Ethical Pronouncements without Economics Lead to Disastrous Public Policies.

One of the most common objections to free markets is that they ignore ethical considerations. In particular, critics argue that there are many things we “ought” to do that they believe will make people’s lives better off. We ought to “redistribute” income to the poor, they say. We ought to make health care a right. We ought to fix the economy by bailing out the financial industry.

The problem with all these “oughts” is that they eventually confront the principle ought implies can. Can the desired end (improving the welfare of the poor, for example) be achieved by the chosen means (income “redistribution”)? If not, then what does the “ought” really mean? “Oughts” without “cans”–ethical pronouncements without economics–are likely to lead to disastrous public policies.

In exploring the relationship between economics and ethics, we can start with two definitions that seem relevant here. The economist David Prychitko once defined economics as “the art of putting parameters on our utopias.” And in a particularly insightful definition, Nobel laureate F. A. Hayek wrote that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” What both definitions suggest is that economics deals with the realm of the possibleand in doing so demarcates the limits to what should be imaginable. Before we say we “ought” to do something, perhaps we should be sure we can do it, in the sense that the action is likely to achieve the intended ends. Put differently: ought implies can.

Ethicists can imagine all kinds of schemes to remedy perceived social ills, but none of the aspiring benefactors can afford to ignore economic analysis. Being able to dream something doesn’t guarantee it is possible. Too often ethical pronouncements have an air of hubris about them, as the pronouncer simply assumes we can do what he says we ought to do. By contrast, economics demands some humility. We always have to ask whether it’s humanly possible to do what the ethicists say we ought. To say we ought to do something we cannot do, in the sense that it won’t achieve our end, is to engage in a pointless exercise. If we cannot do it, to say that we ought to is to command the impossible.

So contrary to the commonly heard complaint, it is not that economists ignore ethical issues. Rather we attempt to describe the likely results of putting particular ethical rules into practice. For example, someone can argue that a living wage is an ethical imperative, but that doesn’t change the economic analysis of minimum-wage laws. Those laws increase unemployment and/or lead to reductions in nonmonetary forms of compensation among all unskilled workers, but especially the young, male, and nonwhite. No matter how much we think we ought to pass such legislation as a way of helping the poor, the reality remains that economics shows us that we cannot help them that way. Those who argue we ought to have such a law can still pass it if they want, but they should do it with eyes wide open to the fact that it will not achieve the result they wish, no matter how much they think we ought to have it.

It might be more accurate to say that ethicists ignore economics than that economists ignore ethics. To the extent that good economics shows what we can and cannot do with social policy, it is engaged with ethics. After all, if the point of saying we ought to do X is that we think it will achieve some set of morally desirable goals, then knowing whether or not doing X will actually achieve those goals is, or at least should be, a key part of moral inquiry. One of the tasks that economists should set for themselves is to engage in this sort of dialogue with moral philosophers and others who argue from “oughts.” Economist Leland Yeager’s recent book Ethics as Social Science is a good example of how economics can inform ethical questions just this way.

Studying “Ought,” Ignoring “Can”

The more interesting question is the degree to which moral philosophers are engaged with economics as they develop their theories. It might be true that introductory economics courses do not consider moral questions as often as they might, but it would seem at least as true that courses in ethics and religious studies are unlikely to confront either economic arguments or economic data that relate to their subjects. Exploring the “ought” without broaching the “can” will not get one far in designing policies that will achieve the intended results. One exception to this neglect of economics is the philosopher Daniel Shapiro’s Is the Welfare State Justified? In that book he brings to bear a good deal of empirical data and economic theory on the question of whether the welfare state can do what its proponents claim for it. From the philosophy side, this is the kind of work that needs to be done.

Can Doesn’t Imply Ought

Once we recognize the insight behind “ought implies can,” we can see that the reverse is true as well. Just as we cannot do everything people say we ought, we ought not do everything we can. We see this in the frequent calls for political actors to “do something” in the face of a crisis. There are many things politicians can actually do in a crisis, and doing them is often fairly easy, especially if the politicians can generate a climate of fear to help make the “ought” seem more pressing. But the fact that they can do something does not always mean they ought to. Even if it is true that “yes we can,” understanding the unseen and unintended consequences of what politicians are able to do should help us to decide whether they ought to do it.

Both ways of looking at “ought implies can” put economists in the position of throwing cold water on the plans and designs of social engineers left and right. This is what Prychitko and Hayek mean. Economists are thus often seen as only knocking down the ideas of others without coming up with solutions of their own. There is some truth to this claim. That is how economists spend much of their time. But it’s an important function: showing why a proposed solution would only make matters worse is a valuable contribution to the broader process of solving the problem.

More relevant, however, is that economics teaches us that solutions are much more often found in the actions of individuals and organizations responding entrepreneurially to the situations they face. The notion of a top-down solution to any social problem is going to attract the economist’s critical eye. In terms of “ought implies can,” economists are often reluctant to say what everyone ought to do because no one person or group knows what people can do. If ought implies can, and “can” is particular people in particular contexts developing solutions to their problems, then it is difficult to say what we all ought to do, especially in a crisis. This is the way that Prychitko’s and Hayek’s definitions cash out in the real world.

All the themes above have been on display in the current economic crisis. The bailout of the financial sector is a classic example of both letting the “ought” blot out the “can” and of assuming we ought to do whatever apparently can be done. The original promise of the bailout was that government would buy up the bad assets of troubled financial institutions then later resell the assets, making the real cost substantially less than the original $700 billion. Many critics, including many economists, suggested not only that this plan was counterproductive–because it only enhanced the likelihood that other firms would take unwise risks in the future–but also that the availability of those funds would lead to demands for the government to use them in other equally unproductive ways. That is more or less what has happened, as the bailout expanded to partial government ownership of banks and then demands from the auto and insurance companies to get in on the goodies. The plan changed again when the government announced it wouldn’t purchase troubled assets but instead would inject money directly into banks and other kinds of businesses. But soon all the “oughts” were crashing against the limits of what can be done via government intervention. Meanwhile, the machinery of government did many things it can do–borrow and create money, for example–without the planners thinking very much about whether they ought to do any of those things.

Social scientists who disregard ethical issues abandon one of their central roles in bettering the human condition, and ethicists who ignore social science in formulating their moral prescriptions are negligent for not asking whether those solutions will achieve their stated ends. Only when both realize that ought implies can will we get public policies based on an accurate understanding of human interaction.

ABOUT STEVEN HORWITZ

Contributing editor and Freeman Online columnist Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback. This summer, he will be lecturing for FEE at Rebels with a Cause.

EDITORS NOTE: The feature image is courtesy of FEE and Shutterstock.