Why Maximize Utility?

The technical definition of economics has nothing to do with money. Textbooks often define it as the study of the best allocation of scarce resources. Mainstream economists interpret this to mean Utilitarianism, or to maximize the happiness and pleasure (utility) brought about by those resources. Classical, Neoclassical, and monetarist schools promulgate the use of the free market to maximize utility. Keynesian economists of all stripes believe that the government should occasionally force demand upwards and play a stabilizing role for the same purpose. In either case, the goal is the same.

I don’t particularly understand why.

“Best” does not necessarily mean, “most, at whatever cost occurs elsewhere”. I am not proselytizing for the welfare state or environmental regulation; economists spend plenty of time forcing those questions into their analyzes (by applying the law of diminishing returns to an individual’s wealth or by citing externalities). If we assume that the market is efficient and fair in every way, is it always acceptable and desirable to take political actions that will increase the average utility of individuals withing society?

Steven Levitt, of Freakonomics fame, uses blatant weasel words to suggest,

Morality, it could be argued, represents the way that people would like the world to work- whereas economics represents how it actually does work.

A similar sentiment I have seen elsewhere, and to avoid misquoting I will paraphrase no one in particular.

Economists are best off figuring out the what, while political scientists figure out the how.

This line of thinking leaves no room for philosophy, morality, or theology to enter the conversation. Such humanities are unscientific and fanciful and thusly excluded from eating at the big kids’ table. The numbers and statistics cited by economists are a self-congratulatory exercise in hubris. Levitt immediately continues,

Economics is above all a science of measurement. It comprises an extraordinarily powerful set of tools that can reliably assess a thicket of information to determine the effect of any one factor, or even the whole effect. That’s what “the economy” is, after all: a thicket of information about jobs and real estate and investment.

“A thicket of information” is an understatement. “[A] science of measurement” is a lie. The world is a dynamic concatenation of nebulous human factors. Utility focused economists using naive, Gaussian statistics believe they are clever scientists empirically shaking shaking figs from the fruit of knowledge, while in truth they are grabbing hold of the leg of an elephant. That is not to say there is no use whatsoever in understanding the intuition, and to a certain extent, the numerics, behind incentives and other economic forces, but to put them on the same pedestal as science is absurd. It is also blind, ignorant, and dangerous.

Consider eugenics. Let us say they were right at the turn of the 20th century and that some humans are of better “stock”, and by controlling who has children, we can cause our species to improve physically, mentally, and in disposition. Should we?

Let’s say that if we kill someone who isn’t doing anything wrong or in otherwise deserving, everyone’s real income on the planet increases by $10. Arguably, this will save the lives of some on the margin who may have otherwise died of starvation. Is it ok?

Let’s say that if we kill that person, and everyone’s income on the planet increases $10, except those who would die without it. It also occurs invisibly, so you cannot assume that people will independently say, “Oh my, our family’s income increased by $10. I should send it all to Africa and Southeast Asia to save those starving children”. Is it still ok?

A majority of Westerners, I’m guessing, don’t think that such naive utility-maximizing -that’s what it is, really- is good. If your mindset is so extremely skewed toward collectivism that you find it perfectly acceptable for you to be castrated or killed for the betterment of society, fine. Your viewpoint is at least consistent, if nothing else.

Most people do not believe that we should kill or maim for the sake of utility-maximizing. What about something a little more subtle?

Economist Steve E. Landsburg writes,

There’s a long history of confusion [in getting incentives right to maximize utility], going back at least to 1597 when two English farmers go into a legal scrap known as Boulston’s Case. One farmer raised corn; his next-door neighbor raised corn-fed rabbits with little respect for property lines. When the farmers ended up in court, the judges issues a ruling that was reaffirmed by subsequent courts well into the twentieth century: because the rabbit farmer didn’t actually own the rabbits (he merely dug burrows to lure them for trapping), he couldn’t be held responsible for their behavior.

By that reasoning, I can’t be held responsible when my fireworks burn down your house because I don’t actually own the sparks. But none of the courts that upheld the Boulston decision was ever consistent enough to take that position. In the eyes of the law, rabbits have always called for special reasoning.

[...]

Here’s what [lawyer-economist and Nobel laureate Ronald] Case said. First, don’t lose sight of the cause: the rabbits eat the corn because the rabbits are near the corn. Finally, don’t lost sight of the symmetry: the rabbits are near the corn to exactly the same degree that the corn is near the rabbits. Therefore both parties are equally “at fault.” Remove the rabbits and you solve the problem; remove the corn and you solve the problem just as surely.

If your goal is to solve the problem as cheaply as possible [...], it’s quite irrelevant to ask who is at fault. Instead, the right question is: who can solve this problem most cheaply? [...] To solve the problem cheaply, first figure out the cheapest solution and then give him the incentive to do it.

The implication is that all that matters is the elimination of the societal cost to the problem. Property rights are ignored completely. If you don’t care about property rights, then yes, this analysis is perfect. To Landsburg’s criticism of hypocrisy by the court, I suggest that the court failed to see the negligence involved in the rabbit farmer’s behavior, just as lighting fire to your neighbor’s home with fireworks is negligent behavior. Whether my utility involved in being allowed to shoot fireworks in my neighbor’s direction outweighs his financial loss is the issue that’s irrelevant, not the moral considerations.

Utility-centric economists miss two points. One, that centering on maximizing utility is itself a subjective value and entirely unscientific. Two, that values are only expressed by individuals making choices, not from a top-down perspective through political surrogates. Insisting that we cast aside any goal besides utility-maximization in our policies has no “scientific” basis whatsoever. Considering that we could never hope to weigh scientifically the truth of utility-maximization against other goals (effectively, to falsifiable the other options), we never will.

What are the other options? I see two.

1. Negative rights. Life, liberty, and property.

2. Values. Entitlements to food, water, shelter, health care, and education. Non-utility justified political promotion of the environment, religion, or other rationales that cannot be weighed numerically.

Political opinions become a question of where you fit utility-maximization into the plethora of possible permutations. Does utility remain king? Is it only subservient to the right of life? Where this falls is nontrivial. Moralists are not haughty, unpractical theorists who force the square peg of “the way that people would like the world to work” into “how it actually does work”. Rather, they can tell us which values to put in front of or behind utility maximization.

A more accurate and less dismissive model of how society “should” act follows.

1. Moralists, philosophers, and theologians debate WHICH values we should promote and WHY we should promote them.
2. Economists assign costs to each alternative and propose other means to achieve the desired goals (by invoking incentives, etc.)
3. Political Scientists figure out how to get us there when the state is involved.

There is nothing special and sacred about utility-maximization. The only factor that differentiates it is the ability (perhaps spuriously) to portray itself numerically. Numerics are not the same thing as objectivity or truth. How we choose to balance values, rights, and utility-maximization is squarely in the scope of arguments based in debate best expressed by prose, not numbers. I doubt that such economists would advocate eugenics and genocide in the name of utility. Where we draw the line in what to sacrifice at the mantle of the “greater common good” is not something we can figure out with a protractor and ruler alone. It requires the uncomfortable territory of reason and rationality where numerics are impossible