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November 2009 posts

That oldtime utilitarian economics (no, thank you) [UPDATED AGAIN]

Mark D. White

The Wall Street Journal today features a paean to A.C. Pigou and good old-fashioned utilitarian economics, written by John Cassidy, author of How Markets Fail: The Logic of Economic Calamities. To Cassidy's (or the editors') credit, statements from other economists (such as Milton Friedman and Ludwig von Mises) are included for counterpoint, and Cassidy even mentions some pre-Coasean insight from Pigou:

The mere existence of negative spillovers doesn't necessarily justify government intervention, Mr. Pigou conceded. In some cases, the parties concerned might be able to come to a voluntary agreement about how to compensate innocent bystanders. A landlord, for instance, may reduce the rents for tenants who have to live over a noisy bar.

The landlord doen't do this out of the kindness of his heart, of course; more likely he has to lower the rent to attract tenants to a less attractive apartment.

A better example would be the tenant confronting the bar owner directly for compensation; as Coase showed, if the two parties can bargain relatively costlessly, and one can be shown to have a right to control the noise in the situation, they will come to an agreement that will resolve the conflict efficiently, using information only they have (especially their subjective disutilities from various solutions), rather than relying on the incomplete information (and possibly skewed incentives) of government officials.

The role of the courts here is not a hindrance, as many have assumed, but rather highlights an ignored aspect of externalities that stands in contradiction to entire utilitarian/Pigouvian economics tradition: harm is only of social (and governmental) concern if it is wrongful, i.e. if it violates a legal right. It can be argued that all actions (except the most private ones) create externalities of some sort, but nonetheless only the wrongfully caused ones are of legitimate concern to society and to the government. Hence the requirement of the Coase Theorem that rights be clearly assigned; the legal right in a situation must be ascertained, either by statutes, common law, or judicial decision, and then (and only then) the wronged party can either demand compensation or consent to a deal with the party found to be at fault. After all, that's what tort law is for (according to most legal scholars, with subtle differences): providing a mechanism for harmed parties to shift their burden to parties that caused it (depending, in most cases, on fault).

But given their refusal to recognize rights (or wrongs), economists in the utilitarian/Pigouvian tradition cannot see this, and they simply add up benefits and harms. This is particularly pernicious when they counsel not the elimination of externalities, but the optimization of them: eliminate only the inefficient externalities, and leave the rest alone. If they acknowledged that some externalities are wrongful, they could not in good conscience (or at least without regret) recommend any less than elimination (recall the ridicule attending to 2004 presidential candidate John Kerry's statement that he would reduce terrorism to a "manageable level"). That's why normal people are so incredulous when you tell them it isn't efficient to eliminate pollution, because most people (for better or for worse) regard pollution as a moral wrong, not to be optimized but to be eliminated. (Imagine if some brilliant young economist were to recommend the "efficient level of torture.")

Rather than turn back to this Pigovian mindset (not that I think we ever left it), why can't we start looking at the roles of right and wrong in the economy (however one chooses to define them), rather than simply adding up benefits and harms?  We may see that not all the benefits are "right," not all the harms are "wrong," and all the benefit in the world might not be worth a little wrongful harm.

UPDATE (Dec 4): The Wall Street Journal printed my letter to the editor along the same lines today.

UPDATE (Dec 7): Another economist jumps on the Pigouvian bandwagon.

David Brooks on health care reform and the values question

Mark D. White

In his recent column, "The Values Question," David Brooks definitely has the right idea in general regarding health care reform, making a bold statement that I completely agree with (especially the bolded part, emphasis mine):

It’s easy to get lost in the weeds when talking about health care reform. But, like all great public issues, the health care debate is fundamentally a debate about values. It’s a debate about what kind of country we want America to be.

At their core, great public issues are rarely economic--they're ethical. Focusing on costs--whether we're discussing health care, national security, and so on--misses the point, since it assumes that costs are the only (or most) relevant factor, and this is itself a normative statement. While costs may be a critical component of any public debate (especially when scarce resources are involved), they are rarely to be considered to the exclusion of other values (such as justice, dignity, rights, and so on).

Brooks ends on the same note:

We all have to decide what we want at this moment in history, vitality or security. We can debate this or that provision, but where we come down will depend on that moral preference. Don’t get stupefied by technical details. This debate is about values.

While I disagree with most of how Brooks fleshes out the debate, I do appreciate that he is focusing on values, which is what the debate truly is (or should be) about. I hope to have much more to say on this in the future.

Any thoughts?

Journal Watch: Utilitas, 21/4, December 2009

Mark D. White

The December 2009 issue of Utilitas contains the following papers which I think may be of interest to our readers:

  • "A Conflict in Common-Sense Moral Psychology," by Aaron Z. Zimmerman, argues that the normally understood link between rationality and morality is questionable, in that it is not necessarily irrational to act immorally, even if the reasons against the immoral behavior outweigh the reasons for it.
  • "On Three Alleged Theories of Rational Behavior," by Stuart Rachels, argues that three common understands of rational behavior--ethical, prudential, and instrumental--are distinct but not contradictory, and concludes that the instrumental understanding is mroe "useful and entrenched."
  • "Is Situationism All Bad News?" by Luke Russell, argues that philosophers have failed to see the bright side of situationism, which is normally taken to undermine traditional notions of virtue and autonomy through emphasizing the overwhelmingly dominant effects of circumstantial factors on ethical behavior. Russell argues that we should not disparage situationist effects, because they are amoral in and of themselves, but rather harness them for good effect. I hope to say more on this here later, but Russell's thesis seems eerily similar to that of normative behavoral economics, libertarian paternalism, and "nudging," in that rather than combat inferior methods of reasoning, we should embrace them and then use them for a higher purpose. (See my thoughts on Nudge here; a similar theme also pops up in my work on procrastination and the will, and in my upcoming book.) In other words, I would agree that situationism is not all bad news, a lot of it is still bad news.

CFP: Cost-Benefit Analysis: Uncertainty, Discounting and the Sustainable Future

Mark D. White

From Ethics Etc comes the following call for papers:

April 12-13th, 2010
Eindhoven University of Technology, the Netherlands Abstract Deadline:
November 23rd, 2009
Opening Lecture: Simon Caney, University of Oxford

The purpose of the conference is to invite experts in the fields of philosophy, ethics, applied economics, environmental economics and innovation studies. The focus will be on those aspects of uncertainty and the discount rate relevant to these disciplines. Uncertainties are of particular importance in innovation projects, where both costs and benefits are hard to assess. A crucial question is how uncertainty can be taken into account in cost-benefit analysis, even if imperfectly, and what kinds of alternative methodologies exist that may deal more effectively with decision-making in uncertain environments. The workshop also aims to expose and analyse the ethical assumptions at work in the choice of a discount rate. Importantly, while some of the reasons for discounting future benefits and costs are economic, some are ethical. The choice of discount rate is therefore an interdisciplinary issue.

If you wish to contribute a paper related to any of these issues, please send an abstract to R.J.Lowry (at) tue.nl. The conference is free, and will include lunch on both days. A limited number of scholarships will be made available to students who present a paper at the conference to help cover travel and accommodation costs.

Superfreakonomics and irrelevance of moral analysis

Jonathan B. Wight

Superfreakonomics has received a lot of criticism for its lapses in science.  But there's a larger philosophical issue, which is how the authors see the role of technocrats in policy making.  For example, in discussing global warming, the authors propose a geo-engineering solution, e.g., causing man-made volcanic-like cloud eruptions to block the sun's rays. 

Levitt and Dubner write, “Once you eliminate the moralism and the angst, the task of reversing global warming boils down to a straightforward engineering problem.”

Ahhh!!!  It's so simple!  It's just engineering!  I thought public policy actually involved serious discussion about ethical frameworks, about goals, about acceptable means--economics as a social science. 

It’s nice to see that these authors have cut to the chase, and can tell us exactly what we should wish to value (wealth maximization) and how to achieve it.  Who needs ethics?

The American Economic Association’s Commission on Graduate Education warned in the early 1990s that programs were producing “idiot savants, skilled in technique but innocent of real economic issues.”[1]  Hmmm....  when did Levitt earn his PhD?

Real economic issues come as bundles of intersecting and often conflicting moral demands.  The thesis of this website is that:

·                           Ethical considerations play a role in the formulation of economic theories and research programs.  Science is not value free.

·                           Ethical considerations play a role in the choices of economic agents and in the outcomes of economic processes.  Doing positive economics requires some knowledge of and attention to ethical systems.

·                           Choice of goals (e.g., wealth versus other goals) and non-goal oriented ethical frameworks inform debate about public policies.

The glib and shallow way in which the Superfreakonomics authors deal with public policies is super disappointing.

[1] Cited in William J. Barber, “Reconfigurations in American Academic Economics: A General Practitioner’s Perspective.” Daedelus (Winter 1997): p. 98.


Adultery and Alzheimer's

Mark D. White

No economics here (not obviously, anyway)--just a topic I'm interested in, the ethical aspects of marital relations, infidelity, and divorce.

From The Wall Street Journal last week comes an article by Alicia Mundy titled "Of Love and Alzheimer's" regarding the ethics of adultery on the part of spouses of Alzheimer's sufferers. It details the emotional withdrawal that that a person goes through when his or her spouse gradually succumbs to the disease, as he or she forgets details of their life together, perhaps no longer recognizes them, and loses the ability to provide emotional support and companionship. While continuing to provide care and company to their patient-spouses, the well spouses have needs as well, and often seek friendship and intimacy (sexual or not) with other people, to some controversy:

Caregivers often face a stark choice: Either start an extramarital relationship and risk estrangement from friends and family—not to mention their own guilt—or live without a real companion for many years. The trend is prompting religious leaders, counselors and others to rethink how they define adultery.

I think it really is a matter of how you define adultery (or, more generally, infidelity). If you define it as violating the (marital) exclusivity of romantic or sexual activity, regardless of any realized negative impact on one's spouse, then clearly there can be no exception for infirmity of any kind; this may excuse the adultery, but it cannot justify it. But even such a duty, derived from a general prohibition on promise-breaking, can be overridden by another duty, such as the duty of self-preservation of the part of the well spouse, who must care not only for the patient-spouse but also for him- or herself. As the article notes, spouses of Alzheimer's sufferers are more likely to die with a year of their partners than are spouses of people suffering from other diseases such as cancer; one would assume the difference is the mental deterioration involved with Alzheimer's (a cancer patient can express love for his or her spouse while an Alzheimer's patient often cannot). If affection and intimacy are taken to be essential human needs, they should not be sacrificed simply to adhere to a rule prohibiting adultery regardless of circumstances, which would be a tragic case of rule worship.

If you include in your definition some concept of the realized harm from the infidelity, then the picture is slightly different. If some aspect of the true wrong in adultery lies in the feelings of deception or violation it creates, rather than in (or in addition to) the act itself, then extramarital activity when one's spouse is (relatively severely) mentally incapacitated may be justified. If the well spouse still spends time with the patient, and doesn't neglect him or her to spend time with the new partner, then the wrong in the situation is more difficult to see, as the patient is not being harmed in any apparent way, especially if he or she is not cognizant of the other relationship. (At the risk of giving credence to the normal adulterer's excuse that "I did it for the good of our marriage," one may even imagine that, in providing much-needed emotional support for the well spouse, the affair may have secondary benefits for the patient, who cannot provide the same support previously given.)

The morality of adultery is never clear-cut; while usually wrong, of course, there will always be situations, and not always uncommon ones, in which mitigating factors exist that any reasonable ethical system will recognize. Being married to an Alzheimer's sufferer in advanced stages of the disease is certainly one of those cases, and an intensely tragic one at that, since both spouses are lacking the emotional connection on which they relied on for years, one directly due to cognitive decay and the other indirectly. But the other, the well spouse, can do something about it without (apparently) imposing harm on the patient. Personally, I appreciate that the people in this situation struggle with the morality of their actions, but I would hope they (and their children, their friends, and so forth) can come to terms with the tragedy of the entire situation, and give their blessings to the person trying to balance caring for the patient and him- or herself.

New book drawn from Becker-Posner Blog

Mark D. White

An interesting new book, Uncommon Sense: Economic Insights, from Marriage to Terrorism, by Gary S. Becker and Richard A. Posner (from University of Chicago Press), compiles selected posts from their joint blog (linked to the right). Interestingly enough, I just wrote a paper based in part on their comments (especially Posner's) on the blog concerning same-sex marriage; I became aware of the book as I was about to submit the paper. Agree with them or not, I think theirs is one of the highest-quality academic blogs around (and one of the first, if I'm not mistaken).

Though I have disagreements with both scholars' general approach, I still give them much credit (some will say blame, to be sure) for drawing me into academia. Somewhere around the end of my junior year or beginning of my senior year in college, I became aware of A Treatise on the Family by Becker and Sex and Reason by Posner, which convinced me that I was not crazy for giving my friends relationship advice based on marginal analysis. (Crazy, maybe, but in good company!) They assured me that serious scholars--Becker had just been awarded the Nobel Prize in economics--applied economic logic to issues traditionally considered outside the economic realm, such as marriage, crime, and sex.

We're all familiar with this now, of course, and we all have opinions about the good or evil of economic imperilism, but to a budding young economist who had only been exposed to "traditional" economics until then, these books opened my eyes to a new world. Until then I was headed toward a career in the Federal Reserve, but after reading Becker and Posner, I decided on graduate school, where I specialized in micro largely to tackle "Beckerian" topics (mainly economics of crime and of the family). Years later, my eyes were opened once again to the worlds of philosophy and law, which in turn changed my view of Becker's and Posner's work, but I still remember how excited I got reading it "back in the day."