Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?
[Cross-posted on the parent blog]
In my last post,
I discussed the idea of discounting as it relates to cost-benefit
analysis. I reached the conclusion that discounting treats future
people's interests as if they were less significant than our own, and
that if cost-benefit analysis aims to make people the best off, then
this seems like a bad practice. I received a reply from a fellow with
the handle of TokyoTom, which said the following:
Donny,
I don't think that you've at all demonstrated that we don't discount -
viz., that we try to make decisions on the basis that the preferences
of people who do not exist today should weigh as much as our own.
I
would disagree with that conclusion myself. Clearly individuals act on
the basis of their own preferences, which preferences may take into
consideration the supposed preferences of others, including future
generations. These others simply don't have a vote on what my
preferences are - and is the collective actions of billions of
individuals alive today that similarly make decisions that bring about
tomorrow.
Tom (at least I assume his name is Tom) is
absolutely right to say that individuals clearly act as though value in
the future is worth less than the equivalent value today. If I were
trying to argue that people actually do make decisions as if future
people matter just as much as they do, I would be easily refuted. In
fact, I would be hard pressed to believe even that people behave as
though future people matter very much at all, never mind as though
their interests were equal to their own.
But I never argued that
individuals don't discount (in fact, I specifically acknowledged that
they do), or that individuals consider future individuals to be just as
important as themselves. Rather, I argued that discounting future
damage in cost-benefit analysis is unjust. What's the difference? I'll
try to illustrate with a series of examples.
Let's say that
we're trying to decide whether to put a garbage dump in a neighborhood
populated exclusively by an ethnic minority (say, Hmong folks). We
perform a cost-benefit analysis to see what we should do. In the first
scenario, let's say the Hmong folks in the neighborhood would prefer
not to have the garbage dump in their neighborhood, and the folks who
live outside of the neighborhood would prefer to have it there (not
because of any malice, but rather because they would gain use from it).
If (once we equalize for different valuation of money and all that) the
cost-benefit analysis shows that the outsiders would be willing to pay
more to have the dump than the Hmong folks would to not have it, then
we'd say that there's a net benefit to putting the dump in; it's worth
doing. And as far as we ignore all the problems with cost-benefit
analysis (that is, we don't care what we do to the Hmong people as long
as it represents a net gain, and we're okay with treating a single
metric as properly representing the wellbeing of these people), then
that's all there is to it. The cost-benefit analysis has worked exactly
as advertised.
But now let's say that the outsiders didn't want
the garbage dump because they would benefit from it, but rather because
they're evil hillbillies and they despise the Hmong people. The benefit
to them is not a self-interested benefit, but rather a benefit derived
from the cost to others. Perhaps if we give this kind of benefit equal
standing, the garbage dump goes in. But that seems like the wrong
conclusion. We might say the same if the garbage dump doesn't go in
because the Hmong people don't want the outsiders to get any benefit,
even though they wouldn't really mind the dump being there. That's why
most people who advocate cost-benefit analysis try really hard to
ensure that the costs and benefits they're measuring reflect only the
costs and benefits
to the individuals they're surveying.
Accordingly,
we wouldn't want to say that the importance of future individuals'
wellbeing can be accounted for in cost-benefit analysis by seeing how
present people value their wellbeing. What matters is how much
they
value their wellbeing. Once we recognize this, then it becomes clear
what we do when we discount their costs and benefits compared to
current people's costs and benefits. What we do is to say that their
costs and benefits are
less significant than those of present people. And it is
this practice which I claim to be unjust.