On Liberty vs. Efficiency

To "win" a debate you aren't supposed to tip your opponent to the arguments you'll use.  But to promote a more productive conversation, that is exactly what you might do.  So in this post I'll lay out my basic (rather technical) argument for tonight's debate.  I've said:

The topic, as I see it, is the relative value/importance for economists of pushing "liberty," i.e., a policy of minimal government interference, and "efficiency," a standard policy evaluation metric that attempts to neutrally weigh policy consequences for different people.

Humans often find themselves in conflicts where they might make (and enforce) "deals" instead of "fighting" (or doing "nothing").  Such conflicts are often complex enough for many parties to be uncertain how they would fare, relative to fighting, under various possible deals.  In such situations, I see a noble and important role for expert arbiters who are "neutral," i.e., who develop deserved reputations for suggesting "win-win" deals where most or all parties should expect to benefit, relative to fighting.  Given access to such neutral expert advisers, conflicting parties can make better deals, to their mutual benefit. 

One reason I'm proud to be an economist is that we often fill this neutral expert arbiter role to varying degrees, and could do so even more if we tried.  And "efficiency," also known as "cost-benefit analysis," helps make this possible.  To estimate the efficiency of a deal, relative to a status quo, one adds up estimates for each person of the dollar value that person would place on this deal. 

Each person's dollar value of a deal is (minus) the compensation he or she would need to become indifferent to (i.e, not care to choose) this deal plus compensation package, relative to the status quo.  This says how much he wants the outcomes produced by this deal (and may or may not agree with what he says he wants).  The sum of such dollar values says how efficient, or good, is the deal; if it is positive, the deal is good; else it is bad.  

Of course since estimates can err, one can be mistaken about who wants a deal how much.  So when cash compensations can be cheaply implemented, economists recommend using individual value estimates to design cash transfers that maximize the chance everyone benefits from a deal.  We also recommend the meta-deal of consistently implementing efficient-enough deals (plus cash transfers when cheap) across many disputed topics.  The law of large numbers ensures that unless our estimate errors are strongly correlated, the more topics we add to a meta-deal, the more confident we can be that everyone will benefit, in the sense of getting more of what they want. 

If you believed that economists fairly and consistently estimated individual deal values, then there is only one way you could expect not to benefit from the meta-deal of consistently following their advice across many topics.  This would be if you had private information showing you were consistently hurt more than they expect, in topic after topic.  This would have to be info economists cannot see, and that you cannot credibly communicate.  Such a scenario is possible, but extreme.

The real problem is not such extreme possibilities, but the assumption that economists fairly and consistently estimate individual deal values.  If economists are "partisan," i.e., if they consciously or unconsciously try to favor some folks over others when estimating efficiency, and if the social institutions that combine individual contributions do not sufficiently balance or correct for such partisan bias, then economists' net advice could also be partisan.  This would make it more likely, though hardly imply, that many folks might on net lose from the meta-deal of consistently following economists' deal advice.

Economists have many social conventions that reduce partisan influences:

  1. We prefer efficiency as a neutral evaluation criterion. 
  2. We prefer clear simple math models with explicit assumptions, and prefer particular standard assumptions; these allow models to be more easily compared, and discourage searching for favorable assumptions. 
  3. We similarly prefer explicit statistical data analysis, and prefer particular standard statistical models and techniques, again facilitating comparison and discouraging search.  
  4. Peer reviewers watch for partisan bias, and interest groups fund economists to flag partisan contributions by opposing interests. 

Even so, I must admit that partisan influences pervade professional economists, often due to shared partisan sympathies among the most influential economists.  Yes, this limits the usefulness of following economists' advice, especially on politically charged and high profile topics.  And I am saddened to see little interest in institutions, such as prediction markets, that could substantially reduce such partisan bias. 

Yet, do not let the best be the enemy of the good; economists have much relevant expert knowledge, and their advice does on average help folks find win-win deals.  Economic efficiency is tarnished, but still powerful.  No other large community of expert advisers has anywhere near the economists' deserved reputation for consistently suggesting win-win deals. The more that economists agree, and the further from politically charged topics, the more your can trust their advice.

What else can we rely on, besides economists' expert advice, to suggest good deals to conflicting parties?  A variety of cheap heuristics are available, of varying quality.  The height heuristic, i.e., prefer the outcome suggested by the tallest person, has little to recommend it.  The majority rule heuristic, i.e., prefer the outcome a majority says they prefer, is better but can give multiple conflicting answers, can depend on how issues are bundled, can suffer from saying diverging from wanting, and can poorly reflect an unequal status quo.

"Liberty" is the heuristic of always preferring outcomes that minimize government involvement.   As cheap and easy-to-apply heuristics go, this one is pretty good.  Given two random deals the freer one is probably more efficient.  Given two actually proposed deals, instead of two random ones, my guess is that the freer deal tends to be more efficient.  But this is not a claim that economists as a whole endorse; this is just my personal guess.  And freer deals are clearly not always more efficient; governments can solve real and important coordination problems. 

Some propose liberty not as a heuristic for finding agreeable deals, but as a rallying call to arms. They want "good" folks to join in fighting "bad" folks who oppose liberty, not because this will help good folks get what they want, but just because such a war is the "right" thing to do.  But note that if everyone thought that a certain act was right, and they all wanted enough to act to do that right, then that right act would also be efficient.  Conflicts between "right" and efficiency only occur because some people do not want what is "right."

In my role as one person among many, who can join fights or support deals, I will choose in order to get what I want.  This may sometimes include joining a fight, and sometimes that fight might be to achieve more liberty.  But in my role as economic adviser, a role I admire and embrace, I will try to fairly and consistently suggest the most efficient deals, as the availability of such advisers offers a great opportunity for everyone to get more of what they want. 

I accept that such deals may not always contain the most liberty possible, because while people do usually want liberty, all else equal, they often want other things that conflict with liberty.  In my role as a neutral adviser, it is not my place to tell people they should want something other than they do want; my job is just to get them more of what they want.  Since this is exactly what I would want an expert adviser to do for me, it is what I will do for them.  If loving them in this way is wrong, I don't want to be right.

Added: Note the odd position you put yourself in if you embrace liberty as an efficiency hueristic because of economists' advice, yet refuse to accept other economists' deal advice.

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