Tuesday, August 31, 2010

Reinhardt on Value Judgement in Economics

Uwe Reinhardt posted a nice article on the New York Times website discussing some of the not-so-subtly hidden value judgments in standard economic writing. Here is a good quote:

As the economist Steven E. Landsburg explains it bluntly to students in “Price Theory and Applications” :

In applications, the Kaldor-Hicks criterion and the efficiency criterion amount to the same thing. When Jack gains $10 and Jill loses $5, social gains increase by $5, so the policy is a good one. When Jack gains $10 and Jill loses $15, there is a deadweight loss of $5, so the policy is bad.

Evidently, on the Kaldor-Hicks criterion one need not know who Jack and Jill are, nor anything about their economic circumstances. Furthermore, a truly stunning implication of the criterion is that if a public policy takes $X away from one citizen and gives it to another, and nothing else changes, then such a policy is welfare neutral. Would any non-economist buy that proposition?

Readers will notice an irony in the widespread acceptance of the Kaldor-Hicks criterion by economists. On the one hand, they claim that their science is rooted strictly in the personal preferences of individuals in society, which seems democratic. In their application of the Kaldor-Hicks criterion to real-world problems, however, economists act like collectivists who seek to allocate society’s resources under a preferred moral doctrine. Economists take on the role of a benevolent dictator presumed to be empowered by someone to redistribute welfare among individual members of society for a larger social purpose — increases in what economists call efficiency and the maximization of what they call overall social welfare.


Jaakko said...

Charles Dickens has an interesting discussion of this same question in his Hard Times:

"'But, if you please, Miss Louisa,' Sissy pleaded, 'I am - O so stupid!'

Louisa, with a brighter laugh than usual, told her she would be
wiser by-and-by.

'You don't know,' said Sissy, half crying, 'what a stupid girl I
am. All through school hours I make mistakes. Mr. and Mrs.
M'Choakumchild call me up, over and over again, regularly to make
mistakes. I can't help them. They seem to come natural to me.'

'Mr. and Mrs. M'Choakumchild never make any mistakes themselves, I
suppose, Sissy?'

'O no!' she eagerly returned. 'They know everything.'

'Tell me some of your mistakes.'

'I am almost ashamed,' said Sissy, with reluctance. 'But to-day,
for instance, Mr. M'Choakumchild was explaining to us about Natural

'National, I think it must have been,' observed Louisa.

'Yes, it was. - But isn't it the same?' she timidly asked.

'You had better say, National, as he said so,' returned Louisa,
with her dry reserve.

'National Prosperity. And he said, Now, this schoolroom is a
Nation. And in this nation, there are fifty millions of money.
Isn't this a prosperous nation? Girl number twenty, isn't this a
prosperous nation, and a'n't you in a thriving state?'

'What did you say?' asked Louisa.

'Miss Louisa, I said I didn't know. I thought I couldn't know
whether it was a prosperous nation or not, and whether I was in a
thriving state or not, unless I knew who had got the money, and
whether any of it was mine. But that had nothing to do with it.
It was not in the figures at all,' said Sissy, wiping her eyes.

'That was a great mistake of yours,' observed Louisa.

'Yes, Miss Louisa, I know it was, now. Then Mr. M'Choakumchild
said he would try me again. And he said, This schoolroom is an
immense town, and in it there are a million of inhabitants, and
only five-and-twenty are starved to death in the streets, in the
course of a year. What is your remark on that proportion? And my
remark was - for I couldn't think of a better one - that I thought
it must be just as hard upon those who were starved, whether the
others were a million, or a million million. And that was wrong, too.'

'Of course it was.'

'Then Mr. M'Choakumchild said he would try me once more. And he
said, Here are the stutterings - '

'Statistics,' said Louisa.

'Yes, Miss Louisa - they always remind me of stutterings, and
that's another of my mistakes - of accidents upon the sea. And I
find (Mr. M'Choakumchild said) that in a given time a hundred
thousand persons went to sea on long voyages, and only five hundred
of them were drowned or burnt to death. What is the percentage?
And I said, Miss;' here Sissy fairly sobbed as confessing with
extreme contrition to her greatest error; 'I said it was nothing.'

'Nothing, Sissy?'

'Nothing, Miss - to the relations and friends of the people who
were killed. I shall never learn,' said Sissy. 'And the worst of
all is, that although my poor father wished me so much to learn,
and although I am so anxious to learn, because he wished me to, I
am afraid I don't like it.'"

Jaakko said...

This discussion by John Ruskin is also in my opinion quite amusing and to the point:

"Observe, I neither impugn nor doubt the conclusion of the science if its terms are accepted. I am simply uninterested in then, as I should be in those of a science of gymnastics which assumed that men had no skeletons. It might be shown, on that supposition, that it would be advantageous to roll the students up into pellets, flatten them into cakes, or stretch them into cables; and that when these results were effected, the re-insertion of the skeleton would be attended with various inconveniences to their constitution. The reasoning might be admirable, the conclusions true, and the science deficient only in applicability. Modern political economy stands on a precisely similar basis. Assuming, not that the human being has no skeleton, but that it is all skeleton, it founds an ossifiant theory of progress on this negation of a soul; and having shown the utmost that may be made of bones, and constructed a number of interesting geometrical figures with death’s-head and humeri, successfully proves the inconvenience of the reappearance of a soul among these corpuscular structures. I do not deny the truth of this theory: I simply deny its applicability to the present phase of the world."
Unto This Last

Steven McMullen said...


I like both of these quotes. Thanks.