Monday, February 6, 2012

Morality and Markets

Suzy Khimm reports on a new study from the Journal of Psychological Science that studies the relationship between income inequality and personal beliefs of individual ability. In short:
In societies with more income equality, people may not only have more equal incomes, but they may also feel a pressure to seem more similar to others.
I have always been curious about the ways non-economic factors influence market activity, and maddened by the way neo-classical theory strives to eliminate such considerations from its models. Specifically, as exemplified in the above study, there is often a conflation between observations about an individual's market performance, and normative judgement about that individual. On that point, I wanted to draw your attention to something Larry Summers said in an Ezra Klein interview some time ago that just is not said enough:
[...] people see economic issues through moral frames and people think there’s an extent to which recessions are punishment for sins — mainly sins of excess — and you don’t expiate sins by binges. So there’s a kind of moral counterintuitiveness that has made it difficult for the public and for political figures to accept stimulus. (emphasis mine - JMG)
From a policy perspective, it is very frustrating that political opinions on fiscal and monetary stimulus is held up in conceptions of desert. There are very real concerns about the long-term inflationary risks of stimulative fiscal policy, without some type of monetary easing. But we are not having debates about this type of question. We are having Senators harp on about how the stimulus "failed" with critiques completely divorced from the actual theory of fiscal stimulus, and largely being accepted by people who are not particularly curious about the theory in the first place.

Economist can certainly do a better job of outlining how theory models and policy solutions are unrelated to normative values about society and individual choice. Critics need to do a better job of relating their objections to polices either in the broader theory itself, or its narrow malpractice in specific legislation.

No comments:

Post a Comment