Keywords

1 Judgment Day

On June 7 of 2010, Alan Greenspan was called before a Congressional committee to explain the role of the Federal Reserve and his own judgment in the financial crisis. A great deal of the political discussion was along party lines: 2 years prior, Republicans held Fannie and Freddie to blame, while Democrats were more apt to hold Mr. Greenspan himself personally accountable (Andrews, 2008). Greenspan pointed the finger primarily at Wall Street, claiming that regulators are hopelessly outgunned by the complexities of the financial markets and the institutions that manipulate the market (Nasiripour & McCarthy, 2010).

Following this heated public inquiry of Greenspan came a steady parade of actors, both literally and figuratively. Congress called Alan Greenspan several more times, as well as other Federal Reserve officials such as Ben Bernanke. Other members of the government were also called, such as Geithner from the Treasury and several members of the Securities and Exchange Commission. Members of government-sponsored or – owned corporations such as Fannie Mae and the FDOC were called. Corporate leaders and analysts such as AIG, Lehman, and former Citigroup executives gave testimony, often to a more hostile reception than even Greenspan received; the most notorious moment of the testimony was when the Vice Chairman of the Financial Crisis Inquiry Commission asked the Citigroup executives to raise their hands if they lost sleep over their role in the crisis. The bewildered (former) executives didn’t react fast enough and received a verbal scourging (Nasiripour & McCarthy, 2010). Even though this formal series of depositions culminated in The Financial Crisis Inquiry Report (United States Financial Crisis Inquiry Commission, 2011), inquiries and discussions continue to go forward over the proper handling of the financial meltdown and what the professional responsibilities are of those who played a role.

Following this group of professionals came a media onslaught covering the material. Michael Lewis wrote The Big Short, which looked at the lead-up to the financial crisis through the action in the subprime mortgage markets (Lewis, 2011). Too Big to Fail offered a more complete view of the catastrophe, with private stories from individuals already known to be involved and painting them, if not in a sympathetic light, at least a human one (Sorkin, 2010). House of Cards, on the other hand, was a fierce attack on most every person involved in the crisis (Cohan, 2010). Diary of a Very Bad Year was a somewhat uncouth relating of the financial crisis narrated through an ongoing conversation between the author (a journalist) and an anonymous snarky hedge fund manager (Gessen, 2010).

These were accompanied by books which didn’t specifically target the financial crisis, but rather the methods used by economists. Models. Behaving. Badly. cast light on the often tenuous assumptions which are needed to achieve certain complex financial models (Derman, 2011). Scott Patterson sounded the same alarm with The Quants, focusing instead on the personalities of the mathematical revolution rather than its properties (2010). There were also book releases from several well-established behavioral economists such as George Akerlof, Robert Shiller, and Dan Ariely, each encouraging us to step beyond the traditionally-held bounds of rationality (Akerlof & Shiller, 2009; Ariely, 2009).

Most of us in the financial and policy industries, however, will remember that such tales are not unique. The financial markets had been through the wringer before: Michael Lewis got his start with Liar’s Poker (Lewis, 1989). There was also the debacle surrounding the junk bonds, well told in Bruck’s Predator’s Ball (Bruck, 1989). Even prior to that was the savings and loan crisis, brought about by a combination of swift deregulation and opportunists (Lowy, 1991). So, on some level, we in the industry expected this to pass. There may be new regulations or a new agency , but there was little mention of ethics outside of the press. There was no widespread mention of changes from inside the industry, and the American Economic Association (AEA) spent more time insisting that they were not a regulatory body than actually dedicating space to the discussion of a formal code of ethics. This is best illustrated in the words of Alfred Coats, who had stated over a decade prior that “[t]he AEA needed no special code of ethics because the canons of correct professional practice were too obvious to require specification” (Coats, 1985). Logically, if you would drop a stapler, the mathematical formulas which would govern its descent to the floor would apply, regardless of who pays your salary. How was economics any different?

Then came The Inside Job (2010). The constant trickle of calls for discussions on ethics that had been occurring for years from pioneers such as Deirdre McCloskey and, more recently, George DeMartino quickly became a chorus from inside the industry. In the opening days of 2011, over 300 economists and other social scientists signed an open letter to the President of the AEA calling for the creation of a code of ethics (Chan, 2011). In response, the AEA assembled the Ad Hoc Committee on Ethical Standards for Economists at their 2011 meeting (Berrett, 2011). Finally, the industry had begun to take notice.

2 Ethics and Social Science

Empirical social scientists generally come to ethics in one of two ways: a thought that has been simmering for a while in the back of the mind, or a pot that has just boiled over and requires immediate comprehension and clean-up.

I have no doubt that there will be many philosophers that disagree with the interpretation of a person or methodology in this text; we similarly believe that many statisticians will consider the use of statistical terms in what is often a verbally anecdotal way to be sophomoric, even scandalous. Bayesian theorists may very well weep knowing that copies of this book are available in the open marketplace. To us, however, the purpose of this book is very similar to trying to find the commode in a restaurant in a foreign country: everyone in the situation has an understanding of the process and necessity, but we can’t seem to find enough common vocabulary to get the point across. If anything, we find ourselves in the more difficult scenario, there being few ways to easily pantomime to our bewildered audience any message regarding fiduciary duty or Pareto optimization. The language of hypotheses and statistics provides a translation of the often arcane people and formal processes of ethical theory and procedures into something tangible for policy scientists.

There are many books which have been written over the past few decades that make an elegant and powerful case for the involvement of ethics and moral concerns in economics and public policy . More recently, the first steps have been made into trying to codify such needs on a professional level; however, the lack of professional ethical training, whether in the classroom or the pit floor, in addition to the anemic standards put forth by many professional groups and exemplars highlight a continued need. A gap continues to persist between the acknowledgment that professional ethics is called for and the realization of such a tenet as a heuristic that any social science professional is comfortable using. This book attempts to operationalize that need.

3 Why Should I Read an Ethics Book?

Though we firmly believe that anyone is capable of making thoughtful and purposive ethical decisions, we also believe that this process does not always occur naturally. Numerous incentives and heuristics play into how we make decisions.

A great deal of the time, we are not even aware that we are calculating options or how we are doing so (for example, how long did it take you to decide which hand to use to turn the page just now? Were you aware you made a decision just then?)

Even when we are aware, we’re not sure how we came to or how to express that process. Think of a child learning addition for the first time. They will understand conceptually, when holding an orange in each hand, that they have two oranges. The next step is counting each aloud, recognizing that there are separate pieces and words corresponding to each piece: (“one... two”) two oranges. The step after that is the walking through the process of actual addition: holding one orange, then adding another one orange in the other hand. Finally, and perhaps not even on the same day, the child will learn to write the symbols that stand for the actions she just did.

Ethical decision-making is much the same way. We decide things every moment, with and without realizing we are doing so. We’ve been deciding things for so long (since birth, really) that it often doesn’t require deliberate thought. But how well do you know how to make a decision? How do you tend to react when faced with ambiguous information? Do you have an innate tendency to dwell on conceptual and definitional issues? When you ask yourself what the “right” thing to do in a situation is, what percentage of the group normally ends up better off – a majority or a small section? As you can see, once you decompose the decision process, the elements become more complicated; things complicate further when you try to determine your own natural tendencies toward a method or moral approach (for example, you may already be familiar with utilitarianism , but maybe not other moral theories that have a different take on which actions and decisions are morally permissible and forbidden). This isn’t to say you’ve been making decisions incorrectly – probably quite the opposite. But what this book does is help you slow the journey down so you can make the correct choices on your path and be able to navigate your way back, should you ever be called on the carpet to do so.

Just when you thought knowing thyself was enough, somewhere along the road, we became social and policy scientists. Even if we had years of philosophical or ethical training, the notion of professional ethics adds a different lens to the decision-making process. We are no longer asking ourselves what we believe is moral to occur in a given situation, but specifically asking what is ethical or ought to occur in a particular situation due directly to or through the fact that we are public policy professionals.

This is a point of departure between this text and many of the other quality works that exist in the field of normative elements in economics, including ethics. This text does not take a stand on acceptable usury, the existence or level of minimum wage in the United States, or on the supremacy of either utilitarian or rights -based reasoning in times when they conflict. There are many quality works that do, and we consider it your professional obligation to be familiar with their arguments. However, that is not why this book exists.

This text accepts that scientists of different religious, moral, cultural, and political ideologies all need to practice their professions with a guiding set of principles; we also understand that each of those scientists will be acting in a professional capacity with individuals who have different moral groundings and backgrounds. This book is built around the belief that simply approaching a decision from only one line of ethical reasoning is short-sighted. By using a portfolio of ethical tests representing the broadest spectrum of different moral theoretic traditions, even if you had been flawlessly separating facts from factual issues and filtering the information through your Benthamite calculus, you open yourself to new possibilities and improve your chances of finding the best course of action.

First, you may have overlooked a group of stakeholders or missed a potential externality. This occurs not necessarily because you neglected the process, but because there is an inherent heuristic conflict in what we do. For example, on an extremely simplified level, economists and policy professionals are utility aggregationists; yes, there are several ways of modelling the precise weights and sources of utility across the society, but on some level the whole is dependent on its parts. This means we often tend toward the utilitarian schools of thought when we rely on our basic tool set: we are trying to serve as many as possible with the limited resources we have available. Even those readers who are not economists are likely in the public sector and have an interest in serving as many of the public at large as possible. However, somewhat paradoxically, most of us in public policy are employed at least in partial answer to provide a public good or address a market inadequacy. We coordinate transfer payments, draft environmental policy, target inflation rates, forecast housing prices, fund schools, hunt fraud, and run nonprofit organizations. The largest aggregation of voters will help keep you employed, but one man with a computer can download top secret memos and bring down governments. You’d best know how to understand the needs of both these types of audience s.

Second, even if the initial analyses do not sway you from your original conclusion , you are now familiar with the objections that other points of view will have with your proposed course of action. Very few in our line of work have the ability (fortunately) to issue edicts without concern for who may object, so being aware not only of the dissenters’ arguments, but of their underlying factual and conceptual assumption s and differences is a beneficial side-effect of having completed the analytical process. Very few times will you face an objection from a professional colleague that is being made simply out of thin air. Therefore, even if you remain completely convinced that your initial gut feeling was correct after subjecting it to more rigorous methods, you are better able to understand the objections of others and coherently defend your reasoning.

4 Why Should I Read This Ethics Book?

As previously mentioned, there is an existing literature on the role of morality in the markets, with additional branches that specifically address the need for professional ethics in our lines of work. So what is this text adding to the existing field?

This text is designed to be a standalone resource for a course on professional ethics. Ethics training of some type in professional programs is now often mandatory, but will come in a wide variety of forms. For example, at the home institution of one of the authors, a half day of in-person training and a short online module were required to acquaint the budding social scientist with research ethics. Exposure to professional ethics as a public policy professional was also required as a prerequisite to the program, but the actual course on ethics was never offered. At other academic institutions, requirements vary between full semester-long courses to one-credit seminar courses to administrative waiving (though the latter is diminishing as legal requirements for ethics training increases). Outside of academia, the state of ethical training varies widely between sectors and professions. The regulated professions which require credentialing, such as engineering and law, often require adherence to a code of professional ethics as a part of the licensure necessary to practice. Those that do not require credentialing but do have a dominant professional society, such as the fields of statistics and sociology, also have codes of professional et hics that are mandated for those who wish to join the ranks of the society. At the time of writing, economics is somewhat unique in that the dominant professional society has only recently considered itself in need of a code of ethics, and the code produced addresses only a few concerns that an economist encounters in professional experience.

Such a wide variety of preparation is best accommodated with a few things. First, few of us will assemble a list of reading materials to acquaint ourselves with the field of ethics: if we haven’t read Aristotle or Hume already, we’ve likely resigned ourselves to the fact that we can live comfortably without doing so, especially given our busy lives. This is, however, unfortunate. There are several scholars who have made important contributions to the way we think, but have written in texts that are too long or too abstract for most of us to get through. If there was a kind of greatest hits collection of classical works that related to professional ethics in economics, it wouldn’t necessarily be ideal, but would fill a gap that is often either left empty or filled with photocopied original readings that students skim right before lecture or professionals might get to “later.”

Second, the process of actually making a decision of any kind needs to be walked through in detail so we can understand how we currently develop and process our choices and where we may be short-sighted in our approach and analytical depth. Part of this process is simply making the decision process much more deliberate. Different pieces need to be identified, such as facts, concepts, and values, with each of these being evaluated as to level of ambiguity and potential role in the situation. Stakeholder groups should be determined and causal linkages mapped. Gaps in information (factual and otherwise) need to be identified and either remedied or stabilized with an admitted assumption . This iterative process of making a map of the decision landscape is essential to both proceeding with an ethical decision and in explaining the reasoning post hoc.

Third, there needs to be a way to bridge the gap between the theoretical knowledge we have of ethics and the very real decisions that we find ourselves making. Many professionals consider concepts such as utilitarianism and rights -based reasoning (i.e., the deontological approach) to be abstract theories that have little practical value when an individual actually finds himself confronted with an ethical quandary (Guillemin & Gillem, 2004; Rallis & Rossman 2012). Part of this challenge comes from the breadth of ways that any course of action can be deemed ethical: based on a utilitarian calculus, using a deontological approach, or using virtue theory to determine the virtuous course of action. We touched on this previously in our discussion of the need to learn and use a portfolio of ethical approaches. However, we also need to adopt the language and procedure of ethics to a methodology that we find useful for our needs. Philosophers may enjoy series of thought experiments or leisurely sessions thinking about thinking, but we need to apply those ideas in a way that we can carry in our policy toolbox. This text has chosen the language of statistical hypothesis testing , which is a natural fit for the likely reader, as it maps our ethical algorithm to the methods we already use in practice. Further, it is a methodology that many, if not most in the policy sciences are familiar with and can provide a common tongue across sub-disciplines.

Finally, many of us do, in fact , think about ethics on a regular basis. Additionally, the fact that you’re reading this book means that some element of selection bias is at play. However, we’re not always sure what other people are thinking. Do our co-workers think about ethics? What about our mentors? In order to answer these questions, this book includes casual and personal stories about professional ethics from ten leading minds in their respective policy fields. We know that the opportunity to talk to someone else about ethics isn’t always available, though we encourage you to do so and provide resources to make that easier. But since our ten notable authors are unable to sit down over a cup of coffee and offer their perspectives on professional ethics with each of us personally, they instead wrote what they would say in a form we could all share.

5 Contents of the Text

This book does not discuss, per se, potential moral transgressions in economics, nor does it seek to justify whether a code of ethics for economists should exist. Other texts have done very admirable jobs in doing this. Rather, this text is a handbook for those in the public policy profession who want to know why and how to incorporate professional ethics into the daily practice of their craft. We hope that this volume addresses that need, and it does so in three sections.

In Sect. 1.1, we discuss the role of ethics in the life of a professional: why it is present and, more importantly, why you should care. Chapter 1, which is underway, provides a general introduction to the book, its motivation, and its purpose. Chapter 2 contains biographies of a series of notable philosophers and economists whose works contribute largely to the body of modern ethical thought. The aim of this sizable chapter is to make available the names and concepts which may have passing familiarity and make their contribution accessible to the policy professional and to encourage you into deeper readings into the works of these notable figures. There will inevitably be disputes regarding the people included on any list of “necessary” philosophy reading; many will cringe to see Marx , while others will be angered to see Rand. However, the 16 people here are only meant as the bare minimum you need to know in order to responsibly conduct yourself in a conversation regarding the intersection of applied ethics and applied economics. This includes both the classic figures and those more divisive contributors from the last century, but without whom it would be difficult to understand the modern context in economics and public policy. I would highly recommend all readers to expand this list, not only to other traditional favorites such as Ricardo but also to heterodox scholars, institutionalists, social psychologists, and views of economic systems which originate outside of Western thought.Footnote 1 The number of viewpoints available in economics is diverse and rich, though they may not be on the front page of the newspapers or textbooks you may already have been exposed to. Of equal importance to reading about the original works and biographical details of the authors is understanding their ideas in their words by knowing the type of world that produced them.

In Sect. 1.2, we present an ethical problem-solving methodology tailored with the methods and vernacular of data analysis that is the constant companion of economists and policy professionals alike. Inspired by a model and teaching method in use for engineering ethics for almost 20 years (Harris, Pritchard, & Rabins, 2000; McLaren, 2006; Searing, 1998), decision components are broken down, analyzed, reassembled, and systematically tested in order to find the best solution to the problem at hand. Each step of the process directly mirrors and is explicitly linked with procedures already known to the reader and ties back to the theoretical materials touched on in Sect. 1.1. In Chap. 3, data collection and categorization is discussed; each piece can be classified according to known and unknown status, in addition to its nature as a fact , concept , value , or assumption . Following verification and explicit addressing of potential sources of bias , Chap. 4 discusses the formation and testing of ethical hypotheses. Said testing is actually a series of independent analyses each representing a different school of moral thought (utilitarianism versus the ethics of deontology) or process of moral reasoning (situational versus universal). Chapter 5 introduces moral reasoning techniques that are used to analyze the results of the hypothesis testing and generate ethical conclusion s. Chapter 6 contains a pair of detailed case studies that are used as illustrations of the ethical decision procedure in real-life scenarios.

Section 1.3 marks the shift from internal justification and methods of ethical practice to their empirical relevance and use. It contains a series of short, casual essays from leading figures in a variety of subfields. Experts in topics such as nonprofit management and experimental economics were asked to share their own personal experiences and advice for practitioners who were beginning in their fields; here is a wealth of actual experience that can serve not only as an exemplar for your own specialty, but also as a window into the function of other specialties with which you may not be as familiar. As editors, we were constantly struck not only by the candid warmth of our contributors, but also of how much they had to offer each other when read together. The text concludes with an Ethical Analysis Workbook and links to various professional codes of ethics contained in the appendices .

Discussion Questions

  1. 1.

    Do you believe there should be a code of ethical conduct for economists? Why or why not?

  2. 2.

    If there should be a code of ethics for economists and public policy professionals, whom should be responsible for developing the cod

  3. 3.

    Should there be enforcement of ethical standards amongst policy professionals, and who should conduct the enforcement? Do you believe that a formal enforcement mechanism is important to the success of ethical practice?