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What are the ethics of welfare economics? And, are welfare economists utilitarians?

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Abstract

Four questions: (1) What is welfare economics? (2) Is it an ethical system?  (3) How do welfare economists differ from one another? And (4), how do they differ from other economic ethicists? Then utilitarianism is discussed. I was taught, and have inferred to others, that welfare economists are utilitarians. They are not. Welfare economics is an atypical form of welfare consequentialism: consequentialist in that whether an act or policy is right or wrong is a function of only its consequences—the adjective “welfare” because the only consequences that matter are the welfare (well-faring) consequences. Most welfare consequentialists are neither welfare economists nor utilitarians. And, most moral philosophers are not welfare consequentialists—neither are most normal folk.

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Notes

  1. Adam Smith was a virtue ethicist (McCloskey 2008) who suggested two guides for behavior: rules against really bad acts (killing, raping) and virtue for everything else (Smith 1767 and Fleischacker 2013). He thought the morality of an act depended on both the intent and the consequences, but if the intent was virtuous, the behavior is good, unless, of course, the outcome is disastrous. Virtue (“proper gratitude, kindness, courage, patience, and endurance”) results from empathy for others, our sympathy of others—our “moral sentiments”. Smith was not a welfare economist.

  2. A different, and reasonable, view is that welfare economic is not an ethical system, but that welfare-economic analysis is a valuable tool for moral philosophers because it shines a harsh light on consequences, forcing one to compare consequences. Quoting a referee, “So maybe a necessary stage of moral decision making should be the rigid consequentialist phase: just stop and consider this apart from everything else.” But, if one takes this view, one cannot distinguish right from wrong policies based on welfare economics.

  3. Since welfare economics is a subset of WC, if one rejects a tenant of WC one rejects welfare economics, but one could reject welfare economics and still be a WC.

  4. At the other extreme are processists who judge the process that caused the act (e.g. a majority vote), not the consequences of the act. For a summary of consequentialism, see Sinnott-Armstrong (2015).

  5. Note that Peter Singer, while a consequentialist, is not a welfare consequentialist. Sinnott-Armstrong (2015) identifies Broome, Feldman, and Kagan as welfare consequentialists, but some might disagree with labeling them such.

  6. For introductions to Rawls, see Wolff (2010) and Wenar (2017).

  7. It is common to lump together all economists who ask what is the right policy and call them welfare economists, but this is incorrect.

  8. As noted, economists typically use the word utility rather than WB, but it has so many connotations, so I will try to avoid the word.

  9. If one defines an ethical system solely as personal rules for living more ethically (being virtuous, having empathy, respecting authority, etc.) welfare economics is not an ethical system. Looking ahead, most welfare consequentialists embrace the possibility that you can choose to act differently than you do.

  10. For years I worked with NOAA and the U.S. Justice Department estimating the dollar damages associated with environmental injuries resulting from oil spills, mine tailing, and toxic wastes. Making me, and the many economists I worked with, prime examples of a welfare economist. Damages to non-citizens, and damages to future citizens are not included in the assessment of damages, nor are damages to other species. However, if I were valuing the damages from emissions in Paris, I would accept the dictate to only estimate damages to the French.

  11. One could be a welfare economist (an unusual one) and include everything that can feel pain, or everyone sentient.

  12. Interestingly, any policy can be made a Pareto improvement simply by banning the losers from the roles of society—and it is difficult argue that who counts, and who doesn’t, is not a moral judgement.

  13. Vilfredo Pareto (1848–1923) in his later years, frustrated with how mathematical economics theories failed in the real world, turned to sociology. He came to believe that men act non-logically “but they make believe they are acting logically.”—he could have been a twenty-first century psychologist.

  14. See Hsieh (Spring 2016) and Morey (2017a) for arguments for and against incomparability of bundles, and the incommensurability of values.

  15. Note that to correctly measure a society’s aggregate wealth one must include many things besides the present value of its GDP stream. For example, increase in pollution or a decrease in a county’s natural resource stock both affect its wealth, but neither is included in GDP.

  16. Hotelling (1938) proposed an argument for using efficiency increasing alone as a criterion for increasing social WB: if society invoked a sequence of efficiency increasing policies (ignoring who won and who lost at each step), eventually everyone would end up with more WB. The merit of this argument depends on the questionable assumption that the sequence of efficiency increasing policies has the property that each policy is random in terms of who wins and who loses (Hotelling was clear that one specific efficiency increasing policy would not necessarily increase social WB). But, even if one adopts the assumption of the randomness of who wins and losses, policy to policy, the argument also requires the assumption that the policies tend to be of the same approximate level of magnitude in terms of benefits minus costs, measured in money. For details see Hotelling (1938), Hicks (1941), Little (1950), and Scitovsky (1951).

  17. Posner (1983) argues that, while wealth and welfare are not the same thing, they are related, and that the goal of increased wealth, as compared to increased welfare, provides an ethical argument for honesty, commitment, etc., because these characteristics decrease the cost of market transactions. (A welfare consequentialist would advocate dishonesty if it would increase social WB.). Posner’s view somewhat mimics the Keynesian view that prosperity is better than depression—just because.

  18. As an aside, many welfare consequentialists argue that the most cost-effective way to increase aggregate WB is to decrease suffering, a different, and appealing, perspective.

  19. Consider whether you would choose the maximization of aggregate WB as the moral criteria under two different conditions: (1) you are an impartial spectator choosing whether a group should adopt this objective, or (2) you know you will be part of the group (so are not an impartial spectator) but do not know your specific position in the group. The second is referred to as choosing behind a veil of ignorance). David Hume (1711–1776) and Adam Smith (1723–1790) considered the impartial spectator: Rawls and Harsanyi the veil. Harsanyi (1977, 1982) argues that an individual whose objective is to maximize his expected WB would, behind the veil, choose maximizing average WB (maximizing aggregate WB). Rawls (1971), making difference assumptions, reaches a different conclusion. So, an impartial spectator might choose maximizing aggregate WB.

  20. Non-expertise is commonly stated in introductory microeconomics. For example, “Exactly how far policy makers should go in promoting equity over efficiency is a difficult question that goes the heart of the political process. As such, it is not a question economists can answer” (Krugman and Wells 2014).

  21. See Morey (2017a, Chapter 4) for a discussion and review of the different ways WB can be defined.

  22. Complicating further, there are different degrees of cardinality. See Morey (1984).

  23. If going bowling is the best option, it doesn’t matter whether the feeling is three times better than the next-best alternative or a smidgen better; either way, you go bowling. In the nineteenth century, choice theory assumed a cardinal ranking. Replacing this assuming with only an orderinal ranking was first proposed by the German economist and mathematician Andreas Voigt in 1893 (Schmidt and Weber (2008), but Voigt has been largely forgotten, and Pareto often gets the initial credit (Pareto 1909). Hicks and Allen (1934a, b) solidified the shift.

  24. Ordinal/incomparable, a main theoretical mantra of much of twentieth century choice theory, leaves welfare economists little to conclude other than Pareto improvements (deteriorations) are right (wrong). Robbins (1938) famously pointed this out. “He maintained that if economics was to have the objectivity of a science, economists may not make interpersonal comparisons and may not, in their capacity as economists, argue for or against any policy or change of policy that would make some people better and others worse off” (Scitovsky 1951). Bucking this ordinal/incompatible trend, numerous Cambridge (e.g. Pigou 1932; Kahn 1935) and some American economists (e.g. Irving Fisher and Frank Knight 1944) continued to advocate, sometimes implicitly, for comparability, arguing that most of us have a similar capacity for WB, such that similar amounts of money generate similar amounts of comparable WB. See Scitovsky for additional details on the varying views on welfare economics in the first half of the twentieth century.

  25. Getting technical, with ordinal/comparable WB, WB has no cardinal meaning from the individual perspective. One can achieve comparability across individuals with imposing cardinality by assuming the WB function can only vary across individuals up to the same increasing monotonic transformation. [WB *i is an increasing monotonic transformation of WB i , if WB * i  = φ i (WB i ) such that the derivative of φ i (WB i ) is positive. Comparability is imposed by the requirement that φ i  = φ (that it’s the same function for everyone).].

  26. Mill did not specifically discuss chickens, but rejected counting external effect of this sort, providing further provide evidence that he was neither a utilitarian nor a welfare consequentialist. Reacting to the argument that society can limit drinking simply because it decreases security and weakens and demoralizes society. Mill angrily responded that if this is harm, then we would all, wrongly, have an interest in everyone’s "moral, intellectual and physical perfection" (Reeves 2007).

  27. Welfare consequentialists tend to argue that while despicable acts could in theory increase WB, this is unlikely in practice when one takes account of those who suffer from despicable acts.

  28. An important question is who determines what rankings are immoral. And if, for example, society decides a ranking based on hate is immoral, there is the further issue of whether a ranking is, or is not, hate-based. In addition, if hate is deemed immoral, how does one determine what a hate-filled person’s WB would be if he were hatred free?

  29. Utilitarianism was developed and popularized by Bentham’s Introduction to the Principles of Morals and Legislation (1789). Put simply, humans and other animals experience only pleasure and pain which can be netted and then added across individuals (Bentham's felicity calculus). An action is moral if it increases aggregate net happiness. The first sentence of Bentham’s book says most of it,

    Nature has placed mankind under the governance of two sovereign masters: pain and pleasure. It is for them alone to determine what we ought to do, as well as to determine what we shall do.

  30. Initially Bentham did not call it utilitarianism. John Stuart Mill adopted the term after seeing it used in a novel, unaware that Bentham had earlier used the word in a letter (Reeves 2007). Mill suggests that Plato was the first utilitarian (Mill 1879). "To each his due" suggests actions should be assessed on the basis of how they affect welfare. The expression "the greatest happiness of the greatest number", while popularized by Bentham, can be traced back to the philosopher Francis Hutcheson, a founding father of the Scottish Enlightenment (Reeves 2007). One of the roots of utilitarianism is Epicurus. Bentham claimed inspiration from David Hume. When Bentham came across Hume’s discussion of morality he felt as though “scales had fallen from his eyes” (quoted by Gottlieb 2016) “It appears there was never any quality recommend as a virtue, or moral excellence, but on account of it being useful or agreeable to a man himself, or to others,” (Hume 1758). Hume differed from Bentham in that Hume was noting how people judge, not on how they should judge, and Hume did not think WB quantifiable (Gottlieb 2016).

  31. And one does not even need a backbone to experience pain. After using pain-inducing chemicals on spiders, Thomas Eisner (2003, p 253), the recently deceased “father of chemical ecology” concluded, "I have no doubt they did [experience pain]…we came to the conclusion that invertebrates perceive pain, and that their sensory basis for doing so may not be much different from our own."

  32. Bentham is contradictory on this issue: sometimes saying we are egoists, but sometimes giving us the option of acting contrary to our self-interest. In The Book of Fallacies, Bentham says, “In every human breast, rare and short-lived ebullitions, the result of some extraordinary strong stimulus or incitement excepted, self-regarding interest is predominant over social interest: each person’s own individual interest, over the interests of all other person taken together” (Bentham 1824:392–3). Except for the insert, “rare and short-lived ebullitions, the result of some extraordinary strong stimulus or incitement excepted,” (which is often omitted replaced with “…”). This sounds like an endorsement of egoism. The insert leaves the door open a bit. But, in contrast, in An Introduction to Principles of Morals and Legislation he says, “There is no case in which a private man ought not [emphasis added] to aim to produce his own happiness and of that of his fellow-creatures; … Every act that promises to be beneficial on the whole to the community (himself included) each individual ought to perform of himself; … Every act that promises to be pernicious on the whole to the community (himself included) each individual ought to abstain from;…” (Bentham 1996, Chap 17, paragraph 8). There are differing interpretations as to what Bentham meant (see, e.g. Driver (2009:9–10), Dinwiddy (2004: 137–8) and Lyons (1991).

  33. Looking ahead, to get overlap, welfare economists would have to assume that only emotional WB matters, that the emotional WB of all animals matters equally, and that WB is cardinally meaningful.

  34. In partial explanation: Mill complicated the simplicity of Benthamite utilitarianism by arguing that higher pleasures should count more than lower ones (sex, drugs, and rock’n’roll). See, Utilitarianism (Mill 1879), and Reeves (2007 biography John Stuart Mill: Victorian firebrand). The deceased Bentham likely rolled over at Mill’s notion of utilitarianism. In 1879, Mill’s book was perceived by many as the voice of utilitarianism, but Stanley Jevons (1879) argued that if one drops the assumption that all feelings fall on the same pleasure/pain univariate measure, it is no longer utilitarianism. Quoting Stanley Jevons (1879) critique of Utilitarianism,

    Nothing can be more plain, too, than that Mill himself believed he was dutifully expounding the doctrines of his father, [and] of his father’s friend, the great Bentham…His Essays purport throughout to be a defense and exposition of the Utilitarian doctrine…. but there is a wide gulf between what he intends and what he achieves… I [Jevons] make it my business therefore in this article to show that Mill was intellectually unfitted to decide what was utilitarian, and what was not.

  35. Sidgwick wrote the influential The Method of Ethics (1874) which was both a defense and explanation of utilitarianism (Driver 2014). He critically pointed out the problem of total emotional WB versus average emotional WB: suggesting that the goal should be to maximize the product of average emotional WB and population size.

  36. One argument for rule over act utilitarianism is that act utilitarianism provides no justification for moral rights or obligations—anything goes if it increases aggregate WB (Harsanyi 1977, 1982, Sec. 9). Whereas the general rules produced by rule utilitarianism provides guidelines (rights and obligations) for behavior. So, for example, rule utilitarianism might warrant the banning of slavery, while in act utilitarianism whether enslaving someone is moral or immoral is determined case by case. The other difference is that an individual undertakes an act taking as given the behavior of others, whereas a chosen rule applies to everyone, so effects the behavior of others.

  37. Singer is considered the father of the animal rights movement based on his famous book, Animal Liberation (1975, 4th ed 2009).

  38. For an introduction to Hare, see Price (2016).

  39. It is not clear whether such subtractions are possible. For example, how one would determine what a person’s ranking would be if they were neither a racist nor malicious.

  40. Self-assessed WB is often referred to as subjective WB in that it is from the perspective of the subject/individual.

  41. This assumption is akin to what economics defines as diminishing marginal utility, and something we teach as a law to students in principles of microeconomics.

  42. Everyone, of course, would account for the fact that progressive tax rates might influence your incentive to work.

  43. Bentham also advocated for the redistribution of wealth from the best off to the worst off. While Bentham did not articulate diminishing marginal utility in the full sense of the current term, he did feel that an additional dollar spent by someone well off would increase emotional WB less than if were spent by a worst off, and Bentham’s goal was to maximize aggregate emotional WB. Quoting Bentham, “the more remote from equality are the shares [of wealth] possessed by the individuals in question, in the mass of the instruments of felicity,—the less is the sum of the felicity produced by the sum of those same shares” (Bentham 1839: 271).

  44. One might argue that the aim of social-choice theory (List 2013) is to identify rules (functions) to identify what is morally preferred based on its welfare consequences. For example, there is the well-researched question of how different voting schemes (rules for decision making) succeed and fail in terms of distinguishing between right and wrong policies.

  45. One can imagine parts of choice theory surviving limited non-commensurability. For example, imagine that all the experiences associated with the consumption of market goods are commensurable, but that these experiences are not commensurable with non-market experiences such as religion or time with friends.

  46. The view, that WB is increasing in your capabilities, even if they are unrealized, is widely associated with Sen and Nussbaum (Sen 1980; Nussbaum 2006, 2011; Basu and Lopez-Calva 2011; Robeyns 2016).

  47. One could even be economic ethicist who believes that how an act influences WB is irrelevant to determining whether the action was moral or immoral. For example, the moral imperative could be fulfilling the will of God.

  48. If justice and fair treatment depends on intent, and not just consequence, it is inconsistent with WC.

  49. If you enhance your serotonin levels by taking the commonly prescribed SSRI citalopram you are even less likely to push the fat guy, particularly if you tend to be an empathetic person (Crockett et al. 2010; Crockett 2012, 2013, and Siegel and Crockett 2013). [SSRI stands for Selective Serotonin Reuptake Inhibitor.] A decision to kill one to save five can be made using the executive-functioning part of your brain, thinking through the consequences, and then choosing the best outcome, which is kill one to save five. Or, it can be driven by your moral empathic inclination to not harm an innocent person— “I cannot kill someone.” How much your choice is based on moral inclination versus consequence depends on the type of person you are, the amount of time you have to decide, your emotional state, and the emotional salience of the situation—Greene et al. (2001, 2004) found, using fMRI imaging, that when the moral decision is more up-close-and-personal, there is more activation in the emotional-processing centers of your brain (e.g. the amygdala and posterior cingulate gyrus), so more conflict between emotion and reasoning. The more emotionally salient the situation (pushing the fat guy is more personal and emotional than flicking a switch), the more likely your decision is based on the moral imperative to not harm, decreasing the probability you will kill the one to save the five. Serotonin is thought to strengthen your natural aversion to doing harm.

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  1. Department of Economic, University of Colorado, Boulder, CO, 80309-0256, USA

    Edward R. Morey

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Correspondence to Edward R. Morey.

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Two excellent reviewers forced me to think critically and in new ways, and to produce a better product. Thank you. Any remaining errors of logic or scholarship reflect my deficiencies. The subject is like peeling a Sisyphean artichoke: below every layer is another, and with disagreement at every level. “The struggle itself …is enough to fill a man’s heart. One must imagine Sisyphus happy” (Camus 1942, translation 1955).

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Morey, E.R. What are the ethics of welfare economics? And, are welfare economists utilitarians?. Int Rev Econ 65, 201–230 (2018). https://doi.org/10.1007/s12232-018-0294-y

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