<p>The following is simply not accurate statement about economics:</p>
<blockquote>
<p>Terse principles of economic reasoning might be stated as follows:</p>
<ol>
<li>Maximum benefits are good.</li>
<li>One should act to maximize benefits and minimize costs in the social context.</li>
</ol>
</blockquote>
<p>In order to answer this question, and see why the statement is inaccurate, it is important to recognize that inquiry in economics (an other sciences as well), can be split into two categories:</p>
<p><em>Positive Economics</em>: Positive economics deals with questions of what is. For example, what is the elasticity of demand for market for potatoes? What is the effect of rising minimum wage on employment? etc. (see Mankiw Principles of Economics pp 27.). Most economics as practiced today (in academic research) is positive economics.</p>
<p><em>Normative Economics</em>: Normative economics deals with question what ought to be? If we estimated a differences-in-differences model that shows small increases in minimum wage do not significantly affect employment should we increase it or not? (ibid. Principles of Economics). Normative economics is mostly dealt with in public economics or in practical public policy.</p>
<p>Now it is plain to see that positive economics and research about positive economics simply does not concern itself with maximum benefit or whether one acts to maximize benefits and minimize costs (from moral perspective that is).   When we model rational behavior of profit seeking firm  in positive inquiry we are not implying that firm should act that way - we are attempting to just be descriptive and describe the behavior of firm.  When we say people are trying to maximize their utility (or when behavioral economists tell us sometimes they don't) we are not claiming this is moral thing to do or they should behave in such way. This is done without any moral judgement or prejudice similar way as physicist would describe motion of a gas or planets (of course, the precise techniques will differ but in principle on fundamental level there is not much difference).</p>
<p>Hence already from onset we can safely say that whole corpus of positive economics is  distinct from making any moral or ethical judgements so let us turn our attention to normative economics.</p>
<p>Normative economics deals with ethical and moral issues but not by any means in such overtly reductionist way as suggested in the 'terse principles' you stated.</p>
<p>Normative economics will nowadays start with recognition that although economics originated in <em>moral</em> philosophy* it is no longer part of it and we economists are not anymore specialist in moral philosophy (of course, a person can have multiple specializations one can be both economist and moral philosopher the same way as one can be biologist and moral philosopher, or as someone who can be both physicist and chemist at the same time). Consequently, when we make normative inquiry we won't start by trying to deduce what is moral or not from first principles.</p>
<p>Rather in normative economics we start by looking at past work of moral philosophers and moral frameworks that are already developed (yes sometimes those moral philosophers happened to also be economists - e.g. Adam Smith - theory of moral sentiments, Amartya Sen - Capability and Well-Being etc.). The three widely popular moral frameworks used across public econ literature are moral philosophies based on Rawls' theory of justice, classical liberalism and utilitarianism but there are of course many more different frameworks used (see Ross (2014) Philosophy of Economics for short overview).</p>
<p>In both Rawls theory of justice or classical liberalism the objective is neither to maximize benefits or minimize costs in either private or social context (see Rawls (1971)
A Theory of Justice; Nozik  (1974)  Anarchy, State, and Utopia). Rather a Rawlsian economist would recommend to conduct economic policy in accordance with maxmin principle i.e. maximize welfare of the poorest member of society and nobody else (although once you raise one person someone else becomes the poorest so Rawls is not implying to take care of only one person). A classical liberal/libertarian economist would favor any policy that minimizes the use of force and coercion by state (even if it would not necessary maximize utility - classical liberals are not utilitarians). Utiliterians would indeed want to maximize benefits and minimize cost in terms of utility.</p>
<p>However, note in athe above cases it is not really the economist who postulates what is good or bad. Rather the economist will defer to moral philosophers. Furthermore, when doing normative economics an economist will not necessary even pick a side. Vast majority of the corpus of public economics literature usually makes comparative analysis that takes into account several different moral  philosophies. For example, in optimum income taxation literature people routinely estimate optimal taxes and transfers using Rawlsian, utilitarian, classical liberal (also known as conservative - due to US politics where conservatives tend to be economically libertarian) or other welfare function (see <a href="https://academic.oup.com/restud/article-abstract/68/1/205/1568609" rel="nofollow noreferrer">Saez 2001</a> as an example of a study that does this).</p>
<p>Of course, ultimately in a democracy it will be people to decide which social welfare function society adopts, and people should decide based on their own values and moral principles. I think most economists nowadays humbly acknowledge this.</p>
<p>This being said economists are also people and most people love discussing politics and moral philosophy so many economists will frequently make statements that go way beyond even normative economics. Some will even dabble in moral philosophy more professionally. This is not unique to economics. You will find many physicists such as Einstein for example who at some point started to <a href="https://philosophynow.org/issues/109/Einsteins_Morality" rel="nofollow noreferrer">dabble</a> in moral philosophy. While in case of physics it can be easy for people to make distinction in economics this can be more difficult due to the historical roots in moral philosophy that economics has but that does not make 'principles of economic reasoning' any more close  to it.</p>
<hr />
<p><sub>* I am specifically putting emphasis on 'moral' as it can be argued no science can be divorced from metaphysics and other branches of philosophy that deal with epistemological questions (see Ross cited above).  How do we even know we can know anything? Is there even such thing as a 'fact' or 'objective truth'? </sub></p>

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2020-10-08T00:22:09.020Z
Descriptive statements in physics do not have any normative component because natural systems do not have attributes of "human will". The presence of "human will" in the actions of economic agents evokes ethical and moral judgments in the social context. I think Pareto efficiency implies ethical judgment because every moral agent in the model must simultaneously agree that a transition of economic relations from state A to state B would be a beneficial (good) outcome. Pareto efficiency may be descriptive only of a utopian world where ethical disputes (coordination problems) don't manifest.
SystemTheory
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2020-10-08T00:27:17.053Z
@SystemTheory physics can have normative component as well. For example, we know how to split atom. Should we split atom? Many people will consider splitting atom in thermonuclear explosion immoral some will consider it immoral to split atom even for industrial uses (e.g. nuclear plants). Just saying free will does not make descriptive statements moral or not. For example, if I state A is beating B I am not making any moral judgement about the act just stating fact that is observable and testable. Yet there is free will. Saying we should/shouldn’t beat other is ethical statement.
1muflon1
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2020-10-08T00:34:51.313Z
@SystemTheory stating that an outcome is Pareto efficient also does not imply outcome is good. We can set up behavioral experiments where we can just set up pay-off structure in a way that there is a Pareto-optimal outcome and then observe if people reach that equilibrium etc. saying something is Pareto optimal does not in principle requires any more ethical judgement than when measuring temperature. In fact concept of Pareto optimality is widely used in evolutionary biology and applied to behavior of various animals birds/insects etc. do ants have free will? Are we making moral judgements?
1muflon1
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2020-10-08T00:38:42.537Z
Do you agree that natural systems have no attributes of human will? If so then optimization models of natural systems have only "optimization" in common with Pareto efficiency because only human agents making ethical and moral judgments can have the normative experience of being better or worse off due to an outcome.
SystemTheory
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2020-10-08T00:41:02.823Z
Furthermore, you seem to be clinging to the utilitarian notion of utility. As mentioned in comments to one of your other questions modern economics does no longer use utility in the same value laden sense as utilitarians would do. Rather utility is just about ordering of preference sets (see MWG or above cited Ross). Preferences can be observed (revealed) and we can describe them in factual way. Pareto optimality just implies that nobody’s utility (in economic sense) can be increased without decreasing it for someone else. Whether such state of things is moral or not is up to philosophers
1muflon1
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2020-10-08T00:45:15.430Z
So if economics is just like physics then are you stating that no economist has an ethical and moral preference to establish capitalist institutions compared to socialist institutions? If so then the extensive literature on these disputes argues against your assertion that economic reasoning is independent of the reasoning we use in broad domains of ethical or moral philosophy.
SystemTheory
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2020-10-08T00:50:06.680Z
@SystemTheory what is natural system. Human body is just bag of atoms and molecules. That aside it’s not even clear free will exist but suppose it does. Just because something is related to free will or human behavior it does not follow moral judgments are implied. Again if a person A with free will hits person B and someone just purely descriptively states: A hit B is there any implied moral judgment in the statement? You talk about optimization models but in positive economics we don’t say people should optimize resources or even postulate they do so. We start by some theory of behavior...
1muflon1
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2020-10-08T00:53:50.010Z
... rationality/psychological behavioral modes that tries its best to actually capture reality - what people do, **not what they should do**. Reason why optimization is so wide spread is that rational choice theory implies it. In turn rational choice theory is widespread because even though it sometimes fails empirically it’s the most general theory of human behavior we have and beyond narrow Popperian view (e.g. Kuhn) for theory/research project to be rejected there must be other that can provide more general explanations. Again these explanations are descriptive not prescriptive
1muflon1
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2020-10-08T00:55:54.553Z
@SystemTheory I am sure economists have such preferences. Physicists have moral preferences about use of nuclear power, atomic bombs and so on... so what? That was never even point of any contention. In fact if you would read my answer to your question in last paragraph I was discussing exactly this.
1muflon1
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2020-10-08T01:06:10.190Z
Notice I have not used the term "free will". If the body is recognized as a natural process which generates all of our intentional actions or acts of will, all of our ethical judgments of good or bad outcomes, and all of our moral judgments of right or wrong actions, then the will, ethical judgments, and moral judgments are only products of a natural process. In social science, however, the human will is recognized as the proximate (effective) cause of outcomes. Economic reasoning is concerned with public or private decisions and actions as expressions of human will. The will evokes judgment.
SystemTheory
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2020-10-08T01:11:55.137Z
@SystemTheory. And this is precisely point of my contention.  "Economic reasoning is concerned with public or private decisions and actions as expressions of human will. The will evokes judgment." This simply is not true. If person A lifts a bag person A is exercising free will. Such exercise might involve moral judgements for the person A, but not for an observer. When we do positive economics we observe. Making an observation that person A has lifted the bag up and measuring it stating the bag was lifted by 1 meter up in the air and describing motion made by hand is  an amoral description
1muflon1
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2020-10-08T01:16:45.663Z
@SystemTheory experimenting on a person by giving subject choice (and hence chance to exercise free will) between consuming apple and banana and then simply recording on the paper whether banana or apple was eaten does not entail moral judgement. We are not saying eating banana was good or bad - banana was just eaten. Modern utility theory in economics in based on descriptive observations of such choices and things we can deduce from them.
1muflon1
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2020-10-08T01:33:23.800Z
Then economic reasoning is not a distinct discipline according to your argument. The philosopher, physicist, and economist can observe without judgment. These observations, when stated, are called descriptive or positive. The philosopher, physicist, and economist can experience ethical outcomes, as good or bad, or moral behavior, as right or wrong. When these judgments are expressed they are called normative statements. The positive economist is like an artificial intelligence measuring instrument that recognizes categories and counts quantities. The normative economist is like everyone else.
SystemTheory
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2020-10-08T01:38:41.140Z
@SystemTheory excellent so you completely agree with my answer. As I clearly written in my answer normative economics does require moral judgements. However, in present day modern economics economists are not the producers of moral judgements rather we import them from moral philosophers. Also of course economists produce moral judgements in their own lives but in normative research they will defer to moral philosophers and generally not make their own moral philosophies on the go. As also stated in the answer of course some economist have second specialization in moral philosophy
1muflon1
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2020-10-08T01:48:22.033Z
So you agree with the implied premise of the question since the evaluation of benefit and costs could not be performed either by a positive economist or by an automated measuring instrument.
SystemTheory
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2020-10-08T01:58:55.937Z
@SystemTheory I am not sure what is actually implied by your question. I attempt to answer question as is: that is what is relationship between cost/benefits and ethical judgments and the subsequent questions. My thesis to give you a digest is that a) in case of positive economics there is no relation as that just describes what benefits/costs are in purely descriptive manner. b) there is a relationship in case of normative economics but that relationship is far more nuanced and can’t be reduced to the ‘terse’ principles you state.
1muflon1
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2020-10-08T19:44:57.003Z
A physicist, in broad terms, makes efforts to describe the geometry and properties of materials using mathematical models. We imagine such physical systems exist independent of the ethical values or intentional acts of any moral agent and that natural systems conform to natural laws. In this context Albert Einstein says, "As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality." https://todayinsci.com/E/Einstein_Albert/EinsteinAlbert-MathematicsAndReality.htm. Utility functions model values of benefit versus cost.
SystemTheory
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2020-10-08T20:00:47.233Z
@SystemTheory I think you should have look at some modern economics textbook with core about what utility is. Because you are simply not using the word utility in its economic meaning. For example, according to MWG - ‘bible’ of microeconomics: A function $u:X \rightarrow \mathbb{R}$ is a utility function representing preference relation $\succsim$ if, for all $x,y \in X$, $x \succsim y \equiv u(x) \geq u(y)$. This does not involve values directly. In plain English it just says utility is some preference ordering. Preference ordering can be measured empirically and it is reality precisely in...
1muflon1
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2020-10-08T20:02:54.617Z
@SystemTheory ... the sense Einstein is using the word. If a person gets choice between apple and banana and that person picks banana that is the same sort of observable reality like that earth revolves around the sun. It can be described in purely descriptive words. Just because it involves human action does not mean it’s immeasurable. Person having a run around block involves human decisions making but you can measure route, speed etc.
1muflon1
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2020-10-08T20:51:51.507Z
Economists sample preferences (expressions of subjective values) by observing human behavior in a context of social interaction or autonomous action. The physicist does not associate the concepts of "choice" and "preference" with the sampled observations of the physical process. When Galileo rolls a ball down a ramp and across a table he samples the time and position to define displacement, velocity, and acceleration using mathematical models. Does the sampled model of the natural system have ethical attributes of choice or preference or historical memories of finance and social relations?
SystemTheory
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2020-10-08T21:13:05.533Z
@SystemTheory but measuring preferences also does not have ethical attributes. What is ethics according to you? I am asking because you dont seem to be using word ethics in any way that moral philosophers do or even how it is used in ordinary English so you must use some your own made-up definition of ethics. Given that we discuss science we should use already established semantics. According to Cahn & Marker Ethics: History, Theory and Contemporary Issues (a leading textbook in moral philosophy); "...moral language is prescriptive rather than descriptive. Moral language is typically
1muflon1
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2020-10-08T21:13:19.977Z
used to prescribe what is to be done rather than to describe what is the case...". According to  Fieser writing for Internet Encyclopedia of Philosophy a peer reviewed and highly acclaimed encyclopedia of philosophy, ethics is [defined](https://iep.utm.edu/ethics/) as "The field of ethics (or moral philosophy) involves systematizing, defending, and recommending concepts of right and wrong behavior. "
1muflon1
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2020-10-08T21:13:27.970Z
Consequently under no standard definition of ethics or morality measuring choices or values implied in the choices has anything to do with morality or ethics. In order to involve ethics we need to start making moral judgments. We need to say it was wrong for a person to eat banana instead of apple or maybe it was right for person to eat banana otherwise by definition we are not talking about morality or ethics.
1muflon1
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2020-10-08T21:26:50.650Z
Ethical values are efforts made by each economic agent (in the model of one or more economic agents) to identify what is good, banana or apples, in this one specific context? Moral values are efforts to identify how one should act to cause the good in the specified context. The economist would not have anything to measure or specify in terms of choices and preferences if the objects under study did not experience and express ethical and moral values in a social context.
SystemTheory
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2020-10-08T21:31:01.853Z
@SystemTheory please read above mentioned definition of ethics or moral philosophy. Again just because an agent is having an ethical experience and conducts action based on his/her values that does not mean measuring such action is making ethical judgements. When physicist measures temperature the physicist makes moral judgements that lead to the actions of measuring temperature. Furthermore, the temperature in a room will also depend on actions of people (maybe they set up a heater there) and those people made moral judgements- but measuring the action has nothing to do with ethics.
1muflon1
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2020-10-08T21:33:32.840Z
@SystemTheory furthermore, you never provide any peer reviewed references for your claims about moral philosophy or ethics. Can you please provide peer review references for what you are saying? Otherwise there is no point in discussion because if you make up your own semantics and you are not willing to follow established definitions of what ethics is then what’s the point of discussion? Then our disagreements are purely semantic and I will keep insisting on established semantics rather than inventing new one so if you insist on not following established semantics we can agree to disagree
1muflon1
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2020-10-07T22:49:20.293Z
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2020-10-08T00:03:25.240Z
1muflon1
<p>Many modern practitioners of economics follow the model of &quot;social engineer&quot; as defined by Max Weber.</p>
<p>The normative and positive distinction as 1muflon1 puts it absolutely holds.</p>
<p>As such, normative decisions are made by society through some means, e.g. democracy. The positive decision on how to implement these are left to policymakers/economists.</p>
<p>As a starting point, society somehow makes a normative judgement on it's desired goals. For example, to minimize inequality. Or to maximize the benefit of the worst off person (Rawls). Or to maximize the sum of income in an economy with no regard to redistribution (utilitarian). That starting point is a moral decision not up to the economist.</p>
<p>From there, the economic thinker will try to come up with the best policy given the parameters and objectives set out by the moral decision makers (leaders). Typically the set of &quot;best policy&quot; options simply means those that minimize unnecessary waste.</p>
<p>Hence, to keep the normative vs. positive distinction as clean as possible, economists have sought to impose the lightest of moral imperatives in their work. Something that anyone would agree with at a minimum. This has lead to the concept of (Pareto) Efficiency. Basically, the guiding moral principle is simply that nothing should go to waste. If it is possible to make someone better off without making anyone worse off, that opportunity should be taken. That's often the extent of moral judgement.</p>
<p>As such, economists often try to achieve the most efficient outcome in the situation they are tasked with. All other moral concerns are decided by society/government.</p>
<p>This is complicated by the fact that policies involve trade-offs. A good economist will make the options and associated trade-offs clear. Those trade-offs can involve moral decisions which should be made by society at large. This is often the case, to the point that Presidents have complained about it.</p>
<p>To quote Harry Truman: &quot;<strong>Give me a one-handed Economist. All my economists say 'on hand...', then 'but on the other...</strong>&quot;</p>
<p>Those economists were doing their job perfectly, as it was up to the democratically elected leader and not up to them to make the moral decisions involved in those trade-offs.</p>

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2020-10-08T23:57:53.190Z
Ethical disputes usually follow a pattern where people disagree over what is good (they desire distinct outcomes) or they disagree over the means to cause the good (they desire different modes of cooperation to cause the good). In the domains of economic policy these disputes often revolve around the presence or absence of regulations or social institutions as the choice of means to an end. If stable prices and full employment are good then disputes arise over using monetary policy or fiscal policy as means to cause the good. So economists who disagree express attributes of ethical disputes.
SystemTheory
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2020-10-09T08:28:33.347Z
Whether stable prices are good is determined by the mandate the government gives to the central bank. Economists wouldn’t say something is “good”. They would say X leads to Y but also to Z. People often perceive Y as good and Z as bad, but that statement is simply a positive statement of fact. (E.g stable prices can prevent crises but also reduce government revenue through seigniorage). To the extent economists argue over moral notions on how to cause good, it is based on efficiency - a very light form of normativity as discussed.
BB King
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2020-10-09T15:10:20.767Z
Efficiency in thermodynamic models means a normative effort to get more desired work and/or heat from a scarce natural source of energy used to develop power in a natural process. There are no money units in the laws of thermodynamics so the development of money and finance are a second normative effort either to price scarce goods and services for more efficient use or to game the system by getting others into debt so one can accumulate financial assets in a social game. Pareto or economic efficiency refers also to normative efforts to maximize benefits which could be wasteful in other terms.
SystemTheory
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2020-10-09T15:24:06.623Z
I am saying the only commonly used normative argument in economics is efficiency, which is a rather light and limited normative aspect. By definition, economic efficiency requires the elimination of waste, much like maximum heat should be extracted from a given resource. Monetary units don't make much of a difference there. Accumulation of assets is a question of distribution, for which again the normative starting point is not given by economists. Rather, economists try to minimize waste for a given objective of wealth redistribution.
BB King
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2020-10-09T18:13:27.677Z
Perhaps human beings cannot make objective determinations of waste or efficiency because these are normative (Pareto) values. The Pareto criteria means no agent says "I am worse off due to social interacation". So if no one complains "I am worse off" when scarce fuel is spent to race cars in a circle this is Pareto efficient independent of the thermodynamic efficiency which will vary with technology available and the racing rules. If an ounce of prevention is worth a pound of cure then we should spend or sacrifice 1 unit now to save 16 in future. But GDP goes up by 16 if we fail at prevention.
SystemTheory
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2020-10-09T21:26:18.497Z
To be logically coherent a measure of Pareto efficiency in the real world, rather than in a toy model specifying imaginary agents, would have to specify the model for how specific patterns of social interactions generate or do not generate complaints of harm. This is a normative model of law and politics. In rules of law voluntary bargains and private property rights might help minimize complaints of harm. However complaints arise for malpractice, breach of contract, torts, and to enforce regulations on voluntary exchange in the real world. Discount value of scarce resource? Consume it faster.
SystemTheory
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2020-10-08T20:16:05.947Z
2020-10-08T20:21:38.113Z
2020-10-08T20:21:38.113Z
BB King
<p>One should be particularly careful in philosophy.</p>
<p>I noticed your question, as explicitly stated, is &quot;How do we apply economic principles to democratic elections?&quot;</p>
<p>And the answer to that is that we do not apply them to democratic elections. Democracy is <em>normative</em> in economics.  So formally, in my capacity as an economist, I do not have an opinion about the level of democracy in a country in and of itself.</p>
<p>However, we could apply it to <em>positive</em> (ie. measurable) consequences of elections:</p>
<ul>
<li>Do democratic countries have higher growth rates? <a href="https://www.nber.org/papers/w4066" rel="nofollow noreferrer">Here</a></li>
<li>What are the consequences of democratic elections on wealth distribution? <a href="https://www.sciencedirect.com/science/article/abs/pii/S0047272702000464" rel="nofollow noreferrer">Here</a></li>
</ul>
<p>So, while I do not in any formal capacity have any opinion on the level of democracy, I can say that I have concerns about the <em>consequences</em> of elections, even if those consequences are not tied to who won, but tied to how the elections are ran.</p>
<p>Other unusual points: I could, for example, have observed a person that is <em>willing to pay</em> for a fair election (for the sake of concreteness, they are willing to pay to avoid ballot stuffing). This means it <em>must</em> be part of their utility function. Common points of confusion here are as follows:</p>
<ul>
<li>They don't have to be willing to pay <em>me</em>. Just willing to pay, in general.</li>
<li>There doesn't have to be a working mechanism by which they could pay and see a reduction in ballot stuffing.</li>
</ul>
<p>But because they have that preference, one could craft it as an economic issue. There could be a supply of ballot security and a demand of ballot security (<a href="https://ideas.repec.org/a/fip/fedrcs/y1995ifallp8-15nv.12no.3.html" rel="nofollow noreferrer">see Gary Becker on crime</a>). Or a market failure if no such method to purchase &quot;ballot security&quot; exists.  Again, we are not treating ballot security as a moral good, but rather as a measurable objective that can be counted, enumerated, and worth some amount of utility to some users.</p>

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2020-10-09T02:19:05.193Z
Helpful essay. I link to a question about elections however my question is how cost benefit analysis (utility) could be measured without incorporating a model of economic agents making subjective ethical and moral judgments? So what if A causes B or correlates with B using some measure of such things if one is indifferent about A and B with no ethical or moral judgments? If growth is good then democracy can be a good means or bad means to that end. Is it measurement for measurement sake or for the sake of identifying the good and means to cause the good? Normative values motivate human effort.
SystemTheory
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2020-10-09T18:38:12.483Z
You observe people's measures of values by their actions all the time. If I purchase an item A with good B during a barter process, then A is preferred to B by that person at that time. This is called "revealed preference."  Typically, people purchase things with cash, so its role as a medium of exchange allows us to estimate the relative value of products. So I know a house is preferred to a thimble in most cases, etc.
RegressForward
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2020-10-08T22:27:29.663Z
2020-10-08T22:27:29.663Z
RegressForward
<p>This question relates to principles of economic reasoning in a non-financial context:</p>
<p><a href="https://economics.stackexchange.com/questions/42/how-are-economic-principles-applied-to-non-financial-models-such-as-a-democrati">How are economic principles applied to non-financial models, such as a democratic election?</a></p>
<p>One may reverse the assumption and ask how benefits and costs in a financial context would be evaluated without recourse to making ethical and moral judgments?</p>
<p>For brevity one may describe an ethical philosopher as a person who makes an effort to answer two questions:</p>
<ol>
<li>What is good?</li>
<li>How should one act to cause the good?</li>
</ol>
<p>Terse principles of economic reasoning might be stated as follows:</p>
<ol>
<li>Maximum benefits are good.</li>
<li>One should act to maximize benefits and minimize costs in the social context.</li>
</ol>
<p>Public good would be an effort to maximize benefits and minimize costs for a group of individuals. Private good would be an effort to maximize benefits and minimize costs for each individual while interacting with members of the social group. Edit: Pareto efficient outcomes occur when no one is worse off.</p>
<p>How then is economic reasoning distinct from more general efforts to determine what is good and how one should act to cause the good? If people demand government solutions to social problems and economists debate the costs and benefits of different types of government institutions then is this not a political, ethical, and moral debate which cannot be resolved via recourse to an independent economic reasoning skill?</p>

<interdisciplinary>
Principles of Economic Reasoning: How Are Expected Costs and Benefits Distinct from Ethical and Moral Judgments?
SystemTheory
# Principles of Economic Reasoning: How Are Expected Costs and Benefits Distinct from Ethical and Moral Judgments?

(Asked by: username_0 on 2020-10-07)

This question relates to principles of economic reasoning in a non-financial context:

[How are economic principles applied to non-financial models, such as a democratic election?](https://economics.stackexchange.com/questions/42/how-are-economic-principles-applied-to-non-financial-models-such-as-a-democrati)

One may reverse the assumption and ask how benefits and costs in a financial context would be evaluated without recourse to making ethical and moral judgments?

For brevity one may describe an ethical philosopher as a person who makes an effort to answer two questions:

1. What is good?
2. How should one act to cause the good?

Terse principles of economic reasoning might be stated as follows:

1. Maximum benefits are good.
2. One should act to maximize benefits and minimize costs in the social context.

Public good would be an effort to maximize benefits and minimize costs for a group of individuals. Private good would be an effort to maximize benefits and minimize costs for each individual while interacting with members of the social group. Edit: Pareto efficient outcomes occur when no one is worse off.

How then is economic reasoning distinct from more general efforts to determine what is good and how one should act to cause the good? If people demand government solutions to social problems and economists debate the costs and benefits of different types of government institutions then is this not a political, ethical, and moral debate which cannot be resolved via recourse to an independent economic reasoning skill?

**Tags:** interdisciplinary


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## 3 answers

### Answer by username_1 on 2020-10-07. Score: 4

The following is simply not accurate statement about economics:

> Terse principles of economic reasoning might be stated as follows:
>
> 1. Maximum benefits are good.
> 2. One should act to maximize benefits and minimize costs in the social context.

In order to answer this question, and see why the statement is inaccurate, it is important to recognize that inquiry in economics (an other sciences as well), can be split into two categories:

*Positive Economics*: Positive economics deals with questions of what is. For example, what is the elasticity of demand for market for potatoes? What is the effect of rising minimum wage on employment? etc. (see Mankiw Principles of Economics pp 27.). Most economics as practiced today (in academic research) is positive economics.

*Normative Economics*: Normative economics deals with question what ought to be? If we estimated a differences-in-differences model that shows small increases in minimum wage do not significantly affect employment should we increase it or not? (ibid. Principles of Economics). Normative economics is mostly dealt with in public economics or in practical public policy.

Now it is plain to see that positive economics and research about positive economics simply does not concern itself with maximum benefit or whether one acts to maximize benefits and minimize costs (from moral perspective that is). When we model rational behavior of profit seeking firm in positive inquiry we are not implying that firm should act that way - we are attempting to just be descriptive and describe the behavior of firm. When we say people are trying to maximize their utility (or when behavioral economists tell us sometimes they don't) we are not claiming this is moral thing to do or they should behave in such way. This is done without any moral judgement or prejudice similar way as physicist would describe motion of a gas or planets (of course, the precise techniques will differ but in principle on fundamental level there is not much difference).

Hence already from onset we can safely say that whole corpus of positive economics is distinct from making any moral or ethical judgements so let us turn our attention to normative economics.

Normative economics deals with ethical and moral issues but not by any means in such overtly reductionist way as suggested in the 'terse principles' you stated.

Normative economics will nowadays start with recognition that although economics originated in *moral* philosophy\* it is no longer part of it and we economists are not anymore specialist in moral philosophy (of course, a person can have multiple specializations one can be both economist and moral philosopher the same way as one can be biologist and moral philosopher, or as someone who can be both physicist and chemist at the same time). Consequently, when we make normative inquiry we won't start by trying to deduce what is moral or not from first principles.

Rather in normative economics we start by looking at past work of moral philosophers and moral frameworks that are already developed (yes sometimes those moral philosophers happened to also be economists - e.g. Adam Smith - theory of moral sentiments, Amartya Sen - Capability and Well-Being etc.). The three widely popular moral frameworks used across public econ literature are moral philosophies based on Rawls' theory of justice, classical liberalism and utilitarianism but there are of course many more different frameworks used (see Ross (2014) Philosophy of Economics for short overview).

In both Rawls theory of justice or classical liberalism the objective is neither to maximize benefits or minimize costs in either private or social context (see Rawls (1971)
A Theory of Justice; Nozik (1974) Anarchy, State, and Utopia). Rather a Rawlsian economist would recommend to conduct economic policy in accordance with maxmin principle i.e. maximize welfare of the poorest member of society and nobody else (although once you raise one person someone else becomes the poorest so Rawls is not implying to take care of only one person). A classical liberal/libertarian economist would favor any policy that minimizes the use of force and coercion by state (even if it would not necessary maximize utility - classical liberals are not utilitarians). Utiliterians would indeed want to maximize benefits and minimize cost in terms of utility.

However, note in athe above cases it is not really the economist who postulates what is good or bad. Rather the economist will defer to moral philosophers. Furthermore, when doing normative economics an economist will not necessary even pick a side. Vast majority of the corpus of public economics literature usually makes comparative analysis that takes into account several different moral philosophies. For example, in optimum income taxation literature people routinely estimate optimal taxes and transfers using Rawlsian, utilitarian, classical liberal (also known as conservative - due to US politics where conservatives tend to be economically libertarian) or other welfare function (see [Saez 2001](https://academic.oup.com/restud/article-abstract/68/1/205/1568609) as an example of a study that does this).

Of course, ultimately in a democracy it will be people to decide which social welfare function society adopts, and people should decide based on their own values and moral principles. I think most economists nowadays humbly acknowledge this.

This being said economists are also people and most people love discussing politics and moral philosophy so many economists will frequently make statements that go way beyond even normative economics. Some will even dabble in moral philosophy more professionally. This is not unique to economics. You will find many physicists such as Einstein for example who at some point started to [dabble](https://philosophynow.org/issues/109/Einsteins_Morality) in moral philosophy. While in case of physics it can be easy for people to make distinction in economics this can be more difficult due to the historical roots in moral philosophy that economics has but that does not make 'principles of economic reasoning' any more close to it.

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\* I am specifically putting emphasis on 'moral' as it can be argued no science can be divorced from metaphysics and other branches of philosophy that deal with epistemological questions (see Ross cited above). How do we even know we can know anything? Is there even such thing as a 'fact' or 'objective truth'?

> **Comments:**
> **username_0**: Descriptive statements in physics do not have any normative component because natural systems do not have attributes of "human will". The presence of "human will" in the actions of economic agents evokes ethical and moral judgments in the social context. I think Pareto efficiency implies ethical judgment because every moral agent in the model must simultaneously agree that a transition of economic relations from state A to state B would be a beneficial (good) outcome. Pareto efficiency may be descriptive only of a utopian world where ethical disputes (coordination problems) don't manifest.  
> **username_1**: @username_0 physics can have normative component as well. For example, we know how to split atom. Should we split atom? Many people will consider splitting atom in thermonuclear explosion immoral some will consider it immoral to split atom even for industrial uses (e.g. nuclear plants). Just saying free will does not make descriptive statements moral or not. For example, if I state A is beating B I am not making any moral judgement about the act just stating fact that is observable and testable. Yet there is free will. Saying we should/shouldn’t beat other is ethical statement.  
> **username_1**: @username_0 stating that an outcome is Pareto efficient also does not imply outcome is good. We can set up behavioral experiments where we can just set up pay-off structure in a way that there is a Pareto-optimal outcome and then observe if people reach that equilibrium etc. saying something is Pareto optimal does not in principle requires any more ethical judgement than when measuring temperature. In fact concept of Pareto optimality is widely used in evolutionary biology and applied to behavior of various animals birds/insects etc. do ants have free will? Are we making moral judgements?  
> **username_0**: Do you agree that natural systems have no attributes of human will? If so then optimization models of natural systems have only "optimization" in common with Pareto efficiency because only human agents making ethical and moral judgments can have the normative experience of being better or worse off due to an outcome.  
> **username_1**: Furthermore, you seem to be clinging to the utilitarian notion of utility. As mentioned in comments to one of your other questions modern economics does no longer use utility in the same value laden sense as utilitarians would do. Rather utility is just about ordering of preference sets (see MWG or above cited Ross). Preferences can be observed (revealed) and we can describe them in factual way. Pareto optimality just implies that nobody’s utility (in economic sense) can be increased without decreasing it for someone else. Whether such state of things is moral or not is up to philosophers  
> **username_0**: So if economics is just like physics then are you stating that no economist has an ethical and moral preference to establish capitalist institutions compared to socialist institutions? If so then the extensive literature on these disputes argues against your assertion that economic reasoning is independent of the reasoning we use in broad domains of ethical or moral philosophy.  
> **username_1**: @username_0 what is natural system. Human body is just bag of atoms and molecules. That aside it’s not even clear free will exist but suppose it does. Just because something is related to free will or human behavior it does not follow moral judgments are implied. Again if a person A with free will hits person B and someone just purely descriptively states: A hit B is there any implied moral judgment in the statement? You talk about optimization models but in positive economics we don’t say people should optimize resources or even postulate they do so. We start by some theory of behavior...  
> **username_1**: ... rationality/psychological behavioral modes that tries its best to actually capture reality - what people do, **not what they should do**. Reason why optimization is so wide spread is that rational choice theory implies it. In turn rational choice theory is widespread because even though it sometimes fails empirically it’s the most general theory of human behavior we have and beyond narrow Popperian view (e.g. Kuhn) for theory/research project to be rejected there must be other that can provide more general explanations. Again these explanations are descriptive not prescriptive  
> **username_1**: @username_0 I am sure economists have such preferences. Physicists have moral preferences about use of nuclear power, atomic bombs and so on... so what? That was never even point of any contention. In fact if you would read my answer to your question in last paragraph I was discussing exactly this.  
> **username_0**: Notice I have not used the term "free will". If the body is recognized as a natural process which generates all of our intentional actions or acts of will, all of our ethical judgments of good or bad outcomes, and all of our moral judgments of right or wrong actions, then the will, ethical judgments, and moral judgments are only products of a natural process. In social science, however, the human will is recognized as the proximate (effective) cause of outcomes. Economic reasoning is concerned with public or private decisions and actions as expressions of human will. The will evokes judgment.  
> **username_1**: @username_0. And this is precisely point of my contention.  "Economic reasoning is concerned with public or private decisions and actions as expressions of human will. The will evokes judgment." This simply is not true. If person A lifts a bag person A is exercising free will. Such exercise might involve moral judgements for the person A, but not for an observer. When we do positive economics we observe. Making an observation that person A has lifted the bag up and measuring it stating the bag was lifted by 1 meter up in the air and describing motion made by hand is  an amoral description  
> **username_1**: @username_0 experimenting on a person by giving subject choice (and hence chance to exercise free will) between consuming apple and banana and then simply recording on the paper whether banana or apple was eaten does not entail moral judgement. We are not saying eating banana was good or bad - banana was just eaten. Modern utility theory in economics in based on descriptive observations of such choices and things we can deduce from them.  
> **username_0**: Then economic reasoning is not a distinct discipline according to your argument. The philosopher, physicist, and economist can observe without judgment. These observations, when stated, are called descriptive or positive. The philosopher, physicist, and economist can experience ethical outcomes, as good or bad, or moral behavior, as right or wrong. When these judgments are expressed they are called normative statements. The positive economist is like an artificial intelligence measuring instrument that recognizes categories and counts quantities. The normative economist is like everyone else.  
> **username_1**: @username_0 excellent so you completely agree with my answer. As I clearly written in my answer normative economics does require moral judgements. However, in present day modern economics economists are not the producers of moral judgements rather we import them from moral philosophers. Also of course economists produce moral judgements in their own lives but in normative research they will defer to moral philosophers and generally not make their own moral philosophies on the go. As also stated in the answer of course some economist have second specialization in moral philosophy  
> **username_0**: So you agree with the implied premise of the question since the evaluation of benefit and costs could not be performed either by a positive economist or by an automated measuring instrument.  
> **username_1**: @username_0 I am not sure what is actually implied by your question. I attempt to answer question as is: that is what is relationship between cost/benefits and ethical judgments and the subsequent questions. My thesis to give you a digest is that a) in case of positive economics there is no relation as that just describes what benefits/costs are in purely descriptive manner. b) there is a relationship in case of normative economics but that relationship is far more nuanced and can’t be reduced to the ‘terse’ principles you state.  
> **username_0**: A physicist, in broad terms, makes efforts to describe the geometry and properties of materials using mathematical models. We imagine such physical systems exist independent of the ethical values or intentional acts of any moral agent and that natural systems conform to natural laws. In this context Albert Einstein says, "As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality." https://todayinsci.com/E/Einstein_Albert/EinsteinAlbert-MathematicsAndReality.htm. Utility functions model values of benefit versus cost.  
> **username_1**: @username_0 I think you should have look at some modern economics textbook with core about what utility is. Because you are simply not using the word utility in its economic meaning. For example, according to MWG - ‘bible’ of microeconomics: A function $u:X \rightarrow \mathbb{R}$ is a utility function representing preference relation $\succsim$ if, for all $x,y \in X$, $x \succsim y \equiv u(x) \geq u(y)$. This does not involve values directly. In plain English it just says utility is some preference ordering. Preference ordering can be measured empirically and it is reality precisely in...  
> **username_1**: @username_0 ... the sense Einstein is using the word. If a person gets choice between apple and banana and that person picks banana that is the same sort of observable reality like that earth revolves around the sun. It can be described in purely descriptive words. Just because it involves human action does not mean it’s immeasurable. Person having a run around block involves human decisions making but you can measure route, speed etc.  
> **username_0**: Economists sample preferences (expressions of subjective values) by observing human behavior in a context of social interaction or autonomous action. The physicist does not associate the concepts of "choice" and "preference" with the sampled observations of the physical process. When Galileo rolls a ball down a ramp and across a table he samples the time and position to define displacement, velocity, and acceleration using mathematical models. Does the sampled model of the natural system have ethical attributes of choice or preference or historical memories of finance and social relations?  
> **username_1**: @username_0 but measuring preferences also does not have ethical attributes. What is ethics according to you? I am asking because you dont seem to be using word ethics in any way that moral philosophers do or even how it is used in ordinary English so you must use some your own made-up definition of ethics. Given that we discuss science we should use already established semantics. According to Cahn & Marker Ethics: History, Theory and Contemporary Issues (a leading textbook in moral philosophy); "...moral language is prescriptive rather than descriptive. Moral language is typically  
> **username_1**: used to prescribe what is to be done rather than to describe what is the case...". According to  Fieser writing for Internet Encyclopedia of Philosophy a peer reviewed and highly acclaimed encyclopedia of philosophy, ethics is [defined](https://iep.utm.edu/ethics/) as "The field of ethics (or moral philosophy) involves systematizing, defending, and recommending concepts of right and wrong behavior. "  
> **username_1**: Consequently under no standard definition of ethics or morality measuring choices or values implied in the choices has anything to do with morality or ethics. In order to involve ethics we need to start making moral judgments. We need to say it was wrong for a person to eat banana instead of apple or maybe it was right for person to eat banana otherwise by definition we are not talking about morality or ethics.  
> **username_0**: Ethical values are efforts made by each economic agent (in the model of one or more economic agents) to identify what is good, banana or apples, in this one specific context? Moral values are efforts to identify how one should act to cause the good in the specified context. The economist would not have anything to measure or specify in terms of choices and preferences if the objects under study did not experience and express ethical and moral values in a social context.  
> **username_1**: @username_0 please read above mentioned definition of ethics or moral philosophy. Again just because an agent is having an ethical experience and conducts action based on his/her values that does not mean measuring such action is making ethical judgements. When physicist measures temperature the physicist makes moral judgements that lead to the actions of measuring temperature. Furthermore, the temperature in a room will also depend on actions of people (maybe they set up a heater there) and those people made moral judgements- but measuring the action has nothing to do with ethics.  
> **username_1**: @username_0 furthermore, you never provide any peer reviewed references for your claims about moral philosophy or ethics. Can you please provide peer review references for what you are saying? Otherwise there is no point in discussion because if you make up your own semantics and you are not willing to follow established definitions of what ethics is then what’s the point of discussion? Then our disagreements are purely semantic and I will keep insisting on established semantics rather than inventing new one so if you insist on not following established semantics we can agree to disagree  

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### Answer by username_2 on 2020-10-08. Score: 3

Many modern practitioners of economics follow the model of "social engineer" as defined by Max Weber.

The normative and positive distinction as username_1 puts it absolutely holds.

As such, normative decisions are made by society through some means, e.g. democracy. The positive decision on how to implement these are left to policymakers/economists.

As a starting point, society somehow makes a normative judgement on it's desired goals. For example, to minimize inequality. Or to maximize the benefit of the worst off person (Rawls). Or to maximize the sum of income in an economy with no regard to redistribution (utilitarian). That starting point is a moral decision not up to the economist.

From there, the economic thinker will try to come up with the best policy given the parameters and objectives set out by the moral decision makers (leaders). Typically the set of "best policy" options simply means those that minimize unnecessary waste.

Hence, to keep the normative vs. positive distinction as clean as possible, economists have sought to impose the lightest of moral imperatives in their work. Something that anyone would agree with at a minimum. This has lead to the concept of (Pareto) Efficiency. Basically, the guiding moral principle is simply that nothing should go to waste. If it is possible to make someone better off without making anyone worse off, that opportunity should be taken. That's often the extent of moral judgement.

As such, economists often try to achieve the most efficient outcome in the situation they are tasked with. All other moral concerns are decided by society/government.

This is complicated by the fact that policies involve trade-offs. A good economist will make the options and associated trade-offs clear. Those trade-offs can involve moral decisions which should be made by society at large. This is often the case, to the point that Presidents have complained about it.

To quote Harry Truman: "**Give me a one-handed Economist. All my economists say 'on hand...', then 'but on the other...**"

Those economists were doing their job perfectly, as it was up to the democratically elected leader and not up to them to make the moral decisions involved in those trade-offs.

> **Comments:**
> **username_0**: Ethical disputes usually follow a pattern where people disagree over what is good (they desire distinct outcomes) or they disagree over the means to cause the good (they desire different modes of cooperation to cause the good). In the domains of economic policy these disputes often revolve around the presence or absence of regulations or social institutions as the choice of means to an end. If stable prices and full employment are good then disputes arise over using monetary policy or fiscal policy as means to cause the good. So economists who disagree express attributes of ethical disputes.  
> **username_2**: Whether stable prices are good is determined by the mandate the government gives to the central bank. Economists wouldn’t say something is “good”. They would say X leads to Y but also to Z. People often perceive Y as good and Z as bad, but that statement is simply a positive statement of fact. (E.g stable prices can prevent crises but also reduce government revenue through seigniorage). To the extent economists argue over moral notions on how to cause good, it is based on efficiency - a very light form of normativity as discussed.  
> **username_0**: Efficiency in thermodynamic models means a normative effort to get more desired work and/or heat from a scarce natural source of energy used to develop power in a natural process. There are no money units in the laws of thermodynamics so the development of money and finance are a second normative effort either to price scarce goods and services for more efficient use or to game the system by getting others into debt so one can accumulate financial assets in a social game. Pareto or economic efficiency refers also to normative efforts to maximize benefits which could be wasteful in other terms.  
> **username_2**: I am saying the only commonly used normative argument in economics is efficiency, which is a rather light and limited normative aspect. By definition, economic efficiency requires the elimination of waste, much like maximum heat should be extracted from a given resource. Monetary units don't make much of a difference there. Accumulation of assets is a question of distribution, for which again the normative starting point is not given by economists. Rather, economists try to minimize waste for a given objective of wealth redistribution.  
> **username_0**: Perhaps human beings cannot make objective determinations of waste or efficiency because these are normative (Pareto) values. The Pareto criteria means no agent says "I am worse off due to social interacation". So if no one complains "I am worse off" when scarce fuel is spent to race cars in a circle this is Pareto efficient independent of the thermodynamic efficiency which will vary with technology available and the racing rules. If an ounce of prevention is worth a pound of cure then we should spend or sacrifice 1 unit now to save 16 in future. But GDP goes up by 16 if we fail at prevention.  
> **username_0**: To be logically coherent a measure of Pareto efficiency in the real world, rather than in a toy model specifying imaginary agents, would have to specify the model for how specific patterns of social interactions generate or do not generate complaints of harm. This is a normative model of law and politics. In rules of law voluntary bargains and private property rights might help minimize complaints of harm. However complaints arise for malpractice, breach of contract, torts, and to enforce regulations on voluntary exchange in the real world. Discount value of scarce resource? Consume it faster.  

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### Answer by username_3 on 2020-10-08. Score: 1

One should be particularly careful in philosophy.

I noticed your question, as explicitly stated, is "How do we apply economic principles to democratic elections?"

And the answer to that is that we do not apply them to democratic elections. Democracy is *normative* in economics. So formally, in my capacity as an economist, I do not have an opinion about the level of democracy in a country in and of itself.

However, we could apply it to *positive* (ie. measurable) consequences of elections:

* Do democratic countries have higher growth rates? [Here](https://www.nber.org/papers/w4066)
* What are the consequences of democratic elections on wealth distribution? [Here](https://www.sciencedirect.com/science/article/abs/pii/S0047272702000464)

So, while I do not in any formal capacity have any opinion on the level of democracy, I can say that I have concerns about the *consequences* of elections, even if those consequences are not tied to who won, but tied to how the elections are ran.

Other unusual points: I could, for example, have observed a person that is *willing to pay* for a fair election (for the sake of concreteness, they are willing to pay to avoid ballot stuffing). This means it *must* be part of their utility function. Common points of confusion here are as follows:

* They don't have to be willing to pay *me*. Just willing to pay, in general.
* There doesn't have to be a working mechanism by which they could pay and see a reduction in ballot stuffing.

But because they have that preference, one could craft it as an economic issue. There could be a supply of ballot security and a demand of ballot security ([see Gary Becker on crime](https://ideas.repec.org/a/fip/fedrcs/y1995ifallp8-15nv.12no.3.html)). Or a market failure if no such method to purchase "ballot security" exists. Again, we are not treating ballot security as a moral good, but rather as a measurable objective that can be counted, enumerated, and worth some amount of utility to some users.

> **Comments:**
> **username_0**: Helpful essay. I link to a question about elections however my question is how cost benefit analysis (utility) could be measured without incorporating a model of economic agents making subjective ethical and moral judgments? So what if A causes B or correlates with B using some measure of such things if one is indifferent about A and B with no ethical or moral judgments? If growth is good then democracy can be a good means or bad means to that end. Is it measurement for measurement sake or for the sake of identifying the good and means to cause the good? Normative values motivate human effort.  
> **username_3**: You observe people's measures of values by their actions all the time. If I purchase an item A with good B during a barter process, then A is preferred to B by that person at that time. This is called "revealed preference."  Typically, people purchase things with cash, so its role as a medium of exchange allows us to estimate the relative value of products. So I know a house is preferred to a thimble in most cases, etc.  

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