"For Love of Neighbor" is a new documentary film offering a hopeful vision for Christian engagement in politics. Click here to learn more.

The Limits of Economics

The resignation of Brendan Eich, former CEO of Mozilla, for donating $1,000 in 2008 to support Proposition 8 (a California ballot initiative defining marriage as a union between one man and one woman), elicited cheers from proponents of same-sex marriage and concern from proponents of traditional marriage norms. While some may view the resignation as a successful application of market pressures—in this case a boycott of Mozilla’s web browser Firefox to accomplish a certain desired end, this situation underscores the strengths and limitations of judging market outcomes as morally correct, even if these outcomes are preferred by a majority of consumers.

Generally speaking, economists—I’m speaking as one—laud the ability of markets to allocate scarce resources among competing and alternative ends, thereby creating value for society, because market prices best coordinate the actions of market participants when knowledge is dispersed. Over time, markets produce efficient and desirable outcomes because inefficient and undesirable outcomes destroy value. Mozilla’s situation fits this description well. Consumers of Mozilla threatened to take their business elsewhere unless Eich was removed. Mozilla complied and satisfied the desires of their customers and some employees who threatened to quit and apply their trade elsewhere.

While economics can judge whether the boycott achieved its stated goal efficiently, economics cannot answer whether the outcome was just or moral, at least without assuming what is just and moral. Economists try to avoid this problem by separating analysis into positive statements (i.e. what is­) and normative statements (i.e. what ought to be), assuming that positive statements are value-free. However, this separation is artificial and misleading. Positive descriptions are always couched within a prior normative framework and normative analysis is often affected by positive descriptions. Facts are not the same as truth and truth is more than descriptive observations.

[pq]Truth should not be determined by such crass measurements as maximizing value or satisfying consumer demand.[/pq]

Consider once again the Mozilla situation. Economists may observe that the threatened boycott was successful because Mozilla responded to the desires of consumers and created value. However, note the two implicit assumptions in the previous statement: creating value is desirable, and businesses that satisfy consumers are acting correctly. Neither of those assumptions are value-free.

Start with the assumption of creating value. When an economist refers to value, they mean something specific. Value is the economic welfare of buyers and sellers as those buyers and sellers perceive it, thus value is subjective. Economists assume consumers want to maximize this value and that this is positive for society, an assumption that is not value-free.

The second assumption suffers the same type of flaw. Satisfying consumer demand does not absolve a company when a company provides a good or service that is immoral. Companies can choose to produce these goods and when they do so, they are freely choosing the possibility of obtaining profit over the option of not producing and forgoing the profit. Again, this is not a value-free choice.

The problem for economists lies in their training. Whereas many early economists were moral philosophers or theologians who thought through these tough questions and were cognizant of the moral framework they were working within, most economists today never encounter in their training the philosophical assumptions behind the discipline. This lack of holistic training handicaps the discipline. Economics will become richer if its analysis is integrated with other disciplines.

Economic analysis helps answer the question of what is the best way for humans to materially flourish. However, it cannot answer other fundamental questions such as what is moral, what is truth, and what is the good life. Philosophy, ethics, and religion provide better insights into these questions and should have a large voice, perhaps even the preeminent voice, in deciding the answers to these questions. Truth and meaning should not and cannot be determined by such crass measurements as maximizing value or satisfying consumer demand.