Economics is Ultimately a Matter of Morality

Paul Krugman

January 10, 2011, 12:03 pm

Economics and Morality
Mark Thoma directs me to Eric Schoeneberg, who argues that the right is winning economic debates because people believe, wrongly, that there’s something inherently moral about free-market outcomes. My guess is that this is only part of the story; there’s more than a bit of Ayn Randism on the right, but there’s also the appeal of simplicity: goldbuggism is intellectually easy, Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it.

Still, Schoeneberg is right about the tendency to ascribe moral value to market values, and the need for a counter-narrative. I’m going to think about that; but right now, let me describe how I see the US income distribution in terms of justice or the lack thereof.

The first thing one should say is that our system does reward hard work, up to a point. Other things equal, those who put more in will earn more.

But a lot of other things are, in fact, not remotely equal. These days, America is the advanced nation with the least social mobility (pdf), except possibly for Britain. Access to good schools, good health care, and job opportunities depends on lot on choosing the right parents.

So when you hear conservatives talk about how our goal should be equality of opportunity, not equality of outcomes, your first response should be that if they really believe in equality of opportunity, they must be in favor of radical changes in American society. For our society does not, in fact, produce anything like equal opportunity (in part because it produces such unequal outcomes). Tell me how you’re going to produce a huge improvement in the quality of public schools, how you’re going to provide universal health care (for parents as well as children, because parents in bad health affect childrens’ prospects), and then come back to me about the equal chances at the starting line thing.

Now, inequality of opportunity is only one reason for the inequality in outcomes we actually see. But of what remains, how much reflects individual effort, how much reflects talent, and how much sheer luck? No reasonable person would deny that there’s a lot of luck involved. Wall Street titans are, no doubt, smart guys (although talking to some of them, you have to wonder …), but there are surely equally smart guys who for whatever reason never got a chance to grab the 9-figure brass ring.

So economics is not a morality play; the social and economic order we have doesn’t represent the playing out of some kind of deep moral principles.

That doesn’t mean the order we have should be overthrown: the pursuit of Utopia, of perfect economic justice, has proved to be the road to hell, while welfare-state capitalism — a market economy with its rough edges smoothed by a strong safety net — has produced the most decent societies ever known. The point, though, is that anyone who claims that transferring some income from the most fortunate members of society to the least is a vile injustice is closing his eyes to the obvious reality of how the world works.