Economics and Ethics

Posing with Adam

Jonathan B. Wight

The bard of social economics, Adam Smith, poses with one of his admirers, Patricia Dan (University of Richmond, Class of 2016).

Thanks Patricia for this inspiration.

St. John Fisher College - Video

Jonathan B. Wight

St. John Fisher College in Rochester, NY has an interesting group of faculty who are tackling Adam Smith and the Enlightenment from three separate but coordinate course angles:

• Economics (Clair Smith)
• Business ethics (Linda MacCammon), and
• Political philosophy (Tim Madigan).

SJFC students read excerpts from The Theory of Moral Sentiments and other Enlightenment works and write assignments and hear lectures with students from the other classes. It's a great way to engage students in interdisciplinary learning, and specifically to integrate ethics and economics.

I recently visited SJFC and had a 30-minute interview with Linda MacCammon about Adam Smith's lessons for modern students.

Video link: http://www.livestream.com/cardinaltv/video?clipId=flv_cf0c6c52-a4d4-46a3-8efd-be57b920dc41&utm_source=lslibrary&utm_medium=ui-thumb

House of Cards

Jonathan B. Wight

Okay, I'll admit it: I'm a junkie for the Netflix drama House of Cards. Kevin Spacey plays the super-egocentric Congressman Francis Underwood, the Democratic Whip, who is scheming to take over Washington.

His on-screen wife, played by Robin Wright, is equally driven to power her way to success at any cost leading a non-profit environmental group.

The result is a bubbling pot of intrigue in which all the good souls succumb to the manipulations (and worse) of the bad guys. Washington is bought and public policy is hijacked for personal ambition. James Buchanan would be smiling to see Public Choice theory so vividly depicted on the screen.

But why do I love the show—which focuses on all that is evil and vile? Adam Smith gives an answer: We sympathize with characters and their flaws, even their deepest moral flaws.

In Smith's moral sentiments model, right action requires imagination to expand the experience of emotional sympathy. Novels, films, music, paintings, and other arts create emotional connections that heighten this process.

Smith notes that the impartial spectator is likely to become aroused by the adventures of even imaginary heroes:

"Our joy for the deliverance of those heroes of tragedy or romance who interest us, is as sincere as our grief for their distress, and our fellow-feeling with their misery is not more real than that with their happiness" (Theory of Moral Sentiments, Glasgow edition, 10).

"We enter into their gratitude towards those faithful friends who did not desert them in their difficulties; and we heartily go along with their resentment against those perfidious traitors who injured, abandoned, or deceived them. In every passion of which the mind of man is susceptible, the emotions of the by-stander always correspond to what, by bringing the case home to himself, he imagines should be the sentiments of the sufferer" (Ibid.).

We learn more from the characters' mistakes than from their successes. That is why we revel in the deeply flawed characters in House of Cards. Next season is a year away—an eternity to wait!

For more on Smith and the arts, see "Adam Smith's Ethics and the 'Noble' Arts," Review of Social Economy, Vol. 64(2)(2006): 155-180.

New Stanford Encyclopedia of Philosophy entry on Adam Smith's moral and political philosophy

Mark D. White (channeling Jonathan B. Wight)

Samuel Fleischacker has a new entry at Stanford Encyclopedia of Philosophy on "Adam Smith's Moral and Political Philosophy." (Thanks to Judicial Philosophy for the news.)

The Minimum Wage Debate

Jonathan B. Wight

Krugman's column today endorses Obama's State of the Union proposal to raise the minimum wage from $7.25 to $9.00.

Do the math: That's a whopping increase of nearly 25! Seems strange Krugman would argue this is just a marginal change, with potentially minor labor effects.

Opponents of the wage hike point to the cascade effect this would have on everyone else's wages. Seniority and other factors would likely mean increases in wages above the minimum. While a business might afford to raise the wages of a small share of workers by 25%, it likely would struggle to do so across the board. Wage compression might then cause labor friction that could reduce the productivity spike Krugman relies on.

Proponents of the wage hike have some natural experiments to point to in which minimum wages rose with no increase in unemployment. It may well be the case that demand for unskilled labor is inelastic (unresponsive to price) in the short run. This means stores need to hire workers to clean up, and will pay the higher wage and continue to hire as many workers in the measured time frame. In the long run businesses will try to substitute capital for labor (better cleaning machines). So unemployment may rise, but only after the time it takes to develop and implement substitutes, which could take a decade or more.

The issue of the minimum wage is ethically significant. President Obama clearly believes in a "living wage":

"Tonight, let's declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty…."

The idea of a "living wage" is wrapped in confusion. There is no such thing as a biologically-determined living wage. Do we mean the money needed to buy nutrients that would keep the body from disintegrating and dying? Or, is it the money required to live in a minimally acceptable level socially? Adam Smith thought it clearly related to the latter concept, arguing that a linen shirt was a necessity even to the poor—since going without it would make you appear disreputable.

Likewise, Adam Smith endorses a type of living wage for manual workers:

"Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole." [Here Smith is talking about productivity improvements that have increased the real wages of laborers.]

"No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged" (Wealth of Nations 152).

Being "tolerably well fed, clothed and lodged" might then require the intervention of the minimum wage (although Milton Friedman's negative income tax might be a preferable policy). As is well-known, the minimum wage was higher in real terms about a half-century ago than it is today, despite dramatically increased productivity and wealth growth over that period. If the minimum wage increase of 25% happens, it will be an interesting experiment. I would be thrilled for the working poor who manage to keep their jobs, but saddened by the teenagers and others who will likely go without a job at that wage.

Zak Responds

Jonathan B. Wight

Paul Zak emailed this morning about yesterday's blog "Beware the Neuro Bunk." Here's his response, edited slightly to remove extraneous stuff:

"Hi Jonathan, I think a very fair blog. There is a separation between the science (i.e. peer reviewed pubs) and discussing the science with a lay public (books, TED talks, etc.). Stealing S.J. Gould's phrase, I view these as separate magisteria as the audiences are different.

"One of my heroes was Lin Ostrom and she was fearless in making her research useful. I'm trying to do the same thing... Great to hear from you! --Paul"

Elinor Ostrom (1933-2012), Nobel Prize 2009.

Ostrom's work has obvious parallels with Zak's, attempting to understand voluntary cooperation to solve vexing exchange problems. Ostrom's and Zak's work makes me optimistic about the science of economics in the 21^st century, leading us beyond the "greed is good" and other ideologies. Adam Smith made an effort to stamp it out in 1759, but like a noxious weed it keeps popping up again every few generations.

We need a new mantra: "Self-interest is good; greed is bad." For anyone who is confused, see The Theory of Moral Sentiments or my simpler summary novel, Saving Adam Smith.

Peart on Leadership

Jonathan B. Wight

Sandra Peart, co-founder of this blog, published today an interesting op-ed in The Washington Post, "Overhauling how we teach leadership" (February 12).

Peart's thesis is that

"we spend too much time bemoaning the fact that our leaders aren't all really good people. Instead, we need to spend more time looking at whether we have good norms for choosing our leaders and holding them accountable, and good processes from which leadership emerges and functions ethically."

She goes on:

"It's time for those of us who teach and write about leadership explicitly to acknowledge the essential difference between studying leaders and studying leadership…. [T]he latest research indeed treats leadership as a phenomenon much more complex than the person who holds authority….

"We need to recognize and help our students appreciate that leaders operate within a set of culturally determined norms, within a particular temporal and spatial context…. The problem with using leaders as a starting point for studying leadership is that it draws attention away from the study of institutions, norms and rules within which leadership functions….

"Leadership is complex and requires many lenses to understand it. Psychology is helpful, yes, but so are history and philosophy, science and economics. It's time to recognize that leadership is more capacious than the study of leaders and followers. We must cut this Gordian knot."

So we need to peel back the layers of human interaction to uncover where and how moral norms and institutions arose and evolved. Sounds like a job for… Adam Smith!

To emphasize Sandra's point, watch the new Lincoln movie. Daniel Day-Lewis does a wonderful job depicting Lincoln's approach to leadership, understood by and colored by the time and place of mid-19^th century America.

Table Tennis, Brain Power, and Ethics

Jonathan B. Wight

In recent years I've taken up table tennis. It is stimulating and occasionally exhilarating, even if my friends make fun of it.

Now we learn from a science lab that table tennis stimulates blood flow to the brain, promoting focus and longevity:

To boost blood flow to certain parts of my brain, Amen suggested I .… take up table tennis - a co-ordination exercise to boost activity in my cerebellum, the region of the brain that plays an important role in motor control.

I'm no longer goofing off when I'm punching the paddle—I'm investing in human capital!

Table tennis has its own culture, and like golf has the norm of calling shots honestly. There are exceptions, but the sport teaches ethics to young people. Winning through cheating would leave someone feeling humiliated—which is as it should be. Adam Smith noted that:

"[T]he desire of doing what is honourable and noble, of rendering ourselves the proper objects of esteem and approbation, cannot with any propriety be called vanity" (The Theory of Moral Sentiments (VII.ii.4.8).

My table tennis mentor Vinny Petrone elaborated:

[Players are ethical] in general and almost without exception at the professional level. I have watched a lot of professional matches and the pro players will almost always point to the table if they can hear their opponent's shot make very slight contact with the edge. I have even seen pros deliberately serve into the net to give back a point to their opponent when the umpire refused to give their opponent credit for an edge ball. I have seen that happen many times. It's really a kind of honor code that has wide acceptance and is taken very seriously among the professionals in the sports.

The Chinese pros employ another honor rule: they never let their opponent lose by a score of 11-0. When they are ahead 10-0, they will deliberately make a poor serve or return to sacrifice a point to their opponent. Some Westerners are offended by this practice because they take it to be a condescending show of pity; however, I think the Chinese see it as a way to allow their opponent to save face and avoid the humiliation of a complete shut-out.

Highlights of ASSA (pt. 3): Costly Posturing in China

Jonathan B. Wight

Xi Chen (Yale University) presented a fascinating paper at the recent ASE/ASSA meetings in San Diego (co-author Xiaobo Zhang of the International Food Policy Research Institute and Peking University).

"Costly Posturing: Relative Status, Ceremonies and Early Child Development" explores the relationship between social behaviors and economic and health outcomes. In particular, it examines how public ceremonies such as funerals, weddings, home blessings, and other events negatively affect substantive measures of human well-being -- specifically by caloric intake and malnutrition. People feel intense social pressure to participate in these social rituals even when it detracts from the well-being of their own children.

The authors present evidence that in rural areas of China, poor families spend more on gifts than do the richest families-- creating what the authors call "squeeze effects". The impact of this is statistically observed on children who are in utero at the time of the ceremonies.

This is counter to what one normally thinks, which is that social events tend to be redistributive. For example, in the highlands of Guatemala, ceremonies are paid for disproportionately by wealthier villagers. Such ceremonies serve to redistribute wealth in society according to a cosmic vision of what promotes justice in the circumstances. (See: Blevins, Ramirez, and Wight, "Ethics in the Mayan Marketplace," in Mark D. White, ed., Accepting the Invisible Hand: Market-Based Approaches to Social-Economic Problems(Palgrave Macmillan, 2010, pp. 87-110).

These findings also appear to contradict Confucian beliefs about the duty of a leader to provide for those in a lower hierarchy. It may be that these data can be explained by arguing that poor people have to try harder to make an impression and gain status. Hence, they give larger gifts.

Adam Smith noted that it is not simply the rich who are interested in status. Writing in The Wealth of Nations, Smith noted that:

"By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life…. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in publick without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct. (566)"

What is not in the paper is a broader general analysis that would examine whether social affiliations provide important pay-backs over many decades to the wider group. That is, social events during hard times may injure an in-utero baby. But being part of the social group may confer advantages to other siblings in terms of jobs and marriages.

This was a highly stimulating paper and a remarkable attempt to understand the link between status spending and negative health indicators in poor communities.

Pinker on Violence

Jonathan B. Wight

We don't know much about what motivated the shooting massacre in Newtown, Connecticut.

The peculiar irony is that I just ran across Peter Singer's review of Steven Pinker's book, The Better Angels of Our Nature: Why Violence Has Declined. The evidence seems convincing that as a whole, people today are less likely to die at the hand of another compared to earlier points in human history. Yet some pockets of higher violence remain, such as in southern United States.

Singer writes: "Pinker argues that at least part of the reason for the regional differences in American homicide rates is that people in the South are less likely to accept the state's monopoly on force. Instead, a tradition of self-help justice and a 'culture of honor' sanctions retaliation when one is insulted or mistreated. Statistics bear this out — the higher homicide rate in the South is due to quarrels that turn lethal, not to more killings during armed robberies — and experiments show that even today Southerners respond more strongly to insults than Northerners."

Was honor—or the lack of honor—a cause of this son's matricidal rampage in Connecticut?

That's perhaps too simplistic. Yet it is important to recognize that the feeling of honor (or being properly respected) is a powerful instinct; when others fail to reciprocate our emotions the result can be rage:

"But if you have either no fellow-feeling for the misfortunes I have met with, or none that bears any proportion to the grief which distracts me; or if you have either no indignation at the injuries I have suffered, or none that bears any proportion to the resentment which transports me, we can no longer converse upon these subjects. We become intolerable to one another. I can neither support your company, nor you mine. You are confounded at my violence and passion, and I am enraged at your cold insensibility and want of feeling." (Adam Smith, The Theory of Moral Sentiments, Liberty Fund, p. 21)