Economics, Preference, and Morality

James Picerno has a great piece yesterday on Paul Krugman's latest article. What I really like, from James' analysis is this:

Inevitably, economics is such that it allows observers to see whatever they want to see. The economy is too large and complex to draw definite conclusions. But someone has to make a decision about such things. Fortunately, reasoned analysis isn't completely dead on the matter. We can start by asking questions, such as, If tax cuts don't promote net growth, does hiking taxes do the trick? If there's too much nuance to get a clear answer, let's be extreme in our theoretical world and ask, What if marginal tax rates ascended to 90%? Or fell to 10%?

I think this is so true. When I hear politicians rant and rave about the economic effects of this or that policy, I often wonder how they know – given that most of them have law degrees. Even among people with economics training there is much debate over these issues. I think so much of it boils down to preference and morality.

I often look at data like this and I think that I cannot really tell if we are better or worse off than we were 20 years ago. Our standard of living is definitely higher, and we are surely healthier on average, but are we happier, and is happiness really the measure we should be using anyway? (some may argue we will have real trouble achieving it) It boils down to preference. Do we prefer the way things were in 1973, or now?

20 Hidden Ways Business Professionals Struggle With Pain

Sometimes I think it is useless to debate the economic effects of decisions on minimum wage, inheritance taxes, progressive taxation, etc. I think we should approach these as moral issues, because the economy is so complex that we don't know for sure what will happen. Why not just admit that many people prefer a higher minimum wage even if it is a drag on the economy? I feel that way about individual liberty. I think even if large scale government intervention can make things better overall, we should still not allow it because individual liberty trumps that. Some people don't feel that way, but I think rather than try to concoct an economic argument for government intervention, they should admit that it just boils down to their preferences. In the end, balancing these preferences is what democracy is all about.