Guest post by Laurent Dobuzinskis

Do markets foster cooperation and individual autonomy, or are they at best amoral, and at worst immoral? Does economic theory justify selfishness? Does the state have an obligation to promote the general welfare and to correct market failures, or are such efforts counterproductive? And how do economists address these questions? Do they speak with a distinctive voice in comparison to other scholars in the social sciences or the humanities?

Although there is an obvious risk here of overgeneralizing and of ignoring important nuances, examining these questions matters because a) economists are still considered to be the most reliable experts on what makes market work “efficiently,” and b) no viable and compelling alternative to a market economy has been fully worked out yet, in spite of a torrent of critiques of “neoliberalism.” But does this mean that the status quo, with which more and more people are increasingly dissatisfied, must be maintained? If not, what can be done, in both practical terms and in terms of generating innovative ideas that would be inspiring and yet pragmatic? And how do economists, on their own, or increasingly by engaging with a broader community of scholars and practitioners, contribute to this debate?

I provide an account of these debates in my two recently published books (Moral Discourse in the History of Economic Thought and Economic Growth and Inequality: The Economists' Dilemma). This account incidentally is, I hope, fair and balanced insofar as the (philosophically) pragmatic perspective to which I adhere implies that I am skeptical of overtly dogmatic positions. But, as I explain below, I do eventually come off the proverbial fence.

If one takes a very long view of the history of economic theory—as I do in Moral Discourse in the History of Economic Thought—the prominence of these fundamental normative questions has waxed and waned in economic theory. In more recent years, after a period of triumphalism for the neoclassical critics of “government failures,” which has come to as a result of the “Great Recession” and the pandemic, there are signs that a promising intellectual renewal is under way at the crossroads of economics, social psychology, and evolutionary biology.

The contours of this emerging paradigm are still fuzzy, but the “big idea” here is the displacement of the figure of the utility-maximizing homo economicus by a less self-regarding homo reciprocans (Bowles and Gintis 2002), motivated by a search for fair reciprocity. Altruism has not replaced selfishness in these new socio-economic approaches. But self-interest is being redefined as an “enlightened” form of self-interest in which the “self” is constituted by a plurality of mutually dependent interests. Conversely, the rationality of the maximization calculus gives way to a more open-ended reasoning which factors in changing circumstances and adjusting preferences. Fair reciprocity is the key to unraveling complex socio-economic dilemmas. The perceived lack of concern for this deeply seated expectation of fairness is arguably one of the main causes of the current rise of reactionary populism. But this concept can also inform a rethinking of political economy.

In a sense, this is a rediscovery of the concept of “sympathy” which was central to Adam Smith’s works and most classical political economists, including other Scottish Enlightenment thinkers, as well as some early French ans Italian pioneers of the discipline (such as Condillac and Genovesi, respectively). This is a profound insight that draws attention to the considerable extent to which most people care about others but also what others think of them—and this includes the political economists themselves whose theories who were not indifferent toward the human subjects of their analyses. Their advocacy of free markets was unmistakable, but it was tempered by this awareness and was conducive to a reformist/perfectionist approach. John Stuart Mill exemplified the latter; classical political economy, however, was displaced by modern scientific economics at the turn of the last century. Although many neoclassical economists were individually concerned with social problems, as Alfred Marshall certainly was, their methodological commitment to economic “efficiency”—that is, reaching an optimal equilibrium—meant that if there was a tension between “efficiency” and “equity,” they tended to err on the side of efficiency. Economic agents became lifeless automata following the instructions of a maximizing algorithm.

John Maynard Keynes challenged this perspective, but his moral intuitions were diluted in the mathematical models formulated by the architects of post-war Keynesianism. In any event, Keynesianism reached a dead-end in the 1970s. For several decades thereafter until the Great Recession of 2008-2010, neoclassical models reigned largely unopposed within mainstream economics. Of course, critical counteroffensives, mostly from outside of the discipline of economics, were launched by proponents of “social justice.” But their efforts have had relatively little impact on public policy, with the possible exception of environmental regulations. The neoclassical orthodoxy suffered a serious blow as a result of the Great Recession (followed in turn by the COVID-19 pandemic), when a new methodological pluralism came into effect. But within this (relatively) pluralistic context, behavioural/experimental models occupy a central place. They bring to light the complex ways in which people make decisions about their own welfare, sometimes creatively (often being guided by notion of fair reciprocity), and sometimes in naively “irrational” ways.

This paradigmatic shift at the empirical level opens up intriguing normative perspectives. If there is no good reason for limiting one’s horizon to self-interested motivations and narrowly “rational” calculations as the only “realistic” hypothesis for modeling socio-economic problems, it follows that there is no good reason for reformers not taking advantage of this quasi-natural disposition to act cooperatively. The policy instruments I emphasize in Growth and Economic Inequality follow from a shift from traditional redistributive programs to asset-based interventions (or predistribution). Injustices are not caused merely by the unfair distribution of incomes, but more fundamentally by an unfair allocation of capital resources (i.e., wealth). Predistribution would enable individuals and households to acquire capital and/or offer them opportunities to have some say about how capital is used by those who own most of it. Some examples include: a “stake-holder” grant (a lump-sum provided to young adults to invest as they wish) or a basic income guarantee; facilitating access to home ownership; and a generalization of the German codetermination system which empowers employees of large corporation by giving them seats on the boards of these corporations. The overall outcome would be what some Italian economists (such as Luigino Bruni) call a “civil economy.”

Wrapping up this post, I would like to draw a parallel between my intellectual journey and that of theorists such as Vernon Smith (Smith and Wilson 2019) and Deidre McCloskey (2021), who see recent developments as an invitation to revisit Smithian sympathy in an effort to “humanize” economics while remaining faithful to the core tenets of classical liberalism. But in my case, I’ve gone one step further by (tentatively) siding with the Italian civil economy tradition (Bruni 2006; Bruni and Zamagni 2016; Calvo 2018) which insists, albeit perhaps a little too naively (Martino and Müller 2018), on responsibilizing decision-makers and on mobilizing civil society in the development and implementation of predistributive initiatives.

- -- --- ---- ----- ---- --- -- -

LAURENT DOBUZINSKIS teaches political Science at Simon Fraser University (Canada). His research interests include the history of political and economic ideas, the philosophy of social science (e.g., complexity theory), and public policy. Although leaning toward classical liberalism, his works reflect a preference for “nonideal theory” as a framework for achieving a pragmatic synthesis of complementary perspectives on civil society, markets, and political institutions. He is the author of The Self-Organizing Polity: An Epistemological Analysis of Political Life (1987), Moral Discourse in the History of Economic Thought (2022), and Economic Growth and Inequality: The Economists’ Dilemma (2023), as well as of articles and book chapters on an eclectic range of issues concerning practical and theoretical developments in political economy, from the role of think tanks to a basic income guarantee to the uses of game theory.

References

Bowles, Samuel and Herbert Gintis. 2002. “Homo Reciprocans.” Nature 155 (January): 125-128.

Bruni, Luigino. 2006. Civil Happiness: Economics and Human Flourishing in Historical Perspective. London: Routledge.

Bruni, Luigino and Stefano Zamagni. 2016. Civil Economy: Another Idea of the Market. Newcastle upon Tyne: Agenda Publishing.

Calvo, Patrick. 2018. The Cordial Economy: Ethics, Recognition and Reciprocity. Cham: Springer Nature.

Dobuzinskis, Laurent. 2022. Moral Discourse in the History of Economic Thought. London: Routledge.

Dobuzinskis, Laurent. 2023. Economic Growth and Inequality: The Economists' Dilemma. London: Routledge.

McCloskey, Deirdre N. 2021. Bettering Humanomics: A New, and Old, Approach to Economic Science. Chicago: University of Chicago Press.

Martino, Maria Guadalupe and Christian Müller. 2018. “Reciprocity in the Civil Economy: A Critical Assessment.” Journal for Markets and Ethics 6, No. 1: 63-74.

Smith, Vernon and Bart J. Wilson. 2019. Humanomics: Moral Sentiments and the Wealth of Nations for the Twenty-First Century. Cambridge: Cambridge University Press.

By Mark D. White

Courtesy of Klaus Mathis, I'm pleased to present the call for papers for the tenth Law and Economics Conference at the University of Lucerne in Switzerland (in collaboration with the University of Notre Dame Law School), from March 17-18, 2023. This year's theme is one near and dear to this blogger's heart: Law and Economics of Justice: Efficiency, Reciprocity, Meritocracy. I participated in the conference in 2015 (on nudging) and it was one of my favorite conference experiences ever—I highly recommend it.

The call elaborates on the three subtopics:

Efficiency: Traditionally, the economic analysis of law was guided by the goal of efficiency. Economists usually define efficiency as Pareto efficiency or Kaldor-Hicks efficiency. Any change that puts one member of society in a better position without making somebody else worse off is a Pareto improvement. A change is a Kaldor-Hicks improvement if the gainers value their gains more than the losers their losses, whereby only hypothetical compensation is required. Efficiency as a normative goal is heavily contested. In particular, many authors see an antagonism between efficiency and distributive justice, which they qualify as the greatest socioeconomic goal conflict. Other authors view efficiency not as a goal itself but rather as an instrument to achieve social goals. In any case, the economic analysis of law has to differ between two steps: the positive analysis and the evaluation of the results by normative criteria.

Reciprocity: Economists have traditionally based their models on the self-interest hypothesis of the homo oeconomicus. In this model, an individual maximizes his own utility without showing altruistic or jealous behaviour. Behavioural economics calls into question the theorem of self-interest. Many people do, in fact, stray away from exclusively self-interested behaviour. There are also signs that the consideration of fairness and mutual benefits are important to bilateral negotiations and the functioning of markets. For example, in the ultimatum game, two players have to agree on the division of a fixed sum of money, with one player proposing the division and the other accepting or rejecting the division and with that the money for both players. Empirical evidence shows that offers with only a small share of the available sum are considered unfair and therefore rejected.

Meritocracy: The concept of meritocracy refers to a system, organization or society in which people are chosen and moved into positions of success, power and influence on the basis of their abilities and merits. This means that through hard work, an individual is able to climb the social ladder. Moreover, meritocracy directs the most talented people into the most functionally important positions and thereby enhances a society’s efficiency. However, the equalizing function of meritocracy has been criticized. Rather than reducing inequality, meritocracy is seen as the cause of racial, economic, and social inequality.

Submissions take the form of a short (1-2 pages) description of the topic and a short CV, and should be sent to Klaus Mathis ([email protected]) by September 30, 2022. Papers will be chosen by October 15, and draft papers are due February 28, 2023. (A conference volume is planned, and final papers will be expected soon after the conference.)

Accommodations are provided for the speakers courtesy of the conference, but they are responsible for arranging their own travel. (I remember the train ride from Zurich to Lucerne well—such breathtaking scenery!)

For complete details, please see the call for papers PDF here.

Mark D. White

Out now from Cambridge University Press is a new book co-edited by Matthew Adler (Duke University) and Ole Norheim (University of Bergen) titled Prioritarianism in Practice. The abstract reads:

Prioritarianism is an ethical theory that gives extra weight to the well-being of the worse off. In contrast, dominant policy-evaluation methodologies, such as benefit-cost analysis, cost-effectiveness analysis, and utilitarianism, ignore or downplay issues of fair distribution. Based on a research group founded by the editors, this important book is the first to show how prioritarianism can be used to assess governmental policies and evaluate societal conditions. This book uses prioritarianism as a methodology to evaluate governmental policy across a variety of policy domains: taxation, health policy, risk regulation, education, climate policy, and the COVID-19 pandemic. It is also the first to demonstrate how prioritarianism improves on GDP as an indicator of a society's progress over time. Edited by two senior figures in the field with contributions from some of the world's leading economists, this volume bridges the gap from the theory of prioritarianism to its practical application.

The chapters are as follows:

1. "Introduction," Matthew D. Adler and Ole F. Norheim
2. "Theory of prioritarianism," Matthew D. Adler
3. "Well-being measurement," Matthew D. Adler and Koen Decancq
4. "Prioritarianism and optimal taxation," Matti Tuomala and Matthew Weinzierl
5. "Prioritarianism and measuring social progress," Koen Decancq and Eric Schokkaert
6. "Prioritarianism and health policy," Richard Cookson, Ole F. Norheim, and Ieva Skarda
7. "Prioritarianism and fatality risk regulation," James K. Hammitt and Nicolas Treich
8. "Prioritarianism and climate change," Maddalena Ferranna and Marc Fleurbaey
9. "Prioritarianism and education," Erwin Ooghe
10. "Empirical research on ethical preferences: How popular is prioritarianism?" Erik Schokkaert and Benoît Tarroux
11. "Prioritarianism and equality of opportunity," Paolo Brunori, Francisco H.G. Ferreira, and Vito Peragine
12. "Prioritarianism and the covid-19 pandemic," David E. Bloom, Maddalena Ferranna, and J. P. Sevilla.

By Mark D. White

I'm still working through Elizabeth Berman's Thinking Like an Economist, and I do hope to comment on it eventually. For the time being, though, Idrees Kahloon's review in The New Yorker will suffice (despite the hyperbolic title, which I assume was not his choice).

By Mark D. White

Coming out in June from Routledge is a new book titled The Positive and the Normative in Economic Thought, edited by Agnès Grivaux and Sina Badiei:

By Mark D. White

In the open-access special issue of the journal Filozofia Nauki (The Philosophy of Science) with the theme "Philosophy of Economics" (guest-edited by Łukasz Hardt and Marcin Poręba), Tomasz Kwarciński and Krzysztof M. Turek (Cracow University of Economics) ask the question, "Can Normative Economics Be Convincing without the Notion of Well-Being?"

From the abstract:

In this article, we examine the notion of well-being in light of the relationship between positive and normative economics. Having identified four interrelationships between possible theoretical developments within the two fields, we propose a framework for the analysis of normative economic theories. The starting point for these considerations were competing stances on well-being proposed by neoclassical welfare economics, Robert Sugden, Amartya Sen, and Daniel Hausman.

Near the end of their introduction, they preview their contributions:

First, if the development of positive economics is the main mode of resolving normative issues, then the category of well-being (especially when as specific as welfare) can be abandoned or replaced. Second, when the welfare approach in normative economics is replaced by an opportunity or capability approach, the question remains whether to accept normative minimalism, in the hope of resolving most normative issues through the development of positive economics, or on the contrary, accept a value-laden approach in normative economics. Third, if the category of well-being is to remain crucial in normative economics, a richer, normative account of that concept is required, since positive economics cannot solve normative problems by merely equating well-being with welfare.

Guest post by Yannis Papadopoulos

The re-establishment of ethics in economics—and more precisely in economic theory—is now more than eminent. It is promoted and supported by numerous philosophically intrigued economists. The claim has shifted from Wertfreiheit to teaching economics’ students the importance of moral philosophy in the development of economic theory, and how virtues and moral values do not limit the objective perception of economists by dragging them down a road of vague cogitation, but offer a more concrete understanding of human action. “What to do, then, for economics? Answer: raise ethical men and women, some of whom become economists. We are not doing so now in the education of economists.”* Yet this procedure, even though presented and understood as a leap forward and an escape from the strict mathematical and narrow-minded neoclassical economics method, could still be inadequate and one-dimensional. The question is what kind of ethics are students being taught?

There is not just one ethical theory. As economic theories have their differences, so do ethical theories. Utilitarian and outcome-based ethics are embedded in economic theory and have played a crucial role in the formation of neoclassical economics. If utilitarianism and consequentialism are the only ethical theories that should play a role in economic theory, then we should rest assured that ethics never left and therefore there is no need for their re-establishment in economic theory. Thus, the argument is not to re-establish ethics in economics, since ethical values never left the discussion. The argument is to introduce other ethical theories in economics, which have not participated so far. Utilitarianism and outcome-based ethics can be found not only in neoclassical economics, but in some branches of heterodox economics as well. Kantian and rule-based ethics, however, have been limited to discussions concerning trade and transnational agreements and some policy making processes. Virtue ethics are nowhere to be found.

Students are not in need of introductory lectures that praise the importance of ethics in economics and present ethics only form the utilitarian point of view. Students can easily apprehend the utilitarian logic behind works of great classical and neoclassical economists without being taught the importance of utilitarian ethics. Economics’ students should be given the opportunity to connect economics with a variety of ethical theories. That could lead to a generation of open-minded and ethically-integrated economists and humans in general. By pretending to reexamine economics through ethics, yet being interested only in the utilitarian perspective of ethical values, the course is definite and parallel if not the same as the one economics have followed so far.

* Deirdre McCloskey, "Conclusion: Raising Up Private Max U," in Wilfred Dolfsma and Ioana Negru (eds), The Ethical Formation of Economists (London: Routledge, 2018), pp. 164-183, at p. 177. (Preprint here.)

Yannis Papadopoulos was born in Athens in 1993 and studied European and International Relations at Panteion University in Athens. He received his Master’s degree in Political Economy from King’s College London. At the moment, he is in the final year of his doctoral thesis entitled “The Ethics of Efficiency and the Efficiency of Ethics” at Panteion University, for which he has received a scholarship from the Hellenic Foundation for Research and Innovation (H.F.R.I).

Email: [email protected]

By Mark D. White

In the latest issue of the Journal of Philosophical Economics (14/1-2, Spring-Autumn 2021), Ricardo Crespo (IAE) shares his reflections on "Teaching the Philosophical Grounding of Economics to Economists: A 10 Years' Experience." He describes his rationale below:

Looking at the possibilities of the new currents mentioned above – behavioural economics, neuroeconomics, evolutionary economics, happiness economics, civil economy, and the capability approach – proves highly attractive for students. This is an effective way to introduce philosophy because it is easy to understand that these plural economic approaches are supported by philosophical underpinnings, different epistemological perspectives, and views on human nature and the social world. However, a deep analysis of these new fields (which I undertook in my 2017 book) reveals that not all of them ‘escape’ from the narrow outlook that characterizes current economics. As John Davis points out (2008, p. 365),

economics, as other sciences, has regularly imported other science contents in the past, and having subsequently “domesticated” them, remade itself still as economics. In the current situation, for example, behavioral economics – a research program in economics, not in psychology – employs imports from psychology but frames them in terms of economic concerns.

Exploring the attitudes of economics towards these new possibilities – open or ‘colonialist’ – helps to differentiate them and to discover their philosophical roots. Thus, this analysis shows the influence of underlying philosophical notions on economic theories. (pp. 219-220)

“PRIZES AND VIRTUES: AN INTERDISCIPLINARY WORKSHOP”
LUMSA University, Rome – April 10-11, 2017

To an economist, a prize, such as a golden medal, is merely a special type of incentive. Any other kind of social scientist would be perplexed by thinking of the Nobel Prize, or of the Medal of Honour, in these terms. In contemporary neoclassical economics, the concept of incentive is a primitive, similar to that of “utility”, “price”, “production” or “consumption”, that all economists use but none feels the need to define: it is a foundation, or a corner stone, of the science of economics. However, if we tried to articulate what economists mean by incentives, we would probably find that they are considered as any “motivation” for adhering to and for complying with some form of contract. Once incentives are intended in this all-embracing way, it immediately follows that prizes and awards are considered simply as their sub-set. Yet many real world prizes and awards do not follow this contractarian, consequentialist logic and cannot be understood within this framework. A more complex understanding of human motivation–we believe–is needed to hold that prizes are indeed not incentives.

This search cannot ignore the history of economic and philosophical ideals. Competing theories of action and motivation were central topics of debate among eighteenth century philosophers. David Hume, Jean-Jacques Rousseau, and Adam Smith’s theories implied much more complex social and economic motivations than mere self-interest, which can be opportunely diverted through an appropriate incentive. Within the Italian school of civil economy, Pietro Verri and Antonio Genovesi elaborated on the unintended consequences of public and institutional actions on individuals’ behaviour. In the same line, Giacinto Dragonetti debated (at a distance) with Cesare Beccaria on the nature and effectiveness of punishments and awards in shaping agents’ choices, both in private and public contexts. From the mid XIX century onward, economists became those social scientists most characterized by the purest anthropology (i.e. that of a human being acting in order to maximize individual utili!
 ty), endorsing utilitarian philosophy and sacrificing previously complex understanding of human actions. In the XX century, microeconomics has continued this process of anthropological reductionism: management theory, as well as agency and contract theory, have distilled the all-embracing theory of incentives.

In the last three decades, behavioural and experimental economics are undermining from within this reductionist model of human behaviour. By taking serious account of concepts such as reciprocity, intrinsic motivation, inequality aversion, and fairness, they are making more complex interpretations of human action and motivation central again, albeit still within the utilitarian framework. In addition, there is an important contemporary philosophical stream of inquiry, the so-called virtue ethics, which competes with utilitarianism yet remains almost unknown to the economic profession. We argue that this research may provide further insights into human action, which seem otherwise intractable within the current anthropological framework, and can cast a new light on the nature and working of prizes as fundamentally different from incentives. In particular, prizes may well suit the rewarding of virtues, because incentive are known to be liable to cause motivation crowding-out.

To advance our understanding of the economics of prizes, awards and their link with virtues,we warmly invite economists, historians, philosophers, scholars in organization and management and other social scientists to answer to this call and submit an extended abstract (max 1000 words).

Keynote speakers:
– Robert Dur, Erasmus University Rotterdam (Economics)
– Bruno Frey, University of Basel (Behavioural Science)
– Ruth Grant, Duke University (Political Science)

“Pier Luigi Porta” Award:
Heirs will honour the memory of the past Heirs’ President Professor Pier Luigi Porta by a special award to the best paper presented at this conference, a stream of research strongly supported by him before dying. Heirs invites all under fourty scholars to apply for this special “Pier Luigi Porta Award”. The award consist in 2500 euro plus travel cost and accomodation for the conference. The prize will be assigned during the social dinner.

Deadline for submissions of extended abstracts (max 1000 words):
February 15th, 2017 (acceptance date: February 25th, 2017)
to: [email protected]

Organization committee: HEIRS & LUMSA University
Luigino Bruni (LUMSA), Vittorio Pelligra (U. Cagliari), Tommaso Reggiani (LUMSA),     Matteo Rizzolli (LUMSA), Alessandra Smerilli (LUMSA).

Contacts:
[email protected]

Mark D. White

In today's installment of The Stone in The New York Times, Gary Gutting interviewed philosopher of economics Daniel Hausman about the role of economics in public policy and the media. Hausman usefully points out the limitations of economics in predicting the outcome of real-life crises (such as the current Greek crisis):

Speaking of the predictive power can be misleading. Scientists (and I include economists) are not fortunetellers. Their theories only allow them to predict what will happen if initial conditions are satisfied. Elementary physics enables us to predict how long it will take an object to fall to the ground, provided that gravity is the only force acting on the object. Predicting how long it will take a leaf falling from a tree to reach the ground or where it will land is a much harder problem.

The problems that we want economists to help us solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum. Economic phenomena are affected by a very large number of causal factors of many different kinds. The Greek economic crisis is extraordinarily complex, and it has as many political causes as economic ones. Standard economic theory provides useful tools, but it focuses on a very limited range of causal factors — mainly the choices of millions of consumers, investors and firms — which it simplifies and assumes to be governed entirely by self-interested pursuit of goods or financial gain. When one recognizes all the other factors that affect economic outcomes, from government policies to the whims of nature, it is easy to see that economists cannot predict the economic future with any precision.

When Gutting asks what help economists can provide in debates over public policy, Hausman's answer places economics much closer to philosophy than physics: "They tell us which are the right questions to ask... Knowing what to ask is enlightening even when it is hard to find the answers." In other words, economics provides focus to help policymakers choose the means that will best further their ends, wherein both means and ends are ethically loaded concepts as well as economic ones.

(Hausman also highlights the biases of economists as well as the journalists that write about them, and deftly resists Gutting's attempts at the end to goad him into going political or condemn some economic theories as having "no scientific support.")

Hausman ends by saying:

There are cognitive limits to what can be learned about such a complicated system as a modern market economy, and there are practical and political limits to our ability to make use of what can be learned. Within these limits, economics can be of use. I fear this is faint praise.

I don't think that's faint praise at all; rather, it reflects appropriate humility toward a realm of study that is often called upon to decide issues that are outside its purview. And it leaves tremendous room for economics to contribute to—but not determine—the choices of policymakers

As Hausman recognizes, economics can be of invaluable use to policymakers in terms of analyzing aspects of a problem that relate to prices, output, and simple measures of well-being, and it can often predict many significant outcomes of alternative policies to inform policymakers. But economics cannot dictate policy choices that are, by their nature, inherently moral or political choices as long as it refuses to acknowledge and either embrace or question its moral and political foundations.