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Quotation of the Day…

… is from page 3 of the typescript of University of Arizona philosophy doctoral candidate Alexander Schaefer’s paper “Coping with Complexity: A Theory of Hayekian Interventionism”* (footnote deleted):

When economic decisions are to be made by a central body, then it is this body, rather than individuals, that must determine the relative importance of diverse and incompatible ends. This, Hayek argues, entails a rejection of freedom and an affirmation of unequal partiality.

DBx: Cost-benefit analysis is fine. After all, who in his or her right mind does not wish to avoid actions the costs of which exceed their benefits? But one must avoid laziness in calling for the use of cost-benefit analysis. Carrying out such an analysis in a manner that yields a correct conclusion is much easier said than done.

First, costs are much more difficult than is commonly assumed both to measure and to aggregate across individuals. This fact is so because costs are experienced only by individuals, and then experienced only subjectively and with unavoidable speculation by each individual. (The cost to Jones of action A is the subjectively felt satisfaction that Jones anticipates he would have experienced had action B – the action that Jones judges to be next-best alternative to action A – been taken instead of action A.)

Second, as the above quotation from Alex implies, when individuals have not only different intensities of preferences over ends (for, say, an additional unit of community policing over an additional unit of pollution abatement) but different preference orderings (as, say, when Jones prefers an additional unit of community policing over an additional unit of pollution abatement, while Smith prefers an additional unit of pollution abatement over an additional unit of community policing) – and because ‘correct’ cost-benefit analysis for any group of individuals requires agreement among these individuals on both the ordering of ends, and the intensity of preferences over these ends – then cost-benefit analyses in reality, when done by third-party Johnson for groups of individuals Smith, Jones, Williams, et al., inevitably will give the preferences of some individuals greater weight than those of other individuals. This reality holds even if Johnson is both completely public-spirited and has full information about the preferences of Smith, Jones, Williams, et al.


* Alex’s paper is one among many excellent papers presented, all by graduate students, this past weekend during an Adam Smith Fellows colloquium held in Fairfax under the joint auspices of Liberty Fund and the Mercatus Center at George Mason University.  Revised versions of these papers will be collected next year into a published volume edited by my colleagues Chris Coyne and Bobbi Herzberg, and myself.