Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

re: Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

Donny with an A — Thu, 21 Feb 2008 05:55:00 GMT

It's my view that understanding the views of your opponents is just as important as understanding your own views. Objecting to cost-benefit analysis as a general tool might not succeed, even if the objections are good; cost-benefit analysis is the dominant form of economic calculus done in our society today. Accordingly, I think it's useful to discuss exactly how these analyses are being done, and what potential problems could be faced by analysts.

Basically, what I'm doing is like saying, "There are a whole lot of reasons that you shouldn't drive drunk. But if you don't care, and you're going to drive drunk anyway, at least drive slowly and pay really close attention. And keep in mind that even if you don't have a problem with driving drunk, you might simply be unable to do it properly, so maybe you should rethink your choice to try." Obviously the first part is the most important. But the later parts seem like they're worth thinking about too.

So while the first post captures my position on the issue, I think the later posts are almost more important. It's almost like discussing American politics. If I had my way, a whole lot of things would be different. But that's not really relevant, because the actual political conversations being had presuppose an entirely different way of thinking. And perhaps it's enough just to throw your hands up and say, "You guys are wrong!" But at the same time, it doesn't seem completely unreasonable to work towards saying, "You guys are wrong, even on your own terms!" Does that make sense?

re: Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

Geoffrey Allan Plauche — Thu, 21 Feb 2008 02:41:53 GMT

Well, now I'm not sure what the purpose of this post and the next is supposed to be. If you don't advocate cost-benefit analysis, what is all this for? It seemed to me you were trying to prove the injustice of discounting the interests of others by means of cost-benefit analysis, which I think is a mistake on many levels.

re: Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

Donny with an A — Wed, 20 Feb 2008 23:25:14 GMT

Again, perhaps I should have been more clear. I don't advocate cost-benefit analysis, or think that it's the proper way to determine what policies should be undertaken. Incidentally, in the post before this one, I critiqued cost-benefit analysis in general as it applies to climate change:

mises.com/.../cost-benefit-analysis-discounting-and-climate-change.aspx

But I didn't specifically address the fact that willingness to pay is a poor proxy for utility, which is another objection. The reason I avoided this point is that it won't convince any advocate of cost-benefit analysis. They'll simply reply that we can do our best to correct for differences in valuation of money and other technical problems, and that a cost-benefit analysis doesn't have to be perfect to be useful.

But you're right in saying that cost-benefit analysis will never be able to precisely measure utility in a way that allows legitimate interpersonal aggregation. I don't think anyone of any importance disagrees with that. A counterpoint, though, is offered by Lionel Robbins in his famous essay, "Interpersonal Comparisons of Utility: A Comment." You might be interested in taking a look at it.

re: Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

Geoffrey Allan Plauche — Wed, 20 Feb 2008 17:12:36 GMT

This doesn't help.

Regarding the Hmong people, the outsiders and the garbage dump, I'm not sure you account for the fact that what each is willing to pay will be determined in part by how much they <i>can</i> pay and if one party has more money to spend you'll have an unfair imbalance. If you are taking this into account, it isn't clear to me how you're going to equalize them for comparison.

Along these lines, you should read Rothbard's Toward a Reconstruction of Utility and Welfare Economics" (in pdf on Mises.org) for why we can't intersubjectively measure value scales. This is the methodological objection I have to your utilitarian cost-benefit analysis.

I also have a moral objection that is two-fold. 1) I don't see where rights fit in in your cost-benefit analysis. Are they subject to this analysis too? If they are, then I must reject your approach. 2) Or are rights fundamental and absolute principles that the cost-benefit analysis has to take for granted and work within such that what the cost-benefit analysis suggests as the just thing to do is what we ought voluntarily (but can't be forced) to do? This approach is less objectionable but is still utilitarian and I think utilitarianism is wrong.

re: Does the Fact that Individuals Discount Entail the Existence of a Social Discount Rate?

TokyoTom — Mon, 18 Feb 2008 03:31:35 GMT

Donny, you might take a peak at this:

JOHN BRÄTLAND, TOWARD A CALCULATIONAL THEORY AND POLICY OF INTERGENERATIONAL SUSTAINABILITY: