Poverty of Ethics without Economics: Bangladesh

by Mario Rizzo

In a world where people’s ethical goals are intrinsic values we could easily argue, as did David Hume, that the values themselves are not subject to scientific analysis.  But, as things turn out, many of what people believe to be intrinsic values, and therefore ultimate goals, are not. They are intermediate ends to which the attainment of some more nearly ultimate goal is imputed. For example, if I believe that my happiness is an intrinsic moral good, and I think that the connection between my happiness and making more money is completely unproblematic, then I may legitimately believe that additional money-making is an ultimate moral goal. (How one intrinsic good should trade off against another is a separate issue.)

Some people think that policies that mandate good wages and safe working conditions are ultimate goals. Or at least they seem to believe that. Much of the discussion about the recent Bangladesh factory fire has this air about it. Much to my disadvantage in polite company, I argued that the advocates of “justice for the poor” were ignoring important factors.

Even if you do believe that better working conditions and higher wages for Bangladeshi garment makers are intrinsic values, what kinds of policies will achieve these values? Does it matter whether the policies will result in some workers improving their wages and working conditions, while other will see a decline in their wages and working conditions?

Let Wedding Cake Bakers Discriminate in Peace

By Mario Rizzo

“A Colorado judge says a baker who refused to make a wedding cake for a same-sex ceremony must serve gay couples despite his religious beliefs, a ruling that a civil rights group hailed as a victory for gay rights.” Fox News 12/06/2013

Friedrich Hayek argues in his famous essay “Why I am Not a Conservative” that conservatives and socialists alike have no principled way of dealing with people whose moral views differ from theirs. Neither of them has absorbed the true lessons of toleration. Socialists (and I would add “progressives”) argue, in effect, for the imposition of their specific collective hierarchy of values including ideas about the allocation and distribution of resources in society. Conservatives often want to impose a hierarchy  of social values including restrictions on pornography, teaching of traditional values in the public schools (“creationism”), restrictions on entry into consensual social relations (“marriage is exclusively for one man and one woman”) and so forth.

The classical liberal insistence on a society that makes maximal room for a pluralism of values starts with the insight that markets permit individuals to make decisions according to their own hierarchies of values. Markets do not insist that we all share the same goals about the use of resources. And yet, subject to a few basic general rules, we can have coordination (not homogenization) of values through the price system. You can work , for example, for Amazon to help pay for your child’s clothing while the manager in your Amazon division is saving for a flat screen TV; the executive working for Amazon may be working for a vacation while the senior-citizen stockholder of Amazon is using the appreciation of stock-value to pay for copays on his medicine. And then there are all of the different goals of those working or investing in firms that deal with Amazon. And so forth as we spread our sights through the whole complex system of market interactions.

Economics Will Not Be Mocked

by Mario Rizzo

A few years ago I read and studied in great detail Pope Benedict XVI’s encyclical on globalization “Caritas in Veritate” or “Charity in Truth.” I posted a three-part analysis on the doubtful economics contained therein at ThinkMarkets. The first part is about the destructive influence of the encyclical. The second part is about globalization. The third part is about the attack on classical liberalism.

Shortly thereafter, I went to a conference that included discussion by economists of the encyclical. There were almost no defenders of the pope’s economics. In fact, I was told by one participant not to waste my time in a detailed examination of papal ideas relating to economics. No one in places of intellectual or policy influence much cares what the pope says. I was told that I care only because of my sixteen years of Catholic education. Perhaps this is all true; I do not know.  Nevertheless, the pope is worth listening to and reacting to because, in the modern world, there are few attempts by prominent public figures to address moral issues honestly.

The current statement of the “social gospel” by Pope Francis in “Evangelii Gaudium” or “The Joy of the Gospel” is less authoritative than the previous encyclical by Benedict insofar as it is considered simply an “apostolic exhortation” or pastoral letter. However, the ideas expressed are in keeping with the recent Church teaching. (Nevertheless, one cannot help thinking that Pope John-Paul II’s economics in the encyclical “Centesimus Annus” was much better than that expressed by the two most recent popes.)

I will not go into the details of the current letter because I think my previous comments on Pope Benedict at ThinkMarkets effectively cover most of these. I want now simply to make a “meta-critique” of Pope Francis’s letter only insofar as it deals with issues that have economic content.

Questions for Free Market Moralists? Some Answers

By Mario Rizzo

A philosopher, Amia Srinivasan, fellow in philosophy at All Souls College, University of Oxford, writing in the New York Times Opinionator (online commentary) says that in order to be a consistent defender of Robert Nozick, the free market and classical liberalism, one must answer “yes” to all four questions below. And she believes that such consistent yes answers are not plausible. She is wrong that we are required to answer yes to all four and she is wrong that yes answers on any are implausible. She also misconceives the task of liberalism as a political philosophy.

Let us start with the last point. As Ludwig von Mises constantly reminded us, liberalism is not a philosophy of life. It does not deal with the ultimate questions of man’s place in the universe and the full range of choices human beings must make both in dealing with others and in guiding one’s own life. It is a philosophy about the role of the state in a world in which people differ in their life-philosophies or in the concrete application of a philosophy to different circumstances of time and place.

With this in mind we can briefly answer her questions:

Bangladeshi Garment Workers and the Perversion of Ethics

by Mario Rizzo

For the last few days the newspapers have been filled with stories about how western garment manufacturers will now insist on greater safety for the workers who make their clothes in Bangladesh. They will pay for renovations and reconstructions of the physical plants. What is more, the government in Bangladesh will raise the minimum wage and make unionization easier.

So now Pope Francis and the relatively rich in the developed world (many of whom were among the 900,000 names on a petition to improve things that has been circulated) will be pleased and the demands of their social conscience will be satisfied.

F.A. Hayek: His 114th Birthday

by Mario Rizzo

Today is Hayek’s birthday. Much has been and will continue to written about him. When I look around at much of what passes for economics today, especially in the prestige circles, I cringe.  But reading his work always comforts me that something better is possible. And, in fact, there are many economists all over the world who take their inspiration from Hayek and his work. This is their day too!

Hayek, of course, was more than economist. He also had profound things to say about the mind, the rule of law, and ethics. Recently, I saw a stark example of the difference in ethical thinking between Hayek and more conventional moralists. This was in the case of the tragic fire in a Bangladeshi factory making clothes for western companies. The new Pope Francis condemned it as an example of corporations only caring about their bottom-line.

Now there are legitimate issues, from the point of view of the individuals working in this and other such factories. Can they rely on the attestations of a certain degree of safety in their working environment? Before people can voluntary assume the risks associated with certain kinds of work they must have at least a pretty good idea of what those risks are.

And yet there is a more fundamental issue.  Workplace safety is a matter of degrees. It is a working condition that is part of the cost of labor. There is an inevitable tradeoff between wages and level of employment, on the one hand, and workplace safety on the other hand. In rich countries workers can afford to sacrifice something for greater workplace safety. This is all part of increasing wealth.

Now major corporations are re-thinking their use of factory labor in Bangladesh.  They don’t want the images of large numbers of dead ruining their reputations. Ostensibly, they will argue that since they cannot trust Bangladeshi authorities to keep the factories safe they will not deal with them. Voila, the moral stance.

Ignorant Survey from Chicago-Booth?

By Mario Rizzo

The Chicago-Booth IMG Forum asks their favorite economists two questions. Let us examine them.

Question A:

Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.

Why was the word “noticeably” added to the question rather than some specific quantitative amount?  In other words, the question could have been phrased: “Would it increase unemployment among low-skilled works by approximately 5 percentage points or less?”  I realize that economists would get nervous about mentioning a specific number. But (1) That would reveal the true difficulties in economics of making quantitative predictions and hence tradeoffs; (2) It would take the subjectivity out of the word “noticeable.”  Noticeable for whom, and by what standard?  Noticeable to the public or to the policy maker or to the economist or to the low skilled workers or to union members?

Question B:

The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

There is a lot here. Let us first separate the raising of the minimum wage to $9.00 per hour from the indexing (one could favor the former but not the latter).

Raise Middle Class Taxes Now!

by Mario Rizzo

I now favor expiration of the Bush era tax rates for everyone.  Why? Because the only way to curb spending in the long run is to make as large a number of Americans as possible truly feel the consequences of the expenditures they appear to desire.

If Americans saw the cost of the gigantic welfare state in their paychecks, they would, I am confident, radically re-evaluate the expenditure side of the situation we are in. Then when someone comes up with a genius idea for spending, the people would think: Is it worth higher taxes? Might I not spend it better on my family, my church – or even – on… champagne?

Morality as Word Magic

by Mario Rizzo

I am disturbed by the Obama administration’s revised rule regarding the provision of birth-control products and service under the new health insurance system they have created.  The original rule required all employers, particularly for our purposes institutions affiliated with the Catholic Church, to provide insurance that covers birth control without copayment , coinsurance or deductible.  The Church hierarchy and others protested that they should not have to provide insurance that reimburses or pays for activities they regard as immoral. So then after a politically troublesome firestorm, President Obama and Secretary of Health and Human Services Kathleen Sebelius announced a revised rule.

The revised rule requires all employers, particularly for our purposes institutions affiliated with the Catholic Church, to provide insurance that covers birth control without copayment, coinsurance or deductible. What a relief.

The Just Distribution of Income and Wealth

by Mario Rizzo

There has been a lot of talk this year, and especially during the holiday season, about the inequities in the distribution of wealth and income. But most of what has been written is quite simple-minded, if the writers mean to convey something more than their own personal preferences for a different distribution.

I have no objection to passive expressions of preference. But I do have objection when people attempt to bolster their case for intervention by the state under the banner of distributive justice, morality, religion or whatever is supposed to evoke some objectivity.

The Real Culprit in Paternalistic Legislation?

by Mario Rizzo

Christopher Hitchens, the great journalist and essayist, has died. Mr. Hitchens was not always right but he often was. I saw at the Cato blog a brief piece, posted by David Boaz, that Hitchens wrote on Mayor Bloomberg’s Nanny State. (HT: Dave Johnson). It was in reaction to smoking restrictions, but could easily apply, more generally, to paternalistic legislation.

Fannie, Dodd-Frank and Barney Frank

by Chidem Kurdas

Barney Frank  won’t run for Congress after his present term expires.  This May there were news stories about his  ex-lover getting a high-paying job at mortgage finance giant Fannie Mae while he sat on the Congressional committee that oversaw the government-sponsored entity. 

Politically Feasible

by Mario Rizzo

Many years ago, the distinguished economist, William H. Hutt, wrote a pamphlet called “Politically Impossible?” He argued that economists should not seek political relevance by proposing only those policies that they perceive as politically possible, practical or feasible. They should speak truth to power, so to say, and advocate those policies that they perceive to be in the “public interest.” (Interestingly, it is often considered a key element of the economic rationality of agents to be able to distinguish the desirable from the feasible.)

Healthcare as Social Planning

by Mario Rizzo

Although I am an advocate of voluntary birth control, I am not happy about (1) the equation of this choice with healthcare – even preventative healthcare (as if pregnancy were a disease); and (2) the government mandating that health insurers must cover these expenses, without even a copayment.

Hayden’s Straw Man Argument on “Interrogation Deniers”

by Roger Koppl

In a Wall Street Journal op ed of 2 June 2011, General Michael Hayden, director of the CIA from 2006 to 2009, compares “interrogation deniers” to “birthers” and “truthers.”  Hayden’s op ed mischaracterizes the basic claim of those who say torture is not effective, substitutes insult for argument, and includes a non sequitur worthy of the old joke that that “military intelligence” is an oxymoron.

Hayden defines “interrogation deniers” as “individuals who hold that the enhanced interrogation techniques used against CIA detainees have never yielded useful intelligence.”  Talk about a straw man!  I suppose there must be some “interrogation deniers” as defined by Hayden, and I suppose some of them are out there floating in the wide waters of the Internet, waiting for someone to cut and paste.  But I don’t know of any examples, and their possible existence at the margins of public discourse has no bearing on the public question.   As Glenn Greenwald noted on May 4th,  “Nobody has ever argued that brutality will never produce truthful answers.”  No.  “[T]he point has always been — as a consensus of interrogations professionals has repeatedly said — that there are far more effective ways to extract the truth from someone than by torturing it out of them.”

Confusion Masquerading as Science? Taxes and Spending

by Mario Rizzo

I am always amazed that when many economists give policy advice the sophistication and logical rigor that the discipline so values gets completely lost.

There are many ways to interpret this. One is that the level of precision appropriate to theory and to applied economics is not appropriate to the “art” of economic policy. Of course, I would suggest that maybe this teaches us something about the ultimate value of sophistication in the theoretical product. Do the precise concepts of theory and applied economics have referents in the “real world”? Or is most of the precision lost when we try to understand the world and recommend policies? This is an important question.

However, here I am interested in the sloppiness of the policy-relevant discussions that even very good and respectable economists produce. One interesting example is a recent “Economix” piece in The New York Times by the Princeton economist Uwe Reinhardt.

I have two points: first, the confusing mix of science and value judgments; and second, the naïve analysis of the political process.

Moral Trial and Error

by Mario Rizzo

The recent discussion-thread at the blog Coordination Problem regarding a Hayekian case for same-sex marriage got me thinking more generally about moral evolution.

In a market there is a process of trial and error. New products or methods of production come into existence. Some fail; others succeed. Some speculators make successful predictions of the future course of prices; others make mistakes. In general, the filter for these decisions is the profit and loss mechanism.

F.A. Hayek famously argued that the evolution of institutions, including moral and legal rules, follows a similar course, that is, trial and error. And yet the analogy with market processes is far from perfect. How do we view the trial and error process of moral rules? What is the filtering mechanism?

Right off, let me say that I do not have definite answers to these questions. I simply have some relevant thoughts.

Risky Behavior at Wittenberg

by Chidem Kurdas

Watching Wittenberg at the Pearl Theater in New York took a group of us back to our graduate school days. This is a surprisingly entertaining comedy, creating merriment out of a mash of classical characters, modern themes and serious philosophy.

The year is 1517.  Two academics at Wittenberg University, Martin Luther and John Faustus, are more or less cordial colleagues but intellectual antagonists.

Both are dissatisfied. Dr. Faustus holds four graduate degrees – in medicine, law, philosophy and theology – but has found all this knowledge lacking. On top of that, the woman he loves leaves him.  Father Luther detests the Church’s selling of indulgences but feels he can’t do anything about it. Their star pupil, a Danish prince named Hamlet, is confused.

The Dilemma of Obamacare

by Mario Rizzo  

The very factors responsible for the passage of Obamacare may make it impossible to fund it adequately. There are certain myths about medical care that make it difficult to contain costs. The central myth, in not very exaggerated form, is that any care less than the best for anyone is the result of a contrived scarcity. If insurance companies were not so greedy for profit people could have the best care they deserve.  

Taxi Tipping: Why?

by Mario Rizzo  

Every so often people become annoyed about tipping expectations, especially in New York. It is hard not to become annoyed because prices here are already so high relative to other parts of the country. And it is also often the case that service, regardless of what you do ex post, is perfunctory.  

Why am I tipping the cab driver whom I shall not see again? I tip cabdrivers very small amounts because they really don’t do anything more than drive the cab. They are not especially careful drivers. Frequently, they don’t know where things are and you then must give them instructions. Furthermore, there are now all sorts of surcharges for evenings, rush hours, and even a tax to support the inefficiently-run mass transit system that I am not taking when I ride in a taxi.  

Bonuses: An Annoyed Analysis

by Mario Rizzo  

I understand why many people feel it is unfair for bailed-out banks to pay big bonuses. But the simple truth is the banks were bailed out on the grounds that their possible failure was an issue of systemic risk. The collapse of the financial system was threatened. So the bailouts, as the story goes, prevented that. 

Thus the “American people” benefitted to the extent that the financial system was saved. And that, if accurate, is an enormous benefit to us all.  

Virtuous Capitalism

by Jerry O’Driscoll 

Over at the Austrian Economists, Steve Horowitz has posted a challenging statement and asked for reactions: “The great virtue of the free market is that it requires so little virtue to work effectively.”  The thrust of the responses is that defenders of free markets have had little to say about virtue (at least since Adam Smith).  

In a brilliant paper for APEE a few years ago, Liberty Fund’s Doug den Uyl asked whether we need ethics if we have free markets. That is a broader question, but on point.  Do markets discipline transactors to act virtuously and ethically?  Many would be tempted to answer affirmatively, but that would be facile. (Doug is not facile.)  

Moral Relativism

by Gene Callahan

I’ve long been chagrined about the fact that, whenever someone points out that it was wrong, say, for the United States to annihilate a quarter of a million civilians in Japan in 1945, that person is accused, by some “patriot,” of “moral relativism,” as if condemning an act equally whoever does it is “relativism”! So I was very happy to see Glenn Greenwald making the same point today:

“Perhaps the ultimate confusion is that ‘the Left’ has long been accused of ‘moral relativism’ for pointing out the use of these terms when the essence of ‘moral relativism’ is judging an act not based on what it is, but on who is doing it. It’s the adolescent self-love of believing that ‘X, by definition, is good when I do it and bad when you do it.'”

The Political Element In Empirical Data?

by Mario Rizzo  

In a recent article in the Financial Times Joseph Stiglitz argues for a more comprehensive measure of social well-being than Gross Domestic Product (GDP).  

As all principles of economics students know, GDP leaves out many interesting things. When I was a student the prime example was: When a man marries his paid housekeeper GDP falls. I am not sure how to adjust this if the housekeeper is also a man and they move to a state with gay marriage. Humor aside, you get the point. GDP misses stuff.  

Nevertheless, Stiglitz has bigger fish to fry. This is just a sample:  

“What we measure affects what we do. If we have the wrong metrics, we will strive for the wrong things. In the quest to increase GDP, we may end up with a society in which most citizens have become worse off. We care, moreover, not just for how well off we are today but how well off we will be in the future. If we are borrowing unsustainably from this future, we should want to know.” 

Did I get all the “we’s”?

Special Interest Hypocrisy

by Mario Rizzo 

President Obama is complaining that the “special interests” are threatening his as-yet uncertain healthcare proposals. (Recall there is no Senate bill and nothing says that House bill won’t change significantly.)   

There is an interesting lesson here. What is meant by “special interests” and “general interests”?