Mort’s guide to the economic way of thinking is very helpful. Thanks!
I have one friendly amendment. Item #5 is “Economic thinking is thinking on the margin.”
This is often the case, but does not need to be the case. Sometimes thinking at the margin will conflict with ethical norms it item #2.
Here are three examples:
- Suppose my partner is away, and I realize I can steal from him, and that the expected marginal benefit to me exceeds the expected marginal cost to me (based on probability of detection and the penalty for conviction). Should I use this logic to decide on my action? Some actions are wrong, and no amount of MB>MC will make it right. An ethical person does not even consider or calculate these terms! (I’m not saying Gary Becker is wrong for positing that criminals make these calculations, for surely they do. But the guide is normative, and hence should not encourage bad behavior.)
- In the famous Chevy Malibu case, in which the fuel tank was subject to rupture and fiery explosion in accidents, a GM engineer calculated that fixing the fuel-tank problem would cost $8.59 per car. But leaving the car as it was would cost even less, only $2.40 per car (based on settling the product liability lawsuits @ $200,000 per life). In considering the marginal costs and benefits for the company, GM managers decided not fix the fuel tank. This led an irate jury to fine GM $5 billion (later lowered to $1 billion). This marginal cost/marginal benefit calculation did not pass a basic ethical smell test: it failed to treat consumers with the modicum of respect that we owe all others. In a Kantian sense, it used others merely as a means to the company’s ends, and was dishonest because consumers did not know about this calculation.
- In the famous World Bank memorandum released by Larry Summers, it was put forth that polluting industries should be moved to Africa since the pollution would kill off people who had shorter lifespans anyway, and had a lower opportunity cost of death because they had lower earnings. Impeccable economic logic! But it fails the smell test also. Determining the opportunity cost of pollution requires that people who are injured have a chance to have their grievances aired in an impartial court of law, with fair judges and juries. It also should allow for democracy so people have a voice in the pollution laws. It also allows for a free press to inform people about the risks and opportunities of chemical pollution. It assumes people are free to meet and protest, without fear of human rights abuses. Since many African countries lack these basic institutions, it is erroneous to assume that the MC/MB version of efficiency is ethically palatable. Summers knew this, and had released the memo as a joke. Not many people were laughing.
Economists should not think they can operate like an automaton, calculating marginal costs and marginal benefits in a moral vacuum. Knowing when to think at the margin is an important part of preparation for life as a public economist.
My revised Item #5 is “In appropriate circumstances, economic thinking is thinking on the margin.” We should be ready with a good answer when students ask, what is an appropriate circumstance?