Hooverstrasse and the British mutiny. (1931, pt. 2 of 4.)

Before getting into part two of chapter 5, where most of the action is, I’d like to make a few comments on a recent paper by Greg Mankiw.  Although the comments will be mostly critical, it is a very good paper, and I probably would end up agreeing with most of his policy conclusions, albeit for utilitarian reasons.

A left-leaning liberal might say Mankiw is a rich guy trying to defend the privileges of his class.  Perhaps so, but let’s look at the arguments on their merits. Mankiw’s central argument is that utilitarianism is an unreliable value system, and that we would be better off relying on our moral intuitions.  However, he starts off by criticizing the anti-utilitarian thought experiment that goes like this:

Would you push a fat guy off a bridge onto a train track to deflect a train and save the lives of three innocent children further down along the track?

Apparently some philosophers regard this as a good argument against utilitarianism, as they would feel squeamish about pushing the fat guy off the bridge.  My response is that that pushing the fat guy off the bridge is the right thing to do, and if we don’t do it, it would be because we have let emotions overrule reason.  But public policy decisions should be based on reason, not emotion.

Mankiw’s central argument is that people have a “moral intuition” that inequalities due to productivity differences are justified.  I.e., it’s acceptable for a highly talented and hard-working guy to make lots of money, but not for a banker who has only gotten rich by gaming the system.  OK, but this distinction between earned and unearned wealth is also consistent with the utilitarian approach to income redistribution.

At the same time he doesn’t end up with laissez-faire policy views, as he favors taxes to address externalities and public goods.  And he considers the removal (or at least mitigation) of poverty to be a public good, as it is a sort of blight on our society.  Furthermore, the rich benefit more from governments that protect property rights than do the poor, so they should have to pay more taxes.

I suspect that Mankiw and I have pretty similar views on optimal tax regimes, but I get there from a different direction.  I don’t think we can rely on moral intuitions.  At various points in history our moral intuitions about the dignity of aristocrats was quite different.  Our moral intuitions about war and slavery have changed.  Ditto for women’s rights, civil rights, and gay rights.  Indeed our views on gay rights are still changing, as the younger generation has more liberal views than the older generation.  And what do you notice about all these changes?  In every single case our moral intuitions have moved in the direction of utilitarianism.

So I still think utilitarianism is the right way to go.  Mankiw mentions two hypothetical policies that utilitarians should support, but that he regards as absurd.  One is a higher tax rate on tall people.  And the other is sending 1/3 or our GDP to poor countries.  I agree that utilitarianism would call for both of those policies if there were no efficiency costs in implementing each policy, but in fact the costs are likely to be massive.  A tax on tall people is likely to trigger several problems:

1.  Tall people would lie about their height.  So you’d probably need a government program to measure everyone’s height.  But then people who were athletic would slump down as much as they could while being measured.  Stiff people who couldn’t slump would complain about the unfairness of NBA players getting away with being under 6 feet.  They would demand that the players be put on “the rack,” so that we could find out their true height.

2. OK, that was silly, but there is a more serious argument.  This tax would trigger the demand for other similar taxes.  Indeed the moral argument for a higher tax on white people (compared to black people) might seem much more appealing.  Now imagine the US government getting into blood tests to determine race.

Yes, I’m making the disreputable slippery slope argument.  By my final comment might surprise you, as I am nearly 6’4”.  I think if there were no practical problems, if height was the only important way that people differed in terms of measurable innate differences, if eating a low protein diet didn’t make you shorter, if the scheme didn’t lead to a slippery slope, then yes, tax me and other tall guys more.  If it were the only important measurable innate difference then people would regard it as an unfair advantage.  And yes, push that fat guy onto the railroad track while you’re at it.

Here’s why I don’t buy the “just deserts” argument for inequality.  Wealth creation in a modern society is a collaborative effort.  No rich guy gets there on his own; he is working with 100s of other low paid individuals.  Yes, the “marginal product” is a useful economic concept, it explains why people born with great athletic skills make more than teachers, but I don’t think it provides any moral justification for those income differences.  Indeed I often hear people say that it shows our society’s values are out of whack that a baseball player can make 100 times more money than a school teacher.

From the outside someone like Greg Mankiw seems to lead a charmed life.  He has a beautiful house in Wellesley and a nice family.  One of his posts showed him teaching an honors seminar full of bright, interesting students.  He has made tons of money on a textbook.  Yes, he’s worked hard, but his greatest good fortune was to be born into Greg Mankiw’s body and mind.  (BTW, if we refer to Mankiw’s body and mind in the possessive sense, then who is the “Mankiw” that possesses these entities?)  Mankiw even seems to have a fairly upbeat mood, at least compared to another famous blogger.  So my moral intuition tells me the universe would be a better place if Greg Mankiw gave me $1,000,000 of the money he has earned on his book.  It’s not that I haven’t also been pretty lucky compared to the average third world peasant, but not quite so lucky as Mankiw.

But in the end I can’t quite favor a lot of redistribution, despite my utilitarian leanings.  To raise 1/3 of national income in taxes would mean government spending would double from 1/3 to 2/3 of GDP, which is more than even Denmark spends.  Even worse, our labor force is much more diverse than Denmark’s, so even equal tax rates would impose much greater supply-side costs here than there.  On the other hand I can’t support the dogmatic libertarian opposition to any income redistribution, as I think there is some amount of redistribution for which the benefits exceed the costs.  Indeed my only disagreement with those on the left is about incentive effects, not ethics.  I think the supply-side effects of high taxes and subsidies (in the long run) are much more important than many others believe, indeed they are much more important than common sense suggests.  Thus I favor a low-tax welfare state similar to Singapore, which spends enough to eliminate severe poverty, and also provide universal health care, education, etc.   BTW, Singapore spends much less than we do, so calling for the US to move to that “welfare state” system is equivalent to calling for dramatically lower taxes on the rich.

The most difficult problem (implicitly) raised by Mankiw is how can one favor spending lots of money helping the poor in America, when the opportunity cost of that spending is not aiding the much more poor residents of some place like Bangladesh.  I don’t have an answer to that question.  I suppose it would require some sort of communitarian argument.  (And for similar reasons Will Wilkinson’s argument for open immigration raises tough issues for progressives.)

Because I am a utilitarian, I am open to new evidence on incentives.  If I am wrong, I have no moral objection to the Danish system.  Indeed I hope the Danes are right.  However, based on the success achieved by lower tax countries of similar size (Singapore, Switzerland, etc), and the fact that even the southern European countries have found it hard to replicate  the Danish model (read Algan and Cahuc), I think it would be pretty hard to make the case for applying the Danish model to the US on utilitarian grounds.  (Yes, the Danes are the happiest people on Earth, but in another post I argued the causation went from values to happiness, not from economic system to happiness.)

Off topic, but Niklas Blanchard sent me this interesting link.  OK, on to the 1931 chapter:

5.d  The German Economic Crisis of 1931

In retrospect, the March 21 announcement that Germany and Austria had agreed to form a customs union appears as the first of a long series of events that disrupted European affairs.  The Austro-German Customs Union was viewed by many as a violation of the Versailles Treaty provision that guaranteed the sovereignty of Austria, and the French in particular were concerned that the union was merely the first step toward an “Anschluss,” or political union.  The dispute became a complicating factor several months later when Austria and Germany required financial assistance from their international creditors.

The Dow reached its March peak on the day before the announcement of the customs union, and then began a long steady decline that extended into early June. Equation 3 in Table 5.1 shows the result of regressing movements in the Dow on YPBs during the period from March 20 to May 1.  Although in contrast to the January 1 – March 20 period (equation 2), the coefficient on the YPB price is significant at the five percent level, the relatively low adjusted R2 provides little evidence that German problems were a major factor in the ongoing decline in the Dow.

The period from May 1 to June 19, 1931 is especially problematic from the perspective of the link between Germany and Wall Street.  Historians consider the failure of the Kreditanstalt in Austria in mid-May to be the event which triggered the subsequent international monetary crises.  The Dow did decline continuously for eight straight trading days from May 11 and May 20, and the YPBs also declined almost continuously during this period.  Yet as equation 4 clearly indicates, there was no significant relationship between changes in the Dow and the price of YPBs during the period from May 1 to June 19.

There was certainly no shortage of news relating to problems in Central Europe during mid-May, 1931.  On May 11th, the NYT reported that uncertainty over the customs union was slowing investment in Germany and Austria and on May 13th they reported that the Kreditanstalt crisis was depressing German stock prices.  French Premier Briand favored closer policy coordination, and according to the May 15th NYT his unexpected defeat in the French presidential election of May 14 was likely to increase political tensions in Europe.  Briand’s conciliatory position toward Germany had been undermined by the German government’s decision to form a customs union with Austria.

On June 1 the Dow declined by 4.4 percent, and the next day the NYT noted that the German situation had deteriorated rapidly in the previous few days.  They also reported that a bailout of the Kreditanstalt was expected soon, but that the customs union had injected politics into the negotiations.  By this time the banking crisis had spread from Austria to Germany, and there was growing speculation that the Young Plan would have to be revised.  In early June the British and German leaders conferred on the debt issue at Chequers, England, where German Prime Minister Breuning argued that the German economy was in dire shape and that some form of debt relief was essential.  Unfortunately, the entire war debts/reparations crisis was complicated by the fact that Germany’s biggest reparations creditors (Britain and France) had also incurred large war debts with the U.S.  Thus any debt relief for Germany would require leadership from the leading creditor nation, the United States.

June 3 saw the largest increase in the Dow (7.1 percent) since the rebound in November, 1929.  The following day’s NYT (p. 39) found no explanation in the news, and suggested that “That [startling news] may conceivably come later, and speculative Wall Street’s reversal of position may have had in mind its possibility”. Startling news did arrive on June 19 in the form of a debt moratorium, but it is difficult to say whether the June 3 rally anticipated this development.  We do know that it was announced on June 3 that Secretary of State Stimson would depart soon for Europe, and that in a secret meeting on the evening of June 2, President Hoover had communicated his intentions to the U.S. ambassadors in Britain and Germany.

On June 7 it was announced that Secretary of State Mellon would also be departing soon for Europe and rumors of a moratorium began affecting the financial markets.  The June 8 NYT headline suggested a “Change Seen In Our Attitude On Debts” and also (p. 26) enigmatically referred to the “sudden appearance of a few unpredicted reassuring developments in the news, which the stock market [on June 3] may or may not have foreseen”.

There is one glaring weakness with the preceding hypothesis, the correlation between the price of YPBs and the Dow turned negative during the weeks immediately preceding the moratorium (see figure 5.1)  The interests of Young Plan bondholders and U.S. stockholders did not exactly coincide, and thus conceivably the bondholders could have (erroneously) believed that the deteriorating economic situation in Germany would lead to a moratorium which included the YPBs, while U.S. stockholders focused on the widely held expectation that a moratorium would improve the prospects for international monetary cooperation.  Even before the moratorium was announced, some contemporaneous observers were making exactly that argument, i.e. that holders of YPBs had misunderstood the likely impact of a moratorium:

          “In any case, the postponement of transfers contemplated in the Young Plan has, of course, nothing whatever in common with a moratorium in the ordinary sense, and would involve no suspension of payments in connection with Germany’s private or public loan obligations.  Nobody in Germany has thought of such a thing for a moment, but misunderstanding on this question seems to have had an unfortunate effect, especially in America.” (Economist (6/20/31, p. 1326.)

figure_5-1_with_title

Of course this hypothesis is a bit ad hoc, and also seemingly at odds with the efficient markets hypothesis that I utilize throughout this narrative.  But rational expectations do not imply perfect foresight, and subsequent events strongly support the Economist’s view that Americans initially misjudged the effect of the moratorium on YPBs.  U.S. stock and German (Young Plan) bond prices became closely synchronized immediately following President Hoover’s announcement of June 19 (at 6 P.M.) of his intention to put forward a plan for international debt relief.[1]  The following day the Dow jumped 6.6 percent, and the YPBs soared by 7.9 percent.  After the stock market closed on Saturday, June 20, the details of the plan were revealed to show an even more far-reaching moratorium than had been anticipated. The following Monday the Dow rose another 4.9 percent and the price of YPBs advanced another 4.2 percent.  And the extraordinary (worldwide) stock market rally[2] was also accompanied by large increases in the prices of major commodities such as corn, wheat, and cotton.


[1]  Apparently the rapid deterioration in the German economy led Hoover to move forward the announcement of the moratorium.  Eichengreen (p. 161) notes that Hoover had proposed a war debts moratorium as far back as 1922.

[2]  The NYT (6/28/31, p. 10N) noted that except for the recoil from the 1929 crash, the rally in the week following Hoover’s announcement was the “swiftest advance during any corresponding period in a generation”.

The correlation between changes in the Dow and the price of YPBs jumped from 0.0 percent in the period from May 1 to June 19, to an astounding 42.6
percent in the period from June 19 to July 30 (Table 5.1, equation 5.)  The increased correlation between the Dow and the price of YPBs is certainly consistent with the hypothesis that Wall Street became concerned about Germany when the German crisis threatened to disrupt the entire international monetary system.  Nevertheless, no level of correlation between changes in the Dow and the price of YPBs is able to establish causality.  Thus it is essential to examine contemporaneous news coverage.

One of the most striking aspects of this period is the intensive coverage of the German crisis provided by the NYT.  For 36 consecutive days, at least one NYT headline discussed the German debt and/or exchange rate crisis, and almost all were the dominant headline.  This certainly indicates a level of interest in European financial affairs that would be unimaginable in post-WWII America.  Even more striking is that fact that, throughout this period, movements in Dow were frequently linked to these news stories.

The heterogeneous nature of news makes it difficult to quantify.  Therefore in appendix 5b the NYT headlines from June 20, to July 24, 1931 are provided, along with some clarifying excerpts.  The column width of each headline is also provided, which serves as a proxy for the importance that the editors of the NYT gave to each story.  (A typical lead headline would be two or three columns across.)  DLDOW and DLYPB represent the first differences of the logs of the change in the Dow and the price of YPBs from the last closing before the news event, to the subsequent closing.  European news reported in the NYT on a given day was usually received by U.S. financial markets before the markets closed on the previous day.

Enthusiasm for Hoover’s proposal was not confined to the NYT.  The June 27 issue of the CFC (p. 4635) enthused “President Hoover has electrified the whole world and possibly turned the tide of business depression”.   A “Hooverstrasse” was proposed for Berlin.  The British compared the proposal to a new armistice and suggested that the move ranked in importance with the U.S. entry into World War I.  Of course, Hoover’s debt moratorium was subsequently shown to be ineffective in arresting the ongoing depression.  Nevertheless, the financial community had great hope for the plan, which provides some indication of the forces that they believed were inhibiting recovery.

Between June 2 and June 27the Dow soared by almost 29 percent, and the next day’s NYT (p. 7N) suggested that “War Debt Plan Aids Commodity Prices. . . Sharpest Advance Since Last Summer Shown in Most Groups in Fortnight”.  Although the reaction of financial markets to the moratorium was unquestionably enthusiastic, the reasons are unclear.  Perhaps it was felt that the moratorium would reduce gold flows to countries with a high propensity to hoard (i.e. the U.S. and France.)  The June 27th CFC (p. 4653) suggested that Hoover’s goals were limited and that it was hoped that the agreement could lead to a climate of “international good will”.  On June 30th the NYT (p. 1) quoted a bank official as indicating that “it would be a mistake to over-emphasize the proposed debt adjustment as an economic factor in itself”.  Unfortunately, Hoover strongly opposed two initiatives that might have provided meaningful help for Germany; a coordinated international policy of tariff reduction, and a coordinated attempt to lower the world gold ratio through expansionary monetary policies.[1]

After June 27th, U.S. stock prices see-sawed for several days as the French raised objections to various aspects of the agreement.  Because the size of Germany’s debts to France greatly exceeded the French war debts to America, the French were naturally less enthusiastic about the moratorium than the British, who had a less favorable net creditor position at the governmental level covered by the moratorium, but were also important commercial lenders to Germany.  Although a preliminary agreement was finally hammered out in early July, the contentious negotiations made it clear that future cooperation on international monetary and financial issues would be exceedingly difficult.  Meanwhile, the German financial system continued to deteriorate rapidly and the CFC noted that “it was also realized that the delay of two weeks [in the agreement] had somewhat vitiated the good effects”.[2]

The July 18 issue of the CFC (p. 335) ominously reported that “The world the present week has been confronted with one of the greatest and gravest financial crises of which history furnishes any record”.  Both the Dow and the price of YPBs declined steadily in the week leading up to Germany’s establishment of strict exchange controls on July 15.  Although historians sometimes view July 15, 1931 as the date on which Germany “departed from the gold standard,” the contemporaneous view was slightly different.  Maintenance of the exchange rate at its par value was viewed as the sine qua non of being on the gold standard.  Germany did not devalue the reichsmark, and was viewed as having partially surmounted the crisis (albeit with a much weakened link to gold.)

The 6.2 percent drop in the Dow between July 10 and July 15 was made up over the next five trading days as Hoover organized an international loan to assist the Reichsbank.


[1]  Hoover criticized the theory that deflation was resulting from a “maldistribution” of monetary gold stocks.

[2] CFC, 711/31, p. 174.

Unfortunately, political discord continued to complicate efforts to aid Germany.  French opposition prevented anything more that a temporary aid package; and the markets fell back in late July as it became apparent that a permanent solution to the German financial crisis had not been achieved.  The largest movement in the Dow during August 1931 occurred on the 11th, when the Dow jumped 4.4 percent.  The next day’s NYT (p. 27) commented; “suddenly reversing its trend, the stock market advanced spiritedly yesterday, simultaneously with the announcement that agreement had finally been reached on all points involved in the debt suspension proposal”.

Temin argued that the short-term victory associated with the maintenance of the reichsmark at par merely insured that Germany’s financial crisis would continue to intensify.  In contrast, by devaluing the pound in September 1931, Britain was able to swiftly end its financial crisis, although it did not take full advantage of its new position.  German leaders were prevented from devaluing the reichsmark by treaty obligations associated with the reparations agreement, and by the public’s still fresh memories of the 1920-23 hyperinflation.

The temporary nature of the moratorium also insured that the war debts/reparations issue would reappear later.  Only three months into the one-year moratorium, the international crisis associated with the British devaluation intensified the world-wide deflation, and it became abundantly clear that Germany would be in no better position to pay its debts in mid-1932, than it had been in mid-1931.  Financial markets faced additional months of bitter recriminations and debate over these issues.

5.e  The Devaluation of the British Pound

Despite the extended crisis of July 1931, the price of YPBs, which began the year at 69 1/4, had only declined to 56 1/4 by the end of July.  They would finish 1931 trading under 24.  Similarly, the Dow, which began 1931 at 164.58, ended July at 135.39, and then plunged to 77.90 at yearend.  During September the Dow declined almost continuously, ending the month down over 30 percent.  Although it would be natural to attribute this decline to the developing crisis in Britain, there is actually very little evidence (in the forward exchange rate market) that fears of a British devaluation affected Wall Street until September 18.  The devaluation of the pound was unquestionably the dominant economic event of the autumn of 1931, yet it appears to have had only a modest direct effect on U.S. financial markets.  Its indirect effects, however, were profound.

The British crisis actually began in July 1931 as the run on the reichsmark reduced confidence in the entire international gold standard.  On July 26, (the first time in 36 days that the German debt problems failed to earn a NYT headline), a Times headline reported “British Gold Loss Totals $145,500,000 In The Last 13 Days”.  The 3-month forward discount on the pound (against the dollar) rose from less than 1/2 cent during the first half of 1931, to just over 2 cents in early August, and then remained at that level until the eve of the devaluation.  By the fall of 1931 the actual spot exchange rate had declined by well over 100 cents.  Thus although some concern about the pound was evident in the forward markets, there is no indication that a significant devaluation was considered imminent during the two months leading up to Britain’s departure from the gold standard.

There are good reasons why the markets would not have anticipated the devaluation.  First, the British had undergone a prolonged period of austerity in restoring the gold standard only six years earlier.  Second, the British financial position was clearly stronger than that of Germany, and Germany had been able to avoid devaluing during the July crisis.  Third, a new National (coalition) government was formed in August, and this government agreed to balance the budget by cutting government salaries and unemployment benefits.

Nevertheless, the increased forward discount shows that currency traders were a bit more apprehensive about the pound during August and the first half of September, probably due to uncertainty regarding the government’s willingness to reduce the deficit through painful budget cuts.  An imminent election created further uncertainty.  On September 16, a NYT headline reported “Disorders in British Navy Follow Economy Pay Cut”.  Withdrawals of gold from Britain accelerated sharply with $25 million leaving on September 16, $50 million on the 17th, and $90 million on the 18th.

This “mutiny,” or “strike,” (depending on one’s perspective), touched off a series of events which led to the devaluation.  What appears to have been decisive was not the disturbance itself, but rather the government’s willingness to listen to the sailors’ demands, and their promise of no reprisals.  The press coverage of the event provides a fascinating study in contrasts.  While the British Government was trying to downplay the importance of the sailors’ action, the foreign press expressed astonishment at the willingness of the once-proud British Navy to cave-in to the demands of mutinous sailors.[1]  In the House of Commons, Labor members taunted “You’ve surrendered once, and you’ll keep on surrendering,”[2] a reference to escalating demands that proposed cuts in the pay of teachers, police, and other members of the military be rescinded.


[1]  The September 17 NYT (p. 1) reported “As startling as was the incipient mutiny in the British fleet, without precedent in modern times, the actions of the government in making terms with those who have broken discipline is regarded as even more startling.”

[2]  The NYT, ibid.

Although the suspension of convertibility occurred on September 20th, word that the government was considering devaluation appeared to have leaked out several days earlier.  The price of British government bonds (5 1/2 percent coupon), which had traded in the 104 3/4 – 105 5/8 range throughout the first 17 days of September, fell to 101 1/4 on September 18th, then plunged to 93 on September 19.  Thus, data from the British bond market compliments the forward market evidence that devaluation was not considered likely until the last moment.  What then caused the sharp decline in U.S. stock prices during the first part of September 1931?

Whereas the value of British government bonds remained stable during early September, the price of YPBs fell from 58 3/8 at the beginning of the month, to 46 3/4 on September 17th, before dropping to 40 on the 18th, and 38 on the 19th.  Similarly, the Dow declined from 139.41 at the beginning of the month, to 121.76 on September 17, and then plunged 5.5 percent on the 18th, and an additional 2.9 percent on the 19th.  And, although during September 1931 German events were not dominating U.S. news coverage to the extent that they had in June and July, the NYT continued to link movements in U.S. stock prices to problems in Germany.[1]  Equation 6 in Table 5 shows that movements in the price of YPBs remained highly correlated with the Dow throughout the interval between the German and British exchange crises.


[1]  For instance, the September 4 NYT blamed the previous day’s 3.1 percent decline on the unexpectedly severe collapse in German stock prices following the re-opening of the German Bourse.


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53 Responses to “Hooverstrasse and the British mutiny. (1931, pt. 2 of 4.)”

  1. Gravatar of Thorfinn Thorfinn
    1. March 2010 at 09:04

    An non-linear age tax would more sense than a height tax, even for the purposes of hypothetical tax schemes. Better correlated with outcome measures, easier to monitor, etc.

  2. Gravatar of mbk mbk
    1. March 2010 at 09:42

    The fundamental problem with utilitarianism and the related fat guy issue gets a nice and succinct treatment in Hayek’s ‘Law, legislation and liberty’. The chapter is entitled ‘Principles or expediency’, which in itself already says it almost all.

    You can either have a system that respects principles, i.e., general rules, applying to everyone the same in the abstract without discriminating positively or negatively in arbitrary fashion depending on some shifting societal goal. Call this the rule of law: general principles are always respected (no murder allowed), specific outcomes are not guaranteed for any unknown specific case in the future (fat guy on bridge).

    Or you can attempt to target specific outcomes for society. Call it expediency. In this case you must necessarily apply different standards to different people, in arbitrary (meaning, discretionary) fashion, in order to guarantee the desired outcomes. This leaves you then with two problems, one is that you definitely don’t have a rule of law anymore – laws will apply only when expedient – and two, that society now has stated goals, which of course will be a matter of shifting opinion and competition between political groups over the specifics, say, distribution. In other words you now have created pervasive political clientelism

    What is worse, by varying standards on a case to case basis, you have now undermined the ability of people to plan: only a consistent application of the same rule of law to all, allows people to plan for the long run. This is the chief and primary argument for the rule of law to begin with, not morality or first order utilitarianism: The rule of law allows people to plan around rules they can trust will be respected in the future.

    The above is especially important w.r.t. investment since it reduces time preference. I would go so far as to say the single most important factor that determines whether developing countries actually develop is whether at some point they start to uphold a consistent rule of law (of whatever variable content). Not democracy, not liberal values, certainly not mineral resources or the like. Discretionary confiscation on the other hand, whether through corruption or through political expediency (“utilitarianism”), decreases people’s propensity to invest and to plan. Stated differently, it increases the individual’s risk that he too may become the victim of some kind of utilitarian scheme in the future.

    Only the rule of law makes people trust that the future of their life, fortune and business will be predictable, rather than depend on shifting expediencies. Only then will they plan for the long term, only then will they invest and re-invest. It is about the ability to trust in how society will behave towards the individual.

    And for this reason, for all I know, pushing the fat guy off the bridge, in any Western legal system, would land you in jail. Principle will be upheld even when specific outcomes leave to anguish, because the alternative, discretionary bending of the law, destroys the trust that is necessary to plan for anything in society. Ultimately, the latter has negative utilitarian value as second or higher order effects.

    Therefore only in very specific situations is it permissible to sacrifice the few for the sake of the many (emergencies on ships come to mind) if you exclude military behaviors, because it is too dangerous for society in the long run. And even the military does sometimes follow “unreasonable” principles (‘leave no man behind’) because their long term systemic effect (trust) beats any one short term expediency.

  3. Gravatar of ssumner ssumner
    1. March 2010 at 10:09

    Thorfinn, That’s a great idea, did you come up with that yourself, or did someone else propose this idea? You are correct, it is far superior to Mankiw’s tax on height, as it would be perceived as more “fair” (everyone grows old)

    mbk, I agree with your remarks, but I don’t see them as an argument against utilitarianism. I am in favor of what is usually called “rules utilitarianism,” which says that we should adopt the rule of law where the costs of deciding each case on its merits outweight the benefits. Thus I support the first amendment to the Constitution on utilitarian grounds, even though some speech does more harm than good. The argument is that it would cause more problems trying to figure out which are the cases where speech does more harm than good, so better to simply apply the rule across the board. But even there, we do make a few exceptions in specific, and well understood, cases (for utilitarian reasons.)

    I agree that it should be illegal to push fat people off bridges, and that the thought experiment I discussed was a very unusual case, like the sinking ship example you mentioned. Unusual cases make bad law, better in most cases to have a simple well-understood rule. But the question of whether it would be moral to push the fat guy off the bridge is an entirely different from whether it should be legal. There are situations where it would be moral.

  4. Gravatar of Michael Michael
    1. March 2010 at 11:40

    As a retired person there is no way I would sanction utilitarianism…. as clearly the world would be better off economically without me here and consuming scare health care resources. :)

    Regards,
    Michael

  5. Gravatar of Niklas Blanchard Niklas Blanchard
    1. March 2010 at 11:56

    Thanks for linking to my cover, Scott =]. The contest is off to a slow start, but your link may generate some interest!

    Also, I don’t know if you saw it, but I have a second entry here. I think it’s better than the first.

  6. Gravatar of Matt Matt
    1. March 2010 at 13:43

    I agree that moral intuitions change as we progress…but so do utility functions.

  7. Gravatar of jean_ jean_
    1. March 2010 at 16:40

    A tiny detail: Aristide Briand was not technically “premier ministre” since this office did not exist at this time in France. He was “président du conseil” (president of the council [of the ministers]). I am not fluent in English enough, but if you want to name the French head of government in the 1930’s, it might be better to use “prime minister”.

    You might also be interested by this (especially the first link):
    http://www.voxeu.org/index.php?q=node/4617
    http://www.voxeu.org/index.php?q=node/4692

  8. Gravatar of Thorfinn Thorfinn
    1. March 2010 at 17:02

    Scott,

    I got the idea from Tomasz Piskorski at Columbia, who made it seem like this was obvious and everyone knew it. Erosa and Gervais have a paper on this, but only want to change marginal tax rates by age.

    We should also tax women at lower rates than men, as they tend to be on the margin between working or not more often.

  9. Gravatar of rob rob
    1. March 2010 at 18:51

    here’s my problem with right wing economic incentives. if i lived in a socialist country i wouldnt work as much as i do now if i didnt have to. and the gdp of that country would be less and my wealth would be less. but id rather have the leisure time than the money. in a competitive free market economy i dont have the optipon of working half the time for half the pay. about the only part time job most people can find is one that barely pays enough to survive. so you either work all the time or not at all. i just wish there were a happy medium.

  10. Gravatar of Greg Ransom Greg Ransom
    1. March 2010 at 20:18

    The British wage cut issue / political instability problem in relation to inflation, deflation and monetary policy in Britain is always in the front of Hayek’s mind when he discusses Keynes and the rationale for “Keynesian” policies — Hayek saw monetary expansion / devaluation etc. as perhaps justified on political and expediency grounds as a solution to the British 1925 self-inflicted wound, which left Briish labour overpriced.

    Hayek move to London the same year as the “British mutiny” ….

  11. Gravatar of Greg Ransom Greg Ransom
    1. March 2010 at 20:44

    Excellent remarks, mbk.

    I wrote chapter intros for John Fischer’s edited collection of philosophical essays on “killing vs letting die”, etc.

    More than ever it emphasized to me the importance of Hayek’s case laid out in L, L & L for culturally acquired negative rules of just behavior — “innate” impulses or “thou shall nots” shaped by cultural learning.

    Rationalistic principles of ethics (i. e. a “theory” view of ethics) and our “moral intuitions” self detonate each other and fall to mush when stared at too long and wrenched beyond common experience.

  12. Gravatar of Greg Ransom Greg Ransom
    1. March 2010 at 20:59

    Fischer’s question. If it should be wrong or illegal to push a button so that the fat man drops and the trolley smashes the fat man, should it be wrong or illegal to push a button so that the trolley rises up a ramp and smashes the fat man.

    And all the various “counter” and “counter-counter” scenarios just get more elaborate and convoluted from there ..

  13. Gravatar of peter peter
    1. March 2010 at 21:22

    Utilitarianism is based on the primacy of the community not the individual.

    “Our moral intuitions about war and slavery have changed. Ditto for women’s rights, civil rights, and gay rights. Indeed our views on gay rights are still changing, as the younger generation has more liberal views than the older generation. And what do you notice about all these changes? In every single case our moral intuitions have moved in the direction of utilitarianism.”

    If so then only be accident. It is valuing the individual and individual rights that makes slavery repugnant, puts women in the workforce and keeps sodomites out of jail.

    As for income redistribution you can make coherent moral cases for both total and no redistribution based on communitariansim and individualism, but anything in the middle is pragmatism. When it comes to income, people don’t “deserve” anything, they earn it. The luck of being born Tiger Woods or Greg Mankiw is no justification for a bunch of people getting together to confiscate a portion of their wealth.

    You’ll have noticed that nobody has offered you a social contract to sign. Instead the government defines the contract based on messy compromises and illusions of representations, rewrites the terms every so often, and then threatens to jail you if you don’t do your “fair” share.

    A bunch of schoolyard bullies is not carrying out a moral act when they force a rich kid to share his pocket money.

  14. Gravatar of peter peter
    1. March 2010 at 21:26

    PS, if you feel it is wrong that teachers earn less than baseball stars then you are implying a better moral order than market payments can be determined. Which would be what exactly?

  15. Gravatar of TGGP TGGP
    1. March 2010 at 22:21

    I endorse the height tax (but not foreign aid) if only because it is less distortionary than the income tax and I’d like to reduce the latter. Ultimately I’d like to abolish the national government and all its taxes, but that’s a much more ambitious goal. Robin Hanson and others endorse the height tax as well.

  16. Gravatar of scott sumner scott sumner
    2. March 2010 at 05:51

    Michael, If the world would be a better off place without you, then why go on living?

    Niklas, Thanks. How about a picture of King Midas turning his daughter into gold?

    Matt, I agree, but nonetheless our policy views are much more utilitarian than in previous centuries. The victims probably always suffered much more than the oppressors enjoyed their advantages.

    Jean, Thanks for the tip on terminology. The Blanchard piece was extremely frustrating to read. He seemed to entirely misunderstand what has just occurred. We have just been hit by a severe nominal shock, and he acts as if stabilizing inflation no longer works. He says core inflation was stable until the crisis hit, but fails to draw the obvious conclusion that WE SHOULD HAVE KEPT IT STABLE AFTER THE CRISIS HIT. I found that a very demoralizing essay; it shows the utter futility of backward-looking monetary policies.

    Thorfinn, Yes, those make sense. I find that whenever I think of an idea someone else always got there first.

    Rob, I much rather have the leisure time as well, but obviously most people don’t agree, even in France they worked just as hard as Americans when their tax rates were at American levels (in the 1960s). People prefer money to leisure.

    Greg, That’s interesting. But I was under the impression that Hayek’s change of heart on monetary policy occurred a bit later than 1931. I though he was still opposed to monetary stimulus in 1931. Is that wrong?

    Greg#2, Our moral intuitions become much more liberal and utilitarian as we get more educated. That doesn’t make it right, but I certainly find that pattern interesting.

    Greg#3, I agree with you there; Mankiw and I both find these thought experiments silly.

    peter, I don’t buy the idea of “natural rights.” But I am a methodological individualist.

    I never said it was wrong that teachers are paid less than athletes, nor do I believe that. I was criticizing Mankiw’s statement that most people think rich people deserve their income.

    I share Mankiw’s skepticism about real world programs to redistribute income, I don’t think they work very well. I don’t favor programs to redistribute money from athletes to teachers.

    And I don’t favor schoolyard bullies taking money from rich kids, nor do I think that is a useful way of thinking about my policy views. Schoolyard bullies don’t give any money they steal to the poor. In fact, schoolyard bullies are a better metaphor for actual real world governments. Especially in highly corrupt societies, where governments steal money for their own benefit. Remember, I am a (pragmatic) libertarian.

    TGGP, As I said, I would endorse it if the costs of implementation weren’t too high. But I think they are far higher than people imagine.

  17. Gravatar of William William
    2. March 2010 at 06:49

    The most difficult problem (implicitly) raised by Mankiw is how can one favor spending lots of money helping the poor in America, when the opportunity cost of that spending is not aiding the much more poor residents of some place like Bangladesh. I don’t have an answer to that question.

    A former prime minister of India once said that, regarding funds intended to reach the poor, only 15% actually got there. That number is probably an exaggeration, but I think the thought is still valid – if we consider how corrupt many of these poor countries are it is easy to imagine a large percentage of these aid funds going to those rich and powerful. Then again, the preferred anti-poverty solution (a focus on long-term market-based growth) also tends to make the rich richer at a faster pace than the poor…

  18. Gravatar of Philo Philo
    2. March 2010 at 07:40

    @Peter–

    This sentence: “Utilitarianism is based on the primacy of the community not the individual,” doesn’t make sense, since there is no such thing as “the individual”; there are many individuals, not just one, and they can’t *all* have “primacy.”

    Also, ‘community’ is not the right term for what has primacy for utilitarians; ‘biosphere’ is more like it. (‘Mankind’ would be speciesist!)

  19. Gravatar of mbk mbk
    2. March 2010 at 09:16

    Peter, Philo – I think utilitarianism is not primarily an expression of the primacy of the community but an example of the exaggerated aggregation that Mises and Hayek always warned against. Utilitarianism assumes a standard of utility common to all, not necessarily in existence or shared by any more than a plurality.

    We always implicitly assume that the distribution of opinions about utility have only one dimension of what utility “is”, and have a clear maximum, and only one maximum. Sort of like a bell curve, that a large majority agrees on a simgle mean value for utility in a single parameters, say wealth, or health. And up to us to measure or find it which we surely will if we try hard enough.

    But what if it is a weird distribution of opinion dependent multi dimensional utilities in many dimensions with multiple local maxima? Wealth vs health say, mental vs physical, freedom and time vs. belonging to a community etc etc. What value exactly are the agents representing “society” supposed to force the individual to maximise? – But clearly one can debate endlessly whether this is no worse than some basic common standards of morality we all believe exist, or whether this indeed prescribes individual over “social” rights (read, entitlements, where the “right” of one person comes to the detriment of the right of the other person).

    Scott, the above and your remarks on rules-based utilitarianism: The problem is that even under rules based utilitarianism, which is surely less arbitrary than redistribution by occasional decree, once the state monetarily favors specific groups or becomes an economic actor itself, you get clientelism. Individuals now must join lobbies to maintain favors to specific groups, or make political parties into such lobbies. They are not able anymore to rely just on what Greg called “negative law” with reference to Hayek’s use of it, even to exist and to be left alone, since the direction of the favors changes depending on who defines the utility. Individual rights are therefore lost and replaced by entitlements fought over by lobbies.

    Hayek links all this very specifically, along with his distinction between general rules neutral to specific outcomes (negative laws, belonging to the domain of societies), and specific regulations that are goal oriented towards specific, “utilitarian” outcomes (positive orders, belonging to the domain of organizations – military, corporate etc). This is why he called his book “Law, legislation, and liberty”. Once you make society into a goal oriented thing, say with a mandate to maximise some utility as defined by some elite or some majority, you get expediency over principle. At this point the individual can’t rely on principle anymore to protect his rights but must ensure that he gets entitlements instead, maintained through some expediency. To obtain expediency he must join a group, or lobby, that is sufficiently powerful to twist the state’s decisions.

    Scott your remark w.r.t. free speech is not clear to me. Are you suggesting that if it was cheap enough to implement, you would have some judge/jury/popular vote decide on whether some particular speech be allowed? For the libertarian belief system I’d have to paraphrase Lord Acton here, in that liberty be not a means to achieve some political end, but it be in itself the highest political end. In that sense a libertarian would define highest political liberty, including free speech rights, as the highest utility – and not some economic loss minimization function.

    As a sideline and practical complication any real life “utility function” would need multiple parameters and in the end would likely produce a multi peaked fitness landscape of utility, where you wouldn’t even be able to decide which outcome has the higher utility.

    To me the result is clear – rules based on specific expediency create more problems than they solve because they are highly dependent on opinion and utility is near impossible to define, to measure, never mind to achieve. Relying on principle on the other hand may not always get one the specific, individually desired outcome, but has the benefit of making the likely consequences of future decisions transparent. This enables trust in the future and planning. Principle based rules in the long run if you will, therefore achieve higher net utility, than first order outcome based utilitarianism.

    Greg, Scott, w.r.t. convoluted moral examples, I agree. I believe in general that every system of thought, as closed formal system, if taken to the extreme and without external calibration, will produce absurdities. Analogously to Goedel’s incompleteness theorem, or Tarski’s indefinability: some truths, if not all truth, must come from outside the system. As such at the limit we will always depend on human judgment. I am as libertarian as they come but at the limit it is pointless to mechanically insist on absolute purity. Nonetheless, I strongly believe that the delayed system effects of (even rule based) utilitarian expediency do harm to the original rule based system that made society and orderly economics possible in the first place.

  20. Gravatar of Greg Ransom Greg Ransom
    2. March 2010 at 09:27

    Hayek always saw Keynes as making up “economic arguments” or new “theory” convenient for excusing policies Keynes favored based on his changing intuitions of the moment. Hayek’s view was that Keynes identified a real problem — overpriced British labor, post-1925, which was creating a regime crisis.

    Hayek always identified “Keynesian” solutions to the problem as perhaps justified on poliical grounds — but he judge the non-political “economic theory” excuses Keynes invented to justify government action to be failures as competent economic theory.

    Hayek was of two minds when writing in 1931 — writings which were delayed in publication due to Keynes’ need to answer with ad hominems Hayek’s paper shredding of Keynes’ Treatise. Hayek acknowledge the existence of post-bust deflation problems, praised Keynes for some good ideas in addressing the problem, but emphasized there was no magical ultimated solution to the unavoidable problem
    of post-bust “recalculation”, monetary deleveraging, and solvency problems.

    Based on what Hayek understood in 1931 — and he wasn’t looking at the data, he was up to his eyeballs in theory and teaching and editing — Hayek didn’t see much role for anti-deflation / counter-cycle efforts in 1931. In later years — based on the findings of Friedman / Schwartz — Hayek’s view was that the factsaaa he later knew them actually called for both monetary and fiscal actions to fight deflation and buck up the political stability of the social order.

  21. Gravatar of Peter Peter
    2. March 2010 at 14:20

    Philo, of course there is more than one individual, but I was talking about the primacy of all individuals as against the collective.

    Scott, sorry if it sounded like I had misunderstood you on the teachers, I meant to address the general conception you discuss. The school bully argument is meant a comparison to our normal govt approach where the majority who set the rules provide for higher levels of tax for the minority who make more money.

  22. Gravatar of Philo Philo
    2. March 2010 at 19:56

    @ Peter (again):

    “Philo, of course there is more than one individual, but I was talking about the primacy of all individuals as against the collective.” Would that be: “of all individuals *collectively*”?

  23. Gravatar of scott sumner scott sumner
    3. March 2010 at 05:59

    William, You said;

    “A former prime minister of India once said that, regarding funds intended to reach the poor, only 15% actually got there.”

    That’s a good point, although one could argue that much the same is true in the US:

    1. Some poverty programs like Medicaid cost much more than the net benefits they provide to the poor.
    2. Many social programs are justified on the basis that without them some people could not afford health care, education, retirement, etc. Yet very little of the spending in those programs actually goes to the poor.

    Philo, Good point. Any public policies aimed at helping individuals (even laissez-faire policies) must help the aggregate of individuals if they are to be effective.

    mbk, You said;

    “We always implicitly assume that the distribution of opinions about utility have only one dimension of what utility “is”, and have a clear maximum, and only one maximum. Sort of like a bell curve, that a large majority agrees on a simgle mean value for utility in a single parameters, say wealth, or health. And up to us to measure or find it which we surely will if we try hard enough.”

    Don’t include me in the “we” here. I don’t think we will ever measure utility.

    I don’t understand your comments about Hayek. He favored having the government involved in activities like helping the poor. He was a pragmatist. The government will be involved in the economy regardless of whether we follow utilitarianism or a natural rights approach. The question is not whether the government is involved, but how it is involved. I believe utilitarianism can lead to the most effective government involvement. I believe Singapore has the most utilitarian economic policy in the world, and I prefer that economic (not political!) policy to governments that use some other value system. I regard utilitarianism as the most idealistic value system—it essentially says “don’t be selfish when constructing public policies.”

    When people say “utilitarianism can lead to bad result X” I always respond, “if we get bad result X, then we probably weren’t following utilitarianism.”

    You asked:

    “Scott your remark w.r.t. free speech is not clear to me. Are you suggesting that if it was cheap enough to implement, you would have some judge/jury/popular vote decide on whether some particular speech be allowed? For the libertarian belief system I’d have to paraphrase Lord Acton here, in that liberty be not a means to achieve some political end, but it be in itself the highest political end. In that sense a libertarian would define highest political liberty, including free speech rights, as the highest utility – and not some economic loss minimization function.”

    Sure, if restrictions on free speech made for a society with a higher total utility, then I’d favor restrictions on free speech. But if you are right that free speech is valued for its own sake (and I agree you are right, I derive great utility from the feeling of being able to speak out without fear of arrest), then it obviously becomes a part of people’s utility function. Here are some types of free speech that we might want to consider restricting:

    1. Yelling fire in a crowded theater.
    2. Giving our enemies military secrets about how to build a atomic bomb.
    3. Libel and slander
    4. False advertising
    5. Threats of violence.

    You argued:

    “To me the result is clear – rules based on specific expediency create more problems than they solve because they are highly dependent on opinion and utility is near impossible to define, to measure, never mind to achieve. Relying on principle on the other hand may not always get one the specific, individually desired outcome, but has the benefit of making the likely consequences of future decisions transparent. This enables trust in the future and planning. Principle based rules in the long run if you will, therefore achieve higher net utility, than first order outcome based utilitarianism.”

    No country has ever following his procedure, nor do I think it would work. Decisions about how to fight WWII, how to defeat global warming, how to address people who yell fire in a crowded theater, or who engage in false advertising, must be addressed pragmatically. Sure, as a general rule of thumb I agree that the market usually allocates resources more effectively than the government. So for utilitarian reasons I think we should usually rely on the market. Except when we shouldn’t.

    You said;

    “Nonetheless, I strongly believe that the delayed system effects of (even rule based) utilitarian expediency do harm to the original rule based system that made society and orderly economics possible in the first place.”

    This sounds self-refuting. If the rules do harm, they aren’t based on utilitarianism. It seems to me that there is a fallacy in your argument. You seem to imply that people who legislate on the basis of utilitarianism will end up making policies that reduce utility. I agree. That will happen. But the solution is not to abandon utilitarianism, but to try to develop a deeper understanding of how markets work. Libertarians will never be able to succeed politically by saying “Trust us, your world view is wrong, we need need to govern on libertarian principles.” Why would a non-libertarian (i.e. 99% of the population) pay any attention to that argument? Only pragmatic arguments will convert non-libertarians into libertarians. And that requires explaining how markets really work. If we can do that, we can make libertarianism seem like the utilitarian policy (which is what I believe it usually is.)

    Greg, I don’t think the world faced “recalculation” problems in 1930 and 1931, I think it faced a lack of AD.

    Peter, I agree with you that we generally shouldn’t use the tax system to do a lot of redistribution, although I don’t think “tax theft” is quite as common as many people suppose. Here in liberal Massachusetts we have had referendums on making the state income tax progressive. They always fail. You’d think that the 90% making less than $150,000 would want the top 10% to pay a higher rate, but they don’t. On the other hand it is a problem to some extent, even more so in other countries.

  24. Gravatar of Greg Ransom Greg Ransom
    3. March 2010 at 07:30

    Scott, hind-sight is 20-20 (err, maybe not always in economics, but anyway … )

    I’d like your thoughts this. If Britain artificially overprices labor and forces deflation of its economy, say by a return to the gold standard at par after a period of war time inflation, what problem does the _economy_ face, if we posit that the we aren’t the Gods in charge of machinery of the British state?

    Is it a recalculation problem?

    Scott writes:

    “Greg, I don’t think the world faced “recalculation” problems in 1930 and 1931, I think it faced a lack of AD.”

  25. Gravatar of Greg Ransom Greg Ransom
    3. March 2010 at 07:34

    Note well, Scott, the economy faces a “recalculation” problem every day .. there are always changes in the structure of production and consumption due to changes in time preferences, money supplies, interest rates, consumption schedules, etc. that are inter-related across individuals, processes, institutions, and time.

    “Greg, I don’t think the world faced “recalculation” problems in 1930 and 1931, I think it faced a lack of AD.”

  26. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    3. March 2010 at 09:56

    Scott,

    My understanding of the situation as relates to Germany & the UK is as follows:

    The US was:
    1) A Huge Creditor to them
    2) A Huge Exporter to them
    3) Had Tariffs on their goods

    This was a kind of closing vise, in that it made it very hard for them to pay us without austerity for their own people. For a time they could borrow, import gold, shift the pain to their people around, but that eventually wound down. When it did, Britain basically rewrote the terms of the deal, while Germany was granted better terms.

    Still, many, if not most investors in the US, would have still believed that the US held all the cards, even with worse terms being the case. Of course, over the next couple of years, that view would change. That’s my two cents about the stock market view of things.

  27. Gravatar of Greg Ransom Greg Ransom
    3. March 2010 at 10:00

    Just so I won’t be misunderstood.

    Here’s my point. There are always recalculation problems taking place for every individual and every business. What is more, changes in “AD” take place within this wider net of recalculation problems, and affect different individuals and firms differently — declines in aggregate demand can even creates situations where firms substitute production goods for labor, and depending on the situation increases in demand for goods situations does not necessarily translate into an increase in the demand for labor (Mill).

    So what “the world” faces if the imagined choice is between “recalculation problems” and “AD” problems is always a relative matter — a matter of degree. And any “AD” problem implicates and alters other recalculations problems of all sorts.

    QED the world did face recalculation problems in 1930 and 1931, and did so in part because it faced “AD” problems.

    Any understanding of changes involving “recalculation” includes changes involving consumption and investment demand even when imagined an undifferentiated pudding called an “aggregate”.

    In a severe situation of mal-coordination, the value of a great many things will be less, and of less value in total compared to what was expected — that’s part of the logic of the thing.

    And “recalculation” will be taking place dealing with both problems, as these generate structurally somewhat different coordination problems.

  28. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    3. March 2010 at 10:22

    Speaking of debts, you’re very tall and so is my brother, while I’m very short. And somebody is going to have to pay for that!

  29. Gravatar of azmyth azmyth
    3. March 2010 at 11:45

    Freight trains weight around 1000 tons, and assuming they are travelling about 50 mph, or 25 m/s2, that’s approximately 300 million joules of energy. If the fat man did absorb enough energy to stop the train, it would be enough force to trigger nuclear fission and vaporize him, the train and the hapless children. The moral of the story is, don’t push fat guys off bridges, it doesn’t help anyone.

  30. Gravatar of mbk mbk
    4. March 2010 at 04:23

    Scott, thanks for taking so much time in your replies. I get a sense we misunderstand each other sometimes though. Say my “We always implicitly assume…” was meant tongue in cheek. I don’t like it when people use “We…” when they only state their opinions, not to mention formulations like “The world clearly expects..” or such nonsense. So I used this “We ” sarcastically, and it wasn’t clear, mea culpa. It also seems we don’t use the words “utilitarian” and “pragmatic” the same way.

    This being said: Hayek often and clearly argues against expediency, and for principle. A subtitle in his L, L&L reads “Freedom can be preserved only by following principles, and is destroyed by following expediency”. One page later he quotes Menger’s warning of “pragmatism that contray to the intentions … leads to socialism”. If he’s known as a pragmaticist, it is say, in comparison with Rothbard. His defense of the role of the state goes more towards the state’s guarantees for the rule of law. In one specific sense you could call Hayek philosophically pragmatic because of his evolutionary rationale for grown values and rule systems. As a result he is less dogmatic than other libertarians, say on alleviating poverty as you said. That is also what I meant and agreed with, by “external calibration” of rule-based systems. You can’t get values just from following rules – but you can get rules following values. But Hayekian non dogmatic rules are still rules designed for generally desirable behavior (process rules) not case-by-case (“pragmatic) orders designed for achieving specific outcomes (goal oriented rules, such as orders in war).

    I don’t think I understand “utilitarian” the same way as you mean it. You say “I don’t think we will ever measure utility.” I agree but in that case, how does one then maximise “the greatest utility for the greatest number” as goes the classic utilitarian phrase? How would you decide any course of action if you can’t determine higher utility unequivocally?

    Same goes for the use of “pragmatic”. A pragmatic response to me is a case by case response designed to achieve a specific case by case desired outcome. Fat guy on bridge. But the prohibition on shouting “fire” in a crowded theatre is an (evolved) legal rule, not a case by case response. All your examples of free speech limitations fall under this heading: evolved (and rare!!) modifications from a hard “ultimate”, not utilitarian, principle. The US founding fathers said “we hold these truths to be self evident, that all men are created equal”, not “we will form our opinions on the merits of the subject’s application for equal treatment on a case by case basis depending on estimated utility for society”.

  31. Gravatar of scott sumner scott sumner
    4. March 2010 at 05:33

    Greg, I would call the problem “structural unemployment” not recalculation.

    Greg#2, I agree that the economy faces millions of recalculation problems every day. But I don’t think those cause business cycles, nor do I think they cause structural unemployment. I think most business cycles are caused by a lack of AD, (although a few are caused by supply shocks) and most structural unemployment problems are caused by artificially high wages and/or jobless benefits.

    Don, I agree with your comments, but the difficult problem is figuring out why stock investors thought the debt issue was so important. I am fairly confident they did, but I am not certain I know why they thought this.

    Greg#3: I think the way of distinguishing between our two views is to consider the counterfactual of NGDP continuing to grow at 3% after 1929. I say we would not have experienced high unemployment, even if certain sectors like commercial real estate were somewhat overbuilt in 1929. I don’t know exactly what Austrians believe, but I have the impression that they think the bubble of 1929 meant a recession was inevitable, due to recalculation. And that this would occur even if NGDP had kept growing.

    azmyth, Thanks, that was just in time. As I read your post I was about to push a fat guy off a bridge.

    mbk, A few comments.

    1. I agree that pragmatism often leads to socialism. My argument is that the only realistic solution to this problem is better pragmatism, not dogmatism.

    2. I favor the rule of law for pragmatic reasons.

    3. For pragmatic reasons, rules should be simple. I support rules for generally desirable outcomes, not incredibly complex rules that try to micromanage the economy. All of this is perfectly consistent with utilitarianism.

    You said;

    “I don’t think I understand “utilitarian” the same way as you mean it. You say “I don’t think we will ever measure utility.” I agree but in that case, how does one then maximise “the greatest utility for the greatest number” as goes the classic utilitarian phrase? How would you decide any course of action if you can’t determine higher utility unequivocally?”

    In life we always are making decisions under uncertainty. We can’t know for certain, but we can say that we believe that the economic policies of, say, South Korea produce higher per capita utility that the economic policies of North Korea. That’s the best we can do.

    I don’t define the word ‘pragmatic’ in the way that you do. To me it means “useful.” I distinguish between dogmatic views (i.e. certain things are intrinsically right and wrong, regardless of their effect on utility) and pragmatic views (i.e. whether something is right or wrong depends on how it affects utility.) Does that make sense?

  32. Gravatar of StatsGuy StatsGuy
    4. March 2010 at 08:48

    @mbk

    Recognize that the argument for stability can be reframed to defend virtually any system with consistent rules (regardless of the distributional impacts of those rules). It is a fact of history that when any system of rules is defended excessively (against the need for functional adaptation), the system is eventually overthrown violently from the inside or out, or decays into oblivion against threats of nature. The French Revolution, the Sacking of Rome (or the earlier fall of the Republic if you prefer), the Mayan fall, etc.

    I would also assert (and the truth of this statement is unknowable) that any rigid system of rules is inherently destabilizing in the long run. There will be _some_ underlying dynamic or exogenous shock that will destabilize the system. Wealth/power concentration is a plausible candidate, since power almost _always_ concentrates in any social system as it grows in size. Without “death” and progressive income taxes, if we had a fixed monetary base and no legislation against anti-competitive practices, one could make a strong argument that unregulated capitalism leads to increasing concentrations of power. We don’t know, because it’s never truly been allowed in a post-industrial society. And even in pre-industrial societies (US circa 1700s) taxes were mainly on property, which is even more progressive than income – property taxes in 1700s were effectively a tax on wealth (which gave wealth from trade an asymmetric advantage, since trade wealth – money – was not taxed, but rather only trade itself could be taxed via tariffs).

    Any decent pragmatist will agree with your argument for a rule based system, but will not agree with it absolutely. A pragmatist would also argue that rules based systems (and the ideological defenders of rules based systems) are quite useful, so long as they are properly balanced.

    Ssumner’s caution about incentives is essentially the same argument you raise about “trust” vis-a-vis “no man left behind” policies. An enlightened pragmatist considers long and short term effects.

    In modern society, the argument for a rules based system depends on the EMPIRICAL question of whether we could (indeed) have had bubbles/crises in a post-industrial overly specialized economy without government intervention, and whether the system would have endogenously recovered. If the answer to this question is “no”, then the “long run” advantages of strict dedication to a rules based system are really only “medium run”.

    But truthfully, we don’t know – because modern society is too risk averse to allow the kind of massive experimentation with a pure and perfectly rigid rules based system that you are describing – we do not trust any progenitor of that system to be so perfect that we are willing to bind our children to its precepts unto eternity.

  33. Gravatar of Greg Ransom Greg Ransom
    4. March 2010 at 09:12

    There are at least three things to distinguish Scott.

    1) My views and Hayek’s views are different things.

    2) Hayek’s views of what happened in 1923-1934 period differed depending on his changing knowledge base. He was a pioneer in doing empirical research on the Fed in the early 1920s (in New York working for Jenks), and was a pioneer doing primitive statistical analysis and data compilation on Austrian and Continental macro data in the late 1920s — and in Feb. 1929, Hayek did predict an American “bust” (according to Machlup, I haven’t read the monthly report myself) though not a 12 year Great Depression.

    But after 1929 Hayek stopped doing empirical work, and was drowning in theoretical work, and teaching and editing duties. There’s no evidence he had any time at all for following such stuff. And he and all economists gained a completely different knowledge base after the completion of Friedman and Schwartz’ work.

    3. Someone in Vienna looking at things in late 1928 – early 1929 could not have anticipated every U.S. legal and tax change which would transform America between 1928 and 1937 — stuff which contributed substantially to American economics problems.

    Scott writes:

    “Greg#3: I think the way of distinguishing between our two views is to consider the counterfactual of NGDP continuing to grow at 3% after 1929. I say we would not have experienced high unemployment, even if certain sectors like commercial real estate were somewhat overbuilt in 1929. I don’t know exactly what Austrians believe, but I have the impression that they think the bubble of 1929 meant a recession was inevitable, due to recalculation. And that this would occur even if NGDP had kept growing.”

  34. Gravatar of mbk mbk
    4. March 2010 at 09:46

    Scott,

    You say “I distinguish between dogmatic views (i.e. certain things are intrinsically right and wrong, regardless of their effect on utility) and pragmatic views (i.e. whether something is right or wrong depends on how it affects utility.) Does that make sense?”

    Yes and no. I think we now reach the level of genuine differences in philosophy. I’d still like to believe that one can have principle w/o dogmatism, and that the view you outline here merely shifts the dogmatic assignment of absolute value from process (action is supreme) to result (utility is supreme). Doing this to me creates all the slippery slopes of the end justifying the means etc. But most importantly, it destroys the purpose of the rule system itself – to be reliable, i.e., “eternal” – since the rules now change all the time to achieve the end. btw North vs South Korea is easily solved using principle, no need to bring in utility. But I think we’ll have to leave it at a difference in opinion.

    StasGuy,

    you say “I would also assert (and the truth of this statement is unknowable) that any rigid system of rules is inherently destabilizing in the long run.”

    Completely agree, this is what I aimed at with external calibration of the rule systems, Hayek’s evolutionary view of the rule of law, Goedel’s theorem, and Tarski’s undefinability theorem. All the same thing expressed differently.

    The problems I have with pragmatism, and again Hayek spends some time with this and Popper too in his “Open society and its enemies” IIRC but here I’d have to look it up, is that 1- if the end justifies the means, then more and more is permissible until everything is permissible. It’s a slippery slope problem. And 2- the constant pragmatic readjustment of the rules to achieve the end (hoping at least the end is stable) creates moral hazard and uncertainty. Sure, your enlightened pragmatist will readjust the rules. But that is precisely part of the problem.

    I come across here as if I was defending dogmatism. In reality I detest the concept of zero tolerance, it is an absurdity. But we are far, far from rigid rule systems in pretty much any country except maybe theocracies. Case in point, Scott’s blog here is dedicated in its great majority to the question of how to manage the second guessing of people w.r.t. the next pragmatic action of Fed and treasury. We’re in no danger of falling prey to everlasting policies. And that’s why I do the pushing from the rules and principles end.

    Maybe I should give my preferred system a name, like “rules, but with slack”. I prefer random slack / tolerance / imprecision, to managed care, so to speak, and if there be the necessary evolution of the rules to adapt to new realities, let it be slow. That’s how the Swiss do it btw. (w/o the slack even).

  35. Gravatar of Greg Ransom Greg Ransom
    4. March 2010 at 10:47

    For Hayek and Mises, there was a background to all this — things were screwed up internationally already, due to the war and to reparations and attempts to avoid the costs of war by screwing up workings of the traditional gold standard mechanisms.

    By 1929 there was already a serious unemployment / deflation / dis-coordination problem in Britain. There were already banking and credit and dis-coordination / “capital consumption” problems in Austria (Mises refused to take a major position at Creditanstalt, a leading Austrian bank, knowing that it would likely fail and that Austria was headed for economic turmoil).

    If you were an economists working out of New York, then Vienna and and then London — and you’d worked as a lawyer-economist satisfying the conditions of the international treaties coming out of WWI, then your view of the what the Fed was doing in the 1920s and what was pathological and what was not would have including the international context — e.g. how the Fed in the late 1920s attempted to help Britain with the problems it had created for itself with the 1925 return to the gold standard at par.

    Hayek came up with the theoretical conclusion that you cannot expect to maintain both a stable domestic price level and stable foreign exchange rates independently of Keynes and at about the same time.

    Hayek also saw similarly that in the context of rapidly rising productivity a stable price level (or a predictably steady rising price level) micro-managed by Fed money policy does NOT guarantee that the distribution of production inputs in differentially time consuming processes across time will be compatible with savings and consumption plans across time. At some point the Fed attempts to sustain an unsustainable / malformed production structure across time — a process requiring Fed feed credit and money expansion, just like a mountain of honey sustained by honey pouring from a honey pot cannot be sustained without every pouring honey. Stop the pouring from the honey pot, and the mountain structure of the honey hill collapses into a flat surface of honey.

    What Hayek argues is that you cannot forever dump resources every increasingly into production processes that ever increasingly long production periods, and which are not economically viable or preferred and non-distorted prices across time (i.e. without artificially manipulated interest rates and ever expanding quantities of money flowing differentially into more time consuming processes before less
    time consuming processes).

    The core difference between Hayek here and your view and that of other economists is that Hayek looks at the world and looks at the logic of choice — and both show him that a time structure / valuation structure across time exists — and he actually provides an economics that takes into consideration this fundamental fact about a production economy. You and most other economists can’t handle this fact as a simple product of your economic modeling strategy — and so you pretend it does not exit.

    As I’ve said, you conclusion follows from your implicit denial of what the world is like and from what your profession demands — i.e. that you don’t take the world or microeconomics seriously in regard to production or the logic of valuation across time involving production.

    It’s as if a theorists of honey movements began by denying that honey piles existed, and allowed the use only of models that couldn’t allow for such things to be imagined as a simple product of the formalism adopted.

    So the difference in belief about what happens is a product of Hayek’s accommodation of real facts about the world and real elements of the logic of valuation across time that you and most “macroeconomists” don’t allow yourself to even imagine or conceive — simply as a product of what the profession demands and not as a product of good economics or what the world is like or what allows you to anticipate the future or deal with it effectively.

    Scott writes:

    “Greg#3: I think the way of distinguishing between our two views is to consider the counterfactual of NGDP continuing to grow at 3% after 1929. I say we would not have experienced high unemployment, even if certain sectors like commercial real estate were somewhat overbuilt in 1929. I don’t know exactly what Austrians believe, but I have the impression that they think the bubble of 1929 meant a recession was inevitable, due to recalculation. And that this would occur even if NGDP had kept growing.”

  36. Gravatar of Greg Ransom Greg Ransom
    4. March 2010 at 10:51

    A short point worth making.

    Hard cases make bad law. Because of WWI, British gold policy, Smoot-Hawley, Hoover-FDR policies, etc. “1929” is a massively complex “hard case” — and as a result it is a very poor case for illustrating the workings of pure theory.

  37. Gravatar of Greg Ransom Greg Ransom
    4. March 2010 at 11:06

    Putting the issue into an “if, then” can help separate out massively complex historical contingencies from long ago that we have limited knowledge of from issues of theory that are our real concern.

    Let’s put it this way.

    IF the American economy in the late 1920 was maldistributing resources into long period production process as unsustainable rates under influence of Fed policy, THEN the Fed could not have managed a stable price level and stable gold standard regime and stable production / investment / credit economy at the same time.

    The problem here is the complexity of the problem of establishing the “IF” — and the impossibility of fully isolating this “IF” in the specific historical situation with so much other massive things going in America and the world, e.g. Smoot-Hawley, and gold and credit and treaty issues in the various states of Europe.

    The game we don’t want to be playing is intentionally blending and burying understanding of the theory by mixing it and covering it with complexities of a massively involved history that make the theory no long recognizable or distinct as an independent phenomena.

  38. Gravatar of Greg Ransom Greg Ransom
    4. March 2010 at 12:03

    Scott, here are two different questions.

    1) Does the causal mechanism apply in this case.

    2) Is the causal mechanism a real one.

    In trying to evaluate the second question, what you don’t do is this. You don’t pick out the most ambiguous and multi-causal complex situation possible to attempt to evaluate the question.

    The question of whether and to what extent a causal mechanism and explanation applies in any case can be a very difficult question, esp. in complex historical situations.

    In order for the Hayekian mechanism to apply to the U.S. in 1929 all sorts of complex factors must be taking into consideration, including U.S. Fed relations and U.S. gold policy relations with other countries, U.S. trade regulations and taxes, etc.

    And it is further question to what extent Hayek’s “boom bust” causal mechanism accounts for the _degree_ of the resulting economic problems, and to what extent the degree of the problem can be attributed to other causal factors, e.g. the U.S. banking structure, Hoover high wage policy, Smoot-Hawley, FDR economic pathologies, European policies and pathologies, etc., etc.

    This is far from being a good case, a clean case — and isn’t a good one for evaluating the relative degree of various causal forces.

    Hayek perceived his mechanism as coming into play in 1929 — but didn’t understand at the time very much about what was actually happening. Data at the time was poor, the situation was massively complex, and Hayek by 1929 was expending his time on other things. By the 1960 — with better knowledge — Hayek changed his mind about the relative significance of his “boom bust” mechanism in the bust phase.

    As for myself, I can’t remember enough about the data, and haven’t studied this massively complex historical episode closely enough to have a very firm opinion about what happened.

  39. Gravatar of JimP JimP
    4. March 2010 at 14:31

    Greece is going to help us all – at least according to Tim Bond. Restrained fiscal policy and easy money. In spite of the political and monetary morons currently in charge.

    http://ftalphaville.ft.com/blog/2010/03/04/165611/bond-the-markets-have-cornered-the-political-establishment/

  40. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    4. March 2010 at 14:36

    Scott,

    You make a good point. I’d have been terrified.

  41. Gravatar of JimP JimP
    4. March 2010 at 15:52

    And there is even chatter that Obama might nominate Mike Woodford for the Fed board. Or Christie Romer. Either – better both – would do just fine.

    Come-on Obama – get Ben the votes he needs. Price level targeting – not rate targeting.

    Retire Larry Kudlow to the funny farm where he belongs.

    http://www.reuters.com/article/idUSN0215887020100303

    “PENPIX-Who will Obama name to fill Fed vacancies?”

  42. Gravatar of Doc Merlin Doc Merlin
    4. March 2010 at 19:19

    I reject your example with the fat guy.

    Utility theory tells us that utility is ordinal and not really cardinal, but we can treat it as cardinal so long as we avoid comparing actual utility value between two people and just compare marginal utilities. This means you can’t use utilitarianism to say that the fat guy’s utility has less value than who you kill him to save.

    In order for utilitarianism to make sense at all you have some way of comparing the actual value of things to different people. before someone says this I will also respond and say, that no “utility” in philosophy and “utility” in economics are different things. They aren’t, they come from the same place and the same thinkers.

    I’ll give the 6 most common proposed valuation comparison methods (in my experience) and flaws with each of them:

    1. Animal rights utilitarian (Peter Singer)
    Proposition: using intelligence:
    Odd result: Its more moral to kill unwanted newborns than it is to kill the average baby chimpanzee.

    2. Rights fundamentalist (Walter Block)
    Proposition: humans have fundamental rights over certain things, then everything else is handled by exchange and marginal (as opposed to total) utility.
    Odd result: Its immoral to kill 1 innocent person to save the life of any number of other innocent people.

    3. Someone who believes that prices /are/ fundamental values.
    Proposition: you find the market value of something in terms of some medium of exchange and then you use that to judge relative value.
    Odd results: Its far more immoral to kill Bill Gates than it is to kill Scott Sumner.

    4. Fascists
    Proposition: You have a leader who gets to decide how to relatively morally value things.
    Odd result: What the leader wants becomes infinitely more valuable than what anyone else wants, and… well, I don’t have it go into details, things become really horrible.

    5. Everyone has a fixed but equal total amount of utility that they can allocate over all they care about.
    odd result: If two people are willing to die to kill someone else, and no one else cares, its moral for them to do so.

    6. Democratic fundamentalists:
    Proposition: We vote on it:
    Odd result: if enough people vote kill off some minority group then its moral to do so.

    There are infinitely other variations of methods to decide how to turn the subjective, personal, cardinal value of utility into something we can compare between people so we can do moral reasoning with utility, but every single method comes up with odd results.

  43. Gravatar of scott sumner scott sumner
    5. March 2010 at 07:48

    Statsguy, A good example is the gold standard. I believe it was Barro who pointed out that the gold standard was often suspended in wartime, and that this was a rational response to the fiscal needs of governments. It is essential to have rules, and it is essential to break rules on occasion.

    Greg, OK, but what about my NGDP counterfactual, am I right in assuming that most Austrians would see the situation differently from me? I am trying to get beyond the limitations of knowledge at the time, and consider how people would see that counterfactual given what we now know.

    mbk, The ends do justify the means. So I don’t worry about that “slippery slope.”

    Greg#2, You said;

    “For Hayek and Mises, there was a background to all this “” things were screwed up internationally already, due to the war and to reparations and attempts to avoid the costs of war by screwing up workings of the traditional gold standard mechanisms.”

    Of course this is exactly what I said in my manuscript.

    greg#4, Why do you say “if” the US economy was maldistributing resources? I thought Austrians claimed we knew it was maldistributing resources. If we can’t answer this question, then how can Austrians develop a theory that explains business cycles on the basis of maldistribution?

    JimP, That FT article is music to my ears. I will link to it.

    JimP#2,, Thanks for the list. I met Jeffrey Fuhrer when he spoke at Bentley last year. He’d probably be a good choice as well. But why didn’t he do this a year ago?

    Doc merlin, I don’t know what you mean by “utility theory tells us that utility is ordinal, and not really cardinal.” I think you can in fact say that three children are worth more than a fat man. I don’t think theory says what you claim it does, rather I think it is generally assumed that there is no rigorous way of doing interpersonal utility comparisons. But you can still make crude estimates or guesses.

    Regarding Peter Singer, it is important to distinguish between a value system (such as Singer’s utilitarianism) and the implications that he draws from that system. I agree with Singer’s value system, but don’t agree with the policy implications that he draws.

  44. Gravatar of Greg Ransom Greg Ransom
    5. March 2010 at 08:42

    Scott, I refer you again to my comments about hard cases making bad law. The data is complex and international in scope, the causal account is overdetermine making things multiply complex, my memory is limited as is my time.

    Most Hayekians who have looked at the data carefully think there was maldistribution — but that doesn’t explain everything, as Hayek and Higgs and Horwitz and other emphasize.

    Scott writes:

    “greg#4, Why do you say “if” the US economy was maldistributing resources? I thought Austrians claimed we knew it was maldistributing resources. If we can’t answer this question, then how can Austrians develop a theory that explains business cycles on the basis of maldistribution?”

  45. Gravatar of Greg Ransom Greg Ransom
    5. March 2010 at 08:43

    Again, there are easier cases than 1929 — which therefore recommend themselves.

  46. Gravatar of Greg Ransom Greg Ransom
    5. March 2010 at 09:05

    Scott, I’ve forgotten a huge amount of “what we know about 1929”, the biggest “knowledge problem” here are limits own my own cognitive capacities and my time. In such a complex case there is much more to remember and process and make sense of — it’s not a paper napkin case.

    Scott,

    “I am trying to get beyond the limitations of knowledge at the time, and consider how people would see that counterfactual given what we now know.”

  47. Gravatar of scott sumner scott sumner
    6. March 2010 at 07:25

    OK, We’ve probably reached the end of the road here. Let’s pick it up again when there is another case to examine.

  48. Gravatar of TravisA TravisA
    7. March 2010 at 16:22

    Scott,

    I’m not sure if you are interested in still exploring utilitarianism, but if you are, how would you address these questions:

    1) If it’s moral to kill the fat man to save three children, then doesn’t everyone have a moral imperative to have as many children as possible (at least to the point where each child itself experiences a positive utility), regardless of what that does to your own happiness?

    2) Question 1 is somewhat related to the mere addition paradox: http://en.wikipedia.org/wiki/Mere_addition_paradox

  49. Gravatar of ssumner ssumner
    8. March 2010 at 06:01

    Travis, I have thought about that issue, and don’t have a good answer. One issue is animal rights–more humans may mean less utlity for animals. But I don’t have any useful opinions on animal rights.

    Another possibility is that average utility is roughly zero, and more kids would tip it into negative territory.

    I suppose in the end I assume public policy should take the population as a given, and try to maximize per capita utility. I do not favor restrictions on population (like China’s one child policy.) I have an open mind on subsidies for having children.

    As far the individual obligation to maximize the utility of you and your children, it is not clear what this implies in a world of uncertainty. Suppose I make myself miserable trying to raise ten kids, and they each make themselves miserable trying to raise ten kids. At some point there must be a generation that enjoys their life, and doesn’t simply sacrifice for the next generation. But what if the world ends before that generation kicks back and enjoys life? Maybe one answer is using the discount rate. Utilitarianism would seem to allow for a high rate of discount for future utility, which might justify having fewer kids than under the criterion you discuss. But I do agree, this issue raises some very difficult problems for utilitarianism.

    Maybe everyone should read Bryan Caplan’s new book.

  50. Gravatar of travisA travisA
    8. March 2010 at 08:39

    Thanks for the answer, Scott.

    These ideas might pertain to determining discount rates used in global warming calculations. Here’s something from Brad Delong that I find puzzling:

    http://delong.typepad.com/sdj/2010/03/do-we-need-a-big-carbon-tax-now-paul-krugman-bill-nordhaus-and-nick-stern-on-the-climate-policy-ramp.html

    I think Krugman goes astray when he characterizes Stern. Nick Stern assumes something different than a “low discount rate.” He assumes:

    No pure time preference–that the welfare of somebody born in 2100 does not count less than the welfare of somebody born in 1960 simply by virtue of birth date.
    The costs of global warming scale with the economy: double the size of the economy and you double the costs of global warming.
    Stern’s first assumption seems to me to be trivially and obviously correct as a proposition in utilitarian or, indeed, any other view on moral philosophy.”

  51. Gravatar of Collectivist and Individual Morality « Free Radical Collectivist and Individual Morality « Free Radical
    8. March 2010 at 14:49

    […] and Individual Morality March 8, 2010 Free Radical Leave a comment Go to comments In a recent post Scott Sumner argues that utilitarianism would be a good thing if it weren’t for the cost of […]

  52. Gravatar of ssumner ssumner
    9. March 2010 at 05:41

    travisA, Thanks, My hunch is that people will be far richer 100 years from now. Would we have wanted our great grandparents to scarifice some utility in 1910 so that we’d be better off today? I don’t think so.

    I do favor a carbon tax, but I lean a bit more toward the Nordhaus view.

  53. Gravatar of Bountiful Links: A Random Collection « The Droning Inquisition Bountiful Links: A Random Collection « The Droning Inquisition
    12. August 2010 at 00:15

    […] Scott Sumner thinks we’ve spent the last several centuries gradually becoming a more utilitari…. (In response to Greg Mankiw saying taxing the tall because tall people earn more is an absurd idea.) Money Quote: I suspect that Mankiw and I have pretty similar views on optimal tax regimes, but I get there from a different direction.  I don’t think we can rely on moral intuitions.  At various points in history our moral intuitions about the dignity of aristocrats was quite different.  Our moral intuitions about war and slavery have changed.  Ditto for women’s rights, civil rights, and gay rights.  Indeed our views on gay rights are still changing, as the younger generation has more liberal views than the older generation.  And what do you notice about all these changes?  In every single case our moral intuitions have moved in the direction of utilitarianism. […]

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