The Underlying Tautology

The centrality of moral commitment or judgment in human behavior, as Sen among others has shown, points to a difference between two ways in which one may think of the relation - the ordering or ranking - of preferences. First, one may define this relation as the way rational choice is to be explained. In this purely formal, positive, and non-normative representation of preference, one would say that if agent S chooses a over b, S prefers a to b, and one may introduce measures of WTP to give a fuller numerical account of this relationship. Social choice theory often supposes that a person's preference-orderings, to be rational, must exhibit certain logical traits or conform to certain axioms. Adherence to these formal axioms provides no basis to believe, however, that it is good that preferences are satisfied - good from the perspective of the well-being of the individual or good from the point of view of society.

Second, one may assume that S will choose a over b if and only if S believes a benefits her or him more than b. If one assumes that agents always act to maximize their welfare or well-being, one can then represent any choice - whatever the reason for it - as expected welfare or advantage. To do this, one must presuppose - without warrant and contrary to fact - that if S prefers a over b, S must perceive himself or herself to be better off with a than with b. What would justify this presupposition?

The too hasty connection economists draw between preference and welfare - between the amount a person is willing to pay for an outcome and the amount he or she expects to benefit from it - rests on a plain and obvious fallacy. The fallacy is to confuse choice (S chooses a over b) with welfare (S believes S is better off with a rather than b). From the observation that S chooses a rather than b or will pay more for it, economists cannot conclude anything about whether S is better or worse off with a rather than b even in S's own estimation. Economists may base the belief that preference is normative on the assumption that individuals prefer only what they believe is good for or benefits them. This assumption is plainly mistaken.

Economists use the term "economic benefit" or "economic value" to serve simply as a proxy or stand-in for WTP; these concepts in their view are logical equivalents. One economist asserts, "Total willingness to pay is the concept we shall use to define total benefits."20 Another economist has written, "Economic value is measured in terms of willingness to pay."21 An authoritative text states "Benefits are the sums of the maximum amounts that people would be willing to pay to gain outcomes that they view as desirable."22 The price set by a competitive market does not represent the maximum amount a given individual would pay for a good if she had to; thus market price does not equal the "value" or "benefit" of the good to the individual in that sense. The market price represents the minimum amount a person has to pay for the good no matter how much the person may want or benefit from it. In their zeal to measure maximum WTP, welfare economists seek to know the value of everything but the price of nothing.

The sentence, "Something's economic benefit is determined by how much people are willing to pay for it," states a tautology. When you replace "economic benefit" with its logical equivalent "WTP," the sentence states that the amount people are willing to pay for something is determined by the amount they are willing to pay for it. This tautology offers the only justification welfare economists offer for taking WTP as a criterion of value. How does this tautology - this stipulated equivalence between "WTP" and "value" - make preference normative or inform environmental policy? In an earlier chapter, I quoted Bertrand Russell, who characterized the method of postulation as offering a single advantage - the advantage of theft over honest toil. To posit that WTP is equivalent to value is to assume what has to be shown. Why should society accept the postulated equivalence of WTP and value? Why should it care about WTP or the conception of economic value it enshrines?


Environmental economists often suppose that the ethical theory of utilitarianism provides some intellectual comfort to their position.23 Eban S. Goodstein states that the "human-centered (or anthropocentric) moral foundation underlying economic analysis is known as utilitarianism."24 In an earlier chapter, I noted that a Kantian position, such as this book advocates, is also human centered or "anthropocentric" in assuming that human beings assign all the values. Kantians agree with Utilitarians on the truism that only values held by persons count. They disagree about whether the morality of an action has to do with (1) a principle or judgment that commands the action in the given circumstances or (2) a quantity (e.g., "utility") associated with the consequences of that action. A Kantian asserts that society must rely on deliberative social processes to find its conscience on matters of social policy.25 The Kantian approach accepts the idea that people assign all the values, but it does not make the assumption that WTP is a relevant measure or criterion for social valuation.

If the preference-utilitarianism of contemporary welfare economics has any basis in the moral theory of Utilitarianism it must meet two conditions. First, it has to judge actions, choices, or policies according to their consequences. Second, it must use an empirical conception of the good, such as happiness, to evaluate policies in relation to those consequences. The preference-utilitarianism associated with contemporary welfare economics fails on both these criteria. This kind of "utilitarianism" is not a consequentialist theory. This approach allocates resources to those willing beforehand to pay the most for them. There seems to be no concern with, or even reference to, the actual consequences of that allocation. Wefare economics cannot be a consequentialist theory because it measures welfare or utility in terms of the expectations that lead to actions ("expected" utility), not the consequences ("actual" utility) that result from them.

According to Goodstein, economists assume that "the consumption of goods brings happiness."26 Social science research consistently shows that after basic needs are met, income (taken as a surrogate for WTP) does not correlate with happiness.27 If one takes income as a surrogate for preference-satisfaction, and if one takes "utility" to mean anything like "happiness," the relation of preference-satisfaction to utility is weak or nonexistent after basic needs are met. "As Western societies have got richer," economist Richard Layard tells us, "their people have become no happier."28 According to Alois Stutzer and Bruno Frey, "differences in income only explain a low proportion of the differences in happiness among persons."29 According to Richard Posner, "the most important thing to bear in mind about the concept of value [in the economist's sense] is that it is based on what people are willing to pay for something rather than the happiness they would derive from having it."30 Robert Lane, a political scientist, has written, "If 'utility' has anything to do with happiness, above the poverty line the long-term marginal utility of money is almost zero."31 An empirical relation between WTP and subjective well-being is not observed.

Someone might suppose that when preferences are satisfied (in the sense of "met" or "fulfilled"), individuals become satisfied (in the sense of "happy" or "content"). Social scientists have often observed, on the contrary, that "acts of consumption... which are undertaken because they are expected to yield satisfaction also yield disappointment and dissatisfaction."32 It is hard to say what happiness is, how it should be measured, or under what circumstances it is appropriate to its cause.33 Fred Hirsch offers the following partial explanation. He argues that consumers, after their basic needs are met, tend to want "status" or "positional" goods.34 Plainly, the satisfaction of these "status" preferences cannot be maximized, any more than one can maximize the number of people who are first in line or win a race.35 Hirsch concludes that the satisfaction we take in consumer goods depends more on their scarcity than on their abundance. This is the reason, he says, that "economic advance [has] become and remained so compelling a goal to all of us as individuals, even though it yields disappointing fruits when most, if not all of us, achieve it."36

Mary Douglas has observed that as societies rise above the poverty level, goods are valued more for their social or cultural meaning than for their use; this meaning, moreover, is largely determined by their distribution.37 Thus, as goods are more widely distributed, they may lose both their meaning and their value. When everyone stands on tiptoe, as Hirsch put the idea, no one sees any better.38 These observations suggest that the "greatest happiness" principle of classical utilitarian theory and the WTP criterion of contemporary welfare theory have a tenuous connection at best. To think otherwise is merely to confuse the satisfaction of preference, which policy analysts propose, with the utilitarian preference for satisfaction.

It is not clear people even want their preferences satisfied. Recognizing that it is "better to be Socrates dissatisfied than a fool satisfied,"39 a person may reflect on and then strive to improve his or her tastes. The improvement or education of taste - rather than the satisfaction of whatever desires a person has - may be a goal of public policy that can be justified on utilitarian grounds. "The chief thing which the common sense individual actually wants," Frank Knight observes, "is not satisfaction of the wants he has, but more, and better wants____True achievement is the refinement and elevation of the plane of desire, the refinement of taste."40

It cannot be argued that the satisfaction of preferences is a good thing in itself - that preference is intrinsically normative - for many preferences are sadistic, envious, racist, or unjust. Preferences may also be coerced or adapt to coercive circumstances; these express not the autonomous choice of the individual but a process that preempts autonomy. Many preferences - for example, some that are endogenous to consumption, like the urge for a cigarette - are despised by the very people who have them. Why should we regard the satisfaction of preferences that are addictive, boorish, criminal, deceived, external to the individual, fetishistic, grotesque, harmful, ignorant, jealous,... wanton, xenophobic, yucky, or zany to be a good thing in itself?

To this, the welfare economist could reply that he or she has no basis for judging between better and worse preferences.41 Three economists ask, "Who is to decide what objectives are 'meritorious' and how are they to do it?"42 This question ignores 3,000 years of political theory - for example, the idea that democratic political processes sort out the better from the worse by responding at least over the long run to evidence and argument. Economists may emphasize their "neutrality" because they believe (as do therapists in the tradition of Rogers I described in an earlier chapter) that it empowers them. As Deidre McCloskey comments, the science of economics "promises knowledge free from doubt, free from metaphysics, morals and personal conviction. What it is able to deliver renames as scientific methodology... the economic scientist's metaphysics, morals and personal convictions."43

Was this article helpful?

0 0

Post a comment