This Harvard Crimson op-ed argues that that economic policy-making doesn’t embrace the full human story because what’s missing in free market self-interested capitalism is due regard for “normative ethics” :
“Economists distinguish between ‘positive’ and ‘normative’ judgments. Positive judgments are testable and predicated on objective facts. Normative judgments weigh those facts according to subjective personal values.
“Although Enlightenment-era economics was normative and philosophical, contemporary economics is a precise and quantitative science that seeks to determine what happens in the world under a particular set of assumptions. Policymakers, political philosophers, and ordinary citizens can then evaluate those occurrences according to their own normative judgments and determine whether they find them desirable.
“Responsible economic scholarship requires assigning positive and normative judgments separate roles in the policymaking process. They do not simply trade off; they have entirely different jobs.”
“[Economists] are often characterized as robots completely devoid of ethics, chasing professional ambitions that are as sterile and soulless as they are. Authors, including in these pages, have written that human ethics are incompatible with good economic policy. This line of argument claims that our economic logic should be free from our personal values, and we must prevent our moral judgments from “getting in the way” of objective decisions… this logic is flawed… It is not the strength of one’s feelings that matters, but rather that they fulfill their proper role in the decision making process.”
The article urges policy-makers to give equal time to both positive and normative judgments. This commentator agrees, but admits that normative concerns — the province of behavioral economics — can be messy:
“[In economics], the beauty of a mathematical model may have little to do with the complexity of local institutions and other bottlenecks to getting prices to work or markets to clear without externalities. Behavioral economics is far messier than standard models of rationality.”
Yale economics professor and Nobel Prize winner Robert Shiller advocates for “narrative economics” — a practice driven by the human love of storytelling — to bring a human touch to the profession. “Not everyone is equally proficient at understanding narratives,” he says, “and economists are among the worst at appreciating them.” He thinks economists need to fix that.
“Twenty-five years ago, Chicago Booth’s Dick Thaler and I set up a series of workshops at the National Bureau of Economic Research on what we called “behavioral economics.” Behavioral economics was economics with an input from the psychology department. Every department has its own tool kit for approaching research; we were very much influenced by psychology. Maybe a little sociology, maybe a little anthropology, but nevertheless all social-science fields. I’m starting now, with my more recent work, to think that we have to look at the humanities as well.
“There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit.
“The human brain is built around narratives. We call ourselves Homo sapiens, but that may be something of a misnomer…. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives.”
As usual, Silicon Valley is ahead of the game, having already embraced the power of story as its own cultural norm:
“In Silicon Valley these days, you haven’t really succeeded until you’ve failed, or at least come very close. Failing – or nearly failing – has become a badge of pride. It’s also a story to be told, a yarn to be unspooled.
“The stories tend to unfold the same way, with the same turning points and the same language: first, a brilliant idea and a plan to conquer the world. Next, hardships that test the mettle of the entrepreneur. Finally, the downfall – usually, because the money runs out. But following that is a coda or epilogue that restores optimism. In this denouement, the founder says that great things have or will come of the tribulations: deeper understanding, new resolve, a better grip on what matters.
“Unconsciously, entrepreneurs have adopted one of the most powerful stories in our culture: the life narrative of adversity and redemption.”
More on economic narratives coming up.
For more on ethics and economics, see Ethics and Economics (The Library of Economics and Liberty), The Economics of Ethics and the Ethics of Economics: Values, Markets and the State (2010), and Ethics in Economics: An Introduction to Moral Frameworks (2015).