Ethics and Economic Education
by Erik W. Matson
Among philosophers, the field of ethics is disputed terrain. Debates arise over the ultimate meaning of ethical claims: Do they correspond to objective distinctions in reality, or do they simply track shifting social conventions? Disputes also concern the focal aspect of right action. Are right actions to be primarily distinguished by their consequences, their accordance with universal moral obligations or duties, or the character of the actor?
Among non-philosophers, ethical principles are less disputed. Most people intuitively accept some variant of the Golden Rule. Most people agree that it is unethical to advance your own interests by actively harming others. Most people agree that we have duties to our families, friends, communities, and countries. Most people agree that we should live our lives in ways that contribute to the well-being of others.
Disputes quickly arise among non-philosophers, however, when efforts are made to translate what appear to be common sense ethical maxims into practice. The translation problem is acute in the realm of politics, where we must debate the desirability of various rules, regulations, and collective actions.
Conflicts in politics illustrate more than disagreements over how to apply ethical maxims. They illustrate the gap between our professed ethical maxims and our true preferences for our own interests. It is wrong, most will acknowledge, to gain at the expense of others, but many have no problem collecting—and even seeking out—benefits from the state that impose widespread costs on others.
Political conflicts sometimes illustrate deeper clashes between different visions of human nature and potential, which inform divergent ethics. The Marxist and the classical liberal, the modern progressive and the national conservative, are clearly not at odds simply over the best way to achieve a shared notion of the good; they are in fundamental disagreement over the nature of the good itself.
When there are disagreements over the nature of the good, ethical principles and social norms will diverge, and political consensus becomes a difficult if not impossible task. Even when the members of a community share at least a basic sense of the good and a common ethical orientation, the problem of translating ethical maxims into the political arena persists. But the problem can be approached as a conversation about means rather than ends. It is in this context that we begin to appreciate the contribution of economics to political discourse, and indeed to ethics broadly.
Economics contributes to our conversations about ethics by illuminating effective means for achieving a given set of ends. Economics is important here because our ethical intuitions scale poorly to high levels of social complexity, which includes the realm of public policy. In many cases, our intuitions incline us to favor political arrangements that promote ends that are contrary to our professed ethical principles.
For example, minimum wage laws, rather than ensuring that low-skilled workers are paid a “living wage,” make it more difficult for the lowest-skilled workers to find jobs. They encourage businesses to employ fewer low-skilled workers and more high-skilled workers and machines. If we seek to promote the mobility and advancement of low-skilled laborers, economic reasoning teaches us that we should advocate wage liberalization over wage controls.
To take another example, taxes on imported goods do very little to reduce trade deficits—which are not intrinsically good or bad to begin with—and are an ineffective way to promote domestic industry generally. Taxes on imports are roughly equivalent to taxes on exports, which decrease the foreign demand for domestic products. If we wish to promote domestic production in general, again, as with the case of promoting the interest of low-skilled workers, we ought to promote trade liberalization.
Our ethical intuitions work poorly at high levels of complexity because they are biased to favor direct solutions to specific problems, rather than indirect solutions to general classes of problems. Direct and focused solutions are appropriate when we operate in contexts in which we have sufficiently comprehensive knowledge and control. They are appropriate, for example, in the context of the family, when parents must intervene to mediate conflict between children or to distribute a fixed supply of goods—e.g., dinner—in an equitable manner. But direct and focused solutions to problems are normally ineffective—and therefore inappropriate—at the higher, impersonal levels of society because we lack knowledge and control. We lack sufficient knowledge of the causes of many of the problems we would like to solve. We lack knowledge of the unanticipated consequences of our attempted solutions.
Many pervasive social problems, moreover, simply cannot be solved directly through collective action. A political will is insufficient to generate improvement. To declare, for example, a “national war on poverty,” as Lyndon B. Johnson did in 1964, betrays a basic misunderstanding of the realities of scarcity, the political and social causes of economic stagnation, and the limited power of the state to increase the incomes of the less well-off without perverse side effects. If we wish to ameliorate poverty and promote opportunity, we are better served by pursuing indirect solutions. We are better served by focusing our direct attention on securing a set of rules within which individuals have the incentives to create wealth and produce opportunities in ways that make sense in their local contexts. If we wish to increase the wages of low-skilled workers, rather than mandating wage increases, we should be encouraging labor mobility and repealing occupational licensing restrictions.
Economics instructs ethics of the gains of indirection. It also informs what Joseph Schumpeter called our “pre-analytic vision” of the world. The pre-analytic vision one acquires from studying economics depends on the tradition of economics that one studies. But the fundamental insights of the classical tradition of economic thought—a tradition reaching back through Adam Smith to Hugo Grotius, to the scholastics at the University of Salamanca, to Thomas Aquinas and even Aristotle—foreground the mutually beneficial, cooperative potentials of social life. Classical economics teaches us that the good of the one need not detract from the good of the many, and that we can—and often do—serve the good of others indirectly as we focus our direct attention on local problems, including bettering our own condition within a framework of commutative justice. Understanding the mutually beneficial potentials of the social universe is not intuitive for us, but when we do understand the potentials, the liberal principles of freedom resonate deeply with our common ethical intuitions.
Erik Matson is a Senior Research Fellow at the Mercatus Center and Deputy Director of the Adam Smith Program at George Mason University. He additionally serves as a lecturer in political economy in the Busch School of Business at The Catholic University of America.