If we define science as what Ernest Nagel called the search for “repeatable patterns of dependence”, (here, p4) then economics could indeed be classed as a science. But if we define it as a reliance on experimental method, Robert Heilbroner suggests that this “throws into limbo certain central ideas of economics, such as value or utility, for which no experiments seem to be possible”. Since Heilbroner wrote these words almost 50 years ago, there has been a considerable amount of progress in experimentally testing some of these central economic hypotheses, thanks to the work of people like Daniel Kahneman, who has applied psychological techniques to key economic concepts. But still the debate rages.
The moral dimension
I raise this question because it throws up an important issue: that of value judgement in economics. A discipline which pursues the cold hard logic of the physical sciences has no room to make moral judgements. But one of the pioneers in the field of economics was Adam Smith, who in 1759 wrote a book titled The Theory of Moral Sentiments. As titles go, that is as far away from value free economics as you can imagine. More importantly, it provided the ethical, philosophical, psychological, and methodological underpinnings for Smith's later work such as The Wealth of Nations which is now regarded as the first great work in western economics.
Over time, economics moved away from its philosophical roots and by the 1930s, neoclassical economists argued that since the notions of utility and culture which underpin economics are difficult to measure, we should simply avoid them. Rational choice theory, pioneered by Lionel Robbins, postulated that individuals perform a cost-benefit analysis to determine whether to pursue a particular course of action – a way of thinking that quickly came to dominate mainstream thinking. However, rational choice theory could never explain why individuals undertake actions that appeared not to yield any direct benefit to them, such as charitable giving. But by the time economists began to understand that a whole range of cultural factors determined why individuals took a particular course of action, so entrenched was the culture of positivism that it became increasingly difficult to challenge the status quo.
Whilst economics has gone to great lengths to sidestep the moral issues which its analysis throws up, as Timothy Taylor put it “moral judgments aren’t willing to sidestep economics.” As he points out, economics starts to get into difficulties when it becomes subject to “mission creep”. At the heart of the problem is the reliance on the price mechanism to assign value to a particular activity. But this quickly falls down when valuing an activity which is deemed ethically dubious or where the price mechanism is simply not the appropriate tool.
I have often thought that this reliance represents a form of economic singularity – the point at which conventional laws break down. Indeed, my own reservations stem back to my undergraduate days when I was taught that the cost benefit analysis of health programmes was based upon the value of human capital defined on the basis of lifetime earnings. This never struck me as sensible. I later came to realise that the relevant metric is willingness to pay to avoid particular outcomes – a cost that could potentially become infinite in order to avoid the worst-case outcomes. It is precisely because of such calculations that I have been rather scathing over the years about the field of health economics which takes a very narrow cost-benefit approach to one of the most fundamental issues we face – the matter of life and death itself (in fairness, it has moved in the direction of willingness to pay analysis in recent years, thus mitigating part of my criticism).
Why this matters
The issue of ethics in economics is an important one. Policy cannot be framed without some reference to what society deems morally acceptable. It is simply not enough to adopt a positivist approach. In macro terms we can debate the righteousness of the guiding principles followed by the Reagan and Thatcher governments of the 1980s but they were at least coherent: They were designed to reduce the role of state interference in the lives of ordinary citizens and empower the individual. In other words, there was a normative element to the policy. As it happens, they focused on a very narrow set of criteria which boosted short-term material prosperity but failed to take account of the wider long-term costs (rising inequality and the hollowing out of the industrial base to name but two). Nonetheless, the ideas were so electorally popular that subsequent generations of politicians on the other side of the political divide (Clinton/Obama and Blair/Brown) did not try to reverse the tide and instead tried to marry it with the idea of promoting social justice.
In recent years neither the US nor UK policy agenda appear to have been guided by any form of coherent economic thinking. Starting in 2010, the British government adopted a positivist approach based around deficit reduction but this had significant adverse consequences for the less well-off members of society and played a big role in whipping up the discontent which ultimately led to the Brexit vote. The populist governments which emerged post-2016, notably those led by Trump and Johnson, do not appear to offer any coherent economic vision at all.
Trump’s economic policy was based around an America first philosophy which served only to trash the global rules-based order and lit the touchpaper for the disaster which has unfolded in Afghanistan in recent days. Even leaving this catastrophe aside, pursuing what amounts to an isolationist stance in an increasingly interconnected world makes little sense as an economic strategy. The Johnson government has followed a similar stance in that it has trashed the UK’s relationships with its erstwhile European partners. But the criticism most frequently levelled at the Johnson government is that its policies are opportunistic rather than aimed at a coherent set of normative goals. There are some elements of a moral economic policy – notably the promise to “level up” regional inequalities – but over the last year its actions have created an impression that it is out to secure the interests of its members rather than the electorate it is meant to serve. Moreover, in areas such as NHS reform and defence spending – both of which are driven by economic considerations – there is no sense of a coherent, principled approach.
All this gives economics a bad rap, partly because politicians tend to blur the lines between complex economic issues and simple budgetary concerns. Economic policy should concern itself with the wider implications of its actions rather than focusing merely on the monetary aspects. Whether or not people think of economics as a science matters less than the fact that it has roots which emerge from its philosophical traditions, and we would do well to remember that sometimes we have to think in terms of more than assigning monetary values to policy objectives. Adam Smith would undoubtedly have approved.
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