Utilitarianism comes to benefit-cost analysis

A project that delivers a dollar of benefits to each of a group of poor people is worth more than a project that delivers a dollar of benefits to each of a group of poor people.

The second “poor” should be “rich”, right?

a project that delivers a dollar of benefits to each of a group of poor people
is worth more than
a project that delivers a dollar of benefits to each of a group of poor people

I assume that wasn’t meant to come out like this?

So far as I could see, there is no consensus at all that free tuition for poorer families is more of a benefit than the free tuition for richer families, hence would be a desirable reform. As a recent real world policy relying on this proposed change, the resistance here signifies the likely rejection of the proposed change, I agree.

As to the actual math, it is not clear to me that median income is indisputably the correct definition of the norm. The modal income (which for some sub-groups I suspect would approach minimum wage for a two-earner household) might be preferable for analyzing housing policies perhaps? Perhaps more importantly, might the median for income-generating property be more useful in analyzing tax policies?

That question touches on another problem, the designation of relevant sub-groups. Left-handers, Little People, redheads and people who don’t like science fiction are all subgroups after all. I’m not sure utilitarianism truly admits of sub-group analysis, holding total utility is the highest measure, as in, halving Musk’s income and doubling a single household’s leave total utility unchanged.

Tim Worstall@3 in a way is correct: A single transaction, like changing one year’s income for Musk and the Nobody family, cannot be taken as representative of the whole. To be sure, the idea that fair trades accumulate to a fair society is very much the consensus in the libertarian community. If everyone makes their own deal, then the world that results is a just world, right? (Well, yes, I disagree, but isn’t that to be expected, if you’ve read many of my comments?)

Worstall might agree? Designating sub-groups is a covert way of smuggling in planners’ preferences for policies that favor the sub-group. That is the point in designating the sub-group after all. But there is a consensus that planners’ preferences are in principle immoral, albeit it’s not quite clear what that principle is (violation of human nature and inherently undemocratic seem to be the favorites.)

Personally I’m also not sure that optimizing individual policies seriatim will actually work. That seems to me to bring back the calculation problem in a different form: How can you optimize policy, accurately predict the effects of an individual change when you assume what can’t be true, namely, that everything else will stay the same. A global plan that satisfices seems to me ultimately more practical, difficult as it may be. The ecological and economic complexities of industrial civilization I suppose may turn out to be too much and industrial civilization must shrink/disappear. But I’m not quite ready to take up planning who gets to survive.

Tim Worstall,
since the invention of the joint-stock company (not sure when, but it must have been a long time ago), this argument really looks week. And how is this value of the Walmart calculated exactly – I’m pretty sure Walmart also has plenty of negative externalities, they may have been missed in the calculation, not to mention the possibility that some other firm (or better still firms) could have entered the market to provide the same sort of service.

I’m of two minds about this proposal. OTOH, I think any approach that builds egalitarianism into policy analysis is doing a good thing, or at least a better thing than ignoring distribution altogether. OTO, modifying CBA to address inequality applies a marginal fix to a fundamentally wrongheaded methodology. I realize this isn’t the place for a full on debate about welfarism, but the key issues for me — just to label them — are (a) the implausible model of human decision-making and well-being at its root and (b) the dependence of price-based measures on local equilibria (and therefore historical inertia) in a realistic, mufti-equilibrium conception of economic life.

The enlightened course would be to excise welfarism entirely and acknowledge that, properly done, CBA offers just one piece of a policy analysis process.

Couple of thoughts, with the usual caveat that I am not an American.

(1) It is quite obvious that an extra dollar is much more valuable to a poor person than to a wealthy one, and I doubt that any conservative or libertarian would seriously argue against it. Their arguments are generally more along the lines of the trust fund kids and billionaires deserving their wealth because they or their ancestors worked so hard for it and/or created value, or that giving more money to the rich will boost the economy and lead to trickle-down effects. Not remotely true, of course, but those are their arguments, not that an extra hundred thousand dollars would even be noticed by Musk or Bezos.

(2) Whether this formula goes ahead or not will surely not make any difference whatsoever. I would love to be pointed towards any decision in politics or even internally in a large company or organisation that was seriously swayed by objective cost-benefit analysis as opposed to a politician or manager soliciting a consultant report that says what they wanted to hear, ignore the ones that don’t say what they wanted to hear and warnings in general, and then implement what they wanted to do in the first place. If cost-benefit had ever mattered to anybody, then no public utility or building would ever have been sold and rented back, because a four year old can figure out that if there is a private investor willing to be the partner of that transaction, the public MUST logically lose out on the cost-benefit calculation, because that investor would only agree if they win, and the entire arrangement is zero-sum. That is corruption, but even under the best case, non-corruption scenario, things get done because of economic and political benefits to this or that interest group, not because they benefit the public as a whole. That is what politics is, and it cannot be any other way, because the public as a whole is composed of those competing interest groups. (And again, same internally in large corporations.)

(3) I am not sure it is helpful to cast this as a utilitarianism question, because outside of extremely odd religious fanatics and Less Wrong cultists (but I am repeating myself), who variously at least attempt to be purely deontologist or utilitarian, in practice everybody brings both deontology and utilitarianism to their moral reasoning. There has never been a discussion of economic policy that didn’t include utilitarianism as part of its argumentation, it is only that people differ in their economic models and self-interests and therefore the conclusions they arrive at (see point number one).

(4) Regarding the existence of rich people, one of the key problems IMO is that they are insulated from negative policy effects, and the problem is multiplied if, as is common, the legislative, judiciary, and government themselves are composed of rich people. Decision makers can afford to send their children to private school, so they don’t have care about the quality of public education. They can afford to go to private health care providers, so they don’t have to care about the quality of public health services. They are well-protected, so they don’t have to care about gun control. They can afford to be driven around or even have private jets, so they don’t have to care about the quality of public transport. They don’t have to work in an Amazon warehouse, so they don’t have to care about labour rights. They certainly never have to live off welfare or deal with a case worker who cuts their dole because they were fifteen minutes late to a meeting because their child was sick or submitted only nine instead of the required minimum ten applications to jobs for which they aren’t qualified anyway. They are insulated from the consequences of any of their decisions, even, to a degree, the consequences of global warming.

A first small but nonetheless useful step would be to couple their income to the median income of the relevant nation, say, perhaps, three times that, give them the same income for life after they leave office, and in exchange and to make bribery impossible, forbid them from taking up any other job during or after office or accept any gifts or advisory positions on pain of ten years of jail minimum. Not going to happen, of course, because they themselves are the ones who would have to put such rules into place, but such an arrangement would go a long way towards ensuring that decisions are actually made with an eye on how they impact non-wealthy people.

I have no idea if this contributes to this particular discussion in any way, but it’s one of those fun facts that gives me pause.

My understanding of the beginnings of joint stock companies in England is that 1) they were gifts of the crown to favored subjects, and 2) they included a guarantee from the crown that the company would have a monopoly on the venture they were pursuing.

So, for example, the Muscovy Company, chartered by Elizabeth I in 1566, had this going for them: none of their trade routes, “shall be sailed or traffiqued vnto, visited, frequented or haunted by any person being or that shalbe a citizen or denizen of this realme, by themselues, their factor or factors other than by the order, agreement, consent and ratification of the Fellowship, on penalty of the forfeit ipso facto of their ships and goods so trafficking, half to the Crown and half to the Fellowship.”

When the joint stock company and capitalism became the foundation of freedom and all that is good in the work eludes me, but I’m no economic historian.

All debates about welfarism aside, I suspect JQ and I would agree that a wide range of fines could and should be pegged to reported income, i.e. given as proportions and not fixed amounts. This has been a practice in Finland for some time, and sporadic news reports suggest it is slowly spreading. I think it would have a more immediate impact than a change in CGA guidance.

RE: BCA is unlikely to have any real influence on political decisions

This is no doubt about right, given the US (and UK, Aus) political culture.

John’s point @16 about cost of borrowing – arguing for the potential relevance of CBA to outsourcing public infrastructure or utilities pretty much concedes the point that in actual cases it only been used to make bad deals look good by fiddling the inputs (as, I recall, it was in the case of PFI in the UK).

Tim Worstall’s customary opportunistic interjection of obliquely relevant market fundy shtick to the question really underlines the point. Privatising water and sewage infrastructure and services {yes people in other countries, you heard right) has manifestly and predictably not led to adequate investment – as for once the news media are currently making very clear as they have seemingly suddenly noticed that a vast proportion of our beaches are covered in shit.

Any cost benefit analysis that supported the privatisation regime could only have been massively fiddled (certainly reports warning of the consequences were ignored and covered up).

Same, by the way, for the other utilities mentioned: the apparent inability of ‘government’ to provide adequate investment was actually a deliberate withholding of investment precisely in order to make privatisiation look like a good option.

This was the case with all the 80s & 90s privatisations in the UK – in the case of British Rail, the government was itself responsible for the increase in investment (ie reversal of its previous cut) after privatisation. This is a different kind of fiddling of course, in which not only the measures or figures but the ‘reality on the ground’ underlying them is manipulated.

(Will resist temptation to rebut his other remarks in favour of privatisation as they aren’t relevant to our topic.)

STILL

John’s main point is that BCA is in fact important, and Ebenezer Scrooge @17 probably shouldn’t have given so easily up on the idea that judicial review is relevant. I doubt that US (or any other common law) judicial review courts ever applied BCA of their own motion; pretty sure that would count as substituting their own judgement & usurping executive functions. I would guess that in the remembered past cases, the point would have been that a BCA had been commissioned and then ignored without good reason, or – better still – that there was some legislative requirement to perform a BCA and have regard to its conclusions.

And in the case under discussin, the circular this is all about is part of just such a legislative requirement (well this being the US rather than a parliamentary system, a presidential executive order – which comes to the same thing for these purposes):

https://www.archives.gov/files/federal-register/executive-orders/pdf/12866.pdf

(as well as Regulatory Right-to-Know Act and “and a variety of related authorities”)

The ambit of the order is Federal Executive agencies and the subject matter is their delegated ability to make (and unmake) regulations.

These are therefore part of the large chunk of de facto policy making that in any functioning modern state is (nominally, and to a substantial degree actually) insulated from direct political direction. Not big ticket policy items, of course, but it’s a start.

The order specifies at 1.b.6 that

“Each agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.”

and in the closeley related bit (6.a.3.C) explicitly cited in the circular, that for regulatory actions that

“Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities”

the agencies have to draw up a BCA and submit it to the Office of Information and Regulatory Affairs (OIRA), which it sez ere is ‘a statutory part of the Office of Management and Budget within the Executive Office of the President.’

So these agencies pretty certainly would be subject to judicial review on the grounds that they had failed to do a BCA or had ignored, fiddled, or botched it.

How far that would go in practice depends on the impact of corruption in the agencies, presidency and courts I guess, but it’s not nothing. I would guess that it’s possible, assuming the order and guidance in the circular remains in force under Trump, the new methodology that is now mandatory for such a big chunk of the US executive might well have a tendency to spread farther afield – practitioners are going to have to learn the new techniques, as are those who assess them, and there might be other ‘cross-fertilisation’ effects?

Its because of proposals like this that wealthy people go to the efforts they do to achieve tax avoidance strategies. The two things every rich dad teaches their child is – never lose principal and don’t pay tax unless you have to.

There will always be more poor people than rich people and its only the patronage of government that balances between confiscatory policy and torches and pitchforks. Indeed at the extreme it would score to take all the wealth of the 100 richest and simply give it to the 10,000 poorest – though its doubtful that would solve anything.

All those ‘efforts’ to ‘achieve’ tax avoidance strategies sound very arduous, quite heroic really. Such hard work and initiative (saying yes to one of the tax avoidance firms banging on your door) surely merits its well-earned reward.

But I really don’t think it’s ‘proposals like this’ that spur them so heartwarmingly to protect the little children and so sagely to bribe politicians. It’s something else.

Worstall @3, 11 gives a flavour when he claims that the Waltons need all their billions (and possibly more of the ‘$5 trillion’ they can take sole credit for generating) so as to encourage future grocers to take opportunities for expansion, and in some cases to happen to be one of the few that economics tells us will become an oligopolist.

Whether that is through having their dad make a reluctant landlord ‘an offer they can’t refuse’, like Walton, or copying other people’s ideas, like Walton, or happening to be marginally ahead of others in making some obvious ‘innovation’, like (we are told by Worstall) Walton, doesn’t really matter. All that matters is that they definitely wouldn’t have done any of that gradual expansion snowballing into market dominance – indeed wouldn’t even have opened a grocer’s shop – if they hadn’t at the outset expected to “get staggeringly rich, leave [their] children so”.

Maybe this is a compelling argument for society to stop punishing these Titans of industry lest they shrug (and get pitchforked, pace Trader Joe? I dunno, I get confused about the imagery). But it’s not ultimately that argument that motivates the rich to avoid and evade tax, buy politicians, fund massive psyops campaigns, etc.

Their base motivation could be formalised as the philosophy of Natural Rights Libertarianism (as described by steven t johnson @8: “If everyone makes their own deal, then the world that results is a just world, right?” – though contra stj, this is not the same as a ‘fair world’ – the point is that justice has nothing to do with fairness.)

Perhaps the best exposition of NLR in its purest form is to be found in the Guildford Manifesto:

Tim Worstall@27 thinks one single measurement proves a trend. But this is not true.

Three ostensible items may sound like a sophisticated metric. But water quality and environmental damage are not even genuinely separate, unless you somehow imagine some deep metaphysical difference between upstream and downstream.

There are other issues too. Water quality problems may go undetected or even be hidden. Environmental damage may be underestimated, the salience of the issue depending so much on the ability of those particularly damaged to effectively complain. Diversion of water resources is a highly complex issue, as witness the dedication to building a major city in a desert, like LA or Cape Town. Pricing depends upon aging of infrastructure, population growth or decline, political decisions by Tories to weaken public services, differences in local revenues.

The notion that the wages and conditions of workers in water aren’t even irrelevant presumes people are nothing but consumers, but that is, to say the least, debatable.

Economists, in my layman’s experience, do love their gotcha numbers, though.

As to the opposition between fairness and justice, it sounds like a distinction between treating everyone the same versus ignoring the real differences in cases. Procedure versus outcomes, again. When you call that means and ends, I can only say I firmly believe only moral imbeciles believe the means justify the ends. It is always the other way around, only the ends justify the means. The real problem is that means and ends are not opposites. Once you go beyond a singular transaction or deal, unlike economists, means and ends are not so easily distinguished.