Paul Krugman’s recent article in the New York Times Magazine traces the history of two competing schools of economics from the Great Depression to the current great recession. Without being over-the-top, it is clear that Krugman, who had been warning about the dangers of a financial collapse due to lack of regulation for years, feels somewhat vindicated by recent economic history. Krugman belongs to the school of economic thought which is sometimes called Neo-Keynesian, after the economist John Maynard Keynes. It holds that government regulation in financial markets is a necessary intervention because free markets are not perfectly self-correcting entities. This view comes in contrast to the Neo-Classical school of thought (popularized in the latter half of the 20th Century by the economist Milton Friedman) which holds that the free-market is a self-correcting system of which recessions are a necessary part, and that any government intervention into the market system is likely to prolong or worsen recessions, not shorten or eliminate them. In his essay, Krugman makes the interesting observation that one reason the Neo-Classical view is so attractive to economists is because it involves elegant mathematics and a beautifully symmetric theory of the marketplace. By contrast, Keynesian economics is messy, and its attempts to calculate for the chaos of the marketplace and the related irrationality of individual economic agents, while empirically useful, lacks the same kind of philosophical symmetry. While reading his essay, it occurred to me that many other non-empirical value assumptions figure into the attractiveness of an economic theory as well. I want to explore a few of those here.
I find it difficult to believe that aesthetic beauty alone is reason to prefer one economic theory over its competitors. Elegance is nice, but it’s no substitute for predictive success and explanatory power. Economics is at least as much science as it is philosophy or mathematics, and that is why economists are compensated more than their counterparts in purely theoretical disciplines. They are supposed to tell us something about how the world is. But, economics is not a purely descriptive discipline either. Every economic system has real-life consequences for the agents who comprise it, and every economic theory makes some normative assumptions which must be defended on independent grounds. I find it troubling that so few economists are explicit about these assumptions, and I find it even more troubling that so many people seem to have a confused or incoherent notion of the intrinsic justice of certain economic systems. So, I’m going to try to make some of these normative assumptions explicit. Readers may judge for themselves whether my account is useful or illuminating.
1) The Consequences Are Better.
The first argument that a proponent of any economic theory is likely to make is that his proposed system “works” better than rival systems in the real world. Libertarian-free-market-Neo-Classical-Friedmanites, social-democratic-pro-regulatory-Neo-Keynesians, and total planned-economy-Marxians may disagree on every other fundamental, but they all make the argument that their proposed system generates more stable prosperity over the long run than any other rival system. And it would be a great argument if only it involved a less-dubious empirical claim. Almost all of us prefer an economic system that generates technological innovation, wealth, and stable growth and development over time to one that is stagnate, poor, or unstable. Unfortunately, the claim that a particular economic system will be the former and not the latter can only be tested against history and theoretical models. And, since every real-world economy is unique and every theoretical model infinitely less complex than the real world it attempts to reflect, it’s hard to make a strong case that one economic system will consistently promote these ends better than its rivals. As recent history has reminded us, economics is notoriously unsuccessful as a predictive empirical science. Fortunately, (at least for economists) there are other things that recommend an economic theory besides its predictive success.
2) Freedom Is Intrinsically Valuable.
Another major normative assumption that underpins virtually every economic theory is the notion that freedom is intrinsically valuable. Some economic systems are intrinsically more just than others, proponents argue, because some economic systems preserve freedom while others do not. Of course, the definition of freedom differs radically from the Right-Libertarian ideal of liberty from taxation and government regulation to the Left-Libertarian ideal of liberty from oppressive poverty. It is a bit of a misnomer to speak of the “freedom” inherent in the “free market” because the only really "free" market is one that emerges in total absence of laws which protect extra-personal property. If I pay taxes into a system so that there is a law and a police force that grants and protects my right to property, then I am sanctioning a form of government regulation. Likewise, the Leftist ideal of “freedom from poverty” is peculiar inasmuch as that “freedom” can presumably only be guaranteed in a system that generates sufficient wealth to ensure it, meaning that my “freedom” is contingent upon others generating that wealth, which may be a constraint upon their liberty. The problem here is that it is useless and confusing to stipulate that value of freedom without explicitly and narrowly defining the term, and then making an independent argument for its value. “In what sense does this economic system promote freedom?” we must ask, and “Is this type of freedom a worthy goal?” Generally speaking, when pressed on these questions, defenders of an economic theory will appeal to one or both of the following normative assumptions:
3) People Should Get What They Deserve.
Certain Marxians and Left-Libertarians bring up the issue of desert, but it is a more common point of appeal for people on the political and economic Right. Both sophisticated Neo-Classical economists and unsophisticated adherents of Ayn Rand’s political philosophy share the common conviction that an unregulated free market* rewards virtue (hard work, ambition, innovation, and natural talent) and punishes vice (laziness, apathy, and dullness). The idea that a certain economic system actually promotes moral ends within a society is thrilling, and it makes for a very elegant and symmetric socio-economic philosophy. Unfortunately, this claim is simply not empirically substantiated, and it’s hard to make the case that it ever could be. Random chance, both genetic and environmental, plays a huge role in the distribution of wealth within an economic system. It is impossible to say how much of an individuals’ accomplishments are the result of favorable (or unfavorable) genes, upbringing, and opportunities, but each of these factors will play a role in an individual’s economic outcome, and none of these factors is deserved. Moreover, even if the notion of desert itself weren’t so conceptually problematic, it is practically impossible to implement an economic system that consistently gives people what they deserve. We start out in circumstances which we don’t deserve and develop dispositions which we don’t deserve, and we are motivated by ends, which we may or may not get, but which we certainly do not deserve. These aspects of individual behavior are the foundation of every economy. So, the argument for an imaginary economy where each of us gets what we deserve is about as compelling as the argument for an imaginary world in which we don’t manifest these characteristics.
4) Equality Is a Fundamental Part of Justice.
Just as we are not born into circumstances that we deserve, we are not born into conditions of natural equality. We are not equally smart, strong, attractive, or ambitious. This fact of inequality poses a problem for economic redistributivists similar to the problem that desert poses for Right Libertarians. Generally speaking, programs that redistribute economic holdings from the rich to the poor are directed at one of two egalitarian ends: Total economic equality or equality of opportunity. The Marxian goal of total economic equality requires either a defense of the intrinsic value of economic equality or a compelling argument that it is the only means toward some other intrinsically valuable political end. Suffice it to say, both cases are hard to make because natural inequality is persistently at odds with economic (and political) equality.
Admittedly, I am sympathetic to the social-democratic case for equality of opportunity (which, incidentally, syncs with Neo-Keynesian economics quite nicely). But, when we ask why an economic system that promotes equality of opportunity is preferable to one which does not, it is likely that our answer will involves one or more of the following appeals: 1) The economy will be more productive, 2) People will have more freedom of opportunity, 3) Everyone will have a better chance of getting what they deserve, or 4) Equality is preferable for its own sake. All of these assertions are problematic, but, as we have seen above, they are also perennial.
Whatever the economic theory, we can’t escape normative assumptions.
*Of course, as I pointed out above, they don’t really mean a "free" market. They mean a police-protected system of private property ownership with limited government regulation and taxation, a capitalist free market.