Growth and Economic Folk Morality
I recently wrote a review of Friedman’s Moral Consequences of Economic Growth for the forthcoming edition of the Cato Journal, and I wrote a lot of notes that I didn’t use. And what good are blogs if not for publishing your discarded book review notes!
A main weakness of the Friedman book is that he becomes increasingly fuzzy about what he takes to be the specifically moral consequences of growth. Toward the end, you strongly suspect “moral” in Friedman’s mouth means something like “egalitarian welfare liberal.” As much as this undermines the credibility or interest of his overall case, this move has been, I think, a rhetorical success for Friedman. His resolute sloppiness about the normative side of the equation gives him a lot of room to move. And he gets credit (though not so much from me) for avoiding the standard economist moral argument for growth. And here’s what I have to say about that.
Which consequences of growth count as moral consequences? This is no small question. The answer naturally turns on one’s moral theory. According to the utilitarian philosophy (sometimes just called “consequentialism”) morality is entirely a matter of consequences, and the consequences that matter are those that increase the net quantity of pleasure or happiness. If economic growth increases the net sum of happiness, then that’s all we need to know in order to endorse it morally.
In fact, a kind of simple utilitarianism is the house philosophy of the economics profession. In the orthodox neoclassical theory, utility just is a measure of the satisfaction of an agent’s preferences, and it is a logical consequence of the definition of terms that an increase in income leads to the choice of a more preferred combination of goods, thereby increasing utility. It should be emphasized that the formal notion of utility as preference satisfaction, is, well, formal, and is not a substantive psychological notion at all. Formal utility implies nothing whatsoever about subjective experience and is not synonymous with pleasure or happiness, just as “preference” in the formal theory implies nothing about liking or wanting. Preference is nothing more than that which is revealed by what an agent has done, and utility is the notation for representing it.
Nonetheless, economists are generally all-too-happy to shuffle back and forth between the two notions of utility according to convenience. The slide from formal to substantive utility, combined with utilitarian moral theory, leads to what I call “economic folk morality.” According to economic folk morality, the moral desirability of economic growth is close at hand. Broad-based growth makes almost everyone wealthier; wealthier people can satisfy more of their preferences; satisfying preferences just is happiness; and happiness just is the moral summum bonum. So growth is morally good. QED.
But economic folk morality is false for at least three reasons. First, preference satisfaction does not entail happiness. It is possible to want and get things that will make us miserable. Second, the pleasure or happiness a life contains does not exhaust its value. The value and quality of our lives depends not only on how we feel, but also on how much of our human potential has come to fruition, the content of our characters, and the objective nature of our behavior. Third, morality is not primarily a matter of adding up a quantity of anything. A person who achieves her ends, honors her obligations, and contributes to her community has lived a moral life, regardless of the quantity of happiness she added to it.
Part of the interest of Friedman’s book is that he does not lean on the economic folk proof for the morality of growth. Insofar as the folk proof is unsound, that has to be to Friedman’s credit. However, the folk proof is tantalizingly close to a profound truth about the morality of economic growth. My complaint is that Friedman’s list of the moral consequences of growth are in fact moral consequences only because they are instrumental to some further state of affairs that is good.
Democracy, tolerance, openness are not good for their own sakes, but for what they enable. But what they enable—an increase in the scope of opportunity and the realization of meaningful human ends—is what economic growth enables, too. Friedman’s moral favorites are not things of independent value with which to justify growth. Rather these liberal desirables are part a package of political-economic goods that already includes growth. These elements are part of the same package in virtue of the fact that they each make life more secure, more satisfying, and more worth living. Growth has better consequences when it occurs within a liberal system. But liberalism is worth having in very large part because it enables economic growth and its consequences. Friedman’s moral desirables are in fact desirable because they enable and magnify the life-enhancing powers of wealth. If it is true that growth in turn enables the conditions that enable it, then we will have a virtuous circle. But we have to get out of the circle to morally vindicate growth. And the folk proof shows the way: growth makes life better.
February 27th, 2006 13:11
I’m being pedantic, but the statement that:
“utility just is a measure of the satisfaction of an agent’s preferences, and it is a logical consequence of the definition of terms that an increase in income leads to the choice of a more preferred combination of goods, thereby increasing utility”
isn’t quite true. By allowing for regret, it’s possible to specify preferences such that more choice leads to less preference satisfaction (a la Barry Schwartz - though I personally think he pushes this idea rather too far.)
February 27th, 2006 13:20
I made a special effort to say “orthodox neoclassical”!
February 27th, 2006 22:56
Um… I think you meant “The Moral Consequences of Economic Growth”.
If you meant to accuse him of confusing moral and economic consequences (which I don’t think you did), you probably shouldn’t do it by misnaming his book.
March 5th, 2006 14:55
“But economic folk morality is false for at least three reasons. First, preference satisfaction does not entail happiness. It is possible to want and get things that will make us miserable.”
I’ve been thinking about your claims for a while, especially during the spat with DeLong. No, preference satisfaction does not make us “happy” in the absolute sense, but it normally doesn’t make us less happy. It is in fact “possible to want and get things that will make us miserable”… sure, occasionally, but not in a systematic way. That would violate economist’s sacred rationality assumption. Sure, people are drunks and druggies, etc., but this isn’t really useful for developing a general model because these are normally exceptions.
This is why you get the confusion. You are correct that preference satisfaction doesn’t make us “happy” but it almost always doesn’t make us less happy, which can be a moral case for growth.
March 21st, 2006 20:05
RE: “preference satisfaction doesn’t make us “happy” but it almost always doesn’t make us less happy”.
In very large measure, much of the happy consumption of goods in the modern era does (or will) make us individually and collectively less happy.
The long term consequences (or maybe not so long term) of the collective choices/preference we enjoy today because economic growth has expanded both our numbers (population able to make choices/exercise preferences) and our opportunities for more “happiness” is (or will) lead us unintentionally to less happiness, collectively and individually.
Proof based even one increasingly “safe” assumption: It is true that the negative externalities of burning fossil fuels in more cars in more countries is (or will) indeed melting the polar ice caps thereby leading to increased flooding of coastal lowlands and is (or will) increasing ocean surface temperatures thereby the frequency and/or severity of hurricanes.
These unhappy unintended consequences of globally impacting externalities result from the aggregation of our individual choices/preferences when we go out shopping for more “happiness”. It is precisely these choices which power the engine of economic growth. Our choices seem at the moment to expand, individually, our happiness; but, in the end will they not leave us one and all less happy?
August 22nd, 2006 10:11
[...] What leaps to mind is that economists must be impressed with diminishing marginal utility (DMU) arguments for redistribution. But this is not qua economist. Orthodox utility theory is not in the business of interpersonal utility comparison, so there is no language in which to say that overall utility has been increased by redistribution. There’s just one guy’s utility going down, another guy’s going down, and no way to say whether one compensates for the other. (This is one of the reason some economists are attracted to happiness research: they want a language in which to do principled interpersonal utility comparisons.) But, as I have noted in the past, when economists have anything interesting to say, it’s usually because they are applying what I like to call economic folk morality, which plays fast and loose with the various senses of utility. Economists qua amateur moral philosophers in my experience are very impressed with DMU justifications for redistribution. [...]