Monday, May 12, 2008

Economics and Ethics

When you're discussing economic systems with your students, how often do the students bring in issues of ethical behavior? And when they do, how do you integrate their interest into the discussion? One option is to dismiss the concern because the "focus is on economics." Another option is mention Smith's Theory of Moral Sentiments as well as The Wealth of Nations, and discuss both of his works. However, many of us are not familiar with both, or may only be passing familiar with one. And it still may not answer the question "How does ethical behavior play in the marketplace?"

While not an academic study, a survey done by The Wall Street Journal may give you a starting point. It provides some insight on how consumers reward and/or punish producers based on perceptions of ethical production. According to this article, consumers are willing to "reward" perceptions of ethical behavior, but not as much as they will "punish" perceptions of unethical behavior. In short, ethical behavior pays, but not as much as unethical behavior costs.

This raised a further question in my mind: why the asymmetry? Is it possible that it makes us feel better to "avenge" the wronged than to reward what we feel should be normal behavior? I don't know. But I think human behavior is such that the feeling of "superiority" in punishing an unethical producer could well outweigh the feeling from rewarding someone who may actively do more than we do.

What are your thoughts? Or your students?


Mike Fladlien said...

People react to a wrong more than they react to a right that was expected. When students work hard, teachers don't reward them because they are doing what they are supposed to be doing. But when students act up, teacher impose a punishment often greater than the behavior. Consumers are the teachers.

Anonymous said...

It's 38 years after the moon landing. Is it ethical for economists to not talk about the planned obsolescence of automobiles? Galbraith talked about it in 1959.

What happened to the DEPRECIATION of all of the automobiles purchased by consumers since then? I am sorry, but the laws of physics don't change style from one year to the next. This changing styles to get people to buy is just stupid psychological nonsense. Of course we don't hear economists suggesting mandatory accounting so consumers would engage in smarter behavior.


Tim Schilling said...


Your point about planned obsolesence of automobiles may have had more weight 38 years or more years ago.

Most cars build today are built to last far longer than those built in late '60s and early '70s. The energy crisis of the late '70s was a significant factor in that change. The same foreign competitors who provided better mileage also brought better quality. Consequently, the way cars were built changed.

As to people's tendency to chase after the newest style, the fact is conceded. You may chalk it up to consumerism, marketing, or just
infatuation with form utility (either style or desire for the newest technology). However, an economic explanation doesn't mean economists are at the root of it. Ultimately economists try to explain human behavior. It is not the job of the economist to direct it.

I don't think any economist who believes in the efficiency of the market to deliver over the long-run would be in favor of mandating accounting. That may be the realm of the accounting/finance professionals.

Anonymous said...

What data is there to show the cars last longer today and what makes you think they were made to last as long as possible back then?

They depreciate regardless so what reason is there for economists to not collect and report that data. They don't even point out the fact that they ignore it.


Tim Schilling said...

I don't think they were made to last "as long as possible" in the 1960s and 1970s. I think they with a renewal rate (planned obsolesence) of about 3 years or so.

As for evidence, I recall reading a study a number of years ago (late 1990s?) that talked about the average age of autos on the road and compared it to the 1960s and 1970s. The average age was twice as old - the numbers 5.6 and 2.9 stick in my mind but I won't vouch for that.

Add to that, the financing terms keep getting longer. This is both a testament to the buyer's intent (even if they don't keep it the full length of contract and roll over the unused portion into the next loan), as well as the seller's "confidence" that the product won't collapse before the vehicle is paid for.

Anonymous said...

{{{ I don't think they were made to last "as long as possible" in the 1960s and 1970s. I think they with a renewal rate (planned obsolesence) of about 3 years or so. }}}

I never said they were made to last as long as possible in the 60s and 70s. They have been making garbage all along.

The economics profession has not been computing and reporting the depreciation all of that time.