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Date: Fri, 31 Aug 2007 18:32:38 -0400 (EDT)
To: Daniel Reeves <dreeves &AElig umich.edu>
cc: Dave Morris <thecat &AElig umich.edu>, improvetheworld &AElig umich.edu,         Steven Reeves <steven &AElig aptigi.com>, reeves-hayos &AElig umich.edu,         reeves-kalkman &AElig umich.edu
From: James W Mickens <jmickens &AElig eecs.umich.edu>
Subject: Re: mind the gap

Economics and ethics both deal with people and the implications of their 
actions, but in terms of defining "good" and "bad" actions, economics is 
woefully inexpressive. Economics tells us how money interacts with itself, 
but this interaction does not have an intrinsic moral character. Thus, the 
idea that "an increase in total wealth increases net welfare" originates 
from outside economics---it is an attempt to ascribe a moral character to 
an economic policy. The wealth-welfare conflation is attractive because it 
makes public policy (i.e., public morality) easy: increase a society's 
wealth and everyone will be better off. However, the obligations and 
rights that I have to exchange money with other people are merely a subset 
of the obligations and rights that define my entire moral universe; 
attempts to describe my complete moral calculus in purely financial terms 
will lead to tortured logic, particularly when trying to explain "obvious 
wrongs" such as slavery that possess both a financial character and a 
moral character.

Even if slavery encouraged the creation of extremely wealthy societies, 
most people would still argue that it is inherently wrong. But how could 
this argument be derived from purely financial principles? We could do 
things like assigning a monetary value to freedom, but this is 
intellectually silly. The value of freedom shouldn't fluctuate according 
to the vagaries of the market; I don't want the worth of my freedom to 
vary according to the exchange rate between the peso and the dollar, or 
the status of the sub-prime lending market. We could avoid the 
characterization problem by fiat by saying that slavery is an ethical 
issue, not an economic one. But what are the rules for making such 
declarations? How do we determine when an economic or an ethical calculus 
should be used? Is unequal access to health care an economic issue or an 
ethical issue? Is unequal access to education an economic issue or an 
ethical issue? There are countless questions of this form. This suggests 
that when making public policy decisions, our strategy should be to 
determine the most moral action allowable given our financial constraints, 
rather than the most wealth-creating policy with the best moral 
repercussions. The two formulations might sound similar, but they are 
very different. One makes morality the first-order concern and the other 
makes wealth generation the first-order concern.

Paul Graham's views on income inequality are broken because they try to 
conflate economic outcomes with moral outcomes. Graham says that "to the 
extent that income varies simply according to how much wealth people 
create, the distribution may be unequal, but it's hardly unjust." Strictly 
speaking, Graham means "unjust" in an economic sense; he's saying that we 
can't call skewed income distributions unjust if they are the result of an 
unbiased economic system which does not arbitrarily punish some and reward 
others. Fair enough---if we allow a market to work in an unregulated 
fashion and define "unbiased" as "respects supply and demand," then the 
final wealth distribution may be fair from the economic perspective. 
However, the results may be deeply unfair from the *moral* perspective. 
Graham ignores the systemic, discriminatory, and, in fact, immoral 
barriers to economic participation in America and elsewhere. As we 
discussed in our debate on affirmative action, factors like racism, 
sexism, and differential levels of parental income distort one's potential 
for success. This is not fair, but Graham seems to disagree. Graham looks 
at unequal wealth distributions and implies that because they are "just" 
in the economic sense, they are just in the moral sense. This is 
intellectually dishonest and simply incorrect. It is insufficient to point 
out what is and then claim that this is what should be since free markets 
lead to optimal net outcomes. It is unfair for two people with equivalent 
work ethics and levels of intelligence to achieve different economic 
achievements due to factors that they cannot control. This outcome might 
be Pareto efficient or maximize some other economic metric, but it is not 
moral.

Free markets optimize economic variables, not moral ones; the two sets 
are sometimes related but definitely not equivalent. The assumption that 
the two are synonymous is an unhealthy fetish amongst libertarian 
economists. By converting moral dilemmas into problems of wealth 
generation, libertarian economists often ignore underlying social 
injustices. These injustices are often much more indicative of net welfare 
than an expanding GDP.

~j