The science of economics has undoubtedly come a long way since the days of Adam Smith, but economic discussions today can often seem downright strange, if not misleading. One case in point is the focus on the concept of utility, as one prominent economic blog recently did—with far-reaching implications.
Economists tend to think of human action in reductionist terms. We all presumably pursue our personal well-being by calculating the potential gains and losses in each situation and maximizing positive outcomes for ourselves. In economic terms, we seek to maximize our own utility. This is called ‘ordinal’ utility.
The theory can seem reasonable on its face, but the utility concept does not stop there. We also presumably aim to maximize the utility of a situation, seeking, for example, the greatest happiness for the greatest number. How? By comparing the level of utility across various individuals—which is called ‘cardinal’ utility—and trying to maximize it for any given situation.
The greatest happiness for the greatest number may sound like a noble idea, but exactly how are we supposed to make this sort of utility calculation? This brings us to the economic blog:
Someone “once quipped that interpersonal utility comparisons were one of those things that are hard in theory but easy in practice. . . . The example he gave was giving up your bus seat to an old lady. You do it because it increases her utility more than it decreases yours, and people perform this sort of comparison correctly all the time.”
Is this what we do—offer an elderly woman our seat on a bus because we’ve compared her utility to ours and concluded that utility will be maximized if we get up and she sits down? Even if we’re inclined to try to make this calculation, there is the non-trivial problem of comparing her utility to ours. Here, economics may not be very helpful:
One of the things we are most sure of in economics is that you can’t compare utility, marginal or otherwise across individuals. Utility is ordinal, not cardinal.
So, even if we were so inclined, making these kinds of utility calculations is problematic. Yet, for economists, the theory still seems to be a useful one:
Yes, utilities are supposed to capture ordinal preferences, and I agree that this make naive utilitarian sorts of calculations where we sum up everything incoherent. But there are other approaches to thinking about how we might construct a social welfare function . . . And of course empirical economists often do welfare analysis which involves summing utility, so it is useful in practice as a way to evaluate policy decisions.
All this raises a number of issues. First of all, if someone were to give up his seat on a bus to an elderly woman, he probably would not make a utility calculation. More likely, he would make a moral decision—empathizing with the weakness of the woman and satisfying a moral obligation to help her. In individual decisions like these, not only does utility theory not seem helpful, it does not give the moral element much relevance.
More importantly, when we turn to the issue of public policy, utility theory is even more questionable. We all presumably have hopes about what our society should ideally look like. But how are we to sum up utilities across the population to determine which policies would be best and which would generate the greatest happiness for the greatest number? What if one person’s utility interferes with another’s? What if policies designed to achieve two or more desirable outcomes are in conflict? What if trying to maximize utility requires government coercion? Would such coercion be consistent with traditional notions of justice?
In the case of the man and the elderly woman on the bus, perhaps the overall utility would be maximized if the young man did stand up and let the elderly woman sit down. But would we suggest that the government, in order to realize a certain outcome, infringe upon the young man’s liberty and impose a policy to coerce him to stand up? In this mundane situation, we would not expect the government to get involved, but what about other situations with much more at stake?
Economics seems to have little to say about the implications of its utilitarian ways of thinking. Utility theory not only assumes away the idea of moral agency. It also assumes that we can and should legislate for certain outcomes to maximize utility, while offering little, if any, normative guidance as to the moral rectitude or justice of such goals. The moment we face complex social situations where one’s own personal utility competes against another’s, we face moral questions that economics alone does not seem able to answer.
Curt Biren is an investment advisor in Los Angeles, CA.