The Only Way Is Ethics: The Skeptical Economist reviewed

I do not object to value judgements and political beliefs creeping into economic argument: I think they are inevitable. But then I do not claim economics as a science.

Much of the furore that greeted the publication of Bjorn Lomborg’s The Skeptical Environmentalist back in 2001 focused on Lomborg’s credentials (or lack of them) to write it. Here was a statistician (and furthermore, one with effectively no academic track record) blithely using questionable statistics to claim that legions of environmental scientists had been getting it badly wrong for years.

I have no such concerns over Jonathan Aldred, author of The Skeptical Economist (Earthscan, 2009)1. Aldred is a Lecturer in the Department of Land Economy and Fellow of Emmanuel College, Cambridge, and has trained in (and taught) the subject he dissects so well in this book.

No, I worry instead about my qualifications as a reader: Am I perhaps too credible? I know that I am favourably inclined towards critiques of mainstream economics, particularly as implemented in public policy; I’m broadly sceptical of the ‘growth above all else’ agenda; and I lack the basic training in economics to separate balanced argument from polemic. But Aldred’s focus on evidence and data (concepts I do understand pretty well), and his careful analysis of numerous case studies, give me some confidence that his central thesis – essentially, that you cannot separate economics from ethics – is worthy of very careful consideration2.

The economy dominates contemporary political discourse. Different political tribes might argue either for austerity and deficit reduction or for tax and spend, but all of them have one end in mind: economic growth3. This is such a central tenet of economic orthodoxy that it is never questioned in the practice or reporting of mainstream politics. John Humphries has never, to my knowledge, growled ‘why is growth good?’ to a cowering junior minister. Likewise, ‘economic growth’ has been allowed to become enshrined as a primary goal of all UK research councils4 with not a whimper of dissent. Contrast this with the outcry when the Arts and Humanities Research Council referenced the ‘big society’ in its strategic plan last year – dozens of senior academics threatened to resign over what they thought was an overt political agenda being forced upon them. But as Aldred makes abundantly clear throughout his superb book, the pursuit of economic growth is just as political as the ‘big society’ – it’s just not party political. Yet this orthodoxy “…leaves something crucial out. Economic growth is not an end in itself. We should focus instead on our quality of life, our well-being, or to rehabilitate an embarassing word, our happiness”.

Much of the rest of the book is a dissection of economic orthodoxy as applied in different contexts. Although Aldred is careful to differentiate between the academic study of economics and its application in public life by what he terms ‘policy entrepreneurs’ – well, suffice to say that my opinion of mainstream academic economics was not significantly enhanced (with the old ’that’s all very well in practice, but how does it work in theory?’ caricature still to the fore). If you’re into this kind of stuff, some of the content may be familiar (e.g. the breakdown of the relationship between income and self-reported happiness above a – surprisingly low – threshold is in Clive Hamilton’s Growth Fetish; the negative consequences of introducing markets where they don’t belong is the subject of Michael Sandel’s What Money Can’t Buy) but it is covered here in more depth than I’ve read before, including why this might be the case (for instance, we adapt very quickly to increasing income, and then want still more). There is also a fascinating chapter dedicated to happiness actually means, whether self-reported or ‘objectively’ measured (and if, indeed, any such measurement is even conceptually possible).

Other ideas were completely new to me. If you haven’t heard of Baumol’s cost disease (I hadn’t), it appears to be very important. Simply put, services like healthcare and education will inevitably become more expensive relative to other sectors of the economy, because one of the things we value most in them is their inefficiencies (in economic terms): lots of personal contact with a doctor, small class sizes, and so on. The important thing is that this is the case regardless of whether the service is provided by the state or by a private company. Privatising the NHS won’t make it more ‘efficient’, in other words (or at least, not relative to gains in efficiency elsewhere in the economy).

Aldred also suggests some alternative goals for public policy. For example, instead of a constantly growing economy, why not keep it stable but allow all of us to work progressively less? (Sound crazy? Perhaps, but it’s a popular idea in France, and among the first significant acts of the new Socialist President Hollande was to reduce the retirement age for some workers to 60.) But the chapter most relevant to my professional interests is that on ‘Pricing Life and Nature’.

Of course, this is a hot topic in ecology and conservation right now. Not just in Rio+20: think also of the Milennium Ecosystem Assessment, or big new UK initiatives on Valuing Nature, Biodiversity & Ecosystem Services, Ecosystem Services for Poverty Alleviation… Everyone wants to know, what can nature can do for us? Nobody disputes that the answer is ‘lots’ (from climate regulation to pollination to food provision) but going a step further, and putting a value on these services, is much more controversial – not least for many because it suggests that there is a cost-benefit equation somewhere which could, potentially, be balanced a different way. Suppose we could replace pollinating insects with cheap, effective and safe nanobots. Could we then do away with bees with a clean conscience?

The counter to this unease, which I’ve heard expressed at VNN meetings, is to argue that the alternative to putting a value on nature is that its value will be assumed to be £0 in any planning and development decisions. But in that case, what we should be doing as scientists? Should we buy into this system, and spend our time trying to make our dubious numbers somewhat less dubious, supplying more and more refined nutriment to the cost-benefit beast? Maybe, but as Alred notes, unfortunately “dubious numbers are infectious: adding a dubious number to a reliable one yields an equally dubious number”. So we have a lot of work to do if we take that approach, and the numbers we produce may always be too dubious to be useful. Alternatively (and this seems to be Aldred’s preference), we could build better ways of incorporating qualitative pros and cons more transparently into the (overtly political) decision-making process.

One of the real strengths of this book is Aldred’s ability to lay out options and consequences without preaching – this is certainly not a zero-growth, Occupy movement manifesto. Rather, it’s a sober analysis of the evidence (or lack of it) behind various policy decisions, and above all a call for us to recognise the politics that are integral to all decisions made (even those dressed up as ‘objective’ following cost-benefit anlayses). This is important stuff, and Aldred has done us all a service by producing an approachable primer on a topic which affects all of us, and the environment we depend upon.

1One assumes that the retention by Aldred, a British author, of the American ‘k’ is a subtle dig at Lomborg’s faith in mainstream economics.
2Of course, the ongoing collapse of the world’s financial systems provide a pretty strong supporting case…
3Or more specifically, growth in GDP, which seems even more ridiculous in the light of the double figure drop in GDP the UK would suffer if we all paid off our credit cards tomorrow – GDP depends on us spending money we don’t have! (I heard this discussed as if it was perfectly natural and sensible on a serious Radio 4 economics programme, but was listening in the car and don’t recall specific details.)
4e.g. From the RCUK homepage: “We support excellent research, as judged by peer review, that has an impact on the growth, prosperity and wellbeing of the UK”