The Free Thinker

Health Care as a Merit Good

By the way, it might be worth commenting on the idea that health care is a merit good.  As with any positive right, if we concede that a person has a right to health care, i.e., that they just ought to get the treatment they need to stay alive whether they can afford it or not, a corollary of that probably must be a right to coerce others to give up their property for ends which to which they would not rationally consent.  This is ethically problematic.  Still, the idea that it's just wrong for "society" (whatever that means) just to let a person whom medicine could save die because the person can't pay for the life-saving treatment does seem to have a certain force.  If that were the question we're faced with, I would be ambivalent.  I would have at least some qualms about rejecting the idea.

But that's not the question we're faced with.  For if health care is a merit good, i.e., if people just should get it, that moral imperative presumably applies to all mankind.  Not only Americans and West Europeans but Indians and Chinese and sub-Saharan Africans just should get the treatment they need.  But it's clearly infeasible for us to guarantee a level of health care to all of humanity that is even close to that enjoyed by middle-class Americans.  So treating health care as a merit good is not an option (unless we subscribe de facto to a wicked belief that Americans are some kind of superior race).  The real conclusion of this argument is that there is a moral imperative to shrink government and open up trade and do everything we possibly can to achieve maximum growth in the world economy, so that in some not-too-distant future there will be enough resources that everyone's basic needs can be satisfied.  Above all, we must open the borders, by far the most beneficent economic policy within the realm of possibility, compared to which the moral importance of all other economic policies put together is negligible.  In the meantime, the more ruthlessly utilitarian we are in health care policy, the better.  A person's life should be saved by medical processes if and only if the present value of the person's labor services over their remaining lifetime, net of the present value of their consumption needs, as attainable by medical procedures is greater than the present value of the costs of treatment.  This should be the goal of policy as well as personal ethics (that is, if one can only be saved at exorbitant cost, one should go quietly and save African orphans with the money you save).

What is Deflation?

"US homes lose $2 trillion in value in '08"

American homeowners will collectively lose more than $2 trillion in home value by the end of 2008, according to a report released Monday.

The real estate Web site Zillow.com calculated that home values have dropped 8.4% year-over-year during the first three quarters of 2008, compared with the same period of 2007.

Some 11.7 million Americans are now "underwater," owing more on their mortgage balances than their homes are worth.

Zillow collects home values and analyzes home price trends in 163 markets; all but 30 registered price drops over the nine months ended Sept. 30, compared with the same nine-month period of 2007.

"This year marked the acceleration of the market correction, and is likely to end with the eighth consecutive quarter of declines in home values," said Stan Humphries, Zillow's vice president of data and analytics. "Homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values."

Question: Is this deflation?  You'd think so, but because government statistics define inflation as a change in the Consumer Price index, officially, it's not.  What I think is becoming clear is, whatever harms deflation is thought to cause (there is less consensus here than you might think, but plenty of stories), falling home prices surely cause them.  So we need to update our deflation measures and mandate the Fed to act against sharply falling-- or rising-- home values.

Economics, Theology, and the Is/Ought Distinction

I thought of another parallel between medieval theology and postmodern economics: each is the primary bridge between is and ought for public purposes.  The is-ought problem, famously raised by David Hume, is the problem that it is not obvious how one can get from statements about how the world is to how it ought to be.  MacIntyre discusses the is-ought problem in After Virtue:

To answer this question it is helpful to consider another type of counter-example to the 'No "ought" conclusions from "is" premises' thesis.  From such factual premises as 'This watch is grossly inaccurate and irregular in time-keeping' and 'This watch is too heavy to carry about comfortably', the evaluative conclusion validly follows that 'This is a bad watch.'  From such factual premises as 'He gets a better yield for this crop per acre than any farmer in the district', 'He has the most effective programme of soil renewal yet known' and 'His dairy herd wins all the first prizes at the agricultural shows', the evaluative conclusion follows that 'He is a good farmer.'

Both of these arguments are valid because of the special character of the concepts of a watch and of a farmer. Such concepts are functional concepts, that is to say, we define both 'watch' and 'farmer' in terms of the purpose or function which a watch or a farmer are characteristically expected to serve.  It follows that the concept of a watch cannot be defined independently of the concept of a good watch nor the concept of a farmer from that of a good farmer... (After Virtue, p. 58)

As far as I understand, this is MacIntyre's answer to the is-ought problem; if we then regard man as a functional concept, then a concept of a good man and a morality may follow from that, hence the importance, for MacIntyre, of the Aristotelian concept of telos.  But what is man's function?  In After Virtue he arrives at this rather unsatisfying conclusion: "the good life for man is to be spent in seeking the good life for man..." (p. 219)  The agnostic circularity, the feeble and Sisyphean quality of this conclusion, presumably would not afflict the medievals, who would, I suppose, say that the good life for man is to be spent in glorifying God, but that still seems a funny starting-place for morality, since right and wrong are obvious facts of life to everybody-- as C.S. Lewis observes, we constantly exhibit them in our habit of quarreling, which is never mere "fighting like animals" but always involves claims of right-- while the ideas of God, of praising God, and of why praising God is normative or desirable, are far more difficult, and I suspect very hard to appreciate for anyone who has not engaged in a good deal of moral effort already.

Anyway, theology was the medieval discipline which, par excellence, connected grand comprehensive theories about what the world is like-- "is"-- to prescriptive notions of how man ought to live-- "ought."  Economics does the same today: it develops "positive" law-like generalizations concerning human interaction (supply and demand) and derives "normative" conclusions about human welfare (e.g., Pareto-optimality, Kaldor-Hicks-improvement).  Welfare economics is not the only discipline to do so, of course, but it is the only one whose conclusions command general assent.  People differ on whether the rise of rock-n-roll, the decline or revival of churchgoing, the movement of women into the workplace, or even democracy is good or bad, but no one wants GDP to fall, because a higher GDP, roughly speaking, means that people can get more of whatever it is they want, at least in material/money-exchangeable terms, and probably no less of intangible/non-purchasable things they value.

Economics is, in a way, much more agnostic than theology.  It doesn't answer the question of the good life for man: it delegates it back to the individual.  Yet it still provides a source of real morality, even if economists aren't especially comfortable with the idea.  Hardly anyone would claim-- certainly it would be odd for a Christian to claim-- that helping people satisfy their own desires-- "doing unto others as they would have you do unto them," so to speak-- is irrelevant to morality.  If we can devise systems that do this, that may not be the good, but surely it's a good.  In a globalized world where consensus on religious grounds is not available, it's worthwhile to have some common standard to judge by.

Basic Theory of Altruism

Models in economics typically assume that the individuals who inhabit them are what is called homo economicus or "rational agents," agents that are perfectly rational-- they calculate perfectly and make no mistakes as they seek their ends-- and perfectly selfish-- the "utility" which they seek to maximize (the utility maximization assumption is itself probably innocuously tautological since "utility" is just whatever it is agents want) is assumed not to incorporate the welfare of any other individual as an objective except instrumentally.  Reversing Kant, other agents are regarded as means, not ends.  They may be described as amoral.

Is this assumption realistic, and if not, what is the alternative?  Economic experimentalists and empirical behavioralists recognize the many ways in which the rational agent assumption fails in practice, but sometimes remain reluctant to admit, if not the existence, at least the prevalence of "other-regarding behavior."  Why I think this debate is conducted in a biased fashion may be illuminated by the following theoretical exercise.

First, assume that individuals have a primary utility function, u=f(c), where c is own consumption.

Next, introduce a secondary utility function, which incorporates other-regarding behavior.  For simplicity let this be a linear function of all the primary utilities.  Thus: V(i)=u(i)+au(1)+bu(2)+...+zu(n), where u(1), u(2), ... , u(n) are the primary utilities of agents 1...n (not including i), and a, b, ... z are "altruism coefficients."  Let the secondary utility function be what agents actually seek to maximize.

Utilitarian assumptions and heuristic ethics

As any long-suffering readers of my (Nato's) commentary on ethical philosophy may have noted, I typically assume that all moral justification is ultimately utilitarian, and I'm pretty sure that I've made a number of promises of further apology which I've yet to fulfill.  This isn't exactly a full elaboration of my position, but I hope it sketches out how I see the relationship between utilitarianism, Kantian rules (and their cousins), and heuristic ethical deliberation.

First, an analogy.  I think Bentham and Mills are to a sound, heuristically-based ethical framework as Democritus and Epicurus are to chemistry: promising antecedents who had sort of the right idea but didn't begin to imagine how complex the truth was.  While I'm not claiming our pre-enlightenment ethical intuitions were nearly as backwards relative to the most sophisticated of modern ethical thought as the pre-Enlightenment physical sciences were to modern physics, there's a similar sense in which Bentham and Mills didn't quite appreciate the gulf between their easy set-pieces in which their naive Utilitarianism worked, and the real world people faced.  They seemed to think that knowledge of the likely outcome of any action would eventually be widespread, with ethical philosopher-scientists to arbitrate the exceptions.  The fact that the world isn't and never will be that simple is not a complicating detail, but rather a fundamental element that one must bake into any "system" of ethical philosophy.  If one must approach omniscience for ethics to work, it's clearly not applicable for humans.

Kant's rule-based system has the problems on the other foot. How do we know what rules to choose?

Dani Rodrik, Half-Hearted Free-Trader

My old prof Dani Rodrik answers the question "What would a progressive trade agenda look like?"  Hat tip: Tyler Cowen, who offers his own comments.  Rodrik has been a prominent globalization skeptic among economists, but he endorses globalization here, it's good to see.  (To his commenters' chagrin: I'm glad that I have my regular commenters and not his! Rodrik's commenters seem determined to disprove his insistent claim that "progressives are not today's Luddites.")  But I don't think this can be justified:

It would get real with the domestic social agenda. That means two things: more and better social insurance (safety nets) and more and better compensation. Progressives need to communicate that social insurance is the flip side of the open economy, that redistribution is logically the flip side of the gains from trade. The gains from trade do not become real unless and until there is compensation. (my emphasis)

What does Rodrik mean by the last sentence?  I think the implicit argument is that trade is not Pareto-improving unless you tax the winners to compensate the losers.  And given the theoretical problems with comparing interpersonal utility, there is a theoretical case for being agnostic about the gains from trade unless it is accompanied by redistribution.  Even if this is valid, and even if we put to one side the question of whether social insurance or other policies can actually compensate the losers and make trade Pareto-improving, I think Rodrik's formulation is misleading.  The gains from trade, in the sense of an increase in net utility, may be and probably are real even without compensation; they are just a little uncertain.

In any case, there already is "compensation," even in the US which is presumably the target of Rodrik's implied criticism: the Trade Adjustment Assistance program, which, according to Wikipedia, "provides a variety of reemployment services and benefits to workers who have lost their jobs or suffered a reduction of hours and wages as a result of increased imports or shifts in production outside the United States."  Rodrik seems to want something different: a general social insurance program, perhaps on the ground that using a band-aid approach to compensating people for the economic changes associated with globalization will never be adequate.  But this begs at least two questions.  First, is it morally acceptable to coercively expropriate the private property of affluent Americans or whoever else gets caught in the IRS's nets, in order to give handouts, and particularly to give handouts to American-born persons who, even if they are poor relative to other Americans, are themselves affluent by international standards, so that if affluent Americans chose to give of their substance to the needy, there are billions in this world who are more appropriate objects of their charity?  Second, do social insurance programs actually help their intended beneficiaries?  My interpretation of America's three-decade-long experience with the Great Society is that attempts to provide social safety nets do not help the poor but distort incentives, undermine moral traditions, and destroy social capital, creating new and more insidious poverty traps.  Contemporary Europe illustrates the rule in a different way: social insurance has undermined the incentive to work, and, even more fatally, the incentive for entrepreneurship and risk-taking, creating economic stagnation.  The worst victims of this are society's least fortunate, who are trapped in permanent unemployment, but everyone suffers from lower living standards and fewer opportunities.

Second, we need to elevate the role of democracy and human rights in the trade regime, not by micro-managing rules on labor and environmental standards, but by establishing some bright lines and broad principles.

It's good to see that self-styled progressives haven't totally ceded the advocacy of democracy and human rights to the Bush camp.  The trouble with this is that when you use trade as a tool for promoting democracy, you may end up punishing the victims, as tragically occurred in the years before the liberation of Iraq, when the Clinton administration condemned thousands, maybe hundreds of thousands, of children to death as it tried to strangle Saddam's regime through sanctions.

Rodrik calls for us to "chip away at the artificial distinction between the mobility of goods and capital, on the one hand, and the mobility of labor"-- his italics.  Bravo!  Cowen replies that "Boosting safety nets and boosting immigration are not in every way congruent."  But if we adopted the policies I argue for in my article "Don't Restrict Immigration, Tax It," then social safety nets for the native-born can indeed be perfectly congruent with greatly increased immigration.  One obstacle to this rational and beneficent approach is the pseudo-moral argumentation that is typically used to justify the welfare state-- pseudo-moral because there is nothing moral about handouts that simply reinforce locational birth-privileges.  To attack that pseudo-moral argumentation would be a better employment for one who wishes to make globalization "progressive not just for “us,” but also for the rest of the world—in particular for developing countries" than a tired insistence on more compensation in an effort to make trade Pareto-optimal which is probably, in the final analysis, in large part meaningless and irrelevant.

Are People Too Risk-Averse?

The attraction of the secure job is frustrating for those of us who value economic dynamism. Why can't people just accept there being a certain risk of losing any given job in return for a wider range of opportunities in the economy as a whole? Are people too risk-averse?

Economists would typically reject that idea on methodological grounds. Risk-aversion is a property of people's preferences, and preferences are taken to be exogenous. To say that people are mistaken about their preferences is meaningless. Yet people do seem to lack knowledge of situations that they are not in. Your average working stiff doesn't know what it would be like to be unemployed, or to be a millionaire. One can't deny that there might be a difference between what people think being unemployed, or a millionaire, would be like, and what it would really be like.

Suppose that if Joe were to experience unemployment, working-stiffhood, and millionairehood, he would judge that U(unemployed)=5, U(working stiff)=10, and U(millionaire)=50. But, not having experienced the two extreme options, he guesses that U(unemployed)= -5 and U(millionaire)=20. In that case, it seems to be meaningful to say that Joe is too risk-averse, even if it would be hard to prove that this is in fact the case.

Property Rights in China and Russia

Brothers Judd links to a story in The Economist about property rights in China:

Living up to one's name poses something of a problem for the Chinese Communist Party, which dictates the laws the NPC will pass, and whose name in Chinese literally means “the public-property party”.

To such a party it must be an ideological embarrassment that China has such a large and flourishing private sector, accounting for some two-thirds of GDP. So one law due to receive the NPC's rubber stamp this month, giving individuals the same legal protection for their property as the state, has proved unusually contentious. It was to be passed a year ago, but was delayed after howls of protest from leftists, who see it as among the final of many sell-outs of the ideas of Marx, Lenin and Mao Zedong, to which the party pretends fealty.

The party's decision to enact the law in spite of that resistance is a great symbolic victory for economic reform and the rule of law. Clearer, enforceable property rights are essential if China's fantastic 30-year boom is to continue and if the tensions it has generated are to be managed without widespread violence. Every month sees thousands of protests across China by poor farmers outraged at the expropriation of their land for piffling or no compensation...

While working for the Cato Institute a couple of years ago, one of the things that fascinated me was, that while the institution as a whole adores property rights, free-market economists and libertarian lawyers have very different views of what they are. 

To free-market economists, property rights are rooted in the Coase theorem and Pareto-optimality.  If that jargon is unfamiliar to you, Pareto-optimality is a situation where no one can be made better off without someone being else made worse off.  The idea is that, under conditions of perfect competition and no externalities, the free market will, with no need for government intervention, tend towards Pareto-optimal outcomes, since people will trade with each other until there are no more mutual-welfare-improving trades left.  But for this beneficent process to take place, there need to be secure property rights, since I can't trade what I don't clearly have.  The Coase theorem extends the property rights method of welfare optimization to areas where there are externalities, e.g., if my loud music, or my pollution, irritates you, we should assign property rights to one party or the other-- I have the right to play loud music, or you have the right to peace and quiet; I have the right to pollute, or you have the right to clean air-- and then let the two of us arrange payment.  This doesn't always work in practice, but it provides a theoretical basis for extending property rights to everything under the sun, and producing limitless Pareto-optimizing free-market solutions.

The key point here is that economists don't really care where property rights come from.  Let the initial distribution be as unequal as you please; economists qua economists have no justice yardstick against which to measure it, and utility theory doesn't allow for objective inter-personal utility comparisons, so in a sense we cannot even be sure that the distribution is really unequal.  Just get the property rights firmly established, and economic growth will lift all boats eventually.

Libertarian lawyers, on the other hand, root their view of property rights in Locke's belief that we gain property rights over something, in the first place, by "mixing our labor with it."  Then, having acquired things, we can give or exchange what we have for what others have.  One senses that for libertarian lawyers, property rights are, somehow, metaphysically real.  This idea of property rights is rooted with justice and motivates continuing concerns for justice.

The irony, almost beautiful yet very paradoxical and strange, is that the Coasean and the Lockean notions of property rights are at once incompatible and symbiotic.

Sense and Sublimity

Certain aspects of the physical world are the media by which we perceive the physical world: light, sound, fragrance, taste, and texture, the way things feel to touch.  They are in this sense different from the other things in our world: other things we perceive through them, but them we perceive directly.  When we are in a practical mode, we pay no attention at all to them in themselves.  Light is a means to perceive the page or the road; sound, to understand the voice, the words, the information it is conveying.  Light and sound are the messengers, they are the angelos, to use the Greek world; angels.

Education: Enhancement of Hedonic Capacities

Greg Mankiw:

Here you can buy 10 economics lectures for $1.60 per lecture.

By contrast, Harvard tuition is about $30K (not counting room and board). Assuming 4 courses each of the two 12-week semesters and 3 class hours a week in each course, one finds that each hour class at Harvard costs about $100--roughly the same price as a good ticket to a Broadway show.

I suppose there is something special about live performances.

(Thanks to Arnold Kling for the link.)  This reminds me of a comment I made on EconLog a while back that I thought deserved cross-posting, where I reflected on the purposes education: