The Moral Failure of Economics, How a Discipline Designed to Explain Prosperity Became a Handmaiden to Inequality

The Moral Failure of Economics, How a Discipline Designed to Explain Prosperity Became a Handmaiden to Inequality

We are living in harrowing times. Across the globe, a palpable sense of anxiety and discontent simmers beneath the surface of modern life. Soaring inequality has become the defining feature of our age, creating a world where billionaires launch themselves into space while millions struggle to secure food, shelter, and basic healthcare. In this fractured landscape, a disturbing political narrative has gained traction: one that justifies the slashing of social programs for the poor, stokes fear and anger against migrants and refugees, and systematically dismantles the mechanisms of collective welfare. As noted by Kaushik Basu, a former Chief Economic Advisor to the Government of India, these actions are often cloaked in the noble-sounding language of individual freedom and prosperity, yet they serve as a fig leaf for policies designed to enrich a small, powerful elite and their political cronies.

While it is easy to attribute this deterioration solely to the failings of politicians, a more profound and unsettling cause may lie elsewhere: in the deterioration of how economics itself is practised and taught. The discipline, which purports to be a value-free science, has, in its mainstream neoliberal incarnation, provided the intellectual scaffolding for an era of unprecedented greed and exploitation. The central, urgent question of our time, therefore, is not merely whether our economies are unequal, but whether the very science we use to manage them is hardwired to promote that inequality.

The Myth of Value-Free Science: How Economics Rationalizes Injustice

Mainstream economics has long clung to the self-image of a pure science, dealing only in objective “if-then” propositions. It presents itself as a neutral tool, separate from the messy realm of morals and values. However, this claim to objectivity is both disingenuous and dangerous. Scientific findings, and the models that produce them, inevitably shape our normative judgments and societal values. When an economic model concludes that a policy will boost “efficiency” or “growth,” it carries an implicit moral weight, suggesting that such an outcome is desirable.

This is where the dominant neoliberal ideology—with its singular focus on GDP growth, market freedom, and a narrow definition of efficiency—has wreaked havoc. By presenting itself as the scientifically valid approach, it has provided a justification for policies that would otherwise offend our basic moral sensibilities. The logic is seductively simple: if deregulating markets leads to higher growth, it is “good,” even if it leads to mass layoffs and environmental degradation. If cutting taxes for the wealthy incentivizes investment, it is “rational,” even if it decimates public education and healthcare. The discipline has, in effect, created a moral universe where greed is not just acceptable but is the engine of progress, and where the resulting inequality is not a failure but a natural and fair outcome.

This is not just a theoretical concern; it has a tangible impact on human behavior. Basu points to compelling studies that suggest the way economics is taught can actively shape students’ ethical frameworks. While educational approaches based on Amartya Sen’s “capability approach” (which evaluates well-being based on people’s freedom to live lives they value) can foster caring and cooperative citizens, other studies indicate that students of mainstream economics tend to behave more selfishly than their peers. The lesson absorbed in lecture halls is that self-interest is not just common, but “rational,” and that any other motivation is an aberration. The discipline, therefore, doesn’t just describe a world of selfish actors; it helps to create one.

Kenneth Arrow’s Unheeded Warning: The Lie of the Self-Sufficient Market

The late Nobel laureate Kenneth Arrow, one of the giants of 20th-century economics, identified the fatal flaw in this neoliberal logic in a relatively obscure 1973 paper. He dismantled the core fantasy of laissez-faire economics: that a society built purely on total, unadulterated self-interest could ever be stable or functional. Arrow argued that such a system “would not survive for ten minutes” in a world of any complexity.

His reasoning was profound. Markets, the very institution neoliberals claim can run on automatic pilot, are fundamentally dependent on a foundation of trust, cooperation, and ethical norms that the market itself cannot produce. “Even competing firms and individuals,” Arrow wrote, must reliably honour “reciprocal obligations” for commerce to occur. A contract is worthless without the trust that it will be upheld; a financial system collapses if every actor assumes everyone else is a purely self-interested cheat. The neoliberal model, in its pursuit of a pristine theoretical ideal, ignores the social and ethical bedrock upon which all real-world economies are built.

Furthermore, Arrow launched a direct assault on the neoliberal contention that freedom and equality are inherently at odds—the idea that redistributing wealth to promote equality necessarily infringes upon the freedom of the wealthy. This, he argued, is a perversion of the concept of freedom. When economic power becomes so concentrated that “a few are making the major decisions on which human welfare depends,” they do so in their own interests. Actions that uphold this power structure—from union-busting and strike-breaking to more subtle forms of economic coercion—severely restrict the freedom of workers and citizens. In such a context, Arrow concluded, “formal democracy and freedom” become a “sham.” He arrived at a radical and powerful conclusion: “institutions that lead to gross inequalities are affronts to the equal dignity of humans.”

The Philosophy of Predation: When Freedom for Wolves Means Death for the Sheep

Arrow’s insight finds a powerful echo in the words of the philosopher Isaiah Berlin: “Freedom for the wolves has often meant death for the sheep.” This metaphor captures the essence of our current predicament with chilling accuracy. The neoliberal definition of freedom is largely negative—freedom from government intervention, from regulation, from taxation. This freedom, when granted to the economically powerful, becomes a tool of predation.

Today’s “wolves” are not merely wealthy individuals; they are corporations and oligarchs with unprecedented resources to shape the political process in their favor. The principle of “one person, one vote,” as another Nobel laureate, Joseph E. Stiglitz, has observed, has been supplanted by the reality of “one dollar, one vote.” Through massive campaign contributions, sophisticated lobbying, and ownership of media outlets, the economic elite can ensure that policies continue to flow in their direction, further entrenching their power and increasing inequality in a vicious, self-reinforcing cycle.

The Nationalist Smokescreen: Dividing the Many to Enrich the Few

The toxic focus on individual self-interest in economics is compounded by a parallel poison in the political realm: virulent nationalism. There was a historical moment when the nation-state served as a vital container for organizing economic life and fostering social solidarity. However, in our hyper-globalized world, this narrative has been cynically co-opted.

The same corporate and financial elites that benefit from cross-border flows of capital and goods—the very forces that have rendered the nation-state partially obsolete—simultaneously fund and promote a politics of aggressive nationalism. This is a deliberate and time-tested strategy. A population that is mobilized to fight cultural wars, to fear the “other” across the border, and to rally around a flag, will not mobilize to challenge the economic structures that are impoverishing them. While people are distracted by xenophobia and jingoistic fervor, the silent transfer of wealth and power continues unabated. Nationalism becomes the perfect smokescreen for inequality.

The Path to Renewal: From Self-Interest to Global Cooperation

If the diagnosis is a crisis of values embedded in our dominant economic and political models, then the cure must be a fundamental recalibration of our moral compass. The solution is not to abandon economics, but to reform it from within, and to build political institutions that reflect our interconnected humanity.

First, we must dethrone the simplistic model of Homo economicus—the purely self-interested actor—as the central paradigm of human behavior. We must recognize, as Arrow did, that cooperation, trust, and reciprocity are not irrational anomalies but the very glue that holds complex societies together. Economics must make room for these “pro-social” motivations, drawing on insights from psychology, sociology, and philosophy to create a more realistic and humane model of human behavior.

Second, we must embrace global cooperation as the only viable path to solving our most pressing collective problems. The French philosopher Jean-Jacques Rousseau’s “stag hunt” game provides a perfect allegory. Two hunters can choose to hunt a hare alone, securing a small but certain reward. Or, they can cooperate to hunt a stag, which provides a much larger feast, but only if each trusts the other not to abandon his post. Our global challenges—from climate change and pandemic preparedness to tax evasion and financial regulation—are modern stag hunts. No single nation, no matter how powerful, can solve them alone.

This requires strengthening multilateral institutions like the International Labour Organization (which sets global labor standards) and the International Court of Justice. These are the mechanisms that can build the trust necessary for large-scale cooperation, ensuring that all parties benefit and that no one is left shouldering the cost while others reap the rewards.

Conclusion: Reclaiming Economics for Humanity

The question of whether economics promotes inequality is, ultimately, a question about the soul of the discipline. The neoliberal era has shown that an economics that glorifies self-interest and ignores morality will inevitably produce a world of stark division and deep injustice. The warnings from thinkers like Arrow, Sen, and Stiglitz have been clear: a society that sacrifices equality and human dignity at the altar of efficiency and growth is building on a foundation of sand.

The way forward requires a courageous intellectual and political project. We must build an economics that is not a handmaiden to greed but a servant of human well-being. We must foster a politics that looks beyond borders to our shared fate on this planet. It is a monumental task, but the alternative—a world permanently divided between wolves and sheep—is too harrowing to accept. The challenge of our time is to prove that we are capable of building a global economy that honors the equal dignity of every human being.

Q&A: Economics and Inequality

Q1: How does the article argue that economics, as a discipline, actively promotes inequality?

A1: The article argues that mainstream, neoliberal economics promotes inequality in several key ways:

• Moral Justification: It presents itself as a value-free science, but its models and conclusions (e.g., prioritizing “efficiency” and “growth”) provide an intellectual and moral justification for policies that increase inequality, making greed seem rational and inevitable.

• Shaping Behavior: Studies suggest that the way economics is taught can make students behave more selfishly, ingraining the idea that self-interest is the only rational mode of operation.

• Flawed Foundations: It is built on the model of Homo economicus (the purely self-interested individual), which ignores the essential roles of trust, cooperation, and reciprocity that real-world economies need to function, thereby validating a predatory mindset.

Q2: What was Kenneth Arrow’s crucial criticism of the laissez-faire economic model?

A2: The late Nobel laureate Kenneth Arrow argued that a pure laissez-faire system based solely on total self-interest “would not survive for ten minutes” in a complex world. He pointed out that markets cannot function without a foundation of trust and ethical norms. Even competing firms must honor reciprocal obligations and contracts. The neoliberal model ignores this essential social bedrock, making it a fundamentally flawed and unstable representation of reality.

Q3: According to the text, how does the neoliberal perspective wrongly frame the relationship between freedom and equality?

A3: Neoliberal logic posits that freedom and equality are contradictory goals. It argues that any government intervention to reduce inequality (like progressive taxation) is an infringement on the freedom of the wealthy. Arrow challenged this, arguing that in a context of gross inequality, where a small elite makes all major decisions, the “freedom” of the majority is severely restricted. In such a scenario, formal democracy becomes a “sham,” and true freedom for all is impossible without a foundation of greater equality.

Q4: How is virulent nationalism used to reinforce economic inequality?

A4: Nationalism acts as a political smokescreen that diverts public attention away from economic injustice. While global elites benefit from cross-border capital flows, they often promote a politics of fear and xenophobia. By mobilizing the population around cultural and nationalistic conflicts, they prevent the formation of a broad, cross-border coalition that would challenge the concentrated economic power and policies that drive inequality. People fighting culture wars are not mobilizing against wealth concentration.

Q5: What is the “stag hunt” allegory, and what does it illustrate about the solution to global problems?

A5: The “stag hunt,” from philosopher Jean-Jacques Rousseau, describes a scenario where two hunters can either:

1. Hunt a hare alone for a small, certain reward.

2. Cooperate to hunt a stag for a much larger feast, but only if both trust each other to not abandon their post.
   This allegory illustrates that the biggest challenges—like climate change and tax fairness—are collective action problems. Nations can achieve far greater outcomes through cooperation (hunting the stag), but this requires building trust and robust international institutions to ensure mutual commitment and shared benefits, moving beyond narrow self-interest.