What is it to Be a Genuinely Noble Economist?

12 01 2009

A personal interrogation prompted by attending the American Economic Association Conference, San Francisco, January 2009

I had an enjoyable holiday that took me up and down California visiting friends and family. Along the way I had some beautiful hikes in the ever-marvelous California landscape. I capped off my trip by attending the American Economic Association’s annual conference that took place this year in San Francisco.

I am an economist, but I’ve never been sure if that was a conscious career choice or a reaction to circumstance. This, coupled with the atmosphere of economic crisis, led to a spontaneous outburst of moral introspection as I walked the halls and break-out sessions of this conference. I am still not sure if what I heard at the conference was a balanced view of current economics, or mere projection of my own inner doubts.

I heard a lot of tentativeness. Kenneth Rogoff of Harvard mentioned how widely the Washington Consensus is being questioned, especially outside of the economics profession. He reviewed a commission’s report on the past 30 years of World Bank research and projects. The commission’s conclusions were ambiguous as to what really worked for economic development. “I was amazed at how important non-economic factors are — politics and institutions,” admitted Michael Spence of Stanford, the report’s chief author.

Tentativeness was present among Federal Reserve economists. The new lending facilities are greasing the skids for non-bank market makers, according to Tobias Adrian of the New York Fed. When traders know they have guaranteed liquidity by the government, they are willing to take on more risk and clear a trade. But this only creates greater possibility for moral hazard – i.e. being irresponsible. “Should we create a credit facility for hedge funds?” he asked in droll somberness. Doubt!

In economics, there is this uncomfortable juxtaposition between knowing what is “really” going on (in the world) and doing the right thing. This manifests itself at both the personal level of the individual economist and the collective level of the profession as a whole.

The scientific, “positive” side of economics (knowing what is going on) is the bright area and where every one wants to shine. The moral, “normative” side (doing the right thing) is the black sheep and shadow of the two. The moral side is vague, problematic. The profession, in my opinion, gives it only lip service.

At the personal level, the conflict comes in the question, “For whom will you sing for your supper? For what cause and customer will you sell your skills of rationalization?” (Teaching economics is kind of a neutral position, in my opinion.)

The conflict has a ‘catch-22′ in it. Positive, orthodox economics holds that morality is not important at the individual level. All is preference. And the sum of individual actions, despite possibly being mutually antagonistic, nevertheless results in a social benefit and progress. Built into positive economics is the assumption that the normative component will work itself out in the aggregate.

Well, given today’s global warming and economic melt down, that happy outcome obviously didn’t happen. Maybe we need to focus more on ‘doing the right thing.’

In one session, presenters discussed specific incentive schemes for rationing resources. Here were some good practical policy formulations for dealing with protecting endangered populations of fish. Good work, yet I was surprised at the relative minor importance this kind of topic had in the overall scheme of the conference.

My observation reminded me of Herman Daly, University of Maryland (who was not present). Environmental economics, so construed today, he says, is a kind of half-baked add-on to economics. What is truly needed is an ecological economics, that is based on an entirely different “pre-analytic assumption.”

Ecological economics is based on the assumption that the human economy exists INSIDE OF the biosphere, not unto itself. In this framework, “resources” become explicit in the production function (along with “labor” and “capital”). And there are different classes of capital – “natural” and “built” – which, furthermore, are not substitutable.

Along with other distinctions, the ecological framework changes the whole economic game. Instead of maximizing output per unit biosphere, the objective becomes maximizing biosphere per unit output. Right scale (of the human presence in the biosphere) joins the two conventional systemic goals of efficiency and social equity.

An ecological economics is not going to arrive anytime soon, according to Dale Jorgenson, in the session on A New Architecture for the U.S. National Accounts. It is still a thing to be developed, he said. Valuing intangibles will always be hard, another presenter said. In fact, so hard that asset bubbles will never be detected by our current accounting conventions, according to David Stockton of the Federal Reserve Board. (However, Jonathan Parker, of Northwestern, pointed out how the United Nations’ System of National Accounts – the “SNA”-did better at seeing the asset crash coming than the U.S. National Income and Product Accounts.)

Accounting systems are important. They tell us how we are doing. Michael Boskin underlined Paul Samuelson’s remark that the national income and product accounts rank as one of the greatest inventions of the 20th century. “It’s hard to imagine a discussion of the economy without them,” said Boskin.

It is becoming clearer and clearer to me that measuring our ‘economic’ well being is the real question of economics and it depends on our own moral character.

Yet, moral character – the content of our character – is outside the realm of conventional economics, practically by definition. Moral character, emotional maturity, psychological depth, soul, individuation, self actualization, authenticity, integrity – whatever you want to call it – makes a difference in economics. And it is not just that different moralities have different economic outcomes. Different moralities lead to different kinds of economics. The former concerns individual choice, regardless of the moral fabric of society. The latter is an aspiration for a norm that one wishes a society, or one’s community, to live by. It is a desire for a way of living in relationship with others.

A good economist clearly sees what is and what could be. Nobility comes in choosing a greater social norm to support, than simply seeking a more attainable personal gain. And the choice is not necessarily altruistic, even in the face of big opportunity costs. A desire for a community of friends that one can trust and in which one finds support is as self-centered as any.

In a session entitled The Economics of Non Cognitive Skills, Dutch economist, Lex Borghans presented a way to marry personality to economics. “Where does personality show up in economics?” he asked. “Everywhere,” he said. In career decisions, in preference for merchandise, in investment returns to human capital, and so on.

There are economic consequences of different kinds of personalities, but what about the personality of the economist? Morality is an exogenous variable to the economist. It is less fun to shine light on one’s inner motivations, than it is to model emergent phenomena in self-contained systems of variables.

Again, the tension between positive and normative. How you construe your reality has an ethical injunction. If you see natural resources as purely a source of (current period) income, you will ‘drill, baby, drill.’ If you see it as capital, and its extraction is, therefore, drawing down capital, then you will tend to conserve it.

Thankfully, there was a session that addressed my dilemma. Debating Pluralism in Heterodox Economics. It was a mish mash of unrepentant Marxists, critical theorists, and sundry philosophers. The session was sparsely attended – maybe 20 people at most in the room. Still, one presenter, Andrew Mearman, University of West England, made some cogent remarks about ontology. Frederic Lee, University of Missouri, made a plea for greater pluralism in the field, to allow for multiple views and less hurt feelings. He offered a definition of economics as ‘social provisioning.’

On the second day of the conference, I ate breakfast in a greasy San Francisco café, next to the hotel where the conference was taking place. On the wall was a Homer Simpson cartoon. Homer’s little boy Bart has a sheepish look on his face. The caption reads, “If I do something bad, and nobody is there to catch me, does that make me good?”


Is this the ethic of the Economist, or just mine?!

After the conference, while driving home along the northern edge of San Pablo Bay (Highway 37), I heard a story on NPR’s Marketplace program. It was about Bernie Madoff and cheating the public. How is it possible? How to guard against it by regulation?

The reporter asked, how could Madoff have gone for so long (decades) without being detected by the regulators. There had been several complaints and filings made about his fund, but they were ignored by the SEC and others. The reporter went on to explain that many employees of the regulatory bodies went easy on the regulated firms. They hoped to get hired by them. In the private sector, such people – economists, for the most part – would make several times what they made working for the government.

The reporter interviewed behavioral economist, Dan Ariely, author of Predictably Irrational. Ariely described an experiment where people were given the chance to cheat in a simple game that had monetary gains.

The researchers paid an actor to stand up after 30 seconds and say, “I solved everything. What should I do?” – obviously cheating because nobody could finish all the questions so fast. The experimenters simply said, “If you’re finished, go home.”

What did this create? Did people cheat more or less after seeing this?

It depended on the sweatshirt the actor was wearing.

The experiment was run at Carnegie Mellon, in Pittsburgh. In Pittsburgh there are other universities including the University of Pittsburgh. All the students who participated were Carnegie Mellon students. If the cheating student, the acting student, was wearing a Carnegie Mellon sweatshirt, he basically got people to cheat more. But if he was wearing a University of Pittsburgh sweatshirt, he got people to cheat less.

When the person who cheats stands there with a Carnegie Mellon sweatshirt, he gives a social justification for a new social norm to emerge about cheating. But when he is wearing a University of Pittsburgh sweatshirt, all of a sudden people said, “This is cheating. This is what the other people in the bad school are doing. This is not what we’re doing.” And therefore people cheated actually less.

“The moment we remind people about their honor of themselves, their own standards, they stop cheating,” said Ariely in a phrasing that really captured me.

The interviewer pressed him: Will the publicity around Bernie Madoff – a guy who has been around a long time, a Wall Street insider and is now found out to be running a Ponzi scheme – will this inspire people to cheat more or less?

It depends on how we frame it, said Ariely. If we are framing it as he’s a part of Wall Street, it will be a part of the in group and will increase what is acceptable in the bankers’ eyes in terms of cheating. But if we are able to frame him as an outsider — somebody who is from a different investment firm, with a different approach not typical of Wall Street — then we might actually decrease cheating with that approach.

This reminds me of Jay Ogilvy’s theory of “the some” and how it sets up a provisional pluralistic culture. (See below for my review of Ogilvy’s book, Creating Better Futures.)

I was always attracted to study economics in order to be more streamlined in how I provisioned for myself. I wanted a style of work that cut to the chase and allowed me the greatest personal creativity and autonomy, with the least bit of kow-towing to someone else’s program.

Maybe this is because I am the youngest of three sons and have a problem with authority. It could also be that my father provided a good example of responsible, creative freedom. He was a self employed architect who designed, financed and built many a spec home.

In any event, economics, to me, offered the clues as to how to live like this.

I’ve always thought that economists are modern-day priests. They are today’s advisors to Kings. They filled the vacuum left by the Church during the rise of science, industry and secular society. The problem, I think, is that Priests, at the archetypal level, are absolved of morality, unlike the King. To be a King is to lead, and to lead requires acting from moral integrity. In today’s economics, and in my life, there is a need for leadership; a need for the Priests to become more like Kings.

All that I can tell at this point is that leadership requires three things: (1) Clarity about your innermost truth and desire; (2) Conviction about your purpose and gift; And, (3) courage to act from your conviction, whether it is popular among your peers or leads to riches or not.



One response

14 04 2009

“I was amazed at how important non-economic factors are — politics and institutions…”

So sad that this came as a surprise.

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