Introduction
Welfare economics is a methodology for making ethical judgments. Questions of allocation, distribution and rights are ethical questions. Economists often say that economics is ethically neutral because the Pareto criterion scrupulously avoids interpersonal utility comparisons and because devices such as Bergson-Samuelson Social Welfare Functions allow us to distinguish ethical principles from the positive analysis of allocation problems.
This view is wrong. A Pareto optimum is good by virtue of its consequences, rather than the rightness of the procedures for determining it or the duties and obligations it entails. Furthermore the goodness of consequences is measured by individuals' preferences. These views, labeled consequentialist and welfarist, are neither neutral nor uncontroversial. These notes will situate welfare economics within a broad array of ethical theories, in order to show how particular (peculiar) welfare economics actually is.
One variety of consequentialism is welfarism; the view that consequences are to be judged only by the criterion of “well-being.” Well-being is the only value. What is “well-being”? Economists subscribe to agent-relative welfarism, wherein individuals are the judges of their own well-being. This contrasts with agent-neutral welfarism, wherein notions of well-being comes from the outside and are universal prescriptions. The Pareto ranking of social states is agent-relative because states are judged ony according to each individual's ranking, and thus can only be compared when all individuals agree.Pareto's thought is more sophisticated than this. He distinguished an index of economic wants, which he called ophélimité, from a more general index of wants deriving from ethical, political, religious, etc. causes, which he called utility. Ophelimity is less broad than utility as we use it today; but his concept of utility is broader since he considers not just individual utility but also social utility, the utility of groups. More about Pareto's view can be found in V. Tarascio, “Paretian welfare theory: some neglected aspects”. Journal of Political Economy 1969. Utilitarianism, on the other hand, is agent-neutral because the criterion of total utility is external to any one individual, and because it allows for the trading off of one's utility gain against another's utility loss, so that a better state might make some individuals worse off.
Here I discuss three varieties of ethical theories. Consequentialist ethics is what we do. It is the idea that normative judgements should depend only on outcomes. Deontological ethics is the idea that there exist moral norms that, independent of outcomes, should guide our judgments. Virtue ethics is the idea that virtues, particular character traits, are fundamental to ethical judgment.
Consequentialism
Consequentialism is the idea that choices are evaluated according to their outcomes, their consequences. The most familiar version of consequentialism is utilitarianism. Classical utilitarianism is described by a stream of adjectives: additive, hedonistic, welfarist, act consequentialist. Act consequentialism holds that the rightness of an act is determined by its outcome. Welfarism holds that individuals' well-beings measures the value of outcomes. Hedonism is the idea that well-being is an aggregate of pleasure and pain. Finally, additivity requires that individuals utilities are aggregated by addition. Moving away from sums and, more generally, interpersonal comparisons of utility, was the chief accomplishment of the development of welfare economics in the first half of the 20th century.A good read on this is Amartya Sen, “Utilitarianism and Welfarism”. Journal of Philosophy 1979.
Neoclassical economics has thrown hedonism away, simply by understanding that the primitive psychology of hedonism is not required to make the utilitarian apparatus work–one does not need to commit to hedonism to make use of the utilitarian apparatus. The neoclassical revolution also tossed additivity because of the recognition that ordinal measures of preference suffice to get a theory of value off the ground, and ordinal measures cannot be added across individuals. This is consistent with an ordinal version of welfarism, which says more broadly that the goodness of a state depends upon individuals utilities in that state, and that goodness is increasing in individuals' utilities. Thus modern welfare economics can be characterized as welfarist and act-consequentialist.
To see that not all consequentialism is welfarist, consider the statement, “Economic policies should be targeted to helping people meet their basic needs.” This statement is consequentialist because according to this criterion, the success of a policy depends upon the outcomes it achieves, specifically, how does it increase the achievement of basic needs. But it is not welfarist because needs and satisfactions need not be the same thing. Individuals experiencing food insecurity might nonetheless want to put their next dollar towards a television or a book.
In this account it is important to keep in mind what the target is. We want to evaluate the rightness of policies, laws, or even acts of individual behavior. Consequentialism values policies, acts, by the state of the world they bring about. These worlds are judged by utilities, but the object of moral theory is not only or not even to judge the state of the world; instead it is to judge the act. The connector between the states of the world that utilities value and the acts that bring them about is act consequentialism.
The distinction between act utilitarianism and
rule utilitarianism is important in contemporary
utilitarian thought. An act utilitarian will evaluate the
consequences of a single act. A rule utilitarian will
consider the consequences of a world where this act becomes
the rule. For instance, an act utilitarian with an
opportunity to cheat on an exam might conclude that a higher
grade will give him pleasure, and therefore cheat. A rule
utilitarian might conclude that in a world where everyone
cheats, no one will have any confidence that grades measure
anything, and so she will lose the opportunity to demonstrate
how accomplished she is. Bentham, Mill, and the early
utilitarians were act utilitarians. Game theorist John
Harsanyi was a champion of rule
utilitarianism.
See, for instance, John Harsanyi,
“Rule
utilitarianism and decision
theory”. Erkenntnis 1977. He writes,
Notice the claim that
decision and game theory are normative theories.
Modern microeconomics textbooks discuss with pride how economists have disavowed their utilitiarian ancestry through the efforts of Pareto and the neoclassicists. This is excessive back-patting. Several generations on, utilitarianism continues to pop up in theoretical analyses. First is the device on quasi-linear utility. If utility is quasi-linear, it is possible for individuals with positive stocks of the quasi-linear good to give a unit of utility to another individual. Thus the utility possibility frontier is linear, and optima are found by maximizing the sum of utilities. Today many do not even bother to justify their decision to maximize total surplus.
Deontological Ethics
Deontology stands in opposition to consequentialism. It holds that not all choices can be judged by their consequences. The Rightness of an act is determined by its coherence with a moral norm. An act that is not Right may not be undertaken no matter how Good it is. So, for instance, a consequentialist will pull the lever in the trolley problem while the deontologist who follows the rule, “Thou shalt not kill,” will not. A trolley is coming down a hill, has lost its brakes, and has no horn or bell. Should no one intervene, it will plow into a group of five workers working on the track. But if you pull the lever next to you, the trolley will turn off the track onto another path and kill only the old man crossing the track. What do you do? This essence of this problem is, of course, quite old, but the modern version is due to Philippa Foot, “The problem of abortion and the doctrine of double effect,” Oxford Review 1967, 5:5—15. TV makes it real. If you watch the video, pay attention to the theater marquee. A real-world trolley problem: After the Chernobyl nuclear meltdown the Russian government seeded clouds to keep radioactive clouds from drifting over large cities. According to Russian radiation biologist Alexey Yablokov, clouds heading towards the capital were seeded and fell over more remote regions. “It was a secret programme, and ethically it is questionable -- Moscow was saved from radioactive rains at the expense of smaller cities.” A dramatic understatement. Quote from the Deccan Herald.
Three characteristics of deontology are shared by most deontological theories: (1) there are moral facts, (2) moral judgments are true or false according to the moral facts, and (3) moral facts are not consequences of our moral beliefs.
Kant
The most famous deontologist is Immanuel Kant. His famous Categorical Imperative states one should adopt only rules that work in a world where everyone holds them. He writes, In Groundwork of the Metaphysics of Morals, 1785, Kant seeks to develop a system ofa priori moral principles that apply to everyone everywhere and everywhen. This is where to begin with Kant, but his thought on ethics extends across several other books as well. This statement of what is called the Universal Law Formula is from the Gregor translation (1998) p. 4:422.
Act in accordance with a maxim through which you can at the same time will that it become a universal law. to will is to have a rational desire.
This, he argued, is the basic moral principle from which all else comes. The Categorical Imperative is objective, unconditional (thus “categorical”), mandatory despite our preferences, happiness and desires (thus “imperative”), and required by rationality. Thus all immoral actions are irrational! Being a rational individual and cognizant of the moral law, one has a duty to follow the prescription of the law that reason provides.
Kant illustrates the Categorical Imperative with several examples. One goes as follows: You urgently need money but know you cannot repay at the end of any term at which anyone will loan to you. In view of your urgent need, should you lie to get a loan? Kant suggests the following decision procedure. First, formulate the desire as a maxim: “when I believe myself to be in need of money I shall borrow money and promise to repay it, even though I know that this will never happen.” This assures your future welfare. But Kant asks you to consider this maxim as a universal law. You should see that this could never work as a universal law, for should everyone behave this way, promises to repay are vacuous. Kant sees a contradiction in so far as such a promise could never be made, for lenders “would laugh at all such expressions as vain pretenses.” Economists would know that the loan market would collapse, and loan transactions would be impossible.
Kant offers two other versions of the Categorical Imperative. The Natural Law Formula is loc. cit.
act as if the maxim of your action were to become by your will a universal law of nature.
The Humanity Formula is ibid. 4:429.
So act that you use humanity, whether in your own person or in the person of any other, always at the same time as an end, never merely as a means.
The Humanity Formula directly opposes utilitarianism. To sacrifice one individual's utility in order to increase total utility is treating that person as a means and not an end.
Kant observes with respect to the borrower of the preceding example that should the borrower make aguarantee he knows he cannot keep, he is using the lender as a means to an end — his welfare — rather than treating the lender him or her self as an end.
Rawls
The deontologist John Rawls has had a large impact on economic thought through his 1971 book A Theory of Justice which explicates his theory of justice as fairness. Rawls follows Kant in reducing morality to rationality, but with the advantage of modern thinking about decision and game theory (which is not to say that his book is in any manner technical). Rawls is a Kantian social contract theorist. Contract theory as most of us know it descends from Hobbs. Individuals are mostly self-interested, and the rational self-interested individual will identify the self-interest maximizing strategy as one that leads to moral behavior and consent to be governed.
Contract theory descended from Kant requires that the contracting individuals are invested with a version of rationality that requires respecting other persons. What principles would we choose if we were trying to agree on the principles all of us would accept? Rawls allows us to assume that everyone, in choosing moral rules, pursues their own interests. This sounds Hobbsian. But suppose, asks Rawls, no one knows any facts about themselves, who they are and how they differ from others? Such individuals would rationally choose the same principles. Each individual is self-interested, but ignorance forces everyone to consider all possible self-interests. This last hypothesis Rawls calls the veil of ignorance; this and his assumption of rationality is what he calls the original position, from in which the thought experiment of bargaining to the social contract, is to take place.
At this point we are tempted to imagine a state space with all possible preference configurations, a Harsanyi (common) prior on this state space, and expected calculations. But Rawls does not even allow his bargainers this much information. True uncertainty requires no beliefs, or rather that each individual considers all possible beliefs. Rawls then argues that from this decision problem comes three principles of justice:A Theory of Justice rev. ed. 1999 p. 266.
First Principle: Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all.
Second Principle: Social and economic inequalities are to be arranged so that they are both:(a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and(b) attached to offices and positions open to all under conditions of fair equality of opportunity.
The just savings principle refers to saving enough for future generations. Part (a) of the second principle is known as the difference principle. It is implemented though the leximin rule. Maximize the welfare of the least well-off individuals. Within this social indifference class, choose the rule maximizing the second-least well-off individuals, etc.You are invited to think about the nature of utility here. Rawls wrestles with this and comes up with the idea of an index of “primary goods”.
Virtue Ethics
Consequalism and deontology ask what makes an act good? Virtue ethics asks, what makes a person good? Good acts are the choices made by good people. A person is good by way of their virtues. For instance, someone fell on the sidewalk. A consequalist goes to help because doing so increases total welfare. A deontologist goes to help because helping fulfills a moral rule, such as “Do unto others …”. A virtue ethicist goes to help because she is benevolent. Consequentialism and deontology ask, “What should I do?” Virtue ethics asks, “Who should I be?”
The term virtue refers to attributes of character. Not all attributes are virtues, e.g. slow and lazy. Four virtues derive from classical philosophy: prudence, justice, fortitude, and temperance, found first in Plato's Republic. Temperance refers to the practice of restraint, self-control, rather than to abstinence from drink. In the Nicomachean Ethics Aristotle wrote, “The forms of Virtue are justice, courage, temperance, magnificence, magnanimity, liberality, gentleness, prudence, wisdom.”See his Nicomachean Ethics, III.6—V.2. It is easy to expand this list.
This is not to say that consequentialists and deontologists ignore virtues. A consequentialist could say that acting in a virtuous manner increases the social good. A deontologist could posit a rule that says acting in accord with a particular virtue is a duty.And vice versa. The theories are equally expressive; they differ on what are the primitives of the analysis. Virtue ethics differs from the other theories by taking virtues as primitives rather than derived objects. But this only raises the question of virtues sources. What makes a particular virtue something we aspire to? The Greeks and Christian's both considered piety to be an important virtue. Many otherwise virtuous people today would disagree.
Virtues can be sourced externally, for instance, from religious teachings. Catholicism adds faith, hope, and charity to the four classical virtues. Virtues can also be founded on ideas of individual flourishing. This is the Aritotelian idea of eudamonia. Eudamonia is a hard-to-define Greek term that has to do with flourishing. Although not unrelated to utility, eudamonia is external. Whereas utility is entirely subjective, you may be mistaken in believing that you are flourishing.
Internal sources of virtue often appear circular; virtuous behavior is defined by what a virtuous person does; now what defines a virtuous person? But there are some ways out of this box. Agent-based virtue theories look to emotions, motivations, and dispositions of individuals. Adam Smith writes in this stream.
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it. The Theory of Moral Sentiments (1759) [1790]. I.
Smith holds to a social psychology of sympathy, which today we would call empathy. Sympathy organizes the moral order on which social structure emerges. “…, nothing pleases us more than to observe in other men a fellow-feeling with all the emotions of our own breast;…” Although sympathy reinforces itself as it reverberates through a community, it never overwhelms the ego. Smith writes, “Mankind, though naturally sympathetic, never conceive, for what has befallen another, that degree of passion which naturally animates the person principally concerned.” ibid. II, IV.
Kant, father of deontology, seems to come from a similar place.
… Do I have, not merely a self-interested feeling, but also a disinterested feeling of concern for others? Yes — the weal and woe of another touches us directly: the mere happiness of another pleases us in the telling: even that of fictional persons whose tale we know of, or in distant ages — this common concern is so great that it collides with the self-interested feeling. The sense of it is indeed a noble feeling, nobler than the self-interested one. Nobody despises it: everyone wishes for it, though not all have it in the same degree; in some it is great, and the greater it is, the more it is felt as a perfection. It is universal, though seldom so great that it inspires active exertions — in misers, for example, with whom self-interest has become very strong. As needy beings the creator gave us self-interest in our own perfection. As beings who have the power to be of service to our fellows, He gave us a disinterested concern for the perfection of others. The concern for others ranks high, since even the concern for self can be subordinated to it, but not vice versa. The more self-interested, the poorer (at least in thought), and hence the more to be despised. The disinterested feeling for the welfare, etc., of another has our own perfection, not as an end, but as a means. JG Herder, I Kant. “Kant’s practical philosophy: Herder’s lecture notes (selections)”. In: P Heath and JB Schneewind, eds. Lectures on Ethics. The Cambridge Edition of the Works of Immanuel Kant. Cambridge University Press; 1997:1-36.The teenaged Herder, himself later a gifted philosopher, studied in Königsberg between 1762 and 1764, and sat in several of Kant's courses.
But this is early Kant, and later Kant is a much more normative theory. That is, it does not provide a positive theory of the source of rules. The theory of rule formation is normative; rules are posed as maxims and pass tests for rationality and the imperatives (hypothetical and categorical). Kant writes,
But while it is not in itself a duty to share the sufferings (as well as the joys) of others, it is a duty to sympathize actively in their fate; and to this end it is therefore an indirect duty to cultivate the compassionate natural (aesthetic) feelings in us, and to make use of them as so many means to sympathy based on moral principles and the feeling appropriate to them.Kant (Gregor, trans.), The Metaphysics of Morals. 1797 [1991], 6:458.
If we remember that for economists, utility maximization is not a psychological process but a reduced-form summary of the output of all the intentions, emotions, and rationales that generate decisions, it may be sensible to say that in the optimization problems of moral judgments Smith's concerns appear in the preferences and Kant's in the constraints.
Nonetheless, a literature has emerged among economists which
attempts to interpret Kant's categorical imperative as a
constraint upon preferences. An individual should derive the
utility of an action by considering its value in a world where
everyone else acted the same
way.For
instance:
I Alger and J Weibull. “Evolution and
Kantian Morality”. Games and Economic
Behavior 2016.
T Bergstrom. “On the
evolution of altruistic ethical rules for
siblings”. American Economic Review
1995.
JJ Laffont. “Macroeconomic constraints,
economic efficiency and ethics: An introduction to Kantian
economics”.
Economica 1975.
J
Romer. “Kantian Equilibrium”. Scandanavian
Journal of Economics. 2010. In this
literature Alger and Weibull stand out. They build an
evolutionary model of preferences in the style of evolutionary
game theory which, in equilibrium, are prosocial. But despite
their nod to Kant, theirs is a model of virtue ethics;
Smithian in that one can see an invisible evolutionary hand
selecting for individuals' preferences that internalize the
preferences of others, thereby facilitating the social
structure within which works the market, that in its turn,
works as if by an invisible
hand.
An
interesting take on the evolution of Smith's sympathy is C
Batson, “Are the ‘Principles in his nature, which
interest him in the fortune of others,’ moral?” in
Putnam, Neiman, and Schloss, ed. Understanding Moral
Sentiments: Darwinian Perspectives 2014.
Kant rejects prosocial preferences as a source of ethical
norms. He said (according to Herder)
It is said that the pleasure we have [in the welfare of others] is merely our own end, and a more refined self interest. Responsio: the pleasure itself presupposes (1) a power of having it; (2) I cannot explain pleasure by means of pleasure. I will pleasure, merely: I have pleasure in pleasure, and thus already presupposes a certain feeling.JG Herder and I Kant, loc. cit.
The Wealth of Nations has much to say about public policy and the role of government, but Smith does not derive his policy statements, e.g. advocacy for a system of public education, his opposition to colonialism, from his moral philosophy. Virtues today appear in policy debates, but as a subject and not as a method. For instance, the idea of the “deserving poor” is the demonstration of virtue as an eligibility requirement for aid. Yet there is little discussion of the virtues that policy makers should hold. For this reason, the remaining discussion shall focus on consequentialism and deontology.
Conclusion
Natural rights is simply nonsense: natural and imprescriptible rights, rhetorical nonsense – nonsense on stilts. Bentham, Anarchical Fallacies; being an examination of the Declaration of rights issued during the French Revolution 1796.
A Kantian may choose to pull the switch in the trolley problem because because of a maxim that one should save as many lives as possible. A utilitarian might choose not to because the act itself causes so much disutility. The differences among these approaches to deriving ethical behaviors lie more in the foundations of their procedures than in their outcomes.
George Bernard Shaw once said that “… the single biggest problem in communication is the illusion that communication has taken place.” The quote from Bentham above suggests how difficult a conversation between different points of view can be. Some claim that communication cannot take place without shared assumptions. Less is true; what is required is common knowledge of assumptions. This requirement often fails in policy discussions. The problem for consequentialist economists is not how to convince people to change their fundamental beliefs; instead it is bring our analytical intuitions and tools into their worlds. Positive economics is as relevant to Kant as it is to Mill. Economics will contribute to the policy debate in two ways: First, establishing shared facts. This is positive economics. Demand elasticities are as value-free as the gravitational constant. They become value-laden not in their existence but in their application. The challenge is the second part. To have a conversation across assumptions requires conversants putting themselves in the others' shoes. What would a deontological welfare economics, or a virtue ethics welfare economics, look like?Note the assumption in this paragraph that economists are consequentialists. Lacking evidence, I am nonetheless willing to bet that the percentage of consequentialists among economists significantly exceeds that in the general population. But not all economists are pure consequentialists. The deontologist John Rawls, who operationalized his analysis in A Theory of Justice with maximin expected utility evaluated behind the vale of ignorance, is appreciated in many economics circles.
Imagining a deontological welfare economics is a challenge, but important because policy debates are filled with deontological claims, e.g.
Because evangelicals assert that you alone are responsible for your eternal salvation, it makes sense that the individual is also responsible for his or her economic salvation without government assistance, especially if God is the only assistance you really need.Paul Froese, “How your view of God shapes your view of the economy,” Religion and Politics June 13, 2012.
[Health care] should be a right for every American.President Barack Obama, Second Presidential Debate Town Hall-Style Event in Nashville, Tenn. October 7, 2008.
Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance–where, in short, we deal with genuinely insurable risks–the case for the state’s helping to organize a comprehensive system of social insurance is very strong. … But there is no incompatibility in principle between the state’s providing greater security in this way and the preservation of individual freedom.FA Hayek, The Road to Serfdom, ed. B Caldwell, 1944 (2007) p. 426–7. Hayek is somewhat consequentialist, somewhat deontological. He wrote, “the test of the justice of a rule is usually (since Kant) described as that of its universalizability.” (Studies in Philosophy, Politics, and Economics, p. 168.
These debates rarely resolve because the consequentialists and deontologists are talking past each other. Economists making welfare-theoretic arguments need to find a way to open a discussion with their more deontologically-minded opponents.
One wonders what a Kantian welfare economics might look like. A hint comes from interpretations of the categorical imperative as a decision procedure.See e.g. J Rawls. “Kantian constructivism in moral theory.” 1980. Journal of Philosophy 77, pp. 515–72. The idea is, roughly, take a plan of action, formulate it as a law of nature governing all agents, ask if such a world is possible, and if so, would one want that world. So, for instance, I want to smoke wherever I please. Everyone can smoke wherever they please. That is a possible world. Is it a good world?
Rawls implements this by postulating states of the world according to the application of maxims as a natural law, and then evaluating them from the standpoint outside of society, before society has been constructed. He asks us to imagine ourselves devoid of information about our identity and social place, and the rules of society. This is his original position. He describes individuals in this hypothetical situation as existing behind a vail of ignorance. This can be implemented, for instance, by imagining a collection of types of individuals. Individuals have no idea of what their type will be, even to the point of having beliefs over types. Each individual can imagine all probability distributions over all types. Thus a state of the world generates not a single utility but an entire convex set of possible utility outcomes. How should individuals consider this set?
Rawls offers the principle that absolute priority should be awarded to the least well-off type. The leximin rule requires that in comparing social states the first criteria is that of those least well-off in each state, and should there be a tie, move up to the next lowest group, and so on. One might think of this procedure as a kind of lexicographic ambiguity aversion. (This is not Rawls' argument.) This is not a welfarist account because it takes into account only the welfare of the worst-off type. It is not consequentialist because the consequences of many are not considered and because our agents, from the perspective of a hypothetical original position, are only thinking hypothetically.
There are, of course, other ways to rank sets of outcomes. For instance, one might rank sets according to the strong set order. How different is it from the maximin rule and the leximin rule? We might imagine a welfare economics based on deontological principles.