Rules versus outcomes

There’s one question thrown up by the debate over Richard Layard’s Happiness that hasn’t been properly answered: do we need any measure of aggregate well-being at all? These guys think we do. I’m not so sure.

Think of the recent Chelsea-Barcelona game. Barcelona fans complained about their defeat because the winning goal was due to a foul on their goalkeeper.

But by utilitarian logic, they had another complaint – the result decreased aggregate happiness. The happiness of Chelsea and Real Madrid supporters was, surely, outweighed by the disappointment of the hundreds of thousands of Barcelona fans and Chelsea-haters.

No-one, though, thought for a second that this was a legitimate complaint. Instead, complaints focused upon the fact that a vital rule was broken.

This highlights an important fact. There are many activities – such as sporting events or court cases - where what matters about the outcome is not its effect on aggregate well-being, but simply whether it is consistent with procedural rules.

So, why is economic activity not like football? Why do we feel the need to judge its outcomes by their effects on some aggregate, rather than by whether they followed the rules?

Many of you will think the answer’s obvious. The rules underpinning economic transactions are unfair, you’ll say. And what’s more, we all feel compelled to follow them, whereas if we don’t like the rules of football, we can simply ignore the game.

It’s a good answer as far as it goes, which is not very far. It simply raises the question: why don’t policy proposals focus upon changing the rules, rather than upon devising complicated and controversial aggregate measures of well-being?

Such proposals would focus on five or six areas:

1. Defining and clarifying legitimate property rights. This guy’s got some great ideas. But the problem of ill-defined property rights is not confined to developing economies. Consider the question: should Stansted airport be expanded? This is more complicated than it need be. A simple allocation of property rights would solve the problem. If, say, people living in the Stansted area had a right to quiet air, BAA’s plans to expand the airport could only proceed if they could buy out the residents’ rights. And they could only do this if the gains to air travelers outweighed the costs to residents. We wouldn’t, therefore, need huge expensive enquiries to judge whether expansion was in the public interest. The market would do the job for us. Also, there might be a case for redistributive taxes to correct for the fact that historic aquisitions of property were unjust.

2. Internalize externalities. This is a sub-category of the above. Some economic transactions, like driving in congested cities, impose costs onto others. These costs should be internalized by taxes.

3. Improving bargaining power. Many of the left’s complaints about the market economy are that workers are compelled by a lack of alternatives into hazardous or poorly paid work. Why not solve this problem at source, by increasing their bargaining power by giving them better outside options? This is one argument (of many) for a citizen’s basic income.

4. Democracy and free speech. I don’t need any measure of aggregate well-being to tell me that Zimbabwe, Burma and North Korea are badly governed. But we can also judge UK policies by a procedural rather than outcome standard. Rather than ask: does this policy promote happiness? we should ask: has this policy been chosen in the most democratic way possible, so that all possible arguments have been considered? The answer is invariably: no. And this merely highlights the case for unbundling policy-making, and using direct democracy and demand-revealing referenda rather than relying upon the man in Whitehall.

5. Markets for managing risk. The complaint that market economies expose people to risk and instability is plain wrong. The problem isn’t markets, but missing markets. This book shows how to fill in the gap. And Catallarchy has a nice discussion here.

6. Rationality. It’s sometimes said that people are poor judges of what’s good for them. I’m not sure this is right. And I’m damn-near certain that it’s no argument for delegating decision-making to politicians. But it’s worth considering whether we can reform the education system to produce more rational citizens. Shouldn’t the cognitive biases research programme inspired by Kahneman and Tversky be part of the national curriculum?

There are, of course, many problems with this sketch. But there are also huge practical and philosophical problems with designing measures of aggregate well-being. Which raises the question: why do so many policy wonks focus upon the latter, rather than upon changing the rules of the game?

Regular readers will know my hunch. It’s about managerialism. Outcome-based policy-making gives politicians endless opportunities to meddle in our lives. Rules-based policies would give them less to do, once they’ve got the rules right.

Comments

[Blimpish]

Even if managerialism wouldn't be made redundant by a more rules-based policy environment, agreeing the rules would mean facing up to choices and trade-offs. And that managerialism could not do.

[Ronnie Horesh]

"Outcome-based policy-making gives politicians endless opportunities to meddle in our lives."

Definitely, unless government contracts out the achievement of good outcomes to the private sector. Government can set broad social goals (eg eradicate poverty, increase literacy etc), and let the market decide how these can be best achieved. See my website http://socialgoals.com for more on 'Policy as if outcomes mattered'.

[Rob]

Two things.

First: although I'm very sympathetic to anti-utilitarian arguments, the dismissal of utilitarianism by reference to the rules of football is a bit quick. Any utilitarian worth their salt will tell you that there are very good reasons for having rules because they promote the kind of stable and predictable outcomes which are conducive to happiness and simplify what would otherwise be an incredibly complicated process of decision-making, which would not only often go wrong, but also itself carry large costs.

Second: expanding property rights, as in the case of airport expansions you mention above, seems to have two problems, that it could create huge informational problems - just obtaining all the relevant information in order to know what to sell your right to no noise for could be incredibly difficult - and that it could allow obstinate individuals to refuse to give up rights for any price, when doing so, because of the cost it would impose on others - in the case of the airport expansion, they wouldn't be able to give up their rights, even though they wanted to, because the airport would only buy the rights in the event that all the rights were sold - would be unjustified.

Incidentally, if you're going to these kind of quasi-libertarian arguments about a suitably constrained market providing just outcomes by virtue of it's procedural features, I'd highly recommend, if you haven't, reading the first couple of chapters of Ronald Dworkin 'Sovereign Virtue', where he makes exactly this kind of argument (and then, once you've done that, Elizabeth Anderson's - yes, she of Left2Right - critique, 'What's the point of equality' in 'Ethics'). Keep up the good work: this is interesting.

[sagnik]

what a game it was
chelsea at their best!
common chelsea!!!!!!