Notwithstanding the philosophical bent of some of its founding minds, including Adam Smith, mainstream economics today does not concern itself explicitly with matters of right and wrong.
Of course, some general notion of “welfare maximization” is taken by the profession to be “right”, and by implication all alternative objectives are at least dubious if not outright wrong. But this does not get us very far. It merely gives rise to a highly simplistic and subjective handling of what Jack on the street would consider to be “moral” questions. What are an economist’s views on gay marriage, abortion, drug legalization, vegetarianism, gun control, and so on? Some economists will have more permissive attitudes on these issues, and some will have more conservative attitudes. If asked to defend a moral stance, an economist who has donned his “economist” hat will rationalize whatever position he has adopted based on some notion of welfare maximization. The end.
One could claim that this chameleon-like ability of economics to support multiple and often completely conflicting moral stances is perfectly fine, and that economics is a pragmatic science that should not be asked to generate advice on philosophical questions beyond the vague notion of welfare maximization. But the real problem is not any innate limitation of economics, but a limitation of measurement. Even if we were to accept the maximization of a particular discounted welfare function as the sole ethical criterion that should guide moral decisions, the measurement of marginal welfare obtainable from adherence to different moral codes is incredibly fraught, and this is what leads to our discipline’s routine moral ambiguity.
What makes measurement particularly difficult in cases of morality? First, a significant fraction of felt pleasure from witnessing, imagining, or performing acts that the beholder believes to be moral goes unseen by not only the economist, but by everyone except the person experiencing it, as it is generated via non-market-based and hence non-priced interactions. Second, we face the perennial problem of not observing a reasonable counterfactual. How can we measure how much joy the drug addict receives from his injection, and even if we knew that with certainty, how can we measure, for comparison, the amount of marginal pain he will cause his friends and family in future periods due to his addiction (relative to the counterfactual of his not being addicted)?
Public figures discovered to have violated a social moral code do face material consequences evident to all. The recent scandal surrounding the American general Petraeus is a case in point. Yet there is no observable price placed on his behavior – only public disapprobation and loss of status – and even thinking about how to measure the welfare of all relevant players in each of two possible states of the world (say, affair versus no affair) boggles the mind. Hence the “price of immorality” in this and similar cases is a quantity that we would struggle to measure.
Events in international trade may get us a bit closer to measuring, by contrast, the price of morality. Indonesia is now buying less live beef from Australia. This is likely (despite the denial of a causal link from some quarters) due to fear that the same type of political interference seen in the middle of last year will again unpredictably interrupt trade. Why is this casual link so likely? Because all the fundamentals point to a robust Indonesian-Australian beef trade link. Our cows are big and tasty, free of foot and mouth disease, and geographically close, and Indonesia has a strong history of importing Aussie beef cattle.
Not only was it the most likely cause of the trade decline, but our country’s political interference was purely moral in nature. Our minister for agriculture proclaimed that Australians would not countenance Australian cattle being treated in what was felt to be a cruel way, and as Indonesian abbatoirs were not up to the “killing standard”, they were barred from receiving shipments of Australian cattle, effective immediately. This was an action taken to obtain a benefit that only exists in the minds of Australians, and is hence invisible.
The rightness or wrongness of this unilateral action was evaluated in rough “welfare-maximization” terms even by non-economists. But in this case we can do more than hand-wave: as with any public policy evaluation, we can attempt to estimate the effect of the treatment. We have the value of Australian live cattle exports to Indonesia before and after the decision, and could use as a control, for example, Indonesian imports of a subset of Australian foods that do not substitute for live cattle. With a difference-in-difference estimate of the value of the export market decline, together with some understanding of the structure of the beef industry, we could generate estimates of the loss to upstream markets in Australia (cattle feed, transportation, labor, and so on). With detailed supplier cost information we could even estimate the costs and benefits of the medium-run industrial repositioning that may occur. We cannot measure the size of the invisible benefit, but economic tools might yet demonstrate that the luxury good of morality, just like lunch, is not free.