Restoring Ethics to Economics

• Author: Anthony Annett
• Pages: 54-56

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