Morality and Economics

Matt Yglesias argues that cost-benefit analysis isn't really a problem, only that it doesn't include the effects of distribution. He then goes on to explain the issue using an homage to the Socratic Dialogue by Brad DeLong:

Agathon: “That means that the market system, in weighting utilities and adding them up, gives you a much lower utility than it gives Richard Cheney. In fact, if marginal utility of wealth is inversely proportional to the square of lifetime wealth, the market system gives Richard Cheney about 400 times as big a weight as it gives you.”

Glaukon: “That’s sick.”

Agathon: “And it gives Bill Gates a weight about 400,000,000 times as big a weight as it gives you.”

Glaukon: “That’s sicker.”

Agathon: “But it gives you about 40,000 times the weight it gives your average Bengali peasant, who thus has about 1/16,000,000,000,000 the amount of the market system’s concern as Bill Gates has. Will you teach that?”

FLG doesn't really understand where the marginal utility of wealth is inversely proportional to the square of your lifetime wealth comes from, even after reading the original post, and everything subsequent flows from that.

Basically, take a person's lifetime wealth and multiply it times itself, then put that number in the denominator of a fraction, and that's your marginal utility of wealth. So, Bill Gates' really huge wealth multiplied by itself and place in the bottom of a fraction makes the social utility of every extra dollar really small. This makes sense logically, but FLG thinks the numbers above present a misleadingly perception about the accuracy of the measurement of the effects of distribution.

Matt continues:

Now as it happens it’s not 100 percent clear what alternative rule you should use. Which I think is one reason economists remain attracted to the “distribution doesn’t matter” point of view. It’s false to say that distribution doesn’t matter. But if you choose to believe that distribution doesn’t matter, that provides an unequivocal answer to how you ought to build distribution into your analysis. If you decide, accurately, that distribution does matter you’re left with the tough problem of specifying exactly how it matters. Much easier to just pretend it doesn’t matter, and then pretending that the fact that you’re pretending it doesn’t matter doesn’t matter either because it’s a “value-neutral” point-of-view. But it just isn’t.

What's interesting is Prof. Deneen wrote, a while back in a response to my pestering and from the other side of the ideological spectrum, something similar:

Aristotle points to a conception of the good, and thereby "the common good," that necessarily guides and influences all human activity. "Moral" activity cannot be separated to some distinct realm (indeed, if our economic life is not to be guided by morality, what is?). Whether in our political dealings, our economic relations, our family lives, our neighborhoods and communities, a moral conception of the human good ought to serve as a guiding principle. Questions we must ask ourselves in the economic realm cannot be limited to "what is efficient" or "what will result in the most profit," but also "are our actions responsible," "is this an appropriate use of limited resources," "are we living within our means," "are our economic relations and transactions contributing to the good of our community," "does our economy support good families," "are we ensuring for the good lives of our children and future generations?" These are moral questions, yes, but they are also economic questions - the two cannot be divorced.

And I think that's why economist stay away from the question of distribution and try to proceed amorally. It clouds the issue of how to produce the most stuff with the available resources. Whether we want to produce less for whatever reason or redistribute such that production is inhibited or to do or not do something for moral reasons isn't helpful in how to produce the most stuff.

Economics, by proceeding amorally, allows us to say, doing this will produce X stuff. X is the maximum amount possible. What's that? You want to enact this policy for political, social or moral reasons? Okay, that will produce Y, which is less than X. Is that policy worth the loss of X - Y? Some people say yes, some say no. That's where the political process comes in, but economics is about saying what the options are.

Economists certainly put their own personal value stamp on their policy recommendations. So, FLG certainly isn't saying that economics is free of passions, interests, and opinions, but that economics strives to be value free. Does it work? No. Never well as long as human beings are involved, but it's the best we've got.