The Politics of Economics

Recently, a friend told me about a conversation she had with two classmates of hers in Wealth and Poverty in the World Economy, a core course taught by Stone Professor of International Trade Jeffrey D. Sachs. While studying for their final exams, my friend wondered aloud why a class concerned with the morality of income equality between rich and poor nations, never questioned the morality of the economic system in which such inequality arose. Both economics concentrators, the other two responded that such issues were not economics but rather politics. Economics, they told her, constituted the formulas, the equations, and the graphs that they were furiously memorizing. Economics, in their opinion, is the study of “how?” not the study of “why?” which should be left up to the philosophy and social studies concentrators.

It is sad that at one of the greatest educational institutions in the world, students can concentrate in the study of economics without ever having to question the values that are inherent in its study. The belief that economics is not political, that it is value-free is, I believe, a common misperception of economics that Harvard unfortunately perpetuates. The class that introduces almost half of the Harvard students to economics does not address the most fundamental part of economics—the values and beliefs that support its claims. Not only are the basic assumptions of mainstream economics in Social Analysis 10: Principles of Economics (Ec 10) not questioned, they are never even clearly articulated.

It has not always been this way for economics at Harvard or economics in general. At Harvard, up until 1984 when Baker Professor of Economics Martin Feldstein arrived from his post as the chair of President Ronald Reagan’s Council of Economic Advisers, Ec 10 included several units on critical perspectives of neoclassical economics. Once Feldstein arrived, the unit was cancelled. The Feldstein coup at Harvard mirrors a similar transformation that occurred in economics in the middle of this century. Before the middle of the 20th century, very few people, intellectuals included, considered the economy separate from moral beliefs of what should be. Over the last forty years, economics has become increasingly mathematized. On the surface, economics now seems like a science, ruled by steely logic rather than fuzzy morals.

Yet, underneath the imposing edifice of equations and graphs, neoclassical economics still rests on several foundational beliefs of what constitutes human nature. These beliefs are illustrated in the infamous economic model of how humans behave, Economic Man. Economic Man is a rational individual with preset preferences who constantly seeks to maximize his own utility—happiness—through consumption of resources. Is this conception of human nature and human happiness accurate? Does it accurately describe you or the people you know? Most empirical evidence and just plain common sense suggests that humans are not rational in this way, that many factors motivate us to do things aside from self-interest, and that there are other things to life besides satisfaction of our desires. Ultimately, belief in the individualism and materialism of Economic Man is a value orientation, a leap of faith.

The politics of mainstream economics has strong implications for public policy—in particular an obsession with economic growth, defined as rising GNP. Both rising national incomes and individual incomes are founded on the belief that higher wealth equals a higher quality of life. Yet many other factors contribute to a person’s welfare or the quality of life besides growth, such as health, education, income distribution, meaningful employment, leisure and social cohesion.

This is not to argue against growth or a stagnating economy, and no, it is not to advocate communism. Instead, it is to remind ourselves why we seek growth in the first place—to better our lives. The Nobel Prize-winning Harvard economist and moral philosopher Amartya Sen believes that we should replace our current definition of living standard based on income, with a living standard based on the freedom or capability to live a decent life, such as the freedom to own a home, raise a child, and to be educated. Such a change would be drastic, but it does not have to be revolutionary. Imagine a shift in policy away from promoting growth that may raise the incomes of the poor slightly but ultimately increase inequality, to a policy that would aim to reduce rocketing housing costs. That would be development.

What constitutes the good life? Is Economic Man accurate? Does growth equal development? These are difficult questions that demand value judgments, and as much as modern economics continues to seek objectivity, these ultimately subjective questions will always form the foundation of economics.

Yet, its subjectivity and humanity is exactly why economics matters so much. Harvard is guilty of perpetuating the mythical separation between economics and politics. That economics concentrators and other students who take Ec 10 can graduate from Harvard without questioning the assumptions of mainstream economics or without asking what the purpose of it all is does not represent the triumph of free market ideology as much as it represents the failure of a liberal education that is supposed to produce critical and reflective citizens.

Michael Y. Lee ’02-’03 is a social studies concentrator in Pforzheimer House.