Monday, September 16, 2013

Inequality And Well-Being: A Fable About The History Of "Efficiency"

From Mother Jones

Once upon a time there were some philosophers who came up with the radical idea that what mattered in life was bringing about the most happiness and pleasure possible, and the least pain and suffering. "Everyone counts for the same amount!" they said. "The greatest good for the greatest number!" You add it up. It was a moral requirement: always act so as to bring about the most pleasure for the least pain. They called this "utilitarianism."

Whatever your reservations about this view (and I have a few), you have to admit that it is a pretty radical idea.

Since a dollar given to a poor person will bring about a far greater increase in well-being than a dollar taken from a rich one will cause pain, there are immediate and deep egalitarian implications. Since animals feel pain and pleasure, they are immediately included in the moral calculus; since their factory farm life and death is worse for them than your hamburger pleasure is good for you, veganism for everybody. Since you have to take each person into consideration equally, you must foster the pleasures and ease the pains of strangers on the other side of the world equally to the pains and pleasures of your friends, your family, yourself. Since people can be mistaken about what is good for them, it's true well-being we must maximize, not just the satisfactions of, say, consumer items.

Status quo: demolished.

Back in the day, economists had the sensible idea that utilitarian concept of maximizing would be a good concept for evaluating policies, schemes, and social frameworks. One thing they noticed early on, though, was that measuring pleasure and happiness in an objective way is difficult. For this and other reasons, they shifted from measuring pleasure and happiness directly to measuring the satisfaction of personal preferences. Of course, preferences in the mind are also hard to measure. To address this, they started using the idea of "revealed preferences" -- which are preferences you reveal through your actions. When you buy some cargo pants, you are revealing a preference for cargo pants over the money and over other things you could have spent that money on.

I'm not sure exactly when the term "efficiency" came into use, but the idea was to maximize the satisfaction of revealed preferences at the least cost of frustrating them. As is often pointed out, there are immediate peculiar implications of a strategy of maximizing revealed preferences. In our ordinary lives we do not treat all preferences the same, as things to be fulfilled. A preference for cruelty, harm, or racial discrimination isn't the same as a preference for risotto. A problem gambler who loses his home "reveals a preference" whose satisfaction hardly seems to be maximizing his well-being.

And on top of all that: where do preferences come from? Efficiency as preference satisfaction doesn't concern itself with this question, but it's no secret that our preferences are deeply influenced by our cultural surroundings, our family and friends, and advertising. In a capitalist society like ours, there are armies of people working 'round the clock to instill in us preferences for cargo pants, Ford Probes, and giant television sets.

While there are still egalitarian implications -- the preference a dialysis patient has for a cure is stronger than anyone's preference for a new yacht -- maximizing revealed preference now says that for anyone who wants to buy cargo pants, Ford Probes, and giant television sets, maximizing well-being means delivering those things.

Status quo: altered.

Often these days, though, "efficiency" is measured not in terms of preference satisfaction, but in terms of maximizing goods and resources. A policy or social framework is efficient if it produces those things.

Bam! This immediately undercuts the egalitarian implications of efficiency. If we're counting dollars, the benefit to a poor person of getting or keeping a dollar is now equal to the cost to a rich person of losing, or losing out on one.

Indeed -- political rhetoric these days often invokes an idea opposite to that of moral utilitarianism, claiming that since a rich person might be a "job creator," efficiency requires preferring them as recipients of goods and resources (why increased assets, rather than increased demand, is thought to be the key issue, I've never understood). There are people who believe this benefits the poor indirectly, but the point here is that conceptually, it needn't whatsoever. Efficiency as maximizing goods and resources just counts the total. It doesn't track who is getting what. Increased efficiency is 100% compatible with poor people getting poorer.

You might think it couldn't get any worse, but in fact "efficiency" in economic and policy talk often refers to "Pareto efficiency," which means that no one can be made better off without making someone worse off. This just assumes some starting point and looks for improvements that come at no cost. As Wikipedia says, "Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society."

Status quo: reified. Rich get richer; poor people can suck it.

I'm not claiming to have given a full history of this important concept, just to have connected the dots in what I think is an illuminating way. There's more in the economist Joan Robinson's brilliant 1962 book Economic Philosophy.

I'm always astonished to see things in the news where people are like "OMG inequality is rising, what could explain it??" as if equality were somehow a natural state of things and we'd need a special explanation for a rise inequality. This makes no sense to me. In a world with unequal starting points and reasoning processes that don't incorporate fairness or justice, never mind equality itself, how would it be any other way?


Daniel said...


Maybe we should listen to Plato and allow the philosopher to be king?

"[A] true pilot must of necessity pay attention to the seasons, the heavens, the stars, the winds, and everything proper to the craft if he is really to rule a ship" (The Republic, 6.488d).

On a less joking note, I wonder about the role of coercion that the "equality" seems to entail in the fable. I can see (not super perfectly, but it's there) another trajectory running parallel to equality/inequality in the fable, and that is freedom/coercion.

It seems to me that several of the most "equal" states in modern history have been awfully coercive.

The trajectory of the fable might also be a trajectory away from the philosopher king.

Patricia Marino said...

Hi Daniel,
Well, it depends on what you mean by "coercion." The interpretation of that concept under which attempts to improve overall well-being would be coercive would have to be a very particular one in which any interference with a negative right to do what you please would be deemed "coercive." But in that characterization any scheme of maximizing -- any aiming at efficiency -- would be coercive since it would require people to do what they otherwise would choose not to do. So it would just be a question of coercive-toward-what.

Some people make an empirical argument that somehow liberty or free markets bring about efficiency. Leaving aside for the moment whether that is empirically true, the post is pointing out that a lot rides on what we mean by "efficiency": there are lots of ways of interpreting it that have very different aspects with profoundly different implications. None of these interpretations seems to me obviously more or less "individual-oriented" than another -- maximzing preference-satisfaction certainly allows everyone to determine for themselves what they prefer.

I'm not a utilitarian myself, preferring to think of "balancing" instead of "maximizing," but it's interesting that the great father of the old moral "utilitarianism" is also the author of the great "On Liberty": J. S. Mill. He thought maximizing well-being and maximizing freedom were harmonious, and not at all inconsistent, goals.

Daniel said...


I'm not sure I understand, but to make myself more clear, I'd like to be a little bit less abstract.

It seems like if we could clarify the parameters of this thought about "efficiency" and "everyone counting," "interference" (by whom?) and the "greatest good" and for whom the "moral requirement" is, and very importantly, by whom it is articulated and enforced (e.g. who in the world knows what are the right goals for everyone, and how to distribute all resources justly or fairly?? If we do it here, what about the people in Ethiopia??), we might understand each other better. Is it "everyone" as in "everyone"? Is it "everyone" as in a group of people who choose to be a unit? Is it a nation state? These differences matter, I think.

I think that the weight of the concept of "coercion" in much liberal political and economic thought has to do with what classic liberalism - including J.S. Mill, if I remember from my undergraduate years correctly - sometimes consider to be the monopoly of legal force by the state.

I understand the desire to have a more holistic version of freedom or the self-actualizing stuff you've written about before instead of negative freedom, yet it seems like negative freedom gets only the littlest blink of consideration here, in favor of something that sounds sort of good, but also crazy prone to corruption and a host of other injustices. I am not that trusting.


Daniel said...


I just saw that the book advertised on Amazon is actually sort of a mistake! It's called on the cover Economic Philosophy, but (according to several reviews on Amazon) the actual written book on the inside is apparently something called "Economics of Liberty" from 1916, and by a Joan Robinson who is different (once again, according to Amazon) from the famous economist.

I'm not sure which one you read.

How does this happen?? Can you imagine getting to the point of printing books, and all the expense that entails, without realizing the mistake?

I wonder if the commenters who pointed it out are wrong.


Patricia Marino said...

Dunno what happened with that, but I definitely read, and am talking about, _Economic Philosophy_ by Joan Robinson, 1962 (I've read *about* the book as well as *read* the book, so I am certain).

I bought it from Amazon Canada -- so I have no idea what kind of south-of-the-border nuttiness is going on there.