One of the most exciting young philosophers of economics, Anna Alexandrova, recently called my attention to a blog "the Moral Heart of Economics," by EDWARD L. GLAESER (A Chicago trained Harvard Economics profesor) in the New York Times. Glaeser's piece makes a historical argument about Adam Smith, J.S. Mill, and Milton Friedman, and a separate conceptual argument about the nature of welfare economics. The bottom line of both arguments is that "freedom" is treated "as a fundamental good, a thing to be valued for itself" in economics. (It turns out that in Glaeser "freedom" means more choice; more about this below.) Because that's 'how freedom is treated at the very heart of economic theory." Both arguments are flawed, and they are flawed for revealing reasons. (Last week I also criticized a Harvard economist, but this week my tone will be more businesslike. While Glaeser's rhetoric is self-serving mythology, he should be applauded for trying to think out loud about the moral foundations of economics.) I will start with the historical claims about Smith, Mill, and Milton Friedman, although I take no pleasure in correcting economists lack of understanding of the history and philosophy of their own discipline. So, some may want to skip to the argument about welfare economics, which I will discuss in light of a now forgotten but very intense debate between two then-future Nobel laureates, Paul Samuelson and George Stigler in 1943.
Second, Glaeser does quote a wonderful line from Mill. But it is from Mill's Of Liberty! (One wonders if it was a convenient google-searched quote!) Somewhat inconveniently, Mill, the economist, as known from his Principles of Political Economy became in each edition ever more (Utopian) Socialist! (Of course, no Marxist.) It is quite clear this is not the moral foundation that Glaeser has in mind. Sadly, Mill's book is rarely quoted by contemporary economists when they want to talk about the moral heart of economics. (This is sad for philosophical reasons, too, because that book is just full of wonderful conceptual arguments--as George Stigler used to argue, and it is one of the claims of his I will leave unchallenged: Mill never tells you when he is being original and, we might add, insightful.
Third, one might expect that Glaeser is on more solid grounds when it comes to Milton Friedman (a more recent economist). Funnily enough, the two lines he quotes: “freedom is a rare and delicate flower” and “a society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom” are both compatible with an instrumental approach to freedom. As I have documented elsewhere (here in print; here in draft), in Capitalism and Freedom Friedman did clearly claim that freedom was a fundamental aim. This made him an obvious target for criticism after Chicago-trained economists joined Pinochet's government (and Harberger and Friedman visited Chile in support of them). As I have demonstrated in this paper, after 1976 Friedman's rhetoric about economics subtly changes: he compares economics to medicine, in which the technical expertise of economists is distinct from politics (and a-political). For Friedman this was a huge change because he always despised the economist as policy-engineer that the mainstream (Samuelson, Koopmans, Arrow, etc.) had embraced in the 1950s. For the economic doctor, fundamental values of society are irrelevant.
So, let's turn to the conceptual argument. This will have a historical component, too. For, it turns out that Glaeser unintentionally returns to (a debased version of) the position that George Stigler defended in a brief but very hard-hitting debate with Paul Samuelson.
Glaeser writes: "But then we turn to welfare, and that’s where we make our great leap. Improvements in welfare occur when there are improvements in utility, and those occur only when an individual gets an option that wasn’t previously available. We typically prove that someone’s welfare has increased when the person has an increased set of choices. When we make that assumption (which is hotly contested by some people, especially psychologists), we essentially assume that the fundamental objective of public policy is to increase freedom of choice."
Now, it turns out that freedom really means freedom of choice. (And one suspects it really means freedom to buy!) Okay, fair enough (let's let these conceptual slides stand). The "psychologists" presumably object to the idea that increased choice necessarily equals increases in welfare/utility (even when re-formulated with a ceterus paribus clause). There are plenty of ordinary cases where we prevent ourselves from having choices so as to keep our (long-term) welfare high. (All sorts of contracts -- marriage, property, etc. -- come to mind.) Anyway, this is all familiar stuff and long rehearsed. Most economists, I thought, avoid such debates in the class-room (and their hearts) by letting revealed preferences & money income be a useful proxy for utility.
But there is something interesting lurking here. Let's go back to 1943. Paul Samuelson taught economists how to think about these matters. And it is useful to quote him on the crucial, "relatively mild assumptions [of welfare economics] that (1) "more" goods are "better" than "less" goods; (2) individual tastes are to "count" in the sense that is "better" if all individuals are "better" off." (PA Samuelson, "Further Commentary on Welfare Economics," 1943, The American Eeconomic Review, 33(3): 605.) Note that Samuelson avoids the language of choice. Now, clearly having more choice might be one of the goods involved; and it surely often the case that having more goods means one had or has more choice. But Samuelson leaves the nature of the goods deliberately underspecified because he is trying to show that as a technical discipline, the then ("new") welfare economics does not make very heavy value judgments. The significance of this is that Samuelson has now defined a technical discipline that can leave the setting and evaluating of the institutions in which welfare is maximized (or Pareto optimized) to some other enterprise. Samuelson leaves the reader to wonder where exactly the "realm of value judgments" get settled (or by who), and how the economist-as-technician decides what the relevant problem-space is. (Of course, in practice, it is the paymasters that set the agenda.)
Samuelson's 1943 paper was a response to a paper earlier that year by George Stigler (one of his least cited papers). As I have described in a paper now in press, Stigler attacked the New Welfare economics. He claimed that when applied to a given society, it presupposed non trivial values. So, one might, perhaps, have thought that Glaeser is merely stating the "Chicago" position (even though he is now at Harvard). But things are never so simple. For Stigler's point was that welfare economics presuppose a consensus over values in a given society. (Stigler is echoing a position of his teacher, Frank Knight, and the sociologist Talcott Parsons. The brief paper is full of references to philosophers.) In his famous 1953 methodology paper, Milton Friedman readily agreed (although I have noted that Friedman limits the claim to advanced Liberal democracies). (As an aside, this means that the economics can only be compared to medicine in societies that have a fundamental shared moral outlook.)
Within economics, Samuelson was thought to have "won the debate." And Stigler dropped the matter entirely (and transformed himself into a very different kind of economist). But Stigler's point is unrefuted. So, we might interpret Glaeser's position as the (fantastic) wish that he lives in a homogeneous society where most well-thinking people agree on the fundamental moral facts: all things being equal, more choice is better. ("Psychologists" just are not reasonable!) And we might allow that having more income means more choice. It might well be the case that economists and their paymasters do hold this collectively. But in a pluralist society where fundamental ends are supposed to be left to individual conscience, this is a recipe for permanent disaster.
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