# Utilitarianism comes to benefit-cost analysis

by on May 20, 2023

Kevin Drum points to an obscure, but radical proposal to change the way the US government does benefit cost analysis. The Office of Management and Budget has released draft guidance saying

One practical approach to implementing weights that account for diminishing marginal utility uses a constant-elasticity specification to determine the weights for subgroups defined by annual income. To compute an estimate of the net benefits of a regulation using this approach, you first compute the traditional net benefits for each subgroup. You can then compute a weighted sum of the subgroup-specific net benefits: the weight for each subgroup is the median income for that subgroup divided by the U.S. median income, raised to the power of the elasticity of marginal utility times negative one. OMB has determined that 1.4 is a reasonable estimate of the income elasticity of marginal utility for use in regulatory analyses.

This is pretty obscure, but what it means is that, 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 rich people.

A lot more !

Kevin uses a graph to illustrate, showing that an extra dollar for the median household is worth 50 times as much as an extra dollar for a household with an income of \$1 million a year. Conversely, an extra dollar for households at the bottom of the income distribution is worth 12 times as much as an extra dollar at the median.

It’s actually simpler to get the intuition of you use an elasticity of 1, which corresponds to logarithmic utility. Then you can sum up the implications by saying that a given percentage increase (or reduction) in income yields the same additional (or reduced) utility no matter who gets it. So, for example, if a policy halved Elon Musk’s income, while doubling the income of a single randomly chosen US household, it would be evaluated as neutral. If the policy doubled the income of two households, it would be beneficial. More generally, you can just add up all the percentage changes in income from the project (included the taxes needed to finance* it). If that sum is positive, the project should be approved.

This proposal would imply such radical changes that it is almost certain to be killed off. But it’s a straightforward implication of mainstream neoclassical welfare economics, based on utilitarianism. And the estimated elasticity is very close to that we usually get when we look at individual choices under risk (you can translate to social welfare using a device like Rawls veil of ignorance).

Even if the proposal is never implemented, it has some striking implications for the way we think about utilitarianism. For instance, it means that the limitarian position for which Ingrid has argued follows from utilitarianism, if we accept the additional claim that the existence of very rich people has a net negative impact (not necessarily large) for society as a whole.

More generally, this kind of calculation ought to give some pause to critics of utilitarianism who worry about trolley problems, forced organ donation, and the like. Unless they go with a similarly sharp case for radical income distribution, arguments like this are, in practice, politically aligned with the kind of logic-chopping practised by US-style libertarianism/propertarianism.

(H/T James Wimberley)

• Please no MMT quibbles. Substitute “release resources for” if you must.

1

Murali 05.20.23 at 7:22 am

This is pretty obscure, but what it means is that, 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.

Do you mean “worth more than a project that delivers a dollar of benefits to each of a group of rich people”?

2

Andrew Jaffe 05.20.23 at 8:17 am

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?

3

Tim Worstall 05.20.23 at 9:00 am

“So, for example, if a policy halved Elon Musk’s income, while doubling the income of a single randomly chosen US household, it would be evaluated as neutral.”

If we run on only the one iteration through the economy then possibly. But the Furman paper on Walmart:

https://www.mackinac.org/archives/2006/walmart.pdf

Old numbers, so a bit of rounding won’t hurt. The annual benefit to households of the existence of Walmart is \$250 billion. The Walton’s have \$100 billion. But that’s a capital sum, not an annual flow. Capitalise (say, 20 years, about what Saez and Zucman use) and the capital value to households of the existence of Walmart is \$5 trillion.

Do we think that one of the motivations to start a business is to get staggeringly rich, leave your children so? One of, has some influence, we’d probably agree.

At which point add in this utilitarian calculation. Are we actually leaving the Waltons with enough reward for that \$5 trillion benefit?

4

Alex SL 05.20.23 at 9:33 am

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?

5

Rcriii 05.20.23 at 10:41 am

This is pretty obscure, but what it means is that, 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.

Do you mean “…group of rich people.” in the last line here? In any case this is good, and very sensible.

6

John Q 05.20.23 at 11:10 am

Fixed, thanks!

7

Jake Gibson 05.20.23 at 11:44 am

My natural skepticism makes me wonder if the “Furman Paper” was funded by Walmart.
It is difficult for me to believe the net positive of Walmart is that large. Perhaps if Walmart were the only option. I am strongly of the opinion that the country, economically and socially, would be better served by a hundred mini “Walmarts” or “Amazons”.

8

steven t johnson 05.20.23 at 2:10 pm

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.

9

steven t johnson 05.20.23 at 2:13 pm

PS Worstall@3 also assumes the Walton family gave us WalMart. Sorry, I think that is crude apologetics for wealth, a long tradition in economics.

10

reason 05.20.23 at 5:16 pm

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.

11

Tim Worstall 05.20.23 at 8:17 pm

@10 “I am strongly of the opinion that the country, economically and socially, would be better served by a hundred mini “Walmarts” or “Amazons”.”

I might well agree with you. Well, sorta, economies of scale do matter etc. But rather the point of the analysis is exactly that it is competition (here, Walmart against Target etc) which produces the consumer benefit. Markets are what turn capitalism proconsumer. As they would socialism too.

@11 “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?”

That’s probably a bit strong. No doubt there are those who say that – I don’t. I have heard of externalities, for example. I would agree that society is emergent from the decisions of individuals and probably should, to some level of scale, be such.

@13: ” this argument really looks week” Well, here’s another paper making much the same argument. From an entirely different evidence base:

https://www.nber.org/papers/w10433

Guy did go on to win the Nobel so he could be right or wrong but his argument does need to be considered. The returns to entrepreneurial innovation turn up – as a result of competition – near entirely in the consumer surplus. 3% perhaps remains with the entrepreneur. Too much? Not enough? That’s a value judgement. Or an efficiency one – how much innovation do we want so therefore what are the rewards of it?

Sam Walton really was an entrepreneur too. The thing he got before others was the use of computing and barcodes in inventory management and logistics. To get it accurately wrong but generally right other people were using those to note what was selling. He was noting diapers being bought to order more diapers to be made back at the supplier factory as a result of the sale. A general efficiency increase in how the economy works.

BTW, my particular and specific argument here is JQ says that more money (increase in living standards, lowering of consumption costs, same thing as a rise in real wages) to poorer people is worth more than more to richer people. Sure, agreed. Entirely so. Society should therefore encourage those things – of which income reallocation is only one method – that increase the real incomes of the poor. Sure, agree with that too.

OK. So we know that competition reduces consumer costs. So, we’re gung ho for free markets, right? Because they increase low end incomes? Possibly more to the point, free markets and competition screw capitalist incomes which sounds like what we’re trying to do. We like entrepreneurs, as they lower real costs to consumers, right? The fortunes made being just an unfortunate side effect of what we desire, that rising real income of the poor? Also, a small portion of the general good created.

Well, are we?

Or we’re not?

12

Peter Dorman 05.20.23 at 9:22 pm

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.

13

MisterMr 05.21.23 at 1:30 am

I think the idea is very good, though perhaps the details of the math and the way groups are defined would need to be adjusted, but this is true for everything.

One quibble: I don’t think this approach would lead to limitarianism, it is just plainn utilitarianism that puts a number over the falling marginal utility of each dollar (a common assumption).

I think limitarianism gives similar results tonutilitarianism but it is different in logic, and closer to virtue ethics.

14

Alex SL 05.21.23 at 2:14 am

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.

15

John Q 05.21.23 at 7:30 am

Peter D. I’m generally more concerned about have tools that I can work with to derive egalitarian policy conclusions than about logical foundations. When someone replaces welfarism with a widely accepted alternative, yielding egalitarian conclusions, I’ll use it. But I’m too old to wait for that to happen
https://crookedtimber.org/2007/06/01/heterodoxy-is-not-my-doxy/

This answer extends to MrMr. If utilitarianism justifies an absolute upper bound on income and wealth (and, given the same assumptions as in limitarianism, it does), that’s all that matters to me. The fact that the underlying logic might be different is someone else’s problem.

16

John Q 05.21.23 at 7:34 am

” 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.”

This only works if both parties have the same cost of borrowing. If I face a high borrowing cost, it might well make sense for me to sell my house and rent it back from the buyer.

Deals like this can look good in BCA if Treasury/Finance imputes a high cost of borrowing to the public, as they regularly do. If you use the actual cost of capital, deals like this are generally bad. And changes in the BCA rules do actually make a difference in practice.

17

Ebenezer Scrooge 05.21.23 at 3:08 pm

AlexSL@14:
I think you are right when you assume that a different cost-benefit formula makes little difference to a program’s proponents. However, many US programs are subject to judicial review. Once upon a time, judicial review was constrained by things just like this formula. So at least in the past, such a formula could make a real difference. With the Roberts court, however, I suppose the effective judicial review is done by the Heritage Foundation or worse. So in the end, I suppose I must agree with you.

18

PatinIowa 05.21.23 at 4:37 pm

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.

19

PatinIowa 05.21.23 at 4:38 pm

*all that is good in the world.

20

Peter Dorman 05.21.23 at 5:29 pm

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.

21

Tim Worstall 05.21.23 at 6:25 pm

“” 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.””

Over and above cost of borrowing (or even cost of capital) there’s another here. The efficiency with which each owner runs something. Can’t recall whether it was British Gas or British Telcom that fired five layers of middle management upon privatisation but one of the two. Similarly water privatisation. Investment went up on privatisation. Because while government “could” decide on the optimal level of investment actually it didn’t. For governments are subject to failure just as markets are. Indeed, one of the arguments for water privatisation (before my time there but in part cooked up at the Adam Smith Inst) was that this was the only way to gain that socially desirable increase in investment.

Yes, government “should” have been able to do it but actually couldn’t.

I actually have a much weirder theory. That governments are entirely competent at running such businesses but only not in their own country. Domestically they’re subject to domestic political pressure over wages, jobs, pricing and so on. Which leads to inefficiency. When governments own businesses in other countries then they’re not so subject and are rather more efficient. DBahn runs some part of the UK railways rather well. Better than it runs parts of DBahn for example. There are French owned state utilities which own parts of UK utilities I think and they don’t seem to do too badly.

Of course, the logical connotation here is that British Rail would be good at running the French railways – but even I’m not that mad.

22

John Q 05.21.23 at 7:07 pm

Peter Dorman: I’ve long argued for this, as in this article, which suggests that income-related fines could be collected through the tax system Using the tax system to collect fines https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8500.2004.00387.x/abstract;jsessionid=50229281314D4E38D3E262B32BBFD16B.f01t01

The idea even got a mention in the policy platform of the Australian Labor Party, but nothing has happened https://johnquiggin.com/2016/06/18/a-better-way-of-collecting-fines

23

Alex SL 05.21.23 at 9:19 pm

John Q @ 16,

I am not sure I understand fully, but isn’t this a more polite way of saying what I said, because borrowing costs will very rarely be higher for the state, which is a much safer borrower than any private company? Also, I was not even considering borrowing for new investment, but the privatisation of facilities that had been run successfully by the state for a long time.

Tim Worstall,

To repeat myself, government can make mistakes or get it right; there is a choice. A profit-making enterprise will seek to make profit; in many circumstances that profit-seeking is the wrong choice, and now there is no choice, you will always get the wrong decision. In a natural monopoly there is no benefit to privatisation anyway, as the customer can’t even switch supplier, and if that business also happens to be a critical utility like, say, the water supply, handing that over to an entity that doesn’t care if people still have clean water as long as the money flows is a Bad Idea. I am not in the UK myself, so maybe I am misreading the news from there, but AFAIK water companies have been in the news lately, and the complaints appear to be that they took too much profit and invested too little, and that they dump unprocessed sewage.

As for trains, we may have different definitions of what ‘running well’ means when a train ticket between two towns in the same country costs more than an airplane ticket to a different country, while at the same time trains are regularly cancelled and delays have become the norm. I am very comfortable with public transport being run at a loss, subsidised by my taxes, if that is the only way of getting it to run reliably, cover unprofitable areas of the country, and thus take pressure off the roads and offer mobility to poor people and those unable to drive.

24

Tim Wilkinson 05.21.23 at 11:33 pm

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?

25

Tim Wilkinson 05.21.23 at 11:45 pm

Judicial Review of Agency Benefit-Cost Analysis
22 Geo. Mason L. Rev. 575 (2015)
Vanderbilt Law and Economics Research Paper No. 14-31

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2519139

26

Trader Joe 05.23.23 at 11:30 am

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.

27

Tim Worstall 05.23.23 at 8:37 pm

“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.”

As they were before and as they are less so now.

UK water privatisation is actually an excellent example of the argument. Not just because the think tank I’m at argued for it either. After the reforms we ended up with four management regimes across the home nations. England fully privatised, for profit, companies. Wales got a mutual owned by the great and the good. Scotland a state owned (and at least attempting to make a profit) company and NI stayed with the local councils.

10 years later the regulator, OfWat, studied the changes. They ranked by lower prices, higher water quality, lower environmental damage. All three improved better by level of private ownership. England, Wales, Scotland, NI, in order. Despite what you’re hearing from Surfers Against Sewage etc the same holds true now. England has improved more, along all three measures, than the other countries under the different management and ownership regimes.

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Tim Wilkinson 05.24.23 at 8:06 am

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:

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Alex SL 05.24.23 at 9:47 pm

People avoid taxes because they want to benefit from the protection and services funded by taxes without contributing their fair share to that funding.

The existence of poor people is a choice. We could collectively decide to make them not poor.

Taking away the wealth of the richest people would solve at the very least one thing: their disproportionate, democracy-undermining power over media and legislators. Democracy can only really work if voters have access to accurate information, if elected officeholders do what they promised voters they would do, and if nobody is individually powerful enough to economically blackmail the state against the wishes of all the other voters. In other words, it doesn’t work if there are billionaires.

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steven t johnson 05.25.23 at 2:25 pm

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.

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Tim Wilkinson 05.25.23 at 6:44 pm

@27 Now why would your one data/talking point be your own gloss (making a comparison of dubious import) on an uncited and probably inaccessible non-peer-reviewed ‘study’ written over 30 years ago by an organisation widely derided for accepting what it is told by private water companies, in whose interest it was to present the English & Welsh industries as performing well, and with neither a remit nor any special ability to produce such a ‘study’?

Peter Dorman @12 (to finally get on to the point of the thread)

Actually existing welfarism may be quite grotesque, but recall that economic practice is largely conducted on the basis that a huge number of caveats and admissions that are a necessary part of official post-Samuelson(?) doctrine (and in particular of gaining the assent of well-meaning econ 101 students) are thereafter locked away and strictly ignored.

On the most optimistic view, the development under discussion has unlocked that Pandora’s filing cabinet: we have a measure here that threatens to reintroduce attempts at interpersonal comparison of utility, recalling that ‘revealed preference’ is at best a regrettable methodological compromise, ‘one dollar one vote’ is not an accurate basis for maximising welfare in questions of economic production and distribution, that a standard of ‘Pareto efficiency’ rules out a vast range of potential improvements, and so on.

Still speaking optimistically, if this kind of thing were to catch on, it could end up making quite a dent in the serious problems you mention, viz., “(a) the implausible model of human decision-making and well-being…(b) the dependence of price-based measures on local equilibria (and therefore historical inertia)…”

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