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In Honor Of July 4th, Some Economists’ Takes On Freedom…

July 4th, 2011 · 8 Comments
Decision Making · Happiness · Policy

Yesterday, Tony Cookson reminded us what role freedom plays in economics, at least according to Ed Glaeser:

But that shift doesn’t mean that there isn’t a deep moral tenet – a belief in the value of human freedom – at the core of our discipline.

Some economists made that belief explicit. In the 18th century, Smith wrote, “Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so.”

In the 19th century, John Stuart Mill asserted, “The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”

In the last century, Milton Friedman offered “freedom is a rare and delicate flower” and “a society that puts equality — in the sense of equality of outcome — ahead of freedom will end up with neither equality nor freedom.”

Economists, like Friedman, often made the case that freedom had instrumental value — it achieved other aims, including equality and prosperity. But no one should doubt that Friedman and Mill and Smith saw freedom as a fundamental good, a thing to be valued for itself. That is, after all, how freedom is treated at the very heart of economic theory.

I think I like John Stuart Mill’s version the best, since it roughly translates to “go make yourself happy, but don’t screw anyone else in the process.” Glaeser goes on in the article to take more about freedom (specifically, freedom of choice), where he points out that increased utility (i.e. happiness) comes from an expanded “choice set,” which one can interpret as increased freedom to choose. (He does gloss over the overchoice problem, but I am pretty sure that even most behavioral economists would prefer individuals choosing to constrain their own choices to outright choice limitation.) This notion is nothing out of the ordinary in economics, but it’s often a concept that is hijacked and interpreted in whatever way is, well, convenient. (Yep, I’m talking to you, Rand Paul.)

As such, Glaeser makes an important point on the distinction between freedom and laissez-faire policy:

Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending.

Many regulations can even be seen as force for freedom, like financial rules that help give all investors the freedom to invest in stocks by trying to level the playing field.

The belief in freedom does, however, create a predilection for human interaction and trade. As Friedman wrote, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” For many economists, defending free trade isn’t just about gross domestic product; it’s fighting for core values of freedom and human interdependence.

In fact, freedom, fairness and laissez-faire policy are really only aligned when no one’s freedom to do what he wants conflicts with anyone else’s freedom or liberty. This point is easily illustrated via a conveniently July-4th-themed example:

I was at a rooftop party last night where people were shooting off fireworks from the sidewalk next to the building. In other words, these people were using their freedom of choice to obtain fireworks and set them off in the middle of the city. I, on the other hand, am a little scared of fireworks, and the fireworks were getting very close to the roof deck. I very much wanted to exercise my freedom to both go to my friend’s party and not get shot in the eye with festive gunpowder, but this didn’t really seem to be an option. (And no, I don’t usually have this much of a bug up my butt, I just really don’t like fireworks in my personal space.)

On a logistical level, economists would argue that this is not a problem, since if the fireworks annoyed me more than they made the people setting them off happy, there is an amount I should be willing to pay to make the fireworks stop, and this would be an efficient outcome. From an ethical standpoint, however, it can easily be viewed as unfair that I should have to pay to maintain my rights while the people setting off the fireworks get compensated for being careless boneheads. (One could also argue that the correspondence between philosophical importance and willingness-to-pay only works if the fireworks aficionados and I are at roughly the same levels of income and wealth.)

Regulations against fireworks (yes, it was illegal to set them off in this location) implicitly acknowledge that the rights of people to not get shot in the eye with gunpowder supercede the rights of people to shoot off M-80’s in crowded spaces. On the up side, regulation takes payments and bargaining costs off the table. Furthermore, if regulation assigns rights efficiently (i.e. in line with the outcomes that people would arrive at via bargaining by self-interested* parties), then regulation does in fact increase overall freedom. On the down side, regulators have to guess a bit about what rights and freedoms are more valuable than others, which is where things can get more than a little sticky. If the tables were turned, for example, it could also be viewed as unfair that the fireworks people should have to pay and I should get compensated for being a party pooper. This is why ethics is hard.

For now, I will celebrate freedom in the way that nature intended- with hot dogs wrapped in bacon.

* I specifically said “self-interested” because I am not sure what to do, within the context of this framework or otherwise, with people who want, out of principle rather than personal impact, to regulate the behavior of others. Can someone please ask Ronald Coase how his theorem fits with those who are willing to pay to block gay marriage, for example?

Tags: Decision Making · Happiness · Policy

8 responses so far ↓

  • 1 jonathan // Jul 4, 2011 at 5:46 pm

    Lenin said ‘it’s true that freedom is precious; that’s why it has to be carefully rationed’ (not that he was an economist)

    I can only guess that those who want to regulate out of principle view their principle as priceless in the sense of without price and so no amount of monetary compensation will induce them to leave their principle. From their perspective offering to pay someone to change behaviour is a regretable necessity – they are arguing/implying that the other person’s view is not as ‘pure’ as theirs since it does have a price (assuming that their ‘bid’ to stop a gay marriage or whatever else was been viewed as welfare destroying, was accepted). Sorry I may be rambling, it’s late in England.

    ‘The ones who say they know it are the ones who will impose it’

  • 2 Wilson Dizard III // Jul 4, 2011 at 7:00 pm

    Equality, or increased relative equality of income distribution or a lower Gini coefficient, increases the average measured happiness of all income quartiles of a given society, according to [TK*].

    And raising the Gini coefficient in a given society will reduce average measured happiness even of the highest-income groups.

    That research helps refute M. Friedman’s groundless assertion that freedom is reduced by measures that increase equality.

    Or, as some people would say, freedom and equality, like other values, are blended and balanced in varying proportions via political and cultural institutions.

    Personally, I enjoy being free of the spectacle of naked, starving beggars dying in the streets.

    Put another way, I’m willing to pay to avoid that externality.

    Maybe we should rent a seminar classroom for monetarist economists in one of the lowest-income neighborhoods of Calcutta, where they will be free to observe the collection, each morning, of the remains of the sidewalk sleepers who have died during the night.

    Or, we could dramatically reduce that expense by installing a mobile cam feed of the process of collecting those corpses for the University of Chicago faculty lounge, so they would be free to observe that process daily.

    Because make no mistake, that’s the kind of freedom the monetarists’ policies have created, in various countries subjected to extreme monetarist IMF “conditionality” programs.

    M. Friedman’s signature achievement during his lifetime was a series of intricate, innovative and, to some people, convincing explanations for the various failures and flaws in his theories.

    It’s even more clear now than during M. Friedman’s life that those theories failed various tests, including their ability to accurately characterize economic conditions or to bring about the benefits that purportedly would result from their implementation.

  • 3 Punditus Maximus // Jul 5, 2011 at 11:46 am

    This post was a nice meander. 🙂 Reminds me why it’s fun to be an economist — and eat bacon.

  • 4 Hasdrubal // Jul 5, 2011 at 11:50 am

    No comment on property rights? I would think that assigning a controlling property right to your host to determine the content of the airspace around their rooftop would be another method of achieving an efficient level of eye-shooting gunpowder. That would put the onus on the fireworks-firers to pay you, instead of you paying them to stop.

    I believe Coase said that you could achieve an efficient outcome either way. But in this case, property rights would eliminate the problems of income disparity: While I doubt you could pay Mark Zuckerberg enough to keep him from firing eye-searing fireworks into your airspace, I’m sure he could pay you enough to willingly put up with his antics.

    Wilson Dizard III: Are there more or less Indians dying from poverty now than there were 50 years ago when the country was run on the principals of government control and redistribution of wealth?

  • 5 econgirl // Jul 5, 2011 at 1:12 pm

    @ Wilson: I have to worry a little that there is a bit of a correlation vs. causation problem going on with the equality/happiness numbers, but intuitively I would hope that not having to see people starve would make everyone happier.

    I think we have to take Friedman’s words carefully, since I think that there is a big difference between a goal of “equality in outcome” and redistribution after the fact. Ex post redistribution will likely affect incentives to some degree, but a society that seeks explicit equality in outcome will end up enacting policies that make growth and innovation very difficult.

    Also, (good) economists are very careful to make a distinction between what is efficient (i.e. maximizes the size of the overall economic pie) versus what is equitable (i.e. fair). Some argue some version of the “a rising tide lifts all ships” principle, but others specifically mention that there is a trade off in most cases between efficiency and equity, and if economists can measure the efficiency of different policies then policymakers can more clearly evaluate the tradeoffs at hand. Wishful thinking, I know. 🙂

  • 6 John Swenson Harvey // Jul 5, 2011 at 2:22 pm

    RE: Hasdrubal

    The City had *already* given the host a property right to fireworks free air space. The problem is the cost of enforcement. Coase’s ideas depend on no transactions cost, when that can’t be obtained in reality, then the “optimal solution” can often not be obtained either.

  • 7 Ryne // Jul 5, 2011 at 4:02 pm

    The basic argument that an expanded choice set results directly in increased utility (happiness) is true to an extent.

    Is there not a time where a choice set has increased to a level which actually deters happiness?

    As choices arise, a logical and intelligent person(s) will investigate their options in hopes of making the most rational decision possible.

    Therefore, if an individual has almost countless options to pursue, will his or her happiness eventually begin to deter as the options/choices continue to increase?

    A practical application of this thought would be online shopping.

    I want a shirt. I want to purchase it online and I would like it in a Men’s medium size. I now must choose among almost limitless variables. What brand shall I buy? What fabric should I presumably purchase? Should it be a v-neck? A slim cut? A sport cut? Where should I buy it? Which company is most prompt in shipping my items? Which company has free shipping and handling? Which company has the cheapest prices? Which company has the best return policy if I so chose to return or exchange my shirt? Will I be charged additional fees for a return?

    See what I am getting at? I do agree that options provide freedom to choose which increases happiness. I just believe the idea that it is a direct relationship with no upper limit is a bit flawed…

  • 8 Michael // Jul 9, 2011 at 3:06 am

    @ Ryne:

    You are right that an ever growing choice set does not bring ever increasing utility, but as econgirl points out in her post the ability to limit the choice set is a choice best left to the individual.

    In the field of behavioral psychology (and recently, in behavioral economics) the idea of maximizing versus satisficing decision-making styles sheds light on this process.

    http://www.happiness-project.com/happiness_project/2006/06/are_you_a_satis.html

    As the author of the linked post mentions, most people are capable of curtailing their choice exploration to meet with time or energy constraints for some issues, while allowing themselves the luxury of maximizing choice exploration in other circumstances.

    I have ADHD, which sometimes prevents me from thinking clearly enough to prevent endless maximization on even the most inconsequential of questions, but this is probably not an issue most people have (even with so many options for shirts out there).

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