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«Poisoning the Well, or How Economic Theory Damages Moral Imagination Julie A. Nelson October 2012 Drafted for submission to The Oxford University ...»

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GLOBAL DEVELOPMENT AND ENVIRONMENT INSTITUTE

WORKING PAPER NO. 12-07

Poisoning the Well, or How Economic Theory Damages

Moral Imagination

Julie A. Nelson

October 2012

Drafted for submission to The Oxford University Press Handbook on Professional

Economic Ethics, ed. George DeMartino and Deirdre McCloskey

Tufts University

Medford MA 02155, USA

http://ase.tufts.edu/gdae

View the complete list of working papers on our website:

http://www.ase.tufts.edu/gdae/publications/working_papers/index.html © Copyright 2012 Global Development and Environment Institute, Tufts University GDAE Working Paper No. 12-07: Poisoning the Well

Abstract:

Contemporary mainstream economics has widely “poisoned the well” from which people get their ideas about the relationship between economics and ethics. The image of economic life as inherently characterized by self-interest, utility- and profitmaximization, and mechanical controllability has caused many businesspeople, judges, sociologists, philosophers, policymakers, critics of economics, and the public at large to come to tolerate greed and opportunism, or even to expect or encourage them. This essay raises and discusses a number of counterarguments that might be made to the charge that current dominant professional practice is having negative ethical effects, as well as discussing some examples of the harms inflicted in the areas of law, care work, the environment, and ethics itself.

GDAE Working Paper No. 12-07: Poisoning the Well Poisoning the Well, or How Economic Theory Damages Moral Imagination Julie A. Nelson What if….?

Let’s begin with a thought experiment. What if the following were true?

What if people might act out of social and other-regarding concerns, as well as • reasonable self-interest in their economic lives, but are pushed by the economic theory of self-interested utility maximization to believe that it is permissible—and perhaps even appropriate--to be irresponsible, opportunistic, and selfish in when participating in markets?

What if business leaders might pay attention to the implications of their decisions • for workers, communities, the environment, and others who are affected by their firm’s actions, but economic theory encourages them to believe that they should-and in fact must--focus on getting every last dollar of profit possible?

What if we all live in a world that is deeply interdependent, fundamentally • unpredictable, and even rather dangerous, but economic theory lulls us into a false confidence that prevents us, as individuals and societies, from taking actions that might prevent dramatically harmful outcomes?

What if the way in which economic theory has directed our attention towards self interest and predictable "laws" and "mechanisms" has contributed in a major way to economic upheavals and human suffering, including financial crises, environmental deterioration, and a resource-starved care sector?

What if the belief in the tenets of economic theory have become so widespread, • that even those who seek a more humane and sustainable world suffer from a severe dearth of moral imagination when it comes to commerce?

What if, in short, economic theory creates myths that strengthen the hands of the • most powerful, greedy, and short-sighted economic actors, while needlessly undermining normal human ethical sensibilities and normal human aspirations for a society that is prosperous, just, and sustainable?

If one follows the thought experiment and at least momentarily accepts these premises and the characterizations of economic theory, then the conclusion that there is something ethically troubling about a profession that promotes such an economic theory is inescapable.

GDAE Working Paper No. 12-07: Poisoning the Well

But are these premises and the conclusion correct? This essay argues that they are, and that contemporary mainstream economics, which centers around notions of utilityand profit-maximization and mechanism, is having hugely negative effects on human society. But many people will not agree. Among the objections that may immediately be

raised to the this line of argument are:

o Commercial life really doesn’t require ethical concern.

o Commercial life really doesn’t permit ethical concern.

o The assumptions of economic theory are required for scientific rigor.

o Economic theory is broader than that.

o So what if economics is narrow? Something else will fill the gaps.

This essay examines each of these in turn.

"Commercial Life Really Doesn’t Require Ethical Concern" First, it may be argued that commercial and market behavior really doesn't require ethical concern. Economists, from Classical times up through Neoclassical and much present teaching, have tended to promulgate a vision of economic life as qualitatively similar to the phenomena studied by classical Newtonian physics. The image of economies as value-free, a-social, controllable systems whose “mechanisms” are driven by the “energy” of individual self-interest has become so much a part of the air we breathe and water we drink that it is rarely questioned.

Historically, Adam Smith's famous passage in The Wealth of Nations, is, of course the most cited quote used by those who argue for this view: “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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.” While Smith himself was a much more sophisticated ethical thinker, this one passage has since been blown up into a whole philosophy about how individuals’ pursuit of their own selfinterest will made, by the amazing mechanism of a self-regulating market system, to serve the common good. Perhaps nearly as often cited is Milton Friedman's assertion that “Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible” (1982, 133). From such a perspective, explicit consideration of ethics is all or largely unnecessary.





And these ontological beliefs about the nature of market-using, capitalist economies are not confined only to very politically conservative economists, such as Friedman's or others of the University of Chicago school of economics. They also ground the thinking

–  –  –

of many who are in favor of a greater role for community-feeling and action at a societal level. Political liberals who call on governments to serve the public interest by appropriately “intervening” in "the economy" are coming from the same basic perspective. This very phrasing suggests that the economy is imagined to be a freestanding, fundamentally private, mechanical, and ethics-free sphere, into which a public-spirited state must enter from the outside. Development economist Partha Dasgupta, for example, has set out a hard-and-fast dichotomy between the market sphere, in which he claims that self-interest is appropriate and "we should not worry about others," and the public sphere, in which concern for others is appropriate (2005, 247;

2007, 151). Within the market sphere, it seems, we are justified in adopting an attitude that has been described by Amartya Sen and Jean Drèze as "complacent irresponsibility" (Drèze and Sen 1989, 276).

Before examining these beliefs more closely, let us examine how they have spread beyond the economics profession.

"Commercial Life Really Doesn’t Permit Ethical Concern" The belief, preached by economists, that capitalist or market-using economies are fundamentally systems set apart from human ethics is also shared by many who entirely condemn capitalist systems as immoral and a source of evil. To such critics, the (assumed) fundamentally selfish, profit-driven, and mechanical nature of these means that moral action within them is impossible. Classical economist Karl Marx, for example, followed Smith in adopting mechanical metaphors, creating among his followers firm beliefs in the "inherent dynamics of capitalism," the "logic of markets," and the "forces of capital accumulation."

The writings of sociologist and philosopher Jürgen Habermas have more recently been influential in disseminating this view. Habermas distinguished what he called the “lifeworld” arena of communicative action from the “system” arena driven by unconscious, objectifying forces (Habermas 1981). The lifeworld, Habermas claimed, is the area of truly social public and private life, and the arena of norms, aesthetics, and conscious and deliberative action. Systems, on the other hand—in which Habermas included both economies and state bureaucracies—are "steered by" the nonhuman media of money or power (Habermas 1981, 164). Within the latter, people are dehumanized— “stripped of personality structures and neutralized into bearers of certain performances” (308).

As a result of sharing the belief in that capitalist systems are fundamentally mechanical, much of the "critical" literature tends to fall into a pattern of simple reactivity in prescribing solutions. If economists and capitalists are pro-growth, then critics must be diametrically anti-growth; if the conventional approach is proglobalization and large-scale, then critics must be diametrically pro-local and small-scale;

if current elites are pro-technology, critics must be diametrically Luddite and antitechnology; if policy debates focus on humans in industrialized societies, critics must

GDAE Working Paper No. 12-07: Poisoning the Well

diametrically venerate the wilderness, indigenous and non-human species; if those in control praise profits and private property, those who want change must advocate a complete disavowal of both (e.g., Norberg-Hodge 2002; Bookchin 2005; Watson 2005).

Or so it is thought. Salvation is therefore sought in some radically different sort of system—for example, worker-run, communitarian, non-monetized and/or local.

Corporate leaders are demonized, current-day economic systems are given up for lost.

But are these beliefs factually supported? Consider, for example, that a key element in Habermas's theory is a belief that money is a neutral, a-social medium. But this belief does not hold up under closer examination. Habermas claims that because money is backed up by “gold or means of enforcement” (1981, 270), it therefore does not require social, communicative agreements or legitimation (272). In fact, however, there hasn't been an international gold standard since the early 1930s, and money has long been a quintessential social construction: It has value precisely and only because (or when) people believe it has value. Those close to the actual management of national or regional monetary systems are, in fact, deeply concerned with issues of beliefs, expectations, credibility, reputation, legitimacy, and the problems of collective decision-making (King 2004). Money and markets are thoroughly human and social creations.

In addition, as common-sense observation suggests, and research confirms, humans demonstrate pro-social as well as self-interested motivations in economic situations (Folbre and Nelson 2000; Fehr and Falk 2002), and diverge widely from the sort of decision-making assumed in models of "economic man" (Kahneman 2003). Actual observation of human behavior, in business and markets as elsewhere, reveals a mix of motivations which can in regard to ethics often be summarized as “neither selfish nor exploited” (Margolis 1982) or “pragmatic” (Dees and Cramton 1991; Gentile 2010).

These terms describe most people's inclination to act in pro-social ways as long as they are confident that others will act pro-socially as well, but to retreat into self-defense if they perceive others as selfish and ready to exploit their goodwill.



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