Social Welfare and Unanimity

Like James Buchanan, Jean-Jacques Rousseau, and many others before me, I invoke the “unanimity” condition whenever talking about social welfare (aka “the Greater Good”).  The reason for this is simple: only through unanimous agreement can something truly be said to be for the greater good; that it improves social welfare.

Welfare economists (and others) will call me crazy for such a claim.  “Of course that’s not true!” they say.  “Simply look at the benefits the beneficiaries get, the costs the payers pay, and if the benefit is higher than the cost, then it increases social welfare.”  This kind of cost-benefit analysis is important, I’ll grant that, but for the individual, not society as a whole.  Extrapolating to the societal, or collective, level gets messy.  The reason why is simple: valuation of costs and benefits are subjective.  For any given individual, the valuation of the benefit of Good X is likely to be different from the valuation of the cost of Good X.  Aggregating those valuations gets very very tricky and it ultimately leads to judgement calls by the analyst/policy maker.

If we want to make the claim that a collective action benefits the greater good, and we want to be able to say this positively and not normatively (that is, to eliminate judgement calls), then we need to apply the same standards as at the individual level, the most important of which being unanimity.  In an individual action, all parties agree to interact; if there is no unanimous agreement, the interaction does not take place.  If one disagrees, then we can conclude he does not stand to benefit from the interaction.  Extrapolating this to collective action (that is, more than two people interacting), then the only way to positively claim the action benefits the group as a whole is if it is chosen unanimously.

At this point, I provide only assertions and light reasoning.  An upcoming blog post will go much more in depth and I will attempt to prove my assertion, using the reasoning of James Buchanan and Gordon Tullock.  However, this post is long enough as it is and I will bore the reader no further.

A Presumption of Competence

Why free markets?  Why am I prejudiced toward emergent order vs imposed order in economic matters?  Why is my default position against government involvement?  Why do I invoke such a high standard before justifying active government involvement in the economy?

Because the presumption of competence that is prevalent throughout a free society should be applied to economics as well.  The American civil legal system and the concept of Justice, at least in theory, have presumptions of competence built in.  Parties may contract with one another, with only the need for an arbitrator if there is a disagreement or fraudulent behavior.  They don’t need government to direct their contracts; each party is assumed to understand the deal.

Other freedoms are the same way: the freedom of speech presumes that the speaker is competent and that his audience is capable of choosing whether or not to listen.  Freedom of religion presumes each person is capable of finding their own belief system (or not).  Freedom of press assumes each reader is competent to understand ideas.  Freedom to marry presumes each person is competent in choosing a life-partner.

Economics is the same.  When two people complete a transaction, the presumption of competence is with both: each person trades knowing, to the best of his ability, how to improve his situation.

What about externalities?  Externalities may require necessary government involvement, but the presumption of competency still stands.  People in groups are quite clever.  The market institution does an amazing job channeling resources to reducing all costs, not just private costs.  A presumption of competence allows the market institution to work.

Unfortunately, most economic policies (especially the interventionist ones) rely on a presumption of incompetence.  Tariffs, punitive taxes, many kinds of regulations, et cetera all contain a presumption of incompetence: these regulations must be passed because at least one party (typically the consumer) is incompetent for one reason or another to make his/her own choices.*  The justification is usually “the consumer can’t act in his own best interest.”

I defer to the emergent order because of the knowledge problem.  Without overwhelming evidence to the contrary, the presumption of competence on the parts of the actors (and incomplete information on the part of the observer) should be observed.

*A potential objection an interventionist might raise is that these regulations are necessary because of a lack of information on the part of consumer.  For example, FDA regulations and testing are necessary because otherwise firms will just try to pass off placebos or post biased results.  However, prima facie this justification doesn’t make sense for an interventionist policy, rather than an advisory policy.

Emergent Order vs Imposed Order

In my recent post on the law, I had talked a little bit about law as an emergent order.  Commentor Greg G responded:

You have fallen into the trap of simply using the word “emergent” as a compliment for those emergent processes you approve of. Millions of voters select hundreds of thousands of representatives at different levels of government. Different levels of government sometimes make laws that conflict with each other. The elected representatives select many thousand of bureaucrats who participate in determining what the law is. Every single one of these agents has their own decentralized complex set of motives and goals which include calculating to what extent they need to satisfy the desires of the voters.

Greg’s comment deserves a response.

Is the formation of a government an emergent order?  Yes.  If we go with the classically liberal view of government, government was formed in order to protect individual rights in cases where collective action is the least costly action (other theories of government will work in this same manner; we’ll just change the justification.  The only theory that might now work is government by divine right, as that would indicate not an emergent order by human interaction but rather divine intervention).  Government emerged to satisfy certain needs in the same way a firm emerges to satisfy certain needs.

Emergent order arrives peacefully; consensually.

Imposed order, on the other hand, is non-consensual.  It is imposed by force.  Libertarians and classical liberals tend to identify government as the perpetrator of imposed order.  While government is a perpetrator (and perhaps the largest), the problem is not isolated to government alone.  For example, a man who mugs another is imposing order: he is imposing the forcible transfer of goods/currency from one person to another.

When it comes to government, we must be very careful about how we apply classifications.  It’s a complex question, and I’m not sure I understand it fully.  For example, let’s say that, on a constitutional level (that is, when designing the government), the group unanimously agrees that any legislation passed only needs 51% approval.  So, we have an emergent order on how things work.  Using that simple majority, the government makes rules.  Are these rules emergent order or imposed order?  I suspect there is a justice element to the answer.  I also expect there’s a discussion on whether or not the decision-maker is exceeding his mandate.

As with my piece the other day, these are rough ideas which I will need to fill out going forward.  Comments appreciated and encouraged.

What-ifs and Whatnot

Two friends are sitting by a pool on a hot day.  One of the friends, Joe, casually says to Smith (the other): “Smith, it sure is a hot day today.  I hope the sun doesn’t dry up all the water!”

“Don’t be stupid!” says Smith.  “The sun doesn’t cause water to evaporate.  It causes the water level to go higher!”

Joe looks at his friend perplexed.  Smith continues:

“It’s real simple.  The sun hits the water, water gets warmer and starts to evaporate, right?  So the pool master comes out and adds more water to the pool.  On net, the water rises!  Ergo, the sun causes a higher water level!”

Joe, still confused, says “No, that’s not true.  The effect of the sun is to evaporate the water.  The pool master coming in is serendipitous; it’s a ‘what-if’.”

Smith laughs.  “Oh Joe.  Don’t be so dogmatic in your thinking!  Always insisting that the sun causes evaporation!  But I have clearly proven that wrong.  These chemists who constantly insist evaporation occurs because of the sun are just ideologues.”

Joe, rolling his eyes, goes back to his book.

 

And so it is with minimum wage, too.  Minimum wage advocates love to construct all kinds of “what-ifs” to explain why minimum wage has no effect (or even a positive effect) on employment.  But by doing this, they hide the effect of minimum wage behind all sorts of stories and claim, then, they have turned theory on its head.  But constructing what-ifs are easy.  Any storyteller can do it.  But what-ifs and serendipity make poor bases for public policy.

 

First World Problems, Third World Nation

I like to think I am an optimist.  I like to look for the good in the bad.  This CNN story is one such example:

More than 2 billion adults and children globally are overweight or obese and suffer health problems because of their weight, a new study reports.

This equates to one-third of the world’s population carrying excess weight, fueled by urbanization, poor diets and reduced physical activity.

Another way of delivering this message is one-third of the world has too much to eat.  It’s true, according to the study, that much of this is in the highly developed nations like the US, but obesity is also becoming problems in poorer nations [emphasis added]:

The United States has the greatest percentage of obese children and young adults, at 13%, while Egypt led in terms of adult obesity, with almost 35%, among the 195 countries and territories included in the study.

The data revealed that the number of people affected by obesity has doubled since 1980 in 73 countries, and continued to rise across most other countries included in the analysis.

In terms of numbers, the large population sizes of China and India meant they had the highest numbers of obese children, with 15.3 million and 14.4 million, respectively.

What’s causing the increase?  The authors of the study write:

Obesity levels have risen in all countries, irrespective of their income level, meaning the issue is not simply down to wealth, the authors say in the paper.

“Changes in the food environment and food systems are probably major drivers,” they write. “Increased availability, accessibility, and affordability of energy dense foods, along with intense marketing of such foods, could explain excess energy intake and weight gain among different populations.”

This is an amazing development.  In 1992, approximately 17.5% of the world’s population was undernourished.  Now, we have the exact opposite problem!  1/3rd is over-nourished!  Undernourishment has fallen to approximately 9.8% of the population. In short, we’ve gotten so good at producing and distributing food, we’re dying from having too much!

To be sure, obesity has a myriad of health problems associated with it, but the fact that people who are in countries that, not too long ago, were suffering from starvation and famine, is an encouraging sign of how wealthy the world has become, especially since the fall of socialism and the rise of globalization.

An Open Letter to President Trump

Mr. Trump-

Over the past year, the Washington Metropolitan Area Transit Authority (Metro) has been doing repairs on their subway lines, called “Safe Track.”  During this period, stretches of the different Metro lines have slowed service considerably or closed them entirely for weeks on end.  During this period, Lyft and Uber drivers such as myself have made lots of money ferrying frustrated commuters back and forth to operational Metro stations or their offices.  During rush hour, one could easily command high surge pricing.  As you can imagine, this has been quite a financial boon to us.

But now, Safe Track is coming to an end.  This will mean lost money for us Uber and Lyft drivers.  It is often cheaper for commuters to ride the Metro than pay us.  Furthermore, the Metro is subsidized by the evil governments of Virginia, Maryland, and the District of Columbia.  This is hardly fair.  Surely, you can see how this would be bad for America.

Mr. President, in order to Make America Great Again, I insist you demand the Metro to immediately cease their repairs.  Further, they should be required to rip out all the repairs they’ve already done, redo them, and then rip them out again just before being finished.  This cycle should be done into perpetuity.  This would have the duel effect of keeping Lyft and Uber drivers’ incomes high and keeping construction jobs in the area which would otherwise disappear once the work is done.

Some commuters might object to this, saying that the costs of their commutes are already too high.  Don’t listen to them!  They’re just being greedy.  They don’t care about America.

Some businesses might object and say the high cost of commutes may force them to relocate outside of the area.  Don’t listen to them!  They just want to protect their bottom line and don’t care about us workers.

Some economists might object and say that the dearth of transportation options is a cost, not a benefit, to the DMV.  Don’t listen to them!  They’re just in the pockets of Big Business.

Mr. President, for the sake of our jobs and incomes, I demand the above actions be taken!

Signed,

Jon Murphy
Fairfax, VA