Mere Economics Isn't - Ethics
In this series of posts, I'll describe five things that mere economics is not. Note, this post was written with Scott Burns and was originally published at The Independent Institute.
Ethics
If ideologies speak to political values specifically, then ethics speaks to the values that govern all aspects of our lives.
Critics often accuse economists of espousing an egocentric system of ethics—one that lauds the virtues of selfishness and wealth accumulation above all else.
Adam Smith, arguably the most seminal figure in all of economics, famously described how the “invisible hand” of the market works to align individual self-interest with the greater good of society. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”
To critics, Smith’s quote betrays an ethical rot at the heart of economics: its belief that pursuing one’s self-interest is not only permissible but desirable. Indeed, many critics think that economics argues that people are ethically obligated to only pursue their own interests—even if they come at the expense of “society” writ large. They conclude that the ethical creed of economics is, to quote Gordon Gekko from Wall Street, “Greed is good!”
Once again, these critics neglect that economics is descriptive, not prescriptive. Smith did not argue that individuals ought to place their personal interests and desires above all else. Nor did he argue that individuals always place their personal interest above all other factors.
Smith argued instead that market institutions translate self-interest into outcomes that support widespread well-being. The beauty of the “invisible hand,” according to Smith, is that even if the vast majority of people are motivated solely by self-interest, they must nevertheless serve the needs of their fellow man to achieve their self-aggrandizing ends.
For all we know, Steve Jobs might’ve started Apple for purely selfish reasons, perhaps because he sought to amass a fortune. The only way he could accrue that wealth in a market economy, however, was by serving the needs of others (i.e., his customers). In pursuing his self-interest, Jobs made society richer—creating innovative products, while employing hundreds of thousands. If no one chose to buy Apple products, Jobs would’ve been just another failed entrepreneur with an empty bank account.
Still, economics can inform our understanding of the tradeoffs associated with policies that pertain to ethical debates. It just can’t answer those ethical questions directly.
Take clashing perspectives over drug policy, for example. Economics provides a simple and compelling explanation for why drug overdose rates tend to increase under prohibition. Black markets don’t discipline rogue producers the way that legal markets do. Without brands, it’s costly to identify the producer of a tainted batch, and it’s therefore difficult to punish them by refraining from future purchases.
Yet, economics can’t tell us whether drug use is immoral or whether governments should prohibit it. Similarly, economics can explain why hedge fund managers get paid more than high school teachers, or why professional athletes get paid more than firefighters. It cannot tell us which job is morally superior. Such moral pronouncements belong in the realm of ethics, not economics.