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Morality and Power

On Ethics, Economics and Public Policy

Mike Berry

Offering a compelling critique of orthodox economic analysis in the public realm, Mike Berry exposes the lack of development in economic thinking in public policy since the economic crisis of 2008. Focusing on both the ethically unacceptable outcomes of recent public policy and the threat of populism and rising nationalism, this book offers noteworthy suggestions for an alternative social democratic future. Both students and practitioners of heterodox economics and public policy will find this a compelling insight into the ethical concerns and social impacts raised by the political ascendency of neoliberal policies in recent decades.
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Mike Berry

Chapter 1 outlines the aims and structure of the book, providing a brief description of the content of each chapter to follow. I stress the double relevance of ethics to the study of economics and the formation of public policy; namely, the role that values actually play in the behaviour of people in the economy and society and the need to explicitly ask questions about what the right action or policy should be. I foreshadow the adoption of a form of consequentialist analysis in the book.

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Mike Berry

Chapter 2 traces the emergence of arguments in the eighteenth century that culminated in the rise of utilitarianism, the ethical foundation of a rationalistic economic science a century later. It does so by considering the work of the two giants of the Scottish Enlightenment, David Hume and Adam Smith. The importance of considering the thought of long-dead eighteenth-century moral philosophers is to recognize the complex interrelations between the passions and the interests that existed before modern economics collapsed the distinction into a reductionist theory of rational choice that rules out the explanatory and policy pay-off resulting from an approach that embraces the pluralistic structure of human nature.

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Mike Berry

Chapter 3 discusses the influential work of the British legal scholar and philosopher, Jeremy Bentham. His book An Introduction to the Principles of Morals and Legislation, published in 1789, laid down the classical theory of utilitarianism, arguably the first secular attempt to divorce morality from a theological base. Later philosophers and political economists, notably, Sidgwick, J.S. Mill and Francis Edgeworth developed and modified Bentham’s work. However, none succeeded in resolving certain difficulties associated with the impossibility of measuring utility in ways that allowed aggregation over actions, time frames and people. The chapter goes on to discuss how modern economics came to transform the Benthamite calculus into a system of rational choice based on an ordinal concept of utility, while developing a particular but limited notion of cardinal utility.

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Mike Berry

Chapter 4 tells how John Stuart Mill sought to shake off the early influence of his father, James Mill, and Bentham to deal with features of classical utilitarianism that he found morally repugnant and politically dangerous. In particular, he objected to the radical egalitarianism implicit in Bentham’s theory and the associated view that ‘push-pin was as good as poetry’. Mill preferred an evolutionary approach to public policy and constitutional reform that would be governed by the gradual moral elevation of the masses utilitarian ethic.

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Mike Berry

Chapter 5 discusses how the utilitarian concern with total utility was approached side on by considering the impact on economic outcomes of marginal changes in commodity choices and resource allocations. This allowed economists to focus on the process rather than the outcomes of market interactions, emptying the subject of an explicit moral charge. By the beginning of the twentieth century, economics had moved a long way from its utilitarian roots. The recognized inability to give sense to what it means to maximize utility or net happiness caused economists to narrow their gaze to the more tractable issue of explaining how prices (including wages and interest rates) are formed in freely operating market economies. Left behind, however, was an equal sense of something missing. What was the value to human actors of freely operating market systems? What justified the nature of economic organization and the social consequences resulting? What role should government have in monitoring and, perhaps, intervening in market processes? These are all basic ethical or normative questions the answers to which could not be read off from the utility and cost curves of the new microeconomics.

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Mike Berry

Chapter 6 interrogates the way in which the concept of welfare has been defined and applied in economics over the past century. I identify and critique the particular consequentialist cast defining whose outcomes count, which outcomes count and how these outcomes can be aggregated across people and values. Critique focuses on the over-reliance on market values to the exclusion of other value bases and outcomes, and on the inadequacy of formal theories of well-being inherent in the revealed preference driven model of rational choice. This addresses the debate on ‘the moral limits of markets’ and the non-consequentialist perspectives of rights/obligations and virtue ethics.

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Mike Berry

Chapter 7 uncovers the intellectual context from which modern theories of economic welfare developed. I discuss the emergence of the ‘old’ welfare economics and ‘new’ welfare economics associated with A.C. Pigou and Vilfredo Pareto, respectively. Most attention is given to the undeservedly neglected work of Pigou; the main critique of Pareto is reserved for the following chapter. It is not possible to fully appreciate the grip of conventional market-derived values without considering how Pigou following Alfred Marshall entrenched ‘the measuring rod of money’ in the normative firmament of the discipline. The chapter also highlights Pigou’s major contribution to the moral limits of markets, namely the concept and wide applicability of ‘externalities’.

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Mike Berry

Chapter 8 is a central critical conceptual section of the book, dealing with the major ethical weapon of mainstream economics – the politically influential concept of economic efficiency, derived from the Pareto principle. It is the distributional value judgment inherent in the notion of ‘Pareto improvement’ that enables the seemingly (misleadingly) technical meaning of ‘efficiency’ to overwhelm alternative ethical drivers of public policy. The chapter draws out the limitations of the Pareto principle in both its strong and weak forms before addressing the controversial subjects of the theory of second best and the compensation principle. The latter expresses what I have called the ‘super strong’ Pareto principle providing the normative justification for the economists’ familiar tool – cost benefit analysis. This tool when applied routinely to policy biases outcomes in favour of the well-off and effectively zero values – in both monetary and non-monetary terms – outcomes that are difficult or impossible to ascribe monetary values to.

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Mike Berry

Chapter 9 focuses at the societal level, comparing and critiquing alternative theories of social justice and expanding the analysis beyond the debates framed by proponents and opponents of Paretian welfare economics. This carries the analysis beyond theories based on maximizing some social good to considering the role of contested concepts like desert, merit, equality, rights and community. What are the implications of different conceptions of social justice for ‘good’ policy?