The Value of a Sceptical Economist

The summer is here and that means that at last there is time for some reading. I have finally had the pleasure to enjoy Jonathan Aldred's The Skpetical Economist, which has sat on my book tower no. 3 for several months. What I enjoyed most about the book was the way that he has put the mental effort into expanding my somewhat airy comment to students that costing the aspects of life we value most is 'spiritually offensive'. Aldred explores our objections to such processes and finds them not only ethically coherent but rationally sustainable.

Much of the content of the book was familiar territory for me, but the argumentation was excellent and the references to heterodox work, and work that tests the neoclassical theory in the real world and finds it wanting, are now all handily on one place. His central point is about the social and ecological threat of the system which respond to Gus O'Donnell's pithy phrase: 'If you treasure it, measure it', and more specifically, price it. Here is Aldred summarising his view of the risks this attitude poses:

'It is the practice of valuing things in terms of money which in itself leads us astray. Almost all of us have an instinctive sense that some things should not be valued in terms of money. But what exactly are we objecting to? . . . As well as the practical difficulties, monetary measurement presupposes a common scale of value; but the thing being measures may have multiple dimensions or attributes, with different kinds of values not reducible to being measured along a common scale. Or the thing being measured may have inherently qualitative attributes, which cannot be measured on any quantitative scale.' (p. 207).

The chapter that offered me most new and interesting insights was Chapter 7: 'New Worlds of Money: Public Services and Beyond'. This is the best account I have read so far of how the project to marketise the public sector has been driven by those who would privatise it and has been grounded in weak intellectual reasoning unsupported by evidence. Aldred makes a convincing case that ethics and motivations in the public sector are just different from those in those in the private sector. Assuming similarity, and introducing inappropriate systems of audit and incentive, is likely to reduce the quality of the service, while increasing its cost and impairing the performance of those who provide it.

Towards the end Aldred reaches one of his most pungent points: the danger of the performativity of economics. Performativity is one of those abstract, academic concepts that I can never keep quite clear in my own head, but how it translates is that if you spend enough time acting as if something were the case, it becomes habitual and starts to actually become the case for you. This was familiar turf for Dale Carnegie and exponents of assertiveness training, but its consequences in terms of economics are more sinister:

'The self-fulfilling nature of some economic analysis is one instance of a more general phenomenon: economics can be 'performative'. That is, the act of doing or performing it, of studying the world using the ideas and tools of economics, may change the world being studied. In other words, merely using economic theory can help to bend the world to fit that theory.' (p. 223)

Thus our own moral system may become skewed: we may begin to imagine trees with price-tags or to feel like looking after our patients less well because we have undergone a pay freeze. This is why the onward march of economics into the priceless areas of personal relationships and natural treasures should be strenuously resisted. Whenever somebody shares with you the now nearly common sense that you don't value something unless it has a monetary price, please join me in pointing them in the direction of their own children.
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Institutional Racism

The indifference of the Metropolitan Police to the murder of Stephen Lawrence rightly led to private soul-searching and public examination of procedures, and we have to hope that our country and particularly our police service is better as a result. But there is a more insidious form of racism that goes unquestioned and causes the death of far more people. This is the racism of an economic system that values the lives of the poor differently from the lives of the rich.

According to a recent blog post, such an attitude was subscribed to back in 1991 by Larry Summers, tipped to become the boss of the World Bank, and therefore one of the most powerful people in the global economy. According to the totally undemocratic procedures by which the global financial institutions are run, the Europeans choose the head of the IMF while the head of the World Bank is a position virtually in the gift of the US President, and the rumour is that he is thinking of giving the job to Summers.

US blogger Doug Henwood cites a memo issuing from Summers's office back in 1991, when he was the Bank's Chief Economist. The memo explains why Africa is seriously under-polluted and argues for the Bank to encourage highly polluting industries to move to Africa because this would be so much more efficient. The efficiency arises from the fact that paying compensation for the deaths of Africans is so much less costly than paying for the deaths of US citizens.

The author of the memo writes that 'I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.' The argument is that should there be a claim for damages, the costs would be based on the economic value of the people who died, that is to say their potential lifetime earnings. Since Africans earn so little their deaths would cost polluting companies relatively little.

In spite of the morally outrageous nature of this reasoning, and the blatant racism that lies behind it, this sort of costing of human lives is fairly routine amongst neoclassical economists. A seminal paper in the field cites that value of human lives, based on earnings potential, as ranging between nearly $10m. if you are Canadian to a mere $0.8m. if you are South Korean. The African countries favoured for pollution dumping by Summers and his ilk do not have enough money to invest to be part of these studies.

The estimates vary widely, suggesting that the methods as well as the morality lying behind these sorts of studies is grossly unreliable. Yet it is on this sort of basis that decisions are made about the siting of factories and the disposal of the noxious effluent of Western lifestyles. Those debating the future of capitalism should take note: the challenge to values needs to run much deeper than merely questioning relative wage differentials in the wealthy economies of the West.
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The Courage of Conviction

Central to the myth of progress, what Vandana Shiva has called capitalism’s creation myth, is the idea that you can always have more. The lesson of wisdom, of most of the world’s religions, is that there must always be balance. The joy of new love is always balanced by the pain of opening up to another person; the precious love for children is bought at the cost of the fear of their loss; the thrill of being alive is balanced by the fear of death. Balance is the central lesson of life.

It is because of the refusal to accept the pain that accompanies the joy that we are left with a culture devoid of depth and relationships devoid of meaning. We value the instant karma of the reality TV show or the next gadget, while laughing at those who invest their lives in seeking a deeper, more valuable wisdom. When the entrepreneur tells you there is no such thing as a free lunch, he is thinking that everything must be paid for in terms of money, which we are prepared to work for and offer up. But how many of us still understand the price of a meaningful human life, and are prepared to pay for that?

The managerialist politicians who predominate today would probably argue that in order to change something you need to be able to measure it. A cynical wag recently undercut the purported objectivity of this process with his comment that the Blair government has moved from evidence-based policy-making to policy-based evidence generation. The balancing of costs and benefits in the public policy debate demonstrates clearly the predominance of utilitarianism. The downside of this sort of calculation is that it yields outcomes which are repugnant to many citizens.

This is especially apparent in debates over nuclear power, where politicians have decided on our behalf that the number of lives lost as a result of nuclear irradiation are a fair trade-off for the generation of electricity to power homes and factories. Similar arguments are made when decisions are taken to situate landfill sites or incinerators. The welfare of the average citizen predominates over that of the affected individual, making the cost-benefit analysis an inherently immoral calculus. Utilitarianism is also guilty of species chauvinism since the impact of economic decisions on the non-human inhabitants of the planet are never considered, let alone measured.

It is easy to laugh at the economist or politician who attempts to put a price on human life, or the cost of climate change, or the total annihilation of the planet, or who finds that it is best to encourage Czech citizens to smoke because their early deaths save the government money. It is harder – and therefore more vital – to have the courage of our convictions, and of our intuitions and judgements – when we are in situations where important decisions must be made. Tweet