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Punish Economists For Bad Advice?

March 19, 2012 3 comments

I came across an article on the Real-World Economics Blog that is highly relevant to our discussion. I want to draw your attention to it in order to stimulate more conversation. The article referenced hits home on exactly the point being discussed here. Namely: is the relationship between an economist and society ethically charged, such that advice that “fails” can be considered unethical and thus demanding of some measure of sanction?

The recent crisis has punctured the veil behind which economists have typically hidden themselves. They have been content to theorize and subsequently advise, but have sought to avoid responsibility for the consequences of that advice. Instead they claim academic freedom and continue to teach and theorize undaunted by the empirical record being piled up around them.

Does this matter?

Should economists care?

Should economics be regulated?

Or, perhaps more provocatively, how is it that tenured professors can promulgate a theory dependent upon labor mobility, flexible wages, and other elements of free markets without the stain of hypocrisy?

Any thoughts?

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Ethics: A response To Krugman

March 19, 2012 Leave a comment

Austerity policies: what is the ethical dimension?

Several papers in this group and in the conference in general touch on the issue of the ethics of policy prescriptions that result in unemployment, house repossessions, cuts in the provision of health care and education and similar unpleasant outcomes. Couret Branco considers the conflict between the UN Human Rights legislation and policies leading to unemployment and insecurity. A couple of papers (Fusari; Moreno-Brid and Puchet Anyul)  touch on the  possible analogy between economics and the medical profession whose ethical code prohibits medics from doing harm. Is the analogy justified? Can we really think of asking economists to stick to the rule: ‘do no harm’?

Before tackling this question I want to take the opportunity offered by a recent short piece by Paul Krugman in the NYT: A Brief Note on Macroeconomics and Ethics, http://krugman.blogs.nytimes.com/2012/03/08/a-brief-note-on-macroeconomics-and-ethics/

Krugman mentions differences in policy prescription between himself and Ken Rogoff but he states that though one of them must be giving bad advice, he respects Rogoff’s position as being in good faith. What bothers Krugman is that much of the policy debate is not in good faith but affected by political and professional games: and this is ‘really a sin’. Now, I take the liberty of plotting Krugman’s view on economic policy advice in the following matrix:

 

Ex-post policy evaluation

Correct

Wrong

C

D

Personal motivations behind policy recommendations Genuine conviction: ‘good faith’

A

X

X

Political professional games: ‘bad faith’

B

X

X

Whether the policy recommendations are the result of good or bad faith, ex-post they can still be’ correct’ or ‘wrong’. So where is the ethical problem? Well according to Krugman it is in the fact that the advice is given either in good or in bad faith. But who decides whether someone is in bad faith? Moreover, policy advisers could be in bad faith and yet their policies may turn out to be correct ex-post. What I am trying to say is that the good/bad faith categories will not get us very far in the ethical game. Neither would the correct/wrong categories. A policy could be great for the financial sector people, yet bad for those operating in the manufacturing sector; would such a policy be considered correct or wrong?

We have a problem. To begin unravelling it in the hope of finding a solution, let us clarify some differences between recommendations related to economic policy and those related to medical treatment. In medical practice – as far as I know – ‘do no harm’ is a call for the doctors not to harm the patient they are treating. There are not many cases in which the treatment of a patient results in harm for another person: taking organs from one to give to another is such a case. However, in economics, policy intervention results, in most cases in some groups of people gaining while others lose in relative if not absolute terms. It is not difficult to sell a policy to the wider public by stressing the gains and keeping quite about the losers. This is where ethical behaviour may come in. Whatever the personal motivations in suggesting a specific policy, what is important is that the proponent of the policy should present an analysis of the distributive effects of the policy.

Distribution issues in economics have had a Cinderella role for decades. They should come back at the forefront of analysis particularly in relation to the assessment of the impact of macroeconomic policies on distribution. The analysis of the impact of specific policies on classes/groups/stakeholders including present versus future generations should be a key element in the assessment of policies. We need transparency on the distributional impact of policies – who will gain who will lose – and all explained in a language clear enough for the wider public – the electorate – to understand the implications. I here propose that we make transparency and clarity on the distributional impact of policies one of our profession’ ethical aims. If we could achieve that, then there would be no need to bother about the individual motivation of policy advisers: the political and interest groups behind the advice would come out from the analysis of the distributional impact. And, yes, I do know that the research on the distributional impact might not be that solid. However, this is where pluralism may come in: different economists can take up the challenge and argue about how to assess the impact and what the actual outcomes are.

Grazia Ietto-Gillies

iettogg@lsbu.ac.uk