391. Ethics in economics

Economists claim that they do not make value judgements, but only indicate the economic consequences of policy. But the theory they use does implicitly harbour an ethics, even though many economists are not aware of it. Of what sort is that ethics?

There are several systems of ethics. Liberalism, and with that economic science, rests on utility ethics. That only looks at outcomes of choice and action, in this case utility, in the form of the greatest good for the greatest number of people. The ethical quality of other considerations, such as honesty, justice, forbearance, solidarity, etc. are irrelevant. ‘Greed is good’ as long as it leads to a higher level of prosperity, and the equity of its distribution is less relevant.

That stands in sharp contrast with duty ethics (going back to the philosopher Kant), where the issue is the ethical quality of motives of action, regardless of their consequences in terms of utility. The claim is that moral rules are universal, valid under all circumstances. The central principle is the ancient golden rule: One should (not) treat others as one would (not) want to be treated oneself. Here, that became the categorical imperative: an act is good if you would want to raise it to a universal rule. Lying is good if you would want everyone to do it. You don’t want that, so you should never lie.

I don’t go along with that because what is good or bad depends on circumstances. And what I find good for myself is not necessarily good for another: needs and demands vary.   

A third system is virtue ethics, going back to the philosopher Aristotle. Virtues are character traits, dispositions to conduct. Many virtues are eligible, depending on circumstamces. The classical ‘cardinal’ (pivotal) virtues are: reasonableness, courage, moderation, and justice. There is nothing wrong with pleasure, but it should be in combination with moderation and justice. That is missing in present theory and practice in economics.

Resistance is increasing against the conduct of a number of large firms, such as banks and pharmaceutical companies, those firms are suffering from it, and they come up with plans for self-regulation. The key question is whether when push comes to shove and this leads to less profit it will be accepted by shareholders.

For this I give an anecdote. Two years ago I was asked by a colleague in Scotland if I would want to take part, as advisor and possibly as a teacher, with a bank, in the teaching/training of employees in trustworthiness. Trust is one of my subjects, so I accepted.  The first step was a skype meeting for an exploration of ideas. We agreed that I would develop a proposal. In the discussion of that, in a second meeting, I asked whether it was part of the plan to educate employees to be trustworthy also to customers, not to sell them opaque products that work out to their disadvantage, as was customary among banks in the crisis of 2008. ‘Of course’, they answered. ‘But what if that leads to foregoing opportunities for profit, would that be accepted by shareholders?’. I received no answer and the meeting was abruptly ended. I tried to get in the comment that if you are the only bank that can make good on the promise to such trustworthiness, that might be very profitable, but it could no longer help.

In the course of the present series on economics, in this blog, I will argue for a transformation of economics, with as the most fundamental part replacement of utility ethics by virtue ethics, where utility still counts, but next to considerations of moderation and justice. That is needed for justice but also for protection of the environment, which under the present regime of economics seems unattainable.