Is Everybody Happy?
Here's the least controversial principle in all
statecraft: Never pass up an opportunity to make everyone happier at the same
time. Admittedly, opportunities like that are vanishingly rare--almost anything
you propose is likely to make someone unhappy--so the principle is as
useless in practice as it is compelling in theory. But if you want to talk
about the difference between good and bad policy, it helps to have an
uncontroversial starting point.
This particular starting
point has proved useful enough to earn a proper name. Economists call it the
Pareto Principle, in honor of the 19 th -century economist Vilfredo
Pareto. The party line among economists is that although we disagree about a
myriad of issues, at least we're all good Paretians: If you can think of a way
to make everyone happier, we're behind you all the way.
How disturbing, then, to realize that the Pareto Principle
conflicts with another value that some of us hold at least equally dear--the
right of individuals to make free choices. Here's a stylized example: Suppose
some people (call them the "prudes") cherish their freedom of religion, but not
half so much as they would cherish a general ban on pornography. Others (call
them the "lewds") cherish their right to read Lady Chatterley's Lover
but not half so much as they would cherish a general ban on religion. Then if
you outlawed both pornography and religion, you'd make everyone happier,
while simultaneously making everyone less free.
The Pareto Principle
demands that we embrace such a law while the fundamental precepts of liberalism
demand that we recoil from it. As Nobel laureate Amartya Sen pointed out 30
years ago, there's no such thing as a Paretian liberal. When some people get
pleasure from controlling other people, the Paretians and the liberals must
part ways.
That's no problem in practice, because in practice there
will always be liberals who are offended by book-banning--and the very
existence of those liberals leads the Paretian to withdraw his endorsement of
the ban. (Remember, the Pareto Principle endorses only changes that make
everyone happier, including the liberals.) But in practice, nobody is
guided solely by the Pareto Principle anyway. Instead, we're guided by more
flexible criteria such as the cost-benefit principle: A policy is good when its
benefits exceed its costs, with benefits (or costs) measured by what the
proponents (or opponents) would be willing to pay to see the policy enacted (or
defeated).
Under quite general circumstances, it can be proved
(though not in the space of a single magazine column) that free markets yield
exactly those outcomes the cost-benefit principle recommends. That makes it
easy to reconcile a taste for economic welfare with a taste for individual
liberty: Usually, markets deliver both at once.
Usually, but not always. With just a slight
modification, the paradox of the Paretian liberal reasserts itself in the
cost-benefit context. Suppose I'm willing to pay $20 to read the subversive
works of Paul Krugman and you're willing to pay $40 to stop me. A strict
cost-benefit analysis suggests that Krugman's writing should be banned.
(There's no need for a
ban if you can locate me and offer me, say, $30 to change my reading
habits--and if you can be assured that I won't just take the money and run. But
let's suppose the impracticality of such arrangements leaves book-banning as
the only realistic alternative.)
That's a conclusion we liberals find repugnant, and it
would be nice to avoid it. One way out is simply to declare that "psychic costs
don't count." If you don't like getting your nose punched, your aversion goes
into the cost-benefit calculus and inspires us to write laws that discourage
nose-punching. But if you don't like knowing I read Krugman, that's your own
problem.
Appealing as that
position might sound, it's also suspiciously incoherent. If my habit of reading
Krugman and my habit of punching your nose are equally painful to you, why
should public policy discourage one and not the other?
One answer is that psychic costs shouldn't count because
they're too easy to exaggerate. Anyone can claim to have suffered $1 million
worth of emotional distress, but we have no way of knowing which claims are
simply fabricated. Amazingly, though, this seemingly insurmountable problem can
be surmounted. A sufficiently clever system of taxes and subsidies can induce
people to make accurate reports of their own emotional distress. (I look
forward to explaining how such systems work in a forthcoming column.)
The second argument against counting psychic harm
is that once you start counting it, people train themselves to start feeling
it. That one, I suspect, is harder to refute.
The mirror image of a
psychic cost is a psychic benefit. The New York Times reports that
economists with the Army Corps of Engineers, charged with executing a
cost-benefit analysis of un-damming the Snake River in eastern Washington, plan
to factor in something they call "existence value"--the value of the psychic
benefit people get from knowing the river is running wild.
In principle, existence value makes perfect sense. If your
Aunt Agnes just can't stand the idea of people damming the Snake River, her
anguish is a real cost of maintaining the dam. Of course, it's also true that
if your Aunt Agnes just can't stand the idea of people reading the New York
Times , her anguish is a real cost of allowing freedom of the press. If
we're intellectually consistent, we'll cater either to both those preferences
or to neither.
Not that everyone values intellectual consistency.
Professor Tom Stevens of the University of Massachusetts is identified in the
Times as an environmentalist who is skeptical of the concept of
existence value. The source of his skepticism: "What if you add up all these
numbers and they don't come out in our favor?" So much for statecraft as a
dispassionate attempt to balance competing interests. If the goal is simply to
make the numbers come out the way you want them to, you're not a policy
analyst; you're just a bully.
