Tuesday, August 27, 2013

Morality in economics, paid parental leave edition

Aussie econ blogs are all having a go at deciphering the debate about government sponsored paid parental leave in the lead up to the the Federal election. And they mostly miss the moral foundations of the debate, leaving us with a whole lot of economics wigs on the opinion pig.

Joshua Gans had a go at framing the debate in terms of productivity instead of fairness, but seems oblivious to the moral foundations of productivity itself and the ambiguity surrounding the aggregated macro-economic productivity outcomes from such policy decisions.

Matt Cowgill seemed to hold back in what is a rather respectful comment
You say a productivity claim is more ‘relevant’ than a fairness claim when it comes to assessing competing policies. Fine, that’s a reasonable point of view. But it is a point of view! That’s a normative, values-based, even ideological claim you’re making (that fairness is a low-order priority), yet you assert it here as if it is incontrovertible truth and that anyone emphasising fairness in policy debates is some kind of moron.
So Gans followed up with some nonsense quotes from a cartoonist that proved he is just being idiotic to impress the neoclassical econ club. Despite, as one commenter noted, his moral arguments in favour of science investment.

Rex Ringschott had a go at Club Troppo. His view is pretty clear from his final paragraph

Whatever the justification – the message to the scullery maid couldn’t be clearer. The sooner you get that Marketing degree and join the smart set the sooner your little fetus gets an even break.

Paul Frijters rehashed a post from the lead up to the 2007 election, essentially revealing how economic reasoning can be used to justify just about anything.

Over at the Guardian, Andi Fox does a good job of identifying the motivation for paid parental leave policies, and assesses the two major party’s policies against it.

The introduction of a universal scheme in this country was about helping those women and their babies catch up to the rest of us

Richard T. Green is the only economist I’ve seen actually properly frame the debate in terms of moral motivations, and the potential success of policies in addressing the moral arguments.
  • The Rights Motivation Having a baby is a universal right and if people cannot afford to take the time off work that is necessary to have a baby, the state should enable them to do so.
  • The Pro-Natalist Motivation We need more babies.
  • The Equality Motivation The time taken off will inevitably fall partially on women (since she has to give birth) and then almost always the period of extreme infancy through the choices of the parents (conditioned by culture and economics). It is unfair that a mother cannot earn money by selling her labour in this period whilst a father can, so the state should compensate her for the unfairness of biology and cultural norms.
I'd assumed that the current round of policies were motivated by some blend of all three of Green's potential moral motivations, with a little more weighting perhaps on the Equality Motivation. Essentially the fact that women rather than men bear children is hugely detrimental for their careers. We have a moral stance that women should have equal opportunities in the workplace, so a paid parental leave policy will take some of the burden away from employers who hire more women. Of course, being financially more able to take leave from jobs without any maternity benefits also satisfies the Rights Motivation, as well as the Pro-Natalist Motivation.

Both policies will satisfy these moral motivations to some degree, and perhaps there are other moral considerations about fairness and economic equality that are required to adequately compare the two.

Given the moral ambiguity, and the unwillingness of politicians to actually put forward a coherent moral justification for their preferred policy, social scientists shouldn’t be rushing to calculate the efficiency of one policy choice over another against their own moral benchmark. They should be seeking clarification about what sort of moral position society at large supports, and assessing the degree to which alternative policies support those moral positions.

Which brings me to the much broader point. In practice economics is not some objective scientific endeavour. Anytime costs or benefits are calculated, recommendations are made, policies are assessed, there are moral judgements underlying these calculations. This is not to say that economics does have a scientific part to it. Positive analysis that seeks to understand empirical regularities of the world as it is certainly is scientific. But as soon as we apply this understanding to the world we must make a value judgement about what is desirable.

Simply ask yourself, why is productivity ‘good’ or desirable, and then keep asking why to your answer (yes, just like kids do). At some point you will hit the moral judgement that says more is better, which conflicts with the empirical literature that reveals happiness is mostly about relative status and reference groups, not about total consumption.

The moral foundations of economics are so clear to those outside the profession, yet so hidden as part of the economics indoctrination process. This leads to all sorts of nonsense debates about economics as a science.

To combat this problem not only am I writing about is, I have made a point of including in the new Australian Economics Learning Standards the requirement that economics student learn about the implicit value judgements within economic analysis.

Let’s hope the next generation of economists take their lead from Green and future policy debates are provided with much more substance from the economics profession.

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Sunday, August 11, 2013


Random things that have been on my mind

Security theatre 
...and to be honest, theatrical displays more generally in society. By this I mean doing something just to give the impression of doing it rather than for the outcome. Maybe it is something to do with David Graeber’s idea of bull$#it jobs. Or maybe it had more to do with Erving Goffman convincing me we are mere actors in our own world.

Think about this idea more generally. In any human institution we find procedures and processes, habits and social norms, that appear to be for a particular purpose, but in reality are mostly for the appearance of that purpose rather than the purpose itself.

To take one recent example, finance approvals. But of course receipts can be easily doctored by computer, and the very fact we rely on this process will decrease suspicion. If someone wanted to scam they system it would be an easy target.

Thinking like an economist
You hear this phrase a lot. I am on a committee to develop national learning standards in economics for Australian universities, and during our philosophical debates about what is economics and what comprises and economics degree, I have been confronted with the idea that “aren’t we just trying to teach students how to think like an economist?”

Unlearning Economics has a brilliant post about this concept. But I would like to add my 2 cents. 

For me thinking like an economist is about starting with the idea of a perfect market and rational choice as a starting point in any analysis and noting that anything that deviates from your newly constructed model to be a ‘market failure’. 

There are two main problems with this.
  1. If you start with some kind of rational choice model, there is strictly never a justification to deviate if you accept the foundation premise. If people rationally make their own choices, and you deviate from this, the there is no guidance to how people behave - what sort of irrationality is there? 
  2. If you start with a perfect market model, there is strictly no reason to prefer markets over government allocation of resources. As Robert H Nelson writes in his book Economics as Religion, from Samuelson to Chicago and Beyond, “...if transaction costs were reduced to zero, government and market would be equally (indeed perfectly) efficient.” In a more general sense, if prices can convey all information, then there must also exist an alternative non-price method to convey that information which governments could use for an alternative allocation system. 
For economists' preferred role as policy advisors this is absurd. Furthermore, you won’t find these ideas in any undergraduate economic textbook, and if you do, they are squirrelled away so that no graduates will leave with this fundamental understanding. As I have said before, economics education is far too much like indoctrination.

Take one recent example of this approach in action when discussing obesity . Here Frijters starts with the rational choice model and perfect markets for food, and struggles to find a reason to deviate from his ‘real obesity cycle theory’ of the opesity epidemic. Now I know Frijters well enough that he thinks far differently about these cultural phenomena, but the fact he feels compelled to ‘think like an economist’ and start from this point is absolutely absurd.

Another more relevant in this current economic period is blog superstar Noah Smith, who tries to wrap his mind around the notion that public deficits equal private surpluses in the national accounts. And at a deeper level, he struggles with the idea of ‘saving’ at a macro-economic level.

So what does a freshly trained economics PhD do? Thinks like an economist and undertakes a little bit of introspection based on Robinson Crusoe style analogies of the macro-economy. Such analogies are dodgy at the best of time in economics, but are totally absurd in macroeconomics and national accounting.

They bug me. So self-righteous. It might have been my own stupid choice to watch Sh&t$ville Express, or ever look at Catallaxy Files, but I did. Please read anything by Matt Bruenig and escape your fantasy world before it’s too late.

History, free trade and more
A big plug for Unlearning Economics who is now writing with some other fantastic people at Pieria (including John Aziz). One of my favourites on making history is here , and a beauty on ‘free‘ trade is here.

Expectations, norms and cooperation I’ve been running experiments in the lab on group cooperation - particularly on alliance formation by means of trust (which I interpret as the level of accuracy of predicting responses by others to your behaviour). I also attended a workshop in experimental and behavioural economics last week.

The main thing that struck me is that explaining deviations from rationality in almost any cooperative game relies on trust, or more specifically, accurate expectations of others. Moreover, when we repeat games we provide the opportunity to generate trust (expectations) in the lab to levels that might be reflective of reality.

The big puzzle then is how we ensure continued trust in society - a general pattern of behaviour and social norms that facilitates trade and investment and ultimate a fair distribution of the economic surplus.

I guess my thinking on this idea has moved into the realm of path dependency, and ultimately some kind of chaos. The norms we have a result of previous norms, which constantly evolve (are selected) by contemporary conditions. There are no right or wrong norms, but some are more conducive to economic investment than others, some are more conducive to equality than others.

A real puzzle for policy makers is to enhance these ‘free’ norms for social gain.

Capital - still controversial
I honestly can’t believe that the economic profession has not fully grasped the importance of the Cambridge capital debates, nor is it a prime feature of economics degrees.

One particular problem here is the way most economists still believe that the interest rate is somehow the ‘price’ of capital, while completely ignoring the capital value itself. It’s like saying that housing gets cheaper when interest rates fall, yet we use that exact policy to increase the value of capital relative to its nominal income stream.

If aliens landed during a war, how would they decide which side of the war was 'in the right'.  There is never a moral right and wrong by any objective standard.

Lastly, statistics are an arbitrary human construct. Be wary.