Moral Market Principles?

I'm greatly intrigued by a recent pair of blog posts on economics. One is by the progressive economist Paul Krugman, the other a response to Krugman by Austrian school economist Steven Horwitz. One of these economists argues that the market economy is essentially an amoral structure, while the other argues that morality is inseparable from economics. Try to guess which one said which!



If you guessed that Horwitz, the libertarian free market defender, said that the market is essentially amoral, while Krugman, the bleeding heart liberal, said that morality is inseparable from economics--you guessed completely backwards.

Krugman even goes so far as to claim that the amorality of the market implies that sometimes otherwise irrational (perhaps immoral?) behavior is necessary:

"And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment — mainly because short-term interest rates are up against the zero lower bound — the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise."

By contrast, Horwitz argues that irrational behavior doesn't become rational in the event of an economic disaster. Neither does immoral behavior ever have genuine economic benefits. In particular, Horwitz argues that war does not benefit the economy. Whereas Krugman and many others affirm that World War II got us out of the Great Depression, and war may still generate enough spending to boost the economy today, Horwitz argues that this is just "Newspeak." He says,

"Wealth increases when people are able to engage in exchanges they believe will be mutually beneficial. The production of new goods that consumers wish to purchase is the beginning of this process.  When instead we borrow from future generations to spend on goods and services connected not to the desires of consumers, but rather to the desire of the politically powerful to rain death and destruction on other parts of the world, we are not allowing individuals the freedom to do the things they think will make themselves better off.  And we are certainly not extending that freedom to those killed in the name of our economy-enhancing war.  At a very basic level, the idea that any kind of spending is desirable overlooks the fact that spending on war (and, I would argue, public works as well) actively prevents people from enhancing their wealth through production and exchange linked to consumer demand."

To be fair, Horwitz's post is based on at least a partial misunderstanding of Krugman, who is certainly far from advocating war. On the other hand, it was indeed Krugman who said explicitly that "virtue is vice" under the right economic circumstances. I am inclined to agree with Horwitz's assessment that "when one is reduced, as Krugman is, to saying we “needed Hitler and Hirohito” to get us out of [the Great Depression], one has abandoned morality to worship at the altar of economic aggregates." This metaphor is consonant with my reflections from earlier this week on the economy as an idol.

Initially, it seems striking that progressives would see the market as amoral, while libertarians and Austrian school economists might see the market as essentially a moral structure. But I suppose that's consistent with the principles of morality held by each philosophy. Progressive ideology appears to hold certain outcomes as moral or immoral--thus Krugman can say that the market is amoral, because it shows no bias towards what for him would be a just income distribution. But for the libertarian, the primary moral absolute is the inherent value of human beings. The precise way in which resources end up being distributed is merely incidental; the only real goal of political structures should be to allow humans to live with basic freedom and dignity.

In any case, this kind of exchange certainly helps me reevaluate different strains of American political thought. I'd be curious to see how other liberals respond to Krugman. I'd be really interested to know how conservatives would respond to Horwitz's anti-war libertarianism.