Bonus Quotation of the Day…

by Don Boudreaux on June 8, 2017

in Economics, Myths and Fallacies, Science

… is from page 298 of the late Paul Heyne‘s 1995 article “Economics Is a Way of Thinking,” as it is reprinted in the superb 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.):

The economizing process is so central to the economic way of thinking that many economists have mistakenly concluded that there is nothing more to it.  They seem to suppose that interactions among diverse individuals can also be analyzed and understood as an economizing process, in disregard of the fact that economizing presupposes a unified point of view, which implies a single person in command.  If the core problem for economic actions is scarcity, the core problem for economic interactions is a multiplicity of diverse and incommensurable projects.  The solution to the scarcity problem is economizing; the solution to the problem of diverse projects is coordination.

DBx: For this reason alone cost-benefit analysis of economic policy is not as straightforward an exercise as many people suppose it to be.  It’s one thing for me to perform an analysis of the costs and benefits that I’m likely to experience if take one course of action rather than an alternative course of action – if, for example, I buy this house rather than rent that house, or if I ask this woman to marry me rather than remain single or ask a different woman to marry me.  As practically difficult as such personal exercises are, they are much simpler than analyses of the costs and benefits of alternative government policies.  For each individual, at any moment in time, there is an ordering of preferences – an ordering more or less ‘knowable’ by that individual.  Also, that individual has some idea not only of the order of her preferences but also a sense of the intensities of her preferences.

But contrary to much lazy thought, a group of two or more people has no single set of preferences that can be used as a guide to determine how much weight should be attached to this potential beneficial state of affairs or consequence and to that potential harmful state of affairs or consequence.  Indeed, states of affairs or consequences that for some individuals are benefits are for other individuals costs.  (Sally might love knowing that she has the freedom to buy and to drink alcoholic beverages while Steve truly fears that this freedom will tempt him into ruinous alcoholism.)  Because there is no “social welfare function” – and because it is impossible to read other people’s minds accurately enough to gain a detailed knowledge of each individual’s unique preference orderings and preference intensities – there is no cost-benefit analysis of government policies that reveals what policies (and policy details) are objectively or ‘scientifically’ best (or even which policies are better than many other plausible policies).  Such scientific, purely objective analyses just cannot be done.  They are scientifically, objectively impossible.


Add a Comment    Share Share    Print    Email

Previous post:

Next post: