5 posts categorized "Other blogs"

07/03/2015

Steve Pressman on the ethics and economics of the Greek financial crisis

AristotleAt the American Institute Economic Research's Daily Economy blog, visiting fellow (and ASE trustee) Steve Pressman of Monmouth University looks at the Greek financial crisis through the lens of several philosophers, namely Adam Smith, Jeremy Bentham, and Aristotle, injecting a much needed ethical dimension to this economic debate:

Greek Financial Crisis: What Would Aristotle Do?

A common put-down of economists is that they know the price of everything but the value of nothing. This pithy comment encapsulates two very different views of money, and can be helpful in understanding how to resolve the Greek financial crisis.

Adam Smith, regarded as the father of economics, took a moral view of money. For Smith, money was about being able to have a decent standard of living, or being able to “appear in public without shame.” He supported government regulation of lending rates because he feared that lenders would take unfair advantage of the destitute. Following the Smithian view of money, we developed bankruptcy laws that let people (and business firms) escape from crushing debt, and survive without this debt hanging over them.  

The philosopher Jeremy Bentham adopted a more economic perspective. He thought that Smith’s moral view of money was inconsistent with his laissez-faire economics, where people determined what was best for them, and markets determined what was best for the economy overall. Bentham pointed out that usury laws limited individual freedom and had bad economic consequences: Lenders would not lend at low rates, and so we had less investment and spending. The economic view of money states that bankruptcy laws encourage reckless behavior and speculation, since if something goes wrong there is a simple out.

Understanding these two views of money is crucial for understanding the Greek tragedy whose last act will take place this week in Brussels (unless everyone agrees to kick the can down the road for another few weeks).

Continue reading here.

10/17/2014

There Is Little Happiness to Be Found in Happiness-Based Policy (Mark D. White)

By Mark D. White

Governments around the world are starting to measure happiness (or subjective well-being) with the goal of a more humane process of policymaking. According to supporters, happiness-based policy will focus governments’ attention on what really matters to their citizens, their essential well-being, better than economic measures such as gross domestic product or national income that are too far removed from the day-to-day concerns of the people.

While the intentions may be good, the benefits of happiness-based policy are illusory at best and counterproductive at worst. There are fundamental problems with defining and measuring happiness, as well as implementing policy based on it, that prevent it from being a viable alternative to traditional policymaking based on GDP and other economic statistics.

First, the term “happiness” is notoriously difficult to define. Philosophers have tried to do this for centuries, identifying and detailing many types of happiness but arriving at no universal definition. Songwriters, poets, and novelists have done a better job describing happiness in all of its nuance and glory, but this does not provide a solid basis for measurement. For the most part, psychologists and economists who try to measure happiness do not worry about definitions, satisfied that “everyone knows what is,” but with no guarantee that everyone knows it to the be the same thing. Happiness is simply too vague a concept to define precisely enough for measurement without excluding what many people consider happiness to be to them.

Second, there is no straightforward way to translate an essentially qualitative and subjective feeling such as happiness into quantitative data. Most happiness surveys consist of questions about the respondents’ current state of happiness or satisfaction with their lives, which they answer on a numerical scale with the units labeled “very unhappy” to “very happy” or “the least satisfied I can imagine” to “the most satisfied I can imagine.” Even if the definition of happiness were clear, these labels are not. For instance, how a person interprets these labels depends critically on the experiences and circumstances of his or her life. A wealthy and successful CEO may feel she has not lived up to her potential, while the janitor in her building may be very pleased with his lot in life. Human beings have the ability to adapt to their life circumstances, which explains why people living in deplorable conditions may nonetheless report high levels of happiness and well-being. This also implies that the steps on the happiness scale are inherently subjective, nonuniform, and incomparable, rendering them unable to support the mathematical processes researchers need to perform on them to provide information for policymakers.

Finally, even if there were no problems with definition or measurement, happiness-based policymaking raises numerous ethical and political issues when it comes to implementation. For example, would the government target a growth rate for happiness? This is problematic in light of the “hedonic treadmill,” by which we work hard to achieve more happiness, only to adapt to that level and strive for more. In the end, we work more and more and end up with little increase in happiness, and the same would likely hold for official happiness “stimulus.” Another concern is the possibility of significant inequality of happiness: due to adaptation, the underprivileged may report levels of happiness that mask their circumstances while the affluent express dissatisfaction and boredom. Would we then redistribute resources from the poor who seem happy to the rich who don’t? Finally, people often give up some happiness now in exchange for more later, such as when they go to school or on a diet. How would government measures focused on the now take account of investments in the future? All of these are questions that policymakers will be forced to struggle with if they choose to base policy on measures of happiness.

Given the inherently vague, qualitative, and subjective nature of happiness, it is impossible to define and measure it well enough for the purpose of policymaking. This is not a simple matter of refining statistical techniques; the problems with happiness measurement are more fundamental than that.

There is, however, a better way. Instead of trying to determine what happiness is and how to measure it, the government can trust individuals to make choices in pursuit of their own interests. Instead of trying to boost the happiness of those doing fairly well, the government can devote its resources to alleviating the suffering of the poor. Instead of targeting the general level of happiness based on arbitrary definitions and inaccurate measurement, the government can address specific problems that their citizens tell them need to be addressed.

In short, the government does not need to define, measure, and evaluate happiness in order to find problems to address. There are enough problems facing the country that are readily apparent. Liberals, conservatives, and libertarians may disagree about the scale and scope of what government should do, but I think they would all agree that the government should deal with the problems at hand rather than invent new ways to find them. In the end, that may be the best way to make people happy.

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1 me may 2014 sqMark D. White is chair and professor of the Department of Philosophy at the College of Staten Island/CUNY and currnetly serves as president of the Association for Social Economics. This post was originally published at Economics and Ethics and is reprinted with the permission of the author. It is based on his latest book, The Illusion of Well-Being: Economic Policymaking Based on Respect and Responsiveness (Palgrave) and an earlier article from the Review of Social Economy, "Can We—and Should We—Measure Well-Being?" He can also found on Twitter: @profmdwhite.

10/10/2014

From Piketty to Law and Political Economy

By Frank Pasquale

Thomas Piketty's Capital in the Twenty-First Century continues to spur debate among economists. It has many lessons for attorneys, as well. But does law have something to offer in return? I make that case in my review of Capital, focusing on Piketty's call for a renewal of the social science of political economy. My review underscores the complexity of the relationship between law and social science. Legal academics import ideas from other fields, but also return the favor by informing those fields. Ideally, the process is dialectic, with lawyers and social scientists in dialogue.

At the conference Critiquing Cost-Benefit Analysis of Financial Regulation, I saw that process first hand back in May. We at the Association of Professors of Political Economy and the Law (APPEAL) are planning further events and projects to continue that dialogue.

I also saw a renewed synergy between law and social sciences at the Rethinking Economics conference last month. Economists inquired about bankruptcy law to better understand the roots of the financial crisis, and identified the limits that pension law places on certain types of investment strategies.

Some of the organizers of the conference recently took the argument in a new direction, focusing on the interaction between Modern Monetary Theory (MMT) and campaign finance reform. "Leveling up" modes of campaign finance reform have often stalled because taxpayers balk at funding political campaigns. Given that private campaign funders' return on investment has been estimated at 22,000%, that seems an unwise concession to crony capitalism. So how do we get movement on the issue?

For MMT backers, the answer is relatively clear:

[M]oney is not a feature of our natural environment, but a social construct, mediated by law. . . . One profound implication of this view is that the common belief that the U.S. federal budget is constrained like a household budget is a myth. . . . The U.S. federal government does not need to tax or borrow in order to fund itself. Taxes accomplish many functions, but they do not “fund” federal government spending. . . .[For] the campaign finance reform community to increase its chances of victory in implementing its policies (especially those aimed at changing the initial distribution of economic power), it must provide a more truthful and accurate account of the relationship between governance and modern money. In order to win over skeptics, campaign finance reform advocates need to explain that neither the national fiscal position nor people’s checkbooks need suffer in order for a scheme like democracy vouchers to work. People need to hear that it is right and reasonable for them to ask that public money be put to work for public purpose.

We do see the unrestrained money-creating capacity of the government on display in endless rounds of "quantitative easing." The AIG trial reminds us that intervention can become extraordinarily fine-grained and manipulative. Modern monetary theorists seek to harness that power in favor of public purposes, such as infrastructure building, campaign finance, or other investments. And we should be under no illusion that they are trying to shift economics from a stable science to politicized ideology. Dominant paradigms of economics in general (and public finance and accounting in particular) are the site of constant struggle over values. Advocates of austerity push for "fair value accounting" and "dynamic scoring," for little discernible purpose other than upward wealth redistribution. If those committed to some baseline of infrastructure, health, and education fail to press back with our own theory of public finance, we will fail, both intellectually and strategically.

To return to my original, methodological concern: a renewed emphasis on a key legal insight (the government cannot default on debt it issues in its own currency) can lead to an adjustment to economic theory (MMT), which in turn informs a new legal proposal to get past the current, futile campaign finance reform debate. It's a movement from legal insight to economic insight back to legal insight, or L - E - L. Of course, any implementation of MMT-driven campaign finance reform will need to sidestep SCOTUS's AZ FECFCPAC v. Bennett strictures. But that will be a much easier task than, say, trying to impose limits on spending by wealthy candidates or corporations. Just as MMT gets us past the zero-sum logic of taxation and CBO scoring in fiscal policy generally, it transcends the usual "level playing field" or "equal influence" paradigm of campaign finance. The legal foundations of MMT make it both scientifically, and normatively, a better theory of our economic system than the dominant paradigms of monetary policy.

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PasqualeFrank Pasquale is Professor of Law at the Francis King Carey School of Law, University of Maryland. His research addresses the challenges posed to information law by rapidly changing technology, particularly in the health care, internet, and finance industries. His book The Black Box Society: The Secret Algorithms That Control Money and Information (Harvard University Press, 2015) develops a social theory of reputation, search, and finance. He is also a prolific blogger, posting at both Balkanization and Concurring Opinions; this post is reprinted from the former with the permission of the author.

10/06/2014

Econogenic harm, economists, and the tragedy of economics (George DeMartino)

By George DeMartino

DemartinoIn a recent editorial in The New York Times Harvard economist N. Gregory Mankiw acknowledged that economists have:

only a basic understanding of how most policies work. The economy is complex, and economic science is still a primitive body of knowledge. Because unintended consequences are the norm, what seems like a utility maximizing policy can often backfire.

Mankiw infers from this grave epistemic problem an ethical duty among economists to apply the Hippocratic principle “first do no harm” when assessing policy. On this basis he assails both the Affordable Care Act and new initiative in the US Congress to raise the legislated minimum wage. Both “fail the do-no-harm test”: the Affordable Care Act will lead to the termination of some insurance policies that don’t meet the standards required under the law, while raising the minimum wage “would disrupt some deals that workers and employers have made voluntarily.” But of course, applying the Hippocratic principle consistently would also require Mankiw to assail rather than support those policies to which he has an ideological affinity. Like free trade (which he supports), for instance, the harms of which to US workers surely exceed those of Obamacare. As J.R. Hicks recognized seventy-five years ago, any policy intervention that affects relative prices—which is to say, all interventions —“benefits those on one side of the market, and damages those on the other.” Surely Mankiw knows all this. What is troubling, then, is not Mankiw’s worry about the potential harm of the economic policies he opposes. He is quite right to expose the harms he associates with one policy or another. The problem is the ineptness and obvious bias with which he introduces ethical concerns into policy debate.

Continue reading "Econogenic harm, economists, and the tragedy of economics (George DeMartino)" »

02/07/2014

Mark D. White comments on Adam Grant's New York Times op-ed on tenure

AdamgrantAt the Economics and Ethics blog, ASE president Mark D. White (College of Staten Island/CUNY) discusses a recent The New York Times op-ed by Adam Grant (Wharton) regarding the tenure system at American universities and how it can be changed to improve post-tenure motivation and productivity. Grant advocates for different types of tenure to accommodates professors with different emphases on research and teaching, while White advocates for a more pluralistic understanding of the professorial role within the current tenure system.

You can read the post here.