Finance and Economics
Free exchange: Moral hazard
Economists cannot avoid making value judgments, however much they might wish to.
AMID the name-calling and bluster that mar many fights between economists are a few common tactics.
Belligerents may attack the theory used to support a claim, or the data analysis used to quantify an effect.
During the debate over President Donald Trump's tax bill, to take a recent example, economists bickered over which side had more credibly calculated the economic effect.
They did not, for the most part, argue about whether it was morally acceptable to pass a regressive tax reform after years of wage stagnation and rising inequality.
To do so would strike many economists as entirely un-economist-like. Yet economics has not always been so shy about moral philosophy.
As well as “The Wealth of Nations”, Adam Smith wrote a “Theory of Moral Sentiments”.
Great 20th-century economists like Paul Samuelson and Kenneth Arrow also took questions of values very seriously.
Their successors would do well to take several pages from their books.
Modern economists have attempted to strip value-judgments out of their policy analyses.
Policies are judged on how they are likely to affect economic variables such as income and its distribution, and how those changes would affect overall welfare.
If the models suggest that one policy choice—a top tax rate of 40%, say, rather than 50%—leads to greater welfare than another, that is usually good enough for an economist.