I’m posting this as a continuation of an earlier post about two Adam Smith publications. I hope that this shows some sort of improvement upon my earlier writing style and also provides a discussion topic. Thanks!
Ethics in Economics
Among many interesting and important topics brought to light over the time of this course, one question continually rose in my mind, nagging at me to challenge it. Should there be a code of ethical conduct involved in economic research and administering an education? Is it necessary to ask professionals to adhere to such a code when they conduct research and advise people of power? I believe that it is truly a necessity, for moral, ethical and stability reasons. I believe it to be especially true after reading our list of texts in class and after watching the film “Inside Job”.
I hope to make a case for my argument by analyzing the free market system that seems to be the popular ideology when it comes to economic thought, where this argument and ideology comes from and why it may be beneficial to adopt a different view, even if only to humor it for the sake of understanding a different perspective for a while. My ideas and thoughts on the matter will draw mainly from the film “Inside Job” directed by Charles Ferguson,alongside the book “How Markets Fail” by John Cassidy. I hope to use excerpts from Adam Smith’s writings as well to get a first-hand look at what he was actually trying to say, as opposed to a secondary source’s interpretation and regurgitation.
Addressing the existing counter arguments is an absolute necessity as well, not in hopes of thwarting or disproving anything but to see the argument from both sides and make a rational decision on the matter at hand.
In fantastic times when life is moving smoothly on the face of it all, there is hardly any question whether or not the people in charge are making good choices behind the scenes, because hell, “if it ain’t broke, don’t fix it”. When we’re all enjoying a beautiful warm July night it’s hard to rationalize putting away all the fine china until four hours later when uncle Ron puts back one too many Schlitz’s and decides to see if he can “still pitch like the good ole days” and hurls the cups against the side of the garage just before trying his hand at Frisbee with the plates. The same goes for economic conditions, if everything seems fine at the present time, what could possibly go wrong in the near future? Why practice austerity or continue being frugal in preparation for a downturn if the good times are right now? Why bother to impose a code of ethics among economic professionals when what they are doing seems to be working just fine? Because although it may appear not be broken on the surface, underneath that shiny hood may be a real ticking time bomb. Because time and time again we see those in power take things far beyond the limits of reason at little to no risk to themselves but at the hands of the masses. It is something that concerns everyone whether directly or indirectly, something which we will discuss throughout the duration of this essay.
In “How Markets Fail” Cassidy argues that the financial crisis of 2008 was simply a matter of business as usual. He makes this clear by stating that “The subprime boom represented a failure of capitalism in the presence of bounded cognition, uncertainty, hidden information, trend-following, and plentiful credit. Since all of these things are endemic to the modern economy, it was a failure of business as usual.” (Cassidy, 22) Assuming that all of these things, from bounded cognition to plentiful credit, are true and simply considered “business as usual” it cries out for grave concern and this ultimately important question that I believe goes overlooked all too often.
The free market economists would argue that although this was a disastrous event, it is just part of life and when left to its own devices the market will make its way back to equilibrium. Whether this is your belief or not, it does not involve any preventative action, any true planning for calamities such as the great recession. In medicine and health it only makes good sense for individuals to seek preventative care to deter future ailments that would be exponentially more expensive and enduring. The economy is made up of all markets including healthcare, so measures should be taken to alleviate panic and uncertainty among the public. It should be considered rational to seek unbiased information, information free of politics and glaring conflicts of interest. Especially in investing and heavy speculation, where assumptions are plenty and sometimes outweigh most basic education do we see stability fly out the window. Preventative action in the field of economics would take shape as a code of ethical standards, and hopefully provide a stronger more stable foundation for those interested in becoming educated in it. I hear people, even those in positions of power and influence talk about the economy as if it were a mythical creature somewhere just outside of Mordor, continually scheming for all our frankincense and myrrh. At the heart of this problem I think are the differences in opinions being presented as fact, and knowing who and what to believe.
There is a very interesting point brought to light by John M. Keynes that makes for interesting argument against purely free markets. In the example of India was enjoying a near monopoly on trading a sort of fiber called jute. When inferior impure versions of jute came onto the market, free market theory would assume that the market would correct the problem. Keynes points out though that it is more likely that the pure jute merchants might have to mimic the dishonest ones just to maintain market share (Cassidy, 185). This is a good example of opposition to a popular set of beliefs and reason to adopt more than one view of markets when conducting research and the like. Not only is a finding like Keynes’ quite interesting but it shows that one ideology can’t hold in every situation at all times. By showing two viewpoints there it provides a real world explanation of a series of events as well as a form of consumer protectionism.
It is said that a code of ethics in economics is unnecessary because researchers and educators are typically not the people in position to make the big decisions. Therefore the implications of these decisions typically fall in the hands of policy makers, whether they took the economists recommendations or not. Although the blame may be levied off the shoulders of the economist, their recommendations are taken seriously and impact us all too some degree. Take for example the theory of the “Greater Fool” (Cassidy,183) that Keynes outlined in terms of investing. What he is saying is that even if there is no underlying value to an asset there will always be someone to unload it on. It is basic economic theory and common sense that the values of assets simply do not continually raise indefinitely. So where were the economists coming out and providing warnings on the matter during the tech bubble, or the more recent housing bubble? The ones that did step up were quickly quieted, as we saw in the film “Inside Job” but for what reason? They were simply making an effort to put the reins on those who were endangering the security of the nation as a whole, and attempting save the natural liberty of the population. In most cases we saw it was due to conflicts of interest and pure, grade A greed. People of power and people who made economic decisions for political figures were being compensated quite nicely to say things against their beliefs and better knowledge. Was it all done because some understood how the game was played and would ultimately end in their favor? Perhaps under an oath to protect the nation’s financial security and liberty better behavior would have taken place.
Perhaps all of this could have been avoided, had economists disclosed their outside financial ties and conflicts of interest not only when accepting a professorship at respected universities but also when publishing the articles they write and journals that they contribute to and in some cases edit. It doesn’t make sense to allow big tobacco to sit on the board of health and safety or have a key figure from Marlboro become the surgeon general, so why would we allow members of private financial institutions to burrow into our universities and into our minds by way of articles and lecture if they have undisclosed ulterior motives?
We see this even today. Our introductory level economics textbooks are designed to perpetrate the idea that free markets are the solution to just about every situation we find ourselves in. In the most widely used textbook by Gregory Mankiw, we get a distinct, unavoidable feeling that free markets are the end all of end all answer to every economic problem. This is an idea perpetrated by the Chicago school as well, under figures such as Milton Friedman. We saw under Mr. Friedman the tyranny that the country of Chile endured, and although it may have been the most as pure of an experiment the profession has ever seen, there were enormous social implications, including the cost of human life. Even after this event is presented, even after the 15 years of education it took to even hear about it, it is still pushed as the leading ideal if not the only or entirely correct ideal with little to no room for argument.
So is there a stigma against other forms of economic activity? Who was it that decided the way we conduct ourselves and research today is the absolute best version? I suppose Paul Samuelson was right in saying that “Funeral by Funeral, theory advances”. Clearly by learning and adopting one ideal of behavior from our predecessors we endure stigmas of other schools of thought. This makes it extremely difficult to put in place policies or even put forth suggestions that could even be deemed remotely as being anything but neo classical, or any other form of activity that doesn’t rely heavily on the free market. We saw this when our most recent financial collapse took place and we decided to remedy the situation through a series of bailouts without large scale restructuring of management. Sweden had a more effective policy in a similar situation that included pre-privatization of banks that ended up being relatively cheaper to remedy, but because that policy is seen as somewhat socialist it is extremely difficult to suggest in the United States.
Perhaps by implementing a code of ethics in research and education we may hopefully rid of stigmas to some degree. By teaching other schools of thought rather than just neo-classical economics in our introductory level economics courses, we can approach arguments and solutions from all angles instead of something that was deemed “tried and true” by someone who it has benefitted dearly that holds it as somewhat of a religious practice. By teaching non neo-classical forms in the classroom and using the different views in research, to someone who has not dedicated a college career or all of their free time to the economic discipline, it becomes clear that there are separate approaches other than just letting things work their way out into a beautiful equilibrium.
Free market economic theory often attributes it roots to the father of economics, Adam Smith. When talking about free markets, it is often brought up that Smith’s “Invisible hand” is a force driving the markets by some divine will that should always be left to its own devices. This to me is exactly like selective hearing in that the people who believe Smith was a free market advocate only because they found a small, out of context example that helps back up their pre-determined beliefs. Smith can be quoted as saying that “These exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free, as well as the most despotical…”. This is clearly stating that he has concerns about absolute free markets, that there should be a level of protection when the natural liberty of one or few endangers the free liberty of many or of all.
So it is my belief that learning, researching and reporting should include all context and not just the bits and pieces that best interests fancy. The idea of a set of guidelines in which to conduct research is present in most established sciences and economics should be no exception, considering the level of social implications it has power over. It is not beneficial for physics students to learn just which theory of relativity that the professor enjoys more even if one is “special”. How are we expected to learn calculus if freshman year our professors had deemed algebra “for hippies and heathens”? Maybe some students would agree and some wouldn’t, but it sure would make learning more difficult, our views narrow minded and our creativity entirely less malleable.
There are absolute criticisms to my argument for a code of ethics in our field of study. It makes sense that conservative view points would definitely counter my argument by saying that it limits the level of free speech and liberty that we are all naturally entitled to, which to some extent it does. By putting restraints on the way the subject may be taught or how well research must be conducted we limit the freedom to portray a style of economic thought that someone in power may find more appealing or more effective than another. It may force introductory economics courses to spend valuable time on counter neo classical arguments and ideals that neo classicalists might be reluctant to give up. Although this may be true, I believe it is for the best. It is, like Smith said; better to limit the natural liberty of a few if the security of the society as a whole is likely to be compromised. It is dangerous to have one stagnant world view in an ever changing environment and to think of other forms of economic thought as history. This implies that they are dead in the water and not worth the time to even acknowledge. Even if these ideas are simply teased by allowing one or two classes worth of discussion, it opens up room for further research and thought to develop outside class that the student may not have had even known existed in the first place.
It is also likely that financiers and Wall Street types would oppose my view entirely. It is absolutely to their benefit to have free markets taught in the classroom and to pay researchers to lean a certain way in order to have policy makers on their side. This way manipulation of policy and regulation is always in their favor, ever increasing their profits and bottom lines. To that I would say that there is most definitely a moral implication here. No matter the level of income or compensation you are receiving for your actions, when taking risks with other people’s money and wellbeing you ought to seriously consider those people’s best interests as well. The opportunities for exploitation when everyone is in the palm of your hand are tempting, but upon a deeper look towards the future you are not only hurting those people, but the integrity of your profession and your countries wellbeing as well.
I think that in terms of this course, if it were taught as a pre-requisite to principles of macro and micro economics I might have been more inquisitive towards what I was being taught at that level. Even as a pre-requisite to the entire economics curriculum I believe I would have had a better grasp on theory and the like, perhaps even been able to apply it to other forms of economic thought, making my education more open ended to question and not taking lectures as pure unarguable fact. The education process is not 100% regurgitation of material in my opinion, not a list of thousands of facts, but more so about being presented material in an open ended way allowing for discussion and further research. It provides a solid ground work but if the thought process stops the last minute of the last class in our college careers, then it has been wasted. This is especially true in economics. With the information and education that I have received here I would assume my time spent was entirely worthwhile but it needs to be viewed as a tool to use in my everyday life, to solve problems and stimulate thought and progress.
I strongly believe that as economists, whether in the position of an educator or advisor to policy writers and decision makers should adhere to a moral and ethical code allowing for a more transparent education system and a less cluttered research standard that makes conflicts of interest known whether this is the view of others or not I strongly advocate it but always remain open to argument and discussion.
At another time in the future I would like to develop this idea further, perhaps ask the question of what the code would look like, how well it would work or how to gauge its success or failure. Overall I thought this was a stimulating topic of thought and thoroughly enjoyed wrestling with the idea. I appreciate you taking the time to read and review my thoughts and writings, and wish to thank you for one of the more eye-opening courses I’ve taken in a while. All the best!