Plato's return by MT Nguyen, The Empire CA

Many who debate the merits of various stimulus proposals argue on the basis that their proposal rests on sound, that is true, economic principles. This is the basis for claiming that one proposal, as against any other, would work. Thus, conservatives cry out that the Obama proposal cannot work because it doesn’t contain enough tax cuts and includes too many irrelevant spending measures, while Democrats insist that Government spending on public works projects is key. Both policy proposals, tax cuts/decreased spending and ‘shock and awe’ Government spending, are firmly entrenched in each side’s economic principles, very crudely and respectively, free market principles which decry intervention and Keynesian principles which make room for it.

I will say nothing here on the merits of either claim (although this doesn’t mean that I believe that the proposals are on a par). Rather I want to note and focus on one thing that both sides share, namely, the assumption that what is economically true is also what is good for Americans. This may appear harmless and perhaps even a necessary truth. After all, shouldn’t economic policy be based on what’s true? Yes, it would be crazy to base social policy on what’s known or believed to be false. However, this is besides the point, because the assumption I want to note asserts much more than that truism. It is a striking assumption because it implies that the correct, i.e., true economic principles, are also, in the end, the just ones. For the efficacy of a proposal or the dimension along which a policy is judged to have ‘worked’ is always whether good has been achieved, at the limit, the good of economic justice. The assumption is comprised of two implications: if an economic principle is true, it must be good for the country; and, if an economic policy is good for the country, it must rest on true economic principles.

Here, the True and the Good (as I will say in shorthand) coincide in truly spectacular fashion. It should seem incredible to anyone who’s not Plato that this alignment should always take place.

Let’s be more concrete. When someone claims that any economic recovery would require that wealth be redistributed away from the wealthy and towards the working class, isn’t it curious that that person almost certainly believes, quite independently of economic principles, in some form of economic egalitarianism? Or, on the other side, when someone argues that government intervention into market forces makes for inefficient distributions, isn’t it curious that that person almost certainly believes that government intervention illegitimately transgresses a person’s right to property. An observant skeptic would suggest that these moral principles, egalitarianism and the sanctity of property rights, motivate and support the belief in certain economic principles. If so, it is no wonder then that the outcomes of the various policy proposals should yield (what’s believed to be) economic justice: moral outcomes are predetermined by moral inputs.

Now, it would certainly be objectionable to support an economic principle, a principle which purports to be scientific and objective, by reference to a moral belief. As a basis for supporting Say’s Law, “The all benevolent God told it’s true” is a howler. If economics purports to be anything like physics (or more likely, biology), human preferences cannot be a condition on the truth of its principles. Objective scientific principles shouldn’t be bent to the will of morality.

You might say, as I’ve read people say, that economics is not a science at all, but more like history, an attempt to reconstruct phenomenon after they’ve already occurred (this is more often claimed about macroeconomics than microeconomics). That is, a discipline with little if any predictive power. Whatever merits this claim has, it is certainly not the prevailing political opinion. This is evidenced by the fact that we turn to economists for expert advice. When we want to know, for example, what effects raising the Fed’s interest rate will have on demand for houses, economists are paid handsomely to give an answer. We certainly don’t knowingly turn to them for moral advice; if that were the case, moral philosophers would reap the windfall economists have enjoyed for years. Where do I sign up!

We might clarify things by thinking about one of the possible relationships between the two domains, the Good and True, as applied specifically to our subject, economics. One possibility is that the principles of economic efficiency are a non-moral matter, but they become objects of moral concern when we judge the appropriateness of various possible distributive outcomes. Given the importance of what is distributed by economic institutions, however, it becomes a moral question how such things should be distributed and hence, in the moral sense, what the correct distribution is. In this way, we can discover and support the correct principles of efficient distribution without recourse to any moral language; the latter shows up at a later stage.

This appears to be the philosopher, John Rawls’s, understanding of the relationship. He believed that morally neutral economic principles supported the possibility of distinct Pareto Optimal (roughly, maximally efficient) outcomes. A morally sustainable, i.e. just, distributive outcome would be chosen amongst those outcomesha. In this way, Rawls had his cake and ate it too. He demonstrated, he thought, that justice (the Good in our story) aligns with economic efficiency (the True in our story). On this picture morality is subsequent to and doesn’t seem to infuse economic theory in any objectionable way.

We might wonder though whether this is the same Platonic fantasy in a different guise. In particular, why should we believe that a just distribution so nicely coincides with one of the Pareto Optimal distributions? Rawls could only engineer this intersection by assuming that justice is compatible with, indeed requires, wide (possibly very, very wide) differences in wealth. Many have duly attacked him for this position, arguing (for example) that justice musn’t be held hostage by economic incentives that are allegedly born out of the differences in expected wealth. For our purposes, the problem is that Rawls went too far in the other direction: instead of grounding an economic principle on morality, he bent morality to the will of an economic principle.

In the end, the lesson is the following. If economics purports to be a scientific endeavor, then the application of its principles shouldn’t automatically be believed to be good for our country, even when true. Going the other way, if we are trying to assess the moral goodness of an economic policy (that is, its justice), we shouldn’t automatically conclude that there is some true economic theory which supports it. Either way, the important practical implication is that politicians who are responsible for making policy conform to justice shouldn’t rely solely on economic advice, even when the subject matter is economics and even if the advice is sound.

To believe otherwise is to believe that the True and the Good always intersect, and this is to believe in a notion that’s too good to be true.