I read a chapter of The Armchair Economist today. It’s an engagingly written book.
Here’s one passage I found particularly interesting.
Now let me return to that dollar bill whisked away by the New Orleans wind. I knew that if I let that dollar get away, it would land in a place where it would never be found—it would be as good as burned. What were my options?
Option One is to kiss the dollar good-bye. The cost-benefit accounting: I lose a dollar, the rest of the world gains a dollar through falling prices, and the world as a whole is neither richer nor poorer than before. The consequence for economic efficiency: None.
Option Two is to grab the dollar, exerting approximately three cents’ worth of effort. (That is, three cents is about what I would have been willing to pay my friend David to retrieve the dollar for me instead of grabbing it myself.) The cost-benefit accounting: I lose three cents, the rest of the world neither gains nor loses, and the world as a whole (including me) is three cents poorer. The consequence for economic efficiency: A decline. By a purely selfish accounting, losing the dollar is costlier than grabbing it. But if I let the dollar go, my losses are offset by others’ gains. If I grab it, my (substantially smaller) losses are not offset by anything. The logic of efficiency compels me to let it go.
Or does it? Let me distinguish between two quite different propositions. One is that economic efficiency should be an important consideration in resolving issues of public policy. The other is that economic efficiency should be an important consideration in resolving issues of personal conduct. It is only the first of these propositions that economists frequently defend. Like most people, economists are vocal when they criticize governments but coy when they criticize each other.
The efficiency criterion treats everybody equally. A cost is a cost, no matter who bears it. In the realm of public policy, this is an appealing feature. But in our private affairs, it seems odd to insist that we should behave as if our own concerns carry no more weight than those of distant strangers. There are times–as on that day in New Orleans–when I think that efficiency fails entirely as a guide to how I should behave. But there are other times when it serves me pretty well. When my lawn gets shaggier than the neighbors would prefer, I have to ask myself whether I am morally obliged to take action. In the process, I think about what it would cost me to get the lawn mowed, and how unhappy I think the neighbors really are. If it seems likely to cost me $30 worth of effort to save the neighbors from $20 worth of grief, I pour myself a lemonade and stop worrying. If I believe that with $30 worth of effort I could save the neighbors from $50 worth of grief, then I feel like a jerk until I mow the lawn.
That’s an efficiency calculation, and it leads me to conclusions that feel right. I’m not entirely consistent about this. When I decide whether to operate an internal combustion engine or an aerosol can, I do care about the harm that I might do to others by damaging the air quality. I emphatically do not care about the psychic harm that I might do to others who are morally offended by the very idea of my operating an internal combustion engine or an aerosol can. I think that this distinction would be very hard to justify philosophically. If my driving makes you unhappy, then I have made the world a less happy place in a way that is independent of why my driving makes you unhappy. The strict logic of efficiency would say that if I am prepared to stay home rather than cause $10 worth of damage to your lungs, then I should also be prepared to stay home rather than cause $10 worth of damage to your moral sensibilities.
I infer that although my moral philosophy is incomplete, efficiency considerations play a major role. But my last trip to Boston shook my faith a bit.
I flew from Denver, with my wife, and our round-trip tickets totaled just under $2,500.I offered alternatives to the publisher who was footing the bill, but he insisted that we come anyway. Still, I’m sure that if I’d been paying my own way I would have canceled the trip.
This led me to formulate the following moral dilemma: Suppose that getting to Boston and back is worth $300 to you. It costs the airline $200 to provide that transportation. But because of some extraordinary degree of monopoly power, the airline charges $1,000 for the ticket. Should you fly? If you care only about efficiency, then you certainly should. If you fly, you are worse off by $700 (the difference between what you pay and the value of the trip), while the owners of the airline are better off by $800 (the difference between what they collect and the cost of flying you). There is a net gain of $100 and the efficiency criterion pronounces the trip a Good Thing.
Yet I am sure that I would not buy the ticket and I am equally sure that I would lose no sleep over it. I am sure that I would reach the same conclusion no matter how much the airline owners stood to gain, or how little I stood to lose. So while I still believe that efficiency is usually the right general guide to government policy, and often the right general guide to personal behavior, I now think that we need a much subtler criterion before we can really know what it means to be good. I believe that there are times when I ought try to behave efficiently and other times when I need not. I just haven’t figured out the rules for knowing which times are which.
I did retrieve that dollar, without a moment’s concern for its effect on the general price level. I feel no guilt, though I’m not sure why.