Economists and Over-Reliance on Prudence

I’m currently reading Bourgeois Equality, Deirde McCloskey’s final installment in a trilogy. I have a lot of thoughts that will be for another day, but for now a quick observation…

Among the many ideas and arguments brought up in the trilogy, McCloskey criticizes modern-day economic thought as relying only on one of the seven principal virtues: prudence. Ethical philosophers and psychologists throughout time have recognized that human behavior is (and should be) guided not just by prudence (“rational self-interest”) but also by temperance, justice, courage, love, faith, and hope. Adam Smith, in Theory of Moral Sentiments, argued wonderfully about how human behavior guided only by any one of the four cardinal virtues (the first three plus prudence) was unreasonable and unethical. More to the point, mainstream economic analysis today is both incomplete and unreasonable to reduce all human behavior down to a rational utility maximization.

What dawned on me is how the economics discipline today is full of people worshipping this prudence-only mindset. I think the causation works both ways. On the one hand, individuals who themselves see problem-solving and behavior as largely rational calculated decisions will be disproportionately drawn to economics…because the framework they are going to be working with jives better with their own approach to life. On the other hand, students who study economics often start to shape their approach to life problems and policy decisions as if human behavior is only understood through prudence. After studying economics for a couple years, I recognize that I started to oversimplify behavioral analysis and ethics as “well, yeah, it’s in their self-interest.”

To non-economists the following parable may seem absurd, but to me at the time it sounded oddly sensical: the girlfriend of a roommate was visiting for the weekend; the roommate without the girlfriend felt this was a burden on his space and lifestyle, so he did some Coasean bargaining to allow this roommate’s girlfriend to visit and stay with them. They worked out some monetary deal to make the visit an agreeable event. Since they were sharing a room, the girlfriend visit meant the single roommate would have to sleep on the couch. What a drag! (For the record: I was not directly involved in this situation)

Another quick bit of evidence can be seen in experimental economics. Some experiments, like the dictator game or ultimatum game, are meant to isolate how altruistic humans can be in different scenarios when money is involved. Non-economists demonstrate more charity and altruism, even when the experiments are anonymous and no “self-interest” can be ascertained from their behavior. Undergraduate economics students, on the other hand, follow more closely to what “maximize utility” models would predict. Basically, they know the models. They know how they’re “supposed” to act. In a sense, they have shifted their decisions to emphasize prudence more than the other virtues. Like I said, the causation can work both ways, but I doubt that roommate would have engaged in some Coasean bargaining absent learning about the concept in economics classes. No society that I know of imposes a norm of private bargaining in such a household situation.

This reality unfortunately reinforces itself. Prudence-driven individuals are more likely to go into economics, economics is more likely to draw people towards a more prudence-based approach, and the discipline ends up staying focused on prudence only. People who are so aghast at the idea of rational self-interest being the sole driver of human behavior stop after Intro to Micro and go into other disciplines. In addition, the credibility of the subject to outsiders diminishes. On some levels, this is a fair decrease in credibility. In others, it means non-economists wrongly dismiss economic realities of scarcity and the laws of supply and demand when they shouldn’t.

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Amnesty as an Incentive to Break the Law

In the Letters section of The Economist this week, a few people wrote in defending the deportation of illegal immigrants in America. The logic was basically that these people have broken the sovereign laws of America and amnesty only rewards rule-breaking. Why go through the incredible hoops and costs of legal immigration when you know amnesty is just on the horizon? Isn’t this unfair to those who have followed the rules and spent a fortune on fees to get citizenship legally?

I used to agree with this logic, but now I’m not so sure. Illegal immigrants are illegal so in one sense holding them accountable for breaking the law makes sense. But what about when the law is unjust? As I get more sympathetic to a policy closer to basically-open-borders I see any restriction on migration (aka free trade of labor) as unjust.

You can think of it a few ways, though the level of convincing any of these analogies will do is largely dependent on your agreement with the unjustness of the laws. First, I want to let free all non-violent drug offenders from jail. I think the War on Drugs is embarrassing. Pardoning all of them – one might say, well what about all those who went through the hassle of getting their medical marijuana prescription, or who paid to get a license as a dispensary in Colorado or Washington? Aren’t you just forgiving people that broke the law? On the further extreme, if we pardoned all those who refused to pay a poll tax – what about all those poor people who saved up for months so they could vote in the 1800s? They followed the rules, aren’t we just rewarding people for breaking the rules?

The point is that granting amnesty to people who have broken an unjust law really shouldn’t be that big of a deal. Yes, illegal immigrants are by definition illegal. But if you think they should be legal this doesn’t really matter. I know there’s a delicate balance between rule of law and civil disobedience. But this seems to be yet another case of the two sides talking past each other.