Sunday, September 29, 2013

Unethical Economics

Introduction to The Oxford Handbook of International Relations edited by Reus-Smit and Snidal (2008):
Instead of a proper engagement between normative and scientific positions, we typically see either mutual neglect or mutual critiques that fall on deaf ears. The result is a divide, with “science” on one side and “normative” on the other. This separation severely impairs the ability of international relations to speak to practical concerns. On the one hand, the unwillingness of “scientists” to tackle ethical and seemingly unscientific problems means it often has little to say on the important problems of the day; on the other hand, insofar as normative international relations is insufficiently well grounded in empirical knowledge, it is not competent to say what we should do in specific cases.
Christian Reus-Smit and Duncan Snidal's concerns about normative and positive studies in international relations remind those in economics.

In economics, ethical issues about allocation of resources appear mostly in heterodox works or lobbying. Mainstream economics resolved the issue by referring to preferences, Pareto efficiency, equilibrium, and descriptive research in general. It does have inquiries in fairness, but fairness there is a factor affecting decisions, not recommendations about "fair" distributions. For instance, have a look at Matthew Rabin's paper on incorporation of fairness in game theory or Ernst Fehr's theory of fairness, competition, and cooperation. They are like, "Yes, we study economics ignoring a significant factor, and let's move closer to a more realistic description of reality."

Economists leave decision making to decision makers. That's the division of labor. Economists do research, people and their selected representatives make decisions, which are, after all, about their own lives. No philosopher kings involved.

Why scholars in international relations concern about themselves making decisions? Maybe the field is much closer to practical policymaking than economics is to business and government.

Economics separated from policymaking not so long ago. While Malthus and both Mills still were advisers on practical matters, Alfred Marshall is already academic economics. Well, Adam Smith was in the ivory tower as well and didn't hesitate to make recommendations, but the tower itself was different by that time. The century that followed after Smith had transformed the approach to economics.

Gaps happen to be not in normative judgments, but in positive understanding. Say, governments can redistribute income, but generally the consequences are too foggy. We barely understand the tradeoffs. Taxes distort incentives, but inequality leads to unstable economy. We would like to increase social welfare, but only started to understand behavioral foundations of utility functions. We can subsidize education for some, but why does tuition increase?

Taxes, social welfare, and subsidies are ethical questions because we know too little about their impact. And our beliefs about "right" things not necessary lead to the outcomes we would like to have. Economics tries to connect our desires, sometimes ethical, to actions necessary to achieve that desires. Again, this definition of economics is an invention of the 19th century.

Scientists can make normative judgments as humans, not as scientists. Science itself is about discovering facts and explaining them. If some scientific field is struggling with normative judgments, it's either not scientific or does someone else's job.

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