Economics as Applied Ethics AlsobyWilfredBeckerman TheBritishEconomyin1975(withassociates) International ComparisonofRealIncomes AnIntroductiontoNationalIncomeAnalysis InDefenceofEconomicGrowth(USAeditionundertitleTwoCheersforthe AffluentSociety) MeasuresofLeisure,EqualityandWelfare PovertyandtheImpactofIncomeMaintenanceProgrammes Growth,theEnvironmentandtheDistributionofIncomes PovertyandSocialSecurityinBritainsince1961(withStephenClark) SmallisStupid APovertyofReason:SustainableDevelopmentandEconomicGrowth Justice,Posterity,andtheEnvironment(withJoannaPasek) WilfredBeckerman Economics as Applied Ethics Fact and Value in Economic Policy SecondEdition WilfredBeckerman UniversityCollegeLondon London,UnitedKingdom ISBN978-3-319-50318-9 ISBN978-3-319-50319-6(eBook) DOI10.1007/978-3-319-50319-6 LibraryofCongressControlNumber:2017933430 ©TheEditor(s)(ifapplicable)andTheAuthor(s)2017 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher,whetherthewholeorpartofthematerialisconcerned,specificallytherightsof translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthis publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesare exemptfromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformation in this book are believed to be true and accurate at the date of publication. Neither the publishernortheauthorsortheeditorsgiveawarranty,expressorimplied,withrespectto thematerialcontainedhereinorforanyerrorsoromissionsthatmayhavebeenmade.The publisherremainsneutralwithregardtojurisdictionalclaimsinpublishedmapsandinstitu- tionalaffiliations. Coverillustration:MichaelBurrell/AlamyStockPhoto Printedonacid-freepaper ThisPalgraveMacmillanimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland P REFACE This is a substantially revised version of the first edition. Some of the chaptershavebeen largelyrewritten,notably thechapterson‘happiness’, thevaluationoflifeandtheproblemofequality.Inaddition,Chapter1of thefirsteditionhasbeenscrappedandsubstantialchangeshavebeenmade to all the opening chapters in order to bring out more clearly the main theme of this book. This is an attempt to provide a simple method for analysing any problem in economic policy. The method is basically a distinction between what parts of the problem are questions of fact and whatparts arequestions of valuejudgement. Consequently,afteraninitialexplanationofthebasicconceptsinvolved, therestofthebookcomprisesadiscussionofthewaythatthisdistinction cropsupintheanalysisofappliedeconomicproblems.Thisbeginswitha generalexplanationoftheroleoffactsandvaluejudgementsinthegeneral theory of welfare economics, and is followed by the application of this distinction to some major contemporary economic problems, such as equalityorobligations to othercountries orfuture generations. Thus I make no attempt to provide a general survey of ethics in economics, on which there are already several excellent texts available. Instead I focus on trying to provide a practical key to the analysis of economic policy issues. I believe that this key – namely the separation of questions of fact from questions of value – is one that can also be used profitably to unlock the complexities of non-economic problems as well. Butthatisanothermatter.AllthatItrytodoistobringoutintotheopen the value judgements hidden away in the general theory of welfare eco- nomicsandintheanalysisofmanyeconomicpolicyproblemsofourtime. v A CKNOWLEDGEMENTS The title of this book has been taken – with his permission – from the openingremarksmadebyJohnBroomeatapublicmeetinginOxfordin November 2009 that was focused on the great contributions made by AmartyaSentoourunderstandingoftherelationshipbetweenethicsand economics.AsIindicateinChapter1ofthisbook,inthecourseofwriting it I drew very heavily on their work as well as that of the late Ian Little. This doesnot meanthatthey would agreewith allofwhat Isay. I am indebted to my old friend and ex-colleague, Paul Streeten, who first opened my eyes to the importance of the link between ethics and economics. IamalsoindebtedtothemanypeoplewithwhomIhavediscussedsome of the contents of the book, and to the following people who have kindly read – and commented on – individual chapters of the first edition of this book. These are the late Tony Atkinson, Ken Binmore, John Broome, Roger Crisp, Nicholas Fahy, James Forder, Sudhir Hazareesingh, the late IanLittle,TomNagel,JoannaPasek,AdamSwiftandClarkWolf,aswellas tomyBalliolcolleaguesandex-colleagues,includingthelateBobHargrave, Kinch Hoekstra, John Latsis and Jessica Moss, for guidance on many philosophicaltopics,andtomyUCLcolleague,UwePeters,forimportant amendmentsatalatestageinthedraftingofthisbook. I amalsogreatlyindebted tomywife,JoannaPasek,withwhom I have discussedthetopicscoveredinthisbookovermanyyearsandwhohasbeena sourceofpatientencouragementandenlightenmentthroughout.Iamalso gratefultothediscussionovertheyearswithherstudentsintheEconomics DepartmentatUniversityCollegeLondon. vii viii ACKNOWLEDGEMENTS Finally,mygreatestdebtistomyoldfriendNickMorris.Inadditionto help with the overall structure of the book as well as with the statistical material in Chapter 15, Nick Morris took over the co-ordination of the team of proof-readers in my family (Debbie Beckerman, Keith Jones, Beatrice Beckerman, and Agnieszka Pasek), and then master-minded the wholeprocessofproducingaprintableversion.Withouthishelpthisbook might never haveseen thelight of day. In the Acknowledgements to his recent book, The Idea of Justice, Amartya Sen lists about 360 people who have contributed in one way or another to the development of the views expressed in his book. By comparison, my little list of only about twenty or so people is rather brief. I am sure that help from 360 people would have made my book better–thoughprobablynotasgoodashis,ofcourse.Buttheproblemis thatIdonotevenknow360people!However,suchlittlemerit–ifany- that my book may have has to be shared out among only about twenty people, not360! Of course,I, alone, take allthe blameforits defects. C ONTENTS 1 Introduction 1 PartI BasicPrinciples 2 Preview 7 1 Value JudgementsinWelfare Economics 7 2 TheWelfare of theIndividual 8 3 Fromthe Individual to Society 9 4 Equalityand the DistributionProblem 10 5 ValuingLife: TheUltimateValue Judgement 11 6 National IncomeandGDP 11 7 Happiness 12 8 TheBoundary in Spaceand InternationalJustice 13 9 TheBoundary in Time andIntergenerationalJustice 15 Note 16 3 The Main Concepts 17 1 DavidHume andthe Health Fanatic 17 2 Value JudgementsandIntrinsic Values 18 3 Normative Propositionsand PositivePropositions 21 4 WhatIs Welfare Economics? 23 5 TheConstruction ofWelfare/Normative Economics 26 Notes 29 ix x CONTENTS 4 Fact andValue inPersonal Choice 31 1 ThePain of PersonalChoice 31 2 TheBasic Theoryof Consumers’Choice 32 3 The‘Utility Function’in Economics 33 4 Preferencesand Theoriesof ‘the Good’ 34 5 TheEconomic Concept ofRationalChoice 36 Notes 37 5 How toMake ‘Bad’ Choices 39 1 WhyPeople Make‘Bad’Choices 39 2 Informationand ‘RationalIgnorance’ 43 3 ConsumerSovereignty orPaternalism? 44 4 Altruismand Commitment 48 5 Conclusions 51 Notes 52 6 Fact andValue inPublic Policy:ThreeExamples 53 1 TheEquality-Efficiency Trade-Off 53 2 ThePrice StabilityObjective 58 3 The‘FairTrade’Problem 61 4 Conclusions 61 Notes 62 7 From Economic ‘Efficiency’to EconomicWelfare 63 1 Cost-Benefit Analysisin WelfareEconomics 63 2 Cost-Benefit Analysisand ‘Franklin’sAlgebra’ 65 3 ParetoOptimality and theCompensation Test 66 4 PracticalLimitations onthe CompensationTest 67 5 ParetoOptimality and theDistribution ofIncomes 68 6 Introducingthe ‘Social Welfare Function’ 70 7 Conclusions 75 Notes 76 8 The ‘MindlessSociety’ 77 1 IsThere a‘Society’? 77 2 Social ChoiceTheory and theImpossibilityTheorem 78 3 AnExample: LocalAir Pollution 81 4 TheWelfare Economics Approach 84