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October 2009 posts

Institutional pluralism and the limits of the market

Mark D. White

Since much of our recent debate here has focused on the proper role of, and limits on, the market, I thought this new article in Politics, Philosophy, and Economics may be of interest:

Institutional pluralism and the limits of the market

Rutger J.G. Claassen

Leiden University, The Netherlands, [email protected]

This paper proposes a theory of institutional pluralism to deal with the question whether and to what extent limits should be placed on the market. It reconceives the pluralist position as it was presented by Michael Walzer and others in several respects. First, it argues that the options on the institutional menu should not be principles of distribution but rather economic mechanisms or ‘modes of provision’. This marks a shift from a distributive to a provisional logic. Second, it argues that we should drop the assumption that any good should only be placed in one sphere, i.e. distributed according to one distributive principle. This marks a shift to ‘complex pluralism’: for at least some goods it is appropriate that they are provided through the market and through one or more non-market alternatives simultaneously. Finally, it argues that the often used conventionalist justification should be traded for a capability approach to the moral evaluation of markets and non-market alternatives. Any institutional option on our menu has value to the extent that it enhances the morally relevant capabilities of the producers and/or consumers of the good that is to be provided. This approach will be illustrated with two examples of goods for which it yields complex pluralist conclusions: the provision of care and the provision of media content.

Boudreaux on insider trading

Mark D. White

Don Boudreaux (George Mason University, the Mercatus Center, and major newspapers everywhere) defends insider trading in "Learning to Love Insider Trading" in today's Wall Street Journal. His general argument is familiar--that insider trading reveals more information to capital markets, and therefore allows more accurate and timely pricing of stocks--but he offers several new insights:

  • Generally speaking, insider trading can also include deciding, on the basis of privileged information, not to execute a trade previously planned--just as meaningful a market activity, of course, but undetectable, introducing a fundamental bias into enforcement and punishment.
  • If firms were free to regulate trading among their own employees as they chose, we would predict that firms with more permissive insider-trading rules will be seen as more accurately priced in the market, and therefore as more attractive investment vehicles.
  • This would also allow different types of companies to design their insider trading policies to suit their own needs regarding proprietary information, rather than the one-size-fits-all regulation now imposed by the state, and the process of competition would reveal which self-regulation worked best for which types of firms.

As Boudreaux concludes:

Relying upon competition and the self-interest of shareholders and creditors (both actual and potential) to discover which types of information are proprietary—and, hence, protected from insider trading—and which types of information are not proprietary removes politics from this vital task. Importantly, it also replaces the unreliable judgments and "best guesses" of political officials with the much more reliable determinations of competition.

A very good read, and a new twist on the ethics of insider trading--any thoughts?

Pressman and Scott on measuring poverty

Mark D. White

Steve Pressman and Robert Scott of Monmouth University pubished an interested op-ed titled "Poverty: Numbers Alone Don't Tell the Real Story" in The Star-Ledger (New Jersey) this morning. Steve is also the chief financial officer of the Eastern Economic Association, co-editor of the Review of Political Economy, and a great person to sit next to on a long plane trip from San Francisco to Newark, NJ. (I have never flown with Robert, but I'm sure he is a raconteur of distinction as well.)

The title is somewhat misleading (I'm guessing the paper's editors changed it)--the article is pressing (pun intended) for better numbers or calulation of poverty levels, in particular to include the interest on household (non-mortgage) debt:

Interest payments for past debt leave less money to purchase goods now. In many cases, such payments mean that a family can no longer buy the necessities needed to survive during the year. The family is poor; but because the government ignores interest payments on past debt, they do not count these families as poor. We undercount the number of poor Americans.

For a more in-depth look at these issues, see Steve and Robert's papers titled "Who Are the Debt Poor?" in Journal of Economic Issues, 43/2 (2009), 423-432, and "Consumer Debt and the Measurement of Poverty and Inequality in the US," Review of Social Economy, 67/2, 127-148.

Bloggers to Disclose All

Starting December 1, 2009, the Federal Trade Commission will require all bloggers to reveal product endorsement fees and in-kind payments. 

We here at the Economics and Ethics Blog® would like to set a good example by immediately disclosing all the deep money pockets bankrolling this site.

Henceforth, the EXXON-MOBILConsequentialist Introduction to each post should be duly noted.  The  STARBUCKS Kantian Minute is a regular feature.  Toyota's Virtue Ethics Stretch occurs daily at 2 pm.  Each post concludes with the iMAC Wrap-Up and the GEICO links to other sites. 

Naming rights for the overall blog are open to bid on E-bay.  Stay tuned. 


Debate regarding economic inequality

Mark D. White

A friend just turned me on to this debate at CATO Unbound over economic inequality: the lead article, "Economic Inequality and the Mirage of Injustice," is by Will Wilkinson, and there are also responses from Elizabeth Anderson (author of Value in Ethics and Economics), John V.C. Nye, and Lane Kenworthy.

From Wilkinson's introduction:

Prior to the election of Barack Obama, income inequality was a hot topic. Much of the credit for this should go to powerhouse New York Times columnist and economics Nobel Laureate Paul Krugman. His alarmed and pugnacious book about American income inequality, The Conscience of a Liberal, marked a high point of public interest in the subject, which has died down considerably since Obama took office and the recession took hold. Krugman argues that the widening income gap had chiefly political rather than structural causes and demands a political, largely redistributive response. Perhaps the presence of a Democratic president and Congressional majorities in Washington have invited the sense among Krugman-style egalitarian liberals that the matter is now in good hands and will be addressed in due time. But now, in a season of double-digit unemployment and rising poverty rates, it might pay to consider whether income inequality is really among our most urgent problems. Even governments have a limited attention span. More careful allocation of this and other scarce resources would be most welcome.

In this essay,  I argue for following three points.

  1. The level of real economic inequality is lower than popular treatments of the issue have led many of us to think.
  2. The level of economic inequality is an unreliable indicator of a society’s justice or injustice.
  3. Inequality distracts us from real injustices that are given too little attention.

Social effects on preference and choice (some thoughts)

Mark D. White

Prawfsblawg featured a post today by David Schleicher (nspired by this NYT article) on the topic of Pandora, the online music service that suggests new selections based on the musical characteristics (tempo, style, etc.) of your current musical preferences. Schleicher compares this to a blind taste test for coffee, and argues that both miss the point by focusing on a limited set of attributes of the items in question (what I called "intrinsic qualities" in my comment), but not on the social factors involved in choosing music, coffee, etc., and then implying that choices should be made according to only those narrow attributes.

My comment there was:

I think you're discounting the importance of intrinsic qualities over social aspects for some people. Some people do not regard coffee or music as network goods - for instance, I prefer the taste of Dunkin' Donuts coffee to Starbucks, so that's what I drink. It would never occur to me to pick my coffee based on what other people drink or what they'll think about my choice. If I find an artist, song, or album that I like, I seek out other music in the same style or vein, and so forth."

(This comment reflects a profound antipathy for the concept of "relative tastes" or "envy effects" on choice or well-being.)

In this post, I want to muse a bit on my professed antipathy for these concepts, which I've never analyzed.

Part of my antipathy is based on introspection; as I said in my comment, I choose my coffee, food, music, reading material, etc., on the basis of intrinsic qualities, and not on other people's tastes or opinions of my choices. I'm not going to say I never care about what other people think--for instance, I do hope that my colleagues think I'm a good person and do respectable work, and I do try not to dress too strangely--but I don't care what anybody thinks about my personal tastes, which in turn do not depend on theirs.

As a result, I am always skeptical of studies that purport to show strong status effects in choice (following Veblen) or an inordinate emphasis on relative (versus absolute) income (Robert Frank's thesis). But I am willing to admit that there's a decent chance I'm just a freak, and maybe everyone else is like these studies show. (The popularity of Starbucks coffee, rancid burnt swill that it is, would certainly support that.)

Of course, to each his or her own; if what a person truly cares about is her relative status or income, that is her own business. Yet, it still bothers me. I think it has something to do with basing your own well-being and happiness too much on those of other people, which implies that your choices and actions will be unduly impacted by those of other people, rather than by reasons that "should" matter more. Obviously, that "should" carrries a lot of weight here; it seems to me that your reasons for acting should come from essential aspects of you, representing what you like, reflecting your personality and identity, and not just what other people do, have, or think. (Of course, some think that personal identity is, to some extent, socially determined, but I don't think that should be taken to imply that tastes and preferences need be relative.)

So where's the ethics here? It would seem to be a failure to respect yourself: acting on relative preferences compromises your integrity by subordinating your reasons for action to what other people choose to do, and in turn subsuming your essential tastes and preferences. Look at popular culture: we celebrate the characters in books, TV, and movies who march to the beat of a different drummer, who follow their own paths, who defy the aesthetic conventions of their peer groups and express their individuality regardless of what other people think. If we do admire such people, it follows that we find something virtuous in such behavior, that these people are being more true to themselves than those who merely follow the crowd.

Any thoughts?

Ethics and the Nobel Laureates in Economics

Jonathan Wight

I’ve compiled a list over the years of Nobel prize winners who’ve shown a willingness to engage in a discussion about ethics and economics.  Merely engaging is to be applauded—when this subject is so often considered taboo. 

My list is below—but I'm sure it needs editing.  Who would like to add or make corrections?  Thanks!


          Paul Samuelson (1970)

        Altruism can exist independent of self-interest.

          Kenneth Arrow (1972)

        Virtues play a significant role in the operation of the economic system, particularly when there is asymmetric information.

          Gunner Myrdal (1974)

        Race relations and equity in development

          F.A. Hayek (1974)

        Social order depends upon complex ethical regularities – which for the most part we do not understand and hence we underestimate.

          Milton Friedman (1976)

        No society can be stable unless its citizens accept basic core values and institutions.  These values and institutions must be accepted without reliance on instrumental, cost-benefit calculations. 

          Herbert Simon (1978)

        Bounded rationality and “docility” unite to make ethical constructs successful.

          James Buchanan (1986)

        Individual behavior is morally-ethically constrained.

        The standard cost-benefit reckoning (consequentialist) is not operative in this realm.

          Robert Solow (1987)

        Intergenerational justice and sustainability concerns should be addressed

          Robert Fogel (1993)

        Religious ethics promote social reforms (e.g., abolition of slavery).

        The redistribution of spiritual resources is key concern for next generation (sense of purpose, self discipline, work ethic, thirst for knowledege).

          Reinhardt Selten (1994)

        Evolutionary game theory

          Amartya Sen (1998)

        The strict dichotomy between normative and positive economics is false.

        The neoclassical utility maximization model is seriously deficient.

        Role of commitment to others and to principles [Railway story]

          Daniel Kahneman (2002): 

        Psychology, bounded rationality, and concern for fairness (e.g., ethics?) permeates many economic relationships.

          Elinor Ostrom (2009): 

        Governance in local communities to solve tragedy of commons problems


Ethics symposium for undergraduates

The Janet Prindle Institute for Ethics at DePauw University is sponsoring an Undergraduate Ethics Symposium April 8-10, 2010.  This conference is shaped around a series of workshops in which students present to one another their best work on a subject of ethical concern.  I write to invite you to encourage your faculty to bring this event to the attention of their students.  A Call for Essays and Creative Writing Projects is attached, and a tentative schedule for the symposium, which will be frequently updated, is available on our website: http://prindleinstitute.depauw.edu/programs/ethics_symposium.asp. Let me say at the outset that we hope to receive thoughtful and insightful essays and creative writing works which explore, analyze and examine ethical issues in a variety of ways.  While writings on all areas of ethical concern are welcome, we encourage submissions focusing on Self-Interest, Altruism and Morality:  Evolutionary, Religious and Philosophical Perspectives.

This is an honors symposium, and those students whose works are received by the February 1 deadline and accepted for inclusion in the conference program by panels of DePauw faculty members will have all of their expenses paid for the conference.  DePauw will cover travel expenses (up to $400), lodging and food for each conference participant.  The group will be relatively small; we hope to have 20-30 students from a variety of colleges and universities.  The seminars in which the works will be discussed will consist of seven to ten students each.

Visiting Scholar for Leadership and Ethics

The Jepson School of Leadership Studies is accepting applications for the position of the Zuzana Simoniova Visiting Scholar in Leadership and Ethics for 2010-11. This program, made possible by a generous gift from the Ukrop family, is designed to give visiting scholars the opportunity to develop courses, to design programs, or to conduct research. Visiting scholars may be new Ph.D.s or experienced scholars who hold a Ph. D. in an academic area related to the study of leadership and ethics.  Scholars from newly formed democracies are encouraged to apply.  Applicants should explain in a cover letter how their research, teaching and future plans relate to the scholarship that they would pursue as a visitor at Jepson.

The Visiting Scholar will be in residence at the University of Richmond in order to pursue his or her own advanced research related to leadership and ethics.  Successful applicants will receive a research stipend. Candidates should apply at https://www.urjobs.org/.

Call for papers: Adam Smith Review symposium on Anglo-American capitalism

Sandra Peart

Is there a future for the robust sort of capitalism favoured by Adam Smith or have we reached a limit to Anglo-American capitalism as the engine of human betterment?  Over the last few decades scholars from many points of view have found the basis for a uniquely defensible position in Smith's work.  It is therefore appropriate that the Adam Smith Review proposes a symposium devoted to the theme: "Is Anglo-American capitalism passing away?"  We are particularly interested in contributions that view current economic events through a lens informed by Smith's teaching on institutions, money and economic growth.  Please send proposals and suggestions for contributions to Sandra J. Peart, Dean, Jepson School of Leadership Studies ([email protected]) by October 20, 2009; full papers to be submitted for refereeing by January 15, 2010.