Why Economics needs a moral awakening, Policymaking and much more

“Let us not forget that economics is a moral science,” Emmanuel Macron told the Financial Times in a recent interview. This is one of the central thoughts animating the work of Amartya Sen, a Nobel prize winner in the dismal science but also a renowned political philosopher. Kathimerini contacted the great Indian thinker at his home in Boston and asked him about that quote from the French president and about whether, in the age of Covid-19, it is finally time for economics to widen its view of human behavior and of the ends of economic policy by reconnecting with moral philosophy.

“I remain an eternal optimist,” the 86-year-old Sen replies. “I still believe that a much wider understanding can emerge. Policymaking reflects our level of understanding. We must realize in a deep way that not only economics, but society as a whole must reflect our moral values – we live together well when we help each other. This truth of our fundamental interdependence can be seen particularly clearly at the time of a pandemic. If we don’t grasp it, that will be a major epistemic failure with large ethical implications.”

He says that the understanding of the relationship between epistemology and ethics can be traced back to many sources, including Aristotle, in “The Nicomachean Ethics” and “Politics.” For Sen, the upcoming US presidential elections will be a crucial battleground where the ability of propaganda and fake news to obscure the moral demands of our mutual dependence will be tested.

Still teaching at Harvard (online these days), Sen is the author of the capability approach to political philosophy, according to which a person is free only to the extent that they are capable to pursue the ends that give value to life.

Thus, a lack of access to healthcare is an element of unfreedom, even for someone living in a politically and economically liberal polity. Does the pandemic highlight the importance of capabilities as a constitutive element of freedom?

“The European welfare state, including the national health service, is an excellent example of the conception of freedom as capability, including but going well beyond the ‘negative’ conception of liberty as the absence of coercion,” he says, alluding to Isaiah Berlin’s classic taxonomy. He characterizes the 2008 global crisis as stemming from “an overreliance on ‘negative liberty,’ as the banks were allowed to engage in practices with no social benefit but great potential for destruction, like the insuring of bonds they didn’t own against default.”

The ideal, he says, is a “balanced approach” between positive and negative freedom – something understood by the great theoreticians of political economy, from Adam Smith and Condorcet to J.S. Mill, Karl Marx and A.C. Pigou. This approach “was the foundation of the post-war welfare state in Europe.”

Sen brings up the example of World War II Britain, where “there was a fear that there would not be enough food and that people would starve. So the policy of rationing and of controlled prices was implemented. As a result, not only was starvation averted, but undernourishment declined greatly, and severe undernourishment disappeared altogether.” It took the war, he explains, “to make the British government take on the responsibility of feeding the entire British population – though this did not extend to its colonial subjects in India, where there was a major famine during the war years.”

He observes that “unfortunately” in the current crisis the “culture of sharing does not seem, so far at least, to be gaining much ground – though the problem is less acute in Europe than it is in the US or India.” He speaks of the negative global influence “of the dominance of an American economic philosophy that goes back to Ronald Reagan, but which was followed by subsequent presidents, including Bill Clinton, who himself thought later on that some of these policies were mistaken.” And he is keen to point out that the first economic thinker to highlight the need for regulation to protect the economically vulnerable was none other than Adam Smith: “In ‘The Wealth of Nations,’ he says that the intervention of the state on behalf of the workers is almost invariably right, whereas intervention on behalf of ‘the masters’ – that is, the rich capitalists – is quite often wrong.”

The legacy of austerity:

In that spirit, Sen criticizes eurozone policy during the euro-crisis, “under the direction of the European Central Bank and certain member-states.” “The leader then of the ECB, Jean-Claude Trichet, is in many ways a powerful thinker – and I am proud to call him an old friend – but he got this one quite wrong.” Their insistence on directly reducing deficits and debt, in the midst of a downturn, he says, “led to severe cuts in public expenditure.” Yet “the deficits – quite often – grew because of the need to stimulate the economy in the face of widespread banking failure. It was really a crisis of capitalism, not primarily that of an over-extended state.” And the result of the harsh austerity imposed was “a real loss of protection for the poor and the working class in Europe – the consequences of which we are experiencing even now with the difficulty in dealing with the pandemic.” This policy mistake, he argues, exacerbated the negative consequences of the misguided effort to shrink the welfare state which actually preceded the financial crash.

Sen is largely in favor of the “unorthodox policies” implemented by the ECB under Mario Draghi and his successor, Christine Lagarde, and also of the fiscal flexibility granted by the EU to member-states to deal with the crisis. “A relapse into orthodoxy would badly hurt the poor and the economically vulnerable,” he warns.

Locked down and out in India:

Sen is particularly critical of the way his home country has dealt with the pandemic. The policy of the Indian government, “under the influence of the better-off classes,” he says, “focuses very largely on controlling the spread of the virus, not paying adequate attention to the economic repercussions. For the poor, the sudden imposition of the lockdown meant that, from one moment to the next, they were left without work and without an income, facing the prospect of starvation.” The policy that has been adopted is not only “blatantly unjust”; it is not even effective in achieving its stated goal: “When a large number of people, who work far from their homes, were left without income, they were forced to walk back in masses to their villages (train and bus services were suspended as part of the lockdown), spreading the virus to new areas.” In addition, the very limited testing carried out in India means “we don’t know the scale of the epidemic in the country.”

Along with Raghuram Rajan, former governor of the Indian central bank, and current Nobel Laureate Abhijit Banerjee, Sen wrote an article in the Indian Express urging the use of the food stocks of the Food Corporation of India – a state institution that buys up farmers’ products at guaranteed prices and then either sells them or distributes them to those in need – to feed the poor.

“Not using a part of the huge food stocks – far in excess of stocks in the past and much larger than what is needed for the purpose of stabilization – for more generous support of the poor is a serious omission,” Professor Sen says. “The central government could use even 40-50 million tons without endangering food security, and this would have relieved hunger across the country,” he points out.

By Ekathimerini