66 Finance and economics The EconomistFebruary 24th 2018
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MID the name-calling and bluster that mar many fights be-
tween economists are a few common tactics. Belligerents
may attack the theory used to support a claim, or the data analy-
sis used to quantify an effect. During the debate over President
Donald Trump’s tax bill, to take a recent example, economists
bickered over which side had more credibly calculated the eco-
nomic effect. They did not, for the most part, argue about wheth-
er it was morally acceptable to pass a regressive tax reform after
years of wage stagnation and rising inequality. To do so would
strike many economists as entirely un-economist-like. Yet eco-
nomics has not always been so shy about moral philosophy. As
well as “The Wealth of Nations”, Adam Smith wrote a “Theory of
Moral Sentiments”. Great20th-century economists like Paul
Samuelson and Kenneth Arrow also took questions of values
very seriously. Their successors would do well to take several
pages from their books.
Modern economists have attempted to strip value-judgments
out of their policy analyses. Policies are judged on how they are
likely to affect economicvariables such as income and its distri-
bution, and how those changes would affect overall welfare. If
the modelssuggest thatone policy choice—a top tax rate of 40%,
say, rather than 50%—leads to greater welfare than another, that is
usually good enough for an economist.
This approach is enormously valuable. It disciplinesthinking,
produces useful information and makes it easier to build profes-
sional consensusabout what is known and which questions re-
main unanswered. Though cost-benefit analysis is not perfect, is
often the best route to getting informed experts to agree.
Used in isolation, however, it can lead to trouble. In a paper
presented at the annual conference of the American Economic
Association (AEA) in January, Matthew Weinzierl, of Harvard
University, notes that the world is too complicated to be mod-
elled with anything like perfect accuracy. Many knock-on effects
from policy shifts are unknowable beforehand. He suggests that
in the absence of perfect foresight, policymakers could turn to so-
cial principles or rules that have evolved over time. These may re-
flect accumulated knowledge about some choices’ unintended
consequences. He gives an example. Governments might choose
to increase redistribution based on evidence that high inequalitycreates feelings of envy, and envy reduces the welfare of the non-
rich by making them feel worse. Yet survey evidence suggests
that people are largely opposed to redistribution that is motivat-
ed by envy. Validating envy through tax policy could prove so-
cially corrosive, in a way that economists’ models fail to capture.
Put differently, Mr Weinzierl contends that economists should
take moral concerns more seriously. That is something close to
professional heresy. At the AEA conference Alvin Roth, a Nobel
prizewinner, delivered a lecture on his life-saving work in the
field of market design. To donate an organ, one mustshare a
blood-type with the recipient. Someone who would be willing to
donate a kidney to a friend or family member might be stymied
by a difference in blood-type. Mr Roth circumvented this pro-
blem by developingmatching markets, in which one person do-
nates to a compatible stranger and in turn receives another
stranger’s compatible organ for use by the donor’s ailing loved-
one. Such swap groups can include scores of donors and recipi-
ents, who might otherwise have died awaiting a transplant.
Yet demand for healthy organs vastly outstrips supply. Were it
legal to buy and sell organs, manymore people might donate,
helping to alleviate the deadly shortage. Moral qualms generally
discourage governments from legalising the trade. This is an ex-
ample of what Mr Roth calls a “repugnant market”, one which is
constrained by popular distaste or moral unease. Repugnance, he
laments, tilts the political playing field against ideas that unlock
the gains from trade. He recommends that economists spend
more time thinking about such taboos, but mostly because they
are a constraint on the use of markets in new contexts.
These social rules also contain insights. In a paper discussing
the organ trade Nicola Lacetera, of the University of Toronto, ar-
gues thatthere may be important reasons for moral objections to
repugnant activity, and costs to abandoning such objections.
Though studies show that telling people that payment encour-
ages organ donationsincreases support for legalising payments,
other examples work in the opposite way. Giving women infor-
mation about the health and safety benefits of legalising prostitu-
tion seems to reduce supportfor legalisation—perhapsbecause
women worry about the consequences of applying a cost-benefit
approach to areas relating to their status within society.Do the right thing
Not all economists avoid ethical considerations entirely. Jean Ti-
role, another Nobel prizewinner, devoted a chapter of his recent
book, “Economics for the Common Good”, to “the moral limits
of the market”, for example. He says economists should respect
society’s need to set its own goals, then help devise the most effi-
cient ways to attain them. But, as Beatrice Cherrier of the Institute
for New Economic Thinking argued in an essay addressing Mr
Roth’s lecture, these questions are fundamental to economics.
The hard sciences deal much better with the ethical implications
of their work, she says. And moral concerns affect human behav-
iour in economically important ways, as Mr Roth found to his
frustration. To be useful, economistsneed to learn to understand
and evaluate moral arguments rather than dismiss them.
Many economistswill find that a dismal prospect. Calcula-
tions of social utility are tidier, and the profession has fallen out
of the habit ofmoral reasoning. But those who wish to say what
society should be doing cannot dodge questions of values. 7Moral hazard
Economists cannot avoid making value judgments, however much they might wish toFree exchange
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