Restoring Ethics to Economics

Author:Anthony Annett
Pages:54-56
SUMMARY

Modern economics should return to its roots

 
FREE EXCERPT
54 FINANCE & DEVELOPMENT | March 2018
THE DOMINANT ECONOMIC PARADIGM is facing a crisis
of legitimacy. ere are numerous dimensions
to this fall from grace—rising inequality and
economic insecurity; r aw memories of the global
nancial crisis a nd the impunity enjoyed by those
who provoked it; and a pattern of globalization
perceived to privilege large corp orations and the
nancial elite. Loomi ng over it all is the specter of
climate change. e se fault lines are undermining
trust in institutions, both national and global,
and sometimes even provoking a back lash in the
form of insularity and a tilt toward extremism.
A response to these chal lenges can be found in
the 17 Sustainable Development Goals (SDGs)
adopted by 193 nations in 2015 under the auspices
of the United Nations. ese goals are predic ated
on the idea that economic progress can no longer
be evaluated without reference to social i nclusion
and environmental susta inability. Implicit is the
notion that markets alone cannot solve these
problems, which require cooperation between
nations at a global level and social partners at a
national level.
is shift in t urn requires a serious rethink about
the ethical foundations of modern economics.
Such a conclusion might seem peculiar, however.
Neoclassical ec onomics, after all, evolved in a way
that created a sharp d istinction between the positive
and the normative, between facts and values. Yet
there is no way to divorce values from economic
deliberation. And on the big questions posed by
moral philosophy—relating to the nature of a
human being, the pur pose or goal in life, and the
right course of action in di erent circumstances—
economics proposes specic answers.
ese answers are, I believe, inadequate. e
ethical paradigm of neoclassica l economics cen-
ters on “homo economicus,” who is driven by
self-interest to seek the maximization of subjec
-
tive material preferences—which is shown to be
achievable (under highly restrictive assumptions)
by competitive markets.
But is homo economicus an accurate reec tion
of human nature? Not according to the latest
evidence from psychology, neuroscience, and
evolutionary biology. Harvard biologist Edwa rd
O. Wilson, for example, argues that e volutionar y
forces imply the triumph of selsh people over
altruists w ith in groups, but that groups of altru-
ists beat groups of egoists. If t his is correct, then
humans are hardwired to cooperate and uphold
moral norms. Yet it also signals built-in tendencies
to favor insiders and demonize outsiders.
From this perspective, I would arg ue that most
ethical frameworks (both secular and religious)
have a common goal—encouraging people to
cultivate prosocial traits and to suppress those
that are selsh and aggressive.
Neoclassical economics stands out as an
exception. It endorses egoism, elevates mate-
rial pursuits, and ignores ethical formation—
preferences, after all, are held to be sovereign,
subjective, and never open to scrutiny. And not
only is virtue deemed irrelevant, but what older
traditions regarded as v ice is held to be benecial.
is is the basis of Ada m Smith’s famous claim
that self-interest rather than benevolence serves
Restoring Ethics to Economics
Modern economics should return to its roots
Anthony Annett
POINT OF VIEW
PHOTO: STEVE JAFFE / IMF

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