Economist Julie Nelson Says Much of Economics is a Sham Science
We undermine our survival if we continue to imagine economics as a ethics-free and care-free sphere
By Julie Nelson
Source:
http://evonomics.com/pretending-hard-science-ethics-free-julie-nelson/
Most economists, rather than seeing ourselves as studying communities
of human beings, pretend to a more physics-like discipline. We model
market, national, and international phenomenon using ideas of presumably
universal “principles,” “laws,” and “forces.” We consider extreme
mathematicization, as well as distance from normative concerns, to be
signs of objectivity and rigor. Social research, we think, is for the
sociologists. Normative arguments are for philosophers. And this is
precisely why serious discussions of ethics in economic research are
far, far overdue.
A small crack in this “ethics are not our problem” edifice appeared
after the financial crisis in 2008. Media coverage, including the movie
Inside Job,
revealed cases of, for example, the crass slanting of economic
“research” results to fit a funder’s requirements. A very modest amount
of self-reflection resulted, resulting in more attention to disclosure
of sources of funds. Much bigger ethical issues, however, are yet to be
addressed.
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The
first, and most important, is the way in which certain core economic
doctrines have infiltrated, and caused widespread damage to, academic
and public discussion. Ideas that originated with economists have
“poisoned the well” from which we now draw our ideas of appropriate
personal, organizational, and national behavior. This is having severely
detrimental effects on human life on the planet. My second, more
inward-looking critique, has to do with the sham nature of much of our
“science.”
Poisoning the Well
Economics 101 teaches that people act out of rational, individual
self-interest, that the essence of business firms is to maximize profit,
and that the measure of success in national policy is a growing GDP per
capita. These teachings have become increasingly performative. That is,
while they originally purported to merely describe the world, they are
increasing shaping people’s behavior and the structure of organizations.
Some research has suggested, for example, that the study of Econ 101
tends to encourage self-interested behavior. The model of the economic
agent as a self-interested, rational, autonomous individual
utility-maximizer can make “looking out for number one” seem like a
reasonable—and even the
only reasonable—norm for behavior in
economic life. In my economics classes, I increasingly find students
willing to behave opportunistically, on the reasoning that if they don’t
take advantage of a situation, someone else will. They are quite
unapologetic about it, believing that this is simply the way the world
works, and that to do otherwise would be foolish.
The “businesses maximize profit” story has even more thoroughly
permeated the conceptual well from which, it seems, we all drink. There
is, of course Milton Friedman’s famous dictum, “Few trends could so
thoroughly undermine the very foundations of our free society as the
acceptance by corporate officials of a social responsibility other than
to make as much money for their stockholders as possible”. The idea that
businesses have a single, narrow financial goal is now repeated
ad nauseam
in the business and popular press, as well as forming the foundation
for teaching in economics and management. The widening chasm between the
compensation of Chief Executive Officers and ordinary workers in the
United States has been was spurred by the economic theory that CEOs must
be “incentivized” CEOs to act in the interest of shareholders.
Yet the damage goes much further. Many
critics of corporate abuses and rising inequality now
also
subscribe to the economist-created dogma about the essence of business.
Arguing the case for an ethics of justice and sustainability from a
Buddhist point of view, for example, David Loy argues that “Corporations
are legally charted so that their first responsibility is not to their
employees or customers, nor to other members of the societies thy are
part of, nor to the ecosystems of the earth, but to those who own them,
who with very few exceptions are concerned primarily about return on
investment”. As a result, most aspirations for “alternative economies”
tend to veer towards utopian or state-directed visions of
communitarianism that are of limited practical value.
The message seems to be, from
both right and left, that
business is–by its very nature–an ethics-free, and care-free, sphere.
And the pool of poison continues to spread, even beyond the business
sphere. One recent article, for example, proclaimed “Whether we like it
or not, colleges and universities are a business. They sell education to
customers….While the typical for-profit firm tries to maximize its
profit, non-profit universities generally try to maximize their
endowments or operating revenue…” The poison has even spread to thinking
about nations: Applying to nations the economists’ dictum that only
actions that serve self-interest will be chosen, Posner and Weisbach
argue that global climate “justice” will likely involve poorer nations,
who are feeling this environmental crisis first, making payments
to richer ones, to compensate them for the loss of GDP they will suffer by taking action.
These narrow, doctrinaire, and ethically scandalous claims could—and
should—seem ridiculous to anyone with a modicum of social sophistication
and humanistic sensibility. But even if you put ethics aside, standard
economics doctrines don’t stand up to a pragmatically and empirically
grounded view of the world. Any serious, grounded analysis shows that
economic systems actually require a good deal of concern with ethics,
interpersonal trust, and other-regarding behavior to function well.
Purely opportunistic personal behavior, far from driving a market
system, actually destroys it.
Moving to the organizational level, the widespread belief that profit
maximization is required by corporate charters, or by other legal or
economic mandates, is actually false (Stout, 2012). Even when leaders of
corporations may seem to be trying to “maximize”
something, in practice profits for shareholders is generally
not the
goal. Personal wealth and/or expansion for expansion’s sake are far
more frequent, among the possible self-interested goals. The
profit-maximization story also obfuscates socially
positive
business goals, supported by many leaders who have a broader and more
long-term perspective. These include providing useful, healthy products;
creating good places to work; promoting environmental sustainability;
and supporting innovation. Among non-profits, some leaders act like
self-interested business executives, but some still try to educate,
promote health, or serve another social purpose. While short-sighted
national self-interest may include a concern for GDP per capita,
aspirations related to territorial power and pride seem to be at least
as prominent. Taking a longer-term view, national interests clearly must
include attaining the sort of global cooperation needed to seriously
addressing climate change. Businesses, non-profits, and nations are
social communities of humans, with all the complexity that this implies.
A more accurate and balanced understanding of human personal and
organizational behavior as including both reasonable self-interest
and reasonable care–for others and for the natural environment–offers, I believe, our best chance for a survivable future.
So why do the economic ideologies have so much power? One explanation
is that since such teachings serve the short-term interest of various
wealthy and powerful parties, they can receive well-funded dissemination
via education and the media. Yet there is another important reason: The
effective disguising of economic doctrines as “scientific.”
Pretending to be a “Hard Science”
Good science can be described as a process of systematic and
open-minded investigation. Results should be carefully and intelligently
compared to evidence brought forth from a wide and diverse community of
investigators before being accepted as reliable. Models should be
presented as what they really are: devices that some particular group of
humans have found to be useful for examining some particular set of
issues.
Examined in light of these standards, much of economics is a sham
science. Instead of being open-minded about our core models,
assumptions, and methods, we have made narrow selections and then
allowed these to harden into dogma. There is a clear “macho” bias in
preferring explanations based on self-interest to consideration of
community interest, preferring mathematical analysis to qualitative
analysis, preferring consideration of rational motivations to inclusion
of emotional ones, and so on. In our textbooks, we teach our narrow
models as revealed truth, rather than as limited tools. Instead of
seriously evaluating the reliability of our knowledge, we follow
established habits of claiming “rigor,” based on the mathematics of our
models and on econometric “tests.” The recent popularity of Randomized
Control Trials has tended to revitalize a belief that objectivity can be
achieved by simply following formulaic rules, with little attention to
context or to the possibility of implicit biases.
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I
could point out how these biases comprise economic practice with many
examples, but for brevity let me focus on just one. Recently, there has
been a growing awareness in many fields–particularly in the biomedical
sciences and in psychology–about the dangers of using “statistical
significance” to decide which results are worthy of dissemination. The
notion of rejecting null hypotheses based on
p-values had been,
for a long time, taken as the definition of “rigor” in empirical
practice. Yet, as is now being shown, the following of such simplistic,
mindless rules can actually cause severe distortions to arise in a
literature. With many variations in data samples and model
specifications open to most researchers, “
p-hacking” to create
publishable results has become rife. In a recent meta-analysis I
undertook of the economics literature on preferences for risk-taking, I
found not only publication bias (a preference towards statistically
significant results), but also confirmation bias (a preference for
results which confirm an author’s own stereotypes about gendered
behavior). Yet I have seen little action within the economics
profession, much less within economics education, to—honestly and
ethically–face up to the fact that our customary beliefs about “rigor”
are seriously flawed.
Conclusion
We seriously undermine the ability of the economy to do its job—that
is, to provide for the sustaining and flourishing of life—if we continue
to imagine it as an ethics-free and care-free sphere. Economic dogmas,
misleadingly presented as scientific and widely disseminated through
education and the media, are largely to blame for this damage. The field
of economics is far overdue for an thorough-going ethical wake-up call.
Originally published at
ISRF Bulletin.
2016 December 6
References
Brennan, Jason and Phillip Magness (2016). “Estimating the Cost of
Justice for Adjuncts: A Case Study in University Business Ethics.”
Journal of Business Ethics.
Friedman, Milton (1982).
Capitalism and Freedom. Chicago, University of Chicago Press.
Loy, David R. (2015).
A New Buddhist Path: Enlightenment, Evolution, and Ethics in the Modern World. Boston, Wisdom publications.
Nelson, Julie A. (2014). “The Power of Stereotyping and Confirmation
Bias to Overwhelm Accurate Assessment: The Case of Economics, Gender,
and Risk Aversion.”
Journal of Economic Methodology 21(3): 211-231.
Nelson, Julie A. (2016a). “Husbandry: a (feminist) reclamation of masculine responsibility for care.”
Cambridge Journal of Economics 40(1): 1-15.
Nelson, Julie A. (2016b). Poisoning the Well, or How Economic Theory Damages Moral Imagination.
The Oxford Handbook of Professional Economic Ethics. G. DeMartino and D. McCloskey. Oxford, Oxford Univesity Press
: 184-199.
Posner, Eric A. and David Weisbach (2010).
Climate Change Justice. Princeton, Princeton University Press.
Stout, Lynn (2012).
The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. San Francisco, Berrett-Koehler.
