## Restoring Ethics to Economics

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**Canonical URL:** [Restoring Ethics to Economics](https://www.imf.org/-/media/files/publications/fandd/article/2018/march/point2.pdf)

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### Crisis of the dominant economic paradigm
- The dominant economic paradigm is facing a crisis of legitimacy due to:
  - rising inequality and economic insecurity;
  - memories of the global financial crisis and perceived impunity of its instigators;
  - globalization perceived to privilege large corporations and the financial elite;
  - the looming specter of climate change.
- These fault lines are undermining trust in national and global institutions and provoking insularity and political backlash.

### Shift toward inclusive and sustainable measures: SDGs
- The 17 Sustainable Development Goals (SDGs) adopted by 193 nations in 2015 provide a framework that:
  - predicates economic progress on social inclusion and environmental sustainability;
  - implies that markets alone cannot solve these problems and require national social partners and international cooperation.
- Implementing the SDGs is presented as a practical and affordable road map that is compatible with major secular and religious ethical traditions and that delineates the basic requirements of human flourishing in each country alongside responsibilities of wealthier nations toward poorer ones.

### Ethical critique of neoclassical economics
- Neoclassical economics created a sharp distinction between the positive and the normative, but cannot in practice divorce values from economic deliberation.
- The ethical paradigm of neoclassical economics centers on “homo economicus,” defined as:
  - driven by self-interest to seek the maximization of subjective material preferences;
  - shown to be achievable under highly restrictive assumptions by competitive markets.
- Criticisms of homo economicus from the text:
  - It does not align with evidence from psychology, neuroscience, and evolutionary biology about human nature.
  - It endorses egoism, elevates material pursuits, ignores ethical formation, and treats preferences as sovereign and unquestionable.
  - It can lead to suppression of empathy and solidarity, and the undermining of virtue when financial incentives dominate social norms.

### Human values, flourishing, and alternative ethical frameworks
- What humans value: happiness and human flourishing are central, but construed differently across traditions:
  - Utilitarianism: happiness as hedonic pleasure maximization and pain minimization.
  - Aristotelian eudaemonia: human flourishing identified with living a full life—meaningful relationships, sense of purpose, contribution to community; requires inculcation of virtue as actualizing potential.
  - Capability approach (Amartya Sen, Martha Nussbaum): stresses unfolding capabilities—the ability to do or be what a person values.
- The Aristotelian common good:
  - understood as the good arising from shared social experience that transcends individual goods, excludes no one, and cannot be disaggregated into the sum of individual goods;
  - politically synonymous with institutions that further the well-being of all, including future generations.

### Empirical support: relationships, purpose, and prosocial inclinations
- Modern psychology and subjective well-being literature show:
  - primacy of relationships and purpose for well-being;
  - money does not buy happiness beyond a certain level.
- The annual World Happiness Report finds that happier countries are not only wealthier but also enjoy:
  - stronger social support;
  - higher levels of trust and generosity;
  - greater ability to unfold capability free from impediments (including corruption).
- Behavioral economics findings:
  - people are inclined to cooperate, share, and reward trust;
  - people punish cheating and opportunism, even at a financial cost to themselves.

### Ethical blindspots and societal consequences
- Neoclassical economics’ reduction of goals to material and financial gain creates an ethical blind spot:
  - Economic actors are expected to follow laws and property rights rather than moral norms and to be guided by financial incentives rather than virtue.
  - This mentality fuels massive inequality, financial instability, and the environmental crisis.
- Sen’s observation: an economy can be Pareto efficient and still be “perfectly disgusting.”
- Excessive reliance on financial incentives can undermine virtues (fairness, honesty, trust) essential for key markets and institutions to function.

### Moral boundaries, the common good, and environmental imperatives
- The author argues for a commitment to the common good as a moral boundary on the market economy, which entails:
  - allowing all people to release their capabilities and directing those capabilities toward agreed-upon common ends, especially as framed by the SDGs.
- Given the gravity of the environmental crisis, the text emphasizes:
  - shifting to a zero-carbon energy system over the next three decades is of paramount importance.

### Cosmopolitan responsibility versus particularism
- Universalist ethical traditions (Kant, utilitarianism, Peter Singer) support a cosmopolitan responsibility to assist those in need anywhere when within our power, amplified by responsibility for shared global harms (e.g., wealthy countries and climate change).
- Aristotelian particularism and innate in-group preferences highlight humans’ deep attachment to community as the locus of civic friendship, identity, meaning, and purpose—helping explain backlash against globalization.
- The SDGs are presented as a way to balance these competing moral claims by outlining both universal requirements for human flourishing and differential responsibilities.

### Policy and academic recommendations
- Restore ethical reflection to the heart of economic reasoning.
- Re-center policymaking on the common good.
- Re-embed ethical education in economics and business programs.
- Recognize that economics emerged as a subbranch of moral philosophy and should return to those roots.

*Source: Point of view by Anthony Annett, Finance & Development, March 2018.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/march/point2.pdf_