Normativity and Economics, cont.

Quick follow-up on my last post on the Is/Ought distinction. I argued there:

The very discipline of economics is loaded with normative assumptions. Consider two propositions:

  1. All goods can be exchanged.
  2. Money is a useful proxy for value.

Plenty of people reject these propositions.

In a post today, Mark Kleiman points out yet another normative assumption built into economics: the value of distribution.

Formal benefit cost analysis counts everyone’s gains and losses equally. But common sense and the principle of diminishing marginal utility agree that a dollar’s worth of gain is more valuable to someone with few dollars than it is with someone with many. Obviously, taking $1 each from 900,000 poor people to give $1 million to a hedge-fund billionaire doesn’t reflect a social gain, but a formal benefit-cost analysis will show that it does: after all, the net benefit is $100,000. Thus gains and losses should be adjusted by (at least) dividing each gain or loss by the income or wealth of the person bearing it, so that a $20 gain to a family with an income of $20,000 weighs as a heavily as a $10,000 gain to a family with an income of $1 million.

I don’t think that this framed quite right. Formal cost benefit analysis does take into account diminishing marginal utility. But what it doesn’t do is to take into account interpersonal comparisons of diminishing marginal utility. That is, while it’s certainly true that my one millionth dollar has less value to me than did my first dollar. But it doesn’t automatically follow from that that my one millionth dollar has less value to me than your one hundred thousandth dollar did to you. Knowing that would require us to accurately determine just exactly how much value you and I really got. Certainly there’s no particular reason to think that Kleiman’s exact calculation is correct.

Still while interpersonal utility comparisons cannot be rigorously calculated, there’s certainly something to Kleiman’s objection. I can be pretty confident that my one millionth dollar has less value to me than that same dollar would have to a starving Bengali, for whom a single dollar might represent half a year’s wages.

More to the point, though, questions about interpersonal utility calculations in general, and about the actual distribution of wealth rather than the maximization thereof in particular, are normative questions. They are questions about what sorts of things we ought to value. And, as Kleiman rightly points out, cost benefit analysis builds in a particular answer to that question.

Which once again leads us back to my earlier point. Policy doesn’t fall out of purely scientific economic analysis. Oughts are still necessary — and simply embedding them into your analysis doesn’t let you escape defending your normative commitments.

Political Sleight-of-Hand, in Which Pundits Attempt to Derive an Ought from an Is

Every once in a while I find myself banging my head against the wall watching some pundit or making the claim that Pure Science tells us exactly what we should do. Why this is supposed to be a point in the pundit’s favor is beyond me. Is there anything more frightening than the image of a bunch of folks in white lab coats cooking up a set of rules we all must follow? And yet I seem pundits making the appeal again and again, from both the right and the left.

For example, Michael Peroski, writing for the left-leaning Center for American Progress, argues that bioethics should be a “data-driven” inquiry, a process that “entails considering the best available evidence before making decisions.” That process would require one to “gather information about public sentiment on the topic, carefully analyze the costs and benefits of proceeding with or prohibiting the research, and offering [sic] a pragmatic recommendation that takes all of these considerations into account.”

In other words, if we simply gather the right facts and maybe attach a few numbers, the correct policy will just fall out.

Bryan Caplan, a libertarian economist at George Mason University, makes a similar case for economics, claiming that a correct economic analysis will point the way to correct policy, whatever moral perspective one might have.

Caplan and Peroski both seem to misunderstand the role that normative (philosopher-speak for “ought”) claims play in setting public policy.

Let’s start with Peroski, whose conflation of facts with morality is much more egregious. Now don’t get me wrong – I’m all for getting facts right. But facts are only part of the story. They’re an important part, and when the facts are wrong, policy decisions are likely to go astray. Facts tell us how the world is. But policy – and indeed, politics more generally – is about what we ought to do. And those two things, the is and the ought, are very different.

The 18th-C Scottish philosopher David Hume is usually credited with making this point. In A Treatise of Human Nature, Hume writes that it seems “altogether inconceivable” that we can deduce anything about what we ought to do from claims about what is the case. Philosophers have called this the is/ought problem, though I prefer the more colorful if less frequently used “Hume’s Guillotine.” To put Hume’s point in the preferred jargon of philosophers everywhere, we can say that normative claims (or value claims like ought or should) cannot be derived from descriptive claims (which are just claims about the way the world is – the sort of claims that science makes, for example.) The late Oxford and University of Florida philosopher R.M. Hare calls Hume’s point a logical rule, and states the principle formally as:

No imperative conclusion [i.e., statement about what one ought to do] can be validly drawn from a set of premises which does not contain at least one imperative.

A nice way of demonstrating Hume’s point is to borrow a method from another British philosopher. In Principia Ethica, G.E. Moore presents what he called the open-question argument. Moore was actually asking whether we can use natural terms (like “pleasant”) to define good. Moore says that since we can answer sentences like, “This is pleasant, but is it good?” with a no, then it must be an open question whether pleasant and good mean the same thing.

We can use the same method to show that ought claims don’t follow from is claims. Suppose we ask something like: “Reducing carbon emissions by 20 percent will reduce overall carbon levels to 550 parts per million, but should I do it?” As long as it makes conceptual sense to answer such questions with a “no,” it can’t be the case that the fact alone is sufficient to justify the normative claim. The point is that any argument that ends with the claim”We ought to do ____” can’t appeal just to a set of facts.

Of course, some philosophers will tell you that there are normative facts. The arguments on this score are as complicated and abstract as they are esoteric. And even if this view (which philosophers call “moral realism”) is correct, those moral facts are of a very specific sort (e.g., “violating autonomy is wrong” or “desire-satisfaction is good”). Even the most ardent moral realist wouldn’t take a straightforward scientific claim about, say, carbon emissions to be a normative fact. The fact (as it were) is that normative conclusions have to be supported by at least one normative reason.

Caplan, for his part, recognizes the necessity of ought claims. His claim is rather that one can combine economic analysis with any reasonable moral premise and the same policy will fall out. Caplan says, for example, that if economists were able to demonstrate conclusively that allowing people to sell organs (as in, body parts, not the things you find in cathedrals) “would make sick people healthy and poor people rich,” then there couldn’t possibly be any plausible moral reason to object to an organ market. Caplan’s fellow-libertarian, Will Wilkinson of the Cato Institute, objects to that characterization. Wilkinson points to a number of perfectly plausible reasons for disapproving of a market in organs, even if such a market really would “make sick people healthy and poor people rich.” But even leaving Wilkinson’s objection aside, Caplan has falsely blurred the line between normative and factual disputes.

The very discipline of economics is loaded with normative assumptions. Consider two propositions:

  1. All goods can be exchanged.
  2. Money is a useful proxy for value.

Plenty of people reject these propositions. You might very well reject the first claim, holding, as the English philosophy John Locke did, that you cannot morally sell yourself into slavery. For Locke, individual freedom and material wealth simply were not exchangeable. Similarly, you might join the ancient Greek philosopher Aristotle in believing that lots of things that we consider to be good can’t really be directly compared with one another. After all, Aristotle might say, just how many units of honesty will a dollar buy? How much would it cost to purchase your best friend from you?

But to make a cost-benefit analysis (sort of the bread-and-butter of economics) work, you have to assume that both (1) and (2) are true. In other words, economic models like a cost-benefit analysis simply build in the normative claim. But this isn’t getting us around the problem, so much as it is obscuring it.

And that, at the end of the day, is my objection to both Peroski and Caplan. Both reach ideologically-driven conclusions while pretending that they are operating in a morally neutral fashion. Indeed, there is just not any way to go about making policy in a completely neutral way. You simply must have normative claims somewhere if you’re ever going to make a conclusion of the form “we ought to do X.”

Caplan and Peroski would have us smuggle normativity in with our data. That strikes me as a dangerous path.