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When the Scientist Is Also a

Philosopher
MARCH 22, 2014
Economic View
By N. GREGORY MANKIW
Do you want to know a dirty little secret of economists who
gie !olicy adice" #hen we do so, we are often s!eaking not $ust as economic
scientists, %ut also as !olitical !hiloso!hers& 'ur recommendations are %ased not
only on our understanding of how the world works, %ut also on our $udgments
a%out what makes a good society&
(he necessity of !olitical !hiloso!hy arises %ecause most
!olicies are good for some !eo!le and %ad for others& )or e*am!le, an increase in
the minimum wage, as !ro!osed %y +resident '%ama, may raise incomes for some
low,wage workers, %ut it will cause some %usinesses to make smaller !rofits, some
customers to !ay more and some workers to lose their $o%s&
-imilarly, the Afforda%le Care Act has !roided greater
o!!ortunity for some !eo!le to get health insurance, %ut it also caused
cancellations for others who were !reiously ha!!y with their insurance&
.aluating the oerall effect of these !olicies re/uires %alancing com!eting
interests&
(o strike this %alance, many economists think in terms of a
0social welfare function1 that aggregates indiiduals2 well,%eing into a summary
measure& (his a!!roach dates %ack to the utilitarian !hiloso!hers of the 13th
century, such as 4eremy 5entham and 4ohn -tuart Mill& (he utilitarians suggested
that each !erson in society receies a certain amount of ha!!iness, or 0utility,1
from an allocation of society2s resources& (he $o% of !olicy makers, they argued, is
to do their %est to ma*imi6e the total utility of eeryone in society& According to
utilitarians, taking a dollar from +eter and giing it to +aul is $ustified if +eter2s
decrease in utility is smaller than +aul2s increase, as would !lausi%ly %e the case if
+eter is richer than +aul&
+hiloso!hers hae long de%ated the alidity of utilitarianism
as an ethical criterion& -ome of the most famous thought e*!eriments in this area
inole what ethicists call trolley !ro%lems& 7magine that you are on a %ridge and
see a runaway trolley car %elow you, hurtling toward three children !laying on the
tracks& A fat man is standing ne*t to you& 8ou can !ush him off the %ridge and into
the !ath of the trolley, killing him %ut saing the children& #hat do you do"
7f, like a true utilitarian, you hae no trou%le sacrificing the fat
man, try another scenario& 8ou are a doctor with four dying !atients& 'ne needs a
new lier, one needs a new heart, and two need a new kidney& A !erfectly healthy
!atient walks into your office for his annual checku!& Are you still willing to !ursue
the utilitarian course of action" At this !oint, almost eeryone %alks& -ometimes,
res!ecting natural rights trum!s ma*imi6ing utility&
Another !ro%lem with the utilitarian a!!roach is that there is
no o%$ectie way to com!are one !erson2s ha!!iness with another2s, es!ecially
when !eo!le hae different !references& +eter may work long hours at a dreary $o%
to earn a high income %ecause he gets a lot of utility from money& +aul may %e
forgoing a higher income for a $o% that re/uires fewer hours or offers more
!ersonal satisfaction %ecause he doesn2t care as much a%out money& 7n this case,
e/uali6ing incomes %y moing a dollar from +eter to +aul could reduce total utility&
+erha!s the %iggest !ro%lem with ma*imi6ing a social welfare
function like utility is !ractical9 #e economists often hae only a %asic
understanding of how most !olicies work& (he economy is com!le*, and economic
science is still a !rimitie %ody of knowledge& 5ecause unintended conse/uences
are the norm, what seems like a utility,ma*imi6ing !olicy can often %ackfire&
-o, what is the alternatie" At the ery least, a large dose of
humility is in order& #hen ealuating !olicies, our elected leaders are wise to seek
adice from economists& 5ut if an economist is always confident in his $udgments,
or if he demoni6es those who reach o!!osite conclusions, you know that he is not
to %e trusted&
7n some ways, economics is like medicine two centuries ago& 7f
you were ill at the %eginning of the 13th century, a !hysician was your %est %et, %ut
his knowledge was so rudimentary that his remedies could easily make things
worse rather than %etter& And so it is with economics today& (hat is why we
economists should %e sure to a!!ly the !rinci!le 0first, do no harm&1
(his !rinci!le suggests that when !eo!le hae oluntarily
agreed u!on an economic arrangement to their mutual %enefit, that arrangement
should %e res!ected& :(he main e*ce!tion is when there are aderse effects on
third !arties ; what economists call 0negatie e*ternalities&1< As a result, when a
!olicy is com!le*, hard to ealuate and disru!tie of !riate transactions, there is
good reason to %e ske!tical of it&
As 7 see it, the minimum wage and the Afforda%le Care Act are
cases in !oint& =o%le as they are in as!iration, they fail the do,no,harm test& An
increase in the minimum wage would disru!t some deals that workers and
em!loyers hae made oluntarily& (he Afforda%le Care Act has disru!ted many
insurance arrangements that were acce!ta%le to %oth the insurance com!any and
the insured> these !olicies were canceled %ecause they deiated from lawmakers2
notion of the ideal&
(o %e sure, you can find economists faoring a higher
minimum wage and the Afforda%le Care Act& (hey acknowledge that there are
winners and losers %ut argue that, on the whole, these !olicies increase social
welfare&
+erha!s they are right& 5ut kee! in mind that in making that
$udgment, they are relying on forecasts from a far,from,!erfect science, as well as a
healthy dose of their own !olitical !hiloso!hy&
N. GREGORY MANKIW is a professor of economics at Harvard.