Morality and the Markets

Social justice philosopher, Michael Sandel, has gone on a recent tirade against the hegemony of economic thinking in society. In particular he thinks we take market exchange too far – we need to bring morality back into the markets. His arguments are either paternalist, or based on a misunderstanding of economics. 

His first point is that economists only care about efficiency.

“We fall into thinking that economic efficiency—getting goods to those with the greatest willingness and ability to pay for them—defines the common good.”

This is a common misconception of economics. The result that pareto efficiency could be reached with free exchange is a positive result, not a normative statement. Economic theory by no means excludes concerns over equity. It just forces you to be explicit about it. There is, in fact, a whole field of economics which analyses formally how different societies would look, given a desire for equality. To my view the key contribution of economic theory to arguments of social justice is a better understanding of the trade-offs that a social planner faces between efficiency (the size of the pie) and equality (the distribution of the pie).

His second point is that “parties [who exchange] may value the things they exchange in the wrong way”. 

This is patronising. It is very arrogant to think that your valuation of a good is superior to another’s. And even if you are right, the solution would be to convince others of your valuation, rather than limit their freedom to exchange.

His third point is the free choice is not always free. In the market for organs:

“In practice, the sellers of kidneys would likely consist of impoverished people desperate for money to feed their families or educate their children. Their choice to sell would not really be free, but coerced, in effect, by their desperate condition.”

 This is true. But the solution would be to create a society which gives the poor more choice, rather than less. It is abominable if a poor person is forced to sell his/her body out of economic desperation. But limiting that choice makes him/her worst off, not better.

I think there are two legitimate reasons to place restrictions on exchange. First, if one party is unwittingly made worse off from the exchange, because it places limits on a person’s future choices. Take for example drug addiction, debt bondage or human trafficking. Second, if exchange between two parties makes a third person worse off. Take for example pollution. Once again, economists have a lot to say about this.

I have so often come across such straw man criticisms of economics. Why is it that people think that the study of economics comes at expense of morality? Why are we so commonly misunderstood? Maybe our thinking gets “lost in translation” when applied by policy makers. If this is true then yes, I agree with Sandel that a better economics education is required.