Should we all be welfare economists?

Author:Fallon, Richard H., Jr.


On what normative foundation should the edifice of law and public policy be built? What are proper grounds for claims of individual right, and how, generally, do those grounds relate to considerations of individual well-being and social welfare?

In this Essay, I argue that individual well-being and a related concept of social welfare should be important considerations in the design of legal rules, but not the exclusive ones. When the notion of well-being receives substantive content, the most plausible and attractive definitions all allow a distinction between what will best promote a person's well-being and what that person might rationally judge to be most choice-worthy, (1) typically in light of a moral or aesthetic ideal. This distinction is important. Once it is recognized that the greatest possible well-being is not what everyone necessarily values most, the notion that public policy should be based exclusively on social welfare--defined as an increasing function of the well-being of individuals--loses plausibility. It becomes important to explore the relationship between well-being and other values and to ask what else people might rationally value, (2) sometimes more than their own well-being, and why. In the answers to these questions lie the foundations of rights.

Although this Essay ultimately confronts very large questions, I begin with a narrower focus, furnished by my colleagues Louis Kaplow and Steven Shavell in their important book Fairness Versus Welfare. (3) In that book, Kaplow and Shavell argue that legal rules should be based exclusively on calculations involving the "well-being" or "utility" of "individuals." (4) (They use the terms "well-being" and "utility" interchangeably, (5) as I shall do in the remainder of this Essay, and refer recurrently to "individuals," apparently to emphasize that social welfare is an increasing function of individual well-being. (6)) Intending their book partly as a contribution to moral and political philosophy, (7) Kaplow and Shavell imply that there are no moral rights not directly founded on considerations of individual well-being. In the legal domain, constitutional law furnishes an especially instructive test case for their theory's implications and attractiveness. If accepted, Kaplow and Shavell's argument would support recognition only of rights that tend to be utility-maximizing, (8) or otherwise to promote overall social welfare, at least insofar as past decisions do not determine judicial rulings. (9) Their thesis rejects the foundational assumption of much constitutional doctrine and scholarship that people have moral rights that are not all contingently grounded in utility functions. (10)

For several reasons, Kaplow and Shavell's challenge deserves close consideration. The first involves their stature as scholars. Kaplow and Shavell are prominent figures in the field of law and economics. (11) In preparing this book, they have forayed deeply into political theory and moral philosophy, (12) as well as a number of areas of substantive law. In light of their stature, their views have a serious claim to attention. A second reason lies in the barbed character of their arguments, many of them aimed "to convince legal policy analysts" to alter their research agendas. (13) In essence, Kaplow and Shavell argue that all law professors (and possibly all political theorists and moral philosophers) will be wasting their time at best, and rendering pernicious advice at worst, (14) until they embrace Kaplow and Shavell's preferred version of welfare economics. (15)

The third reason that Kaplow and Shavell deserve attention involves their substantive arguments. Their main affirmative argument is familiar: rational parties who did not know what role they would occupy in society would choose to be governed by whatever rules would produce the highest average utility, (16) with some additional weight possibly attached to the well-being of the worst-off class. (17) By contrast, their main negative argument is fresh (18) and, at first blush, daunting. According to them, there are easily imaginable situations in which any legal rule not based exclusively on considerations of individual well-being would make literally all affected parties worse-off than they would be under a utility-maximizing rule. (19) By design, rights-based theories will sometimes leave some people worse-off than they would have been under a utility-maximizing regime; the point of such theories is to protect individual rights against the claims of social welfare. (20) But Kaplow and Shavell expect the recognition that rights might diminish literally everybody's well-being to dissolve the appeal of rights-based theories. (21) Why, after all, would anyone favor a theory that threatens to make everyone worse-off? (22)

I begin in Part I by accepting that question as framed. The short answer is that nearly everything depends on how "well-being" and being "better-off" are defined. At some points Kaplow and Shavell appear to assume that each person's well-being is defined by her personal rank ordering of possible states of affairs: a person is better-off insofar as she occupies a state of affairs that she rationally prefers to another state of affairs. Even if Kaplow and Shavell employed that definition consistently, their arguments would not be wholly persuasive. In imaginable cases, a society would behave wrongly if it created a state of affairs in which every living member regarded herself as better-off, but did so without regard to the implications for future generations whose values and preferences are not yet formed. (23) Imagine, for example, a society in which everyone prefers intellectual and spiritual tranquility to a state of affairs in which freedoms of speech and religion are recognized, precisely because those freedoms might tend to subvert tranquility. Each would willingly trade her freedom to unsettle others for an enforceable prohibition against others roiling her, even though many would be unwilling unilaterally to forego practices that might disturb others in the absence of legal regulation and the assurance of reciprocity that it provides. Even in such a case, what people contingently prefer (taken for the moment as the measure of each's well-being) is not the exclusive measure of choice-worthiness or what the law ought to be.

To begin with, the interests of future generations need to be considered (24)--people as yet unborn, whose values and preferences are likely to be shaped by the environment in which they are raised. (25) Even if every living member of a society thought otherwise, it would be wrong (from what I shall describe in Part III as an "impersonal" moral standpoint) to deny future generations the background conditions necessary to develop a critical and self-critical perspective on prevailing patterns of thought, ambition, and belief. More generally, thought about future generations drives a wedge between what people value or prefer, on the one hand, and what they have reason to value or prefer, on the other. As I shall argue in Part III, moral argument is ultimately argument about the force of reasons.

Admittedly, however, cases in which rights-based theories would call for overriding literally everyone's preferences are the most difficult, testing ones for their defenders. If Kaplow and Shavell could sustain the equation of each person's well-being with that person's ranked preferences, and if rights-based theories regularly called for overriding everyone's preferences, then such theories would be difficult to defend. But Kaplow and Shavell cannot consistently equate each person's well-being with each's individual preference order among possible states of affairs. The equation dissolves when they move from their negative argument against rights-based theories to their positive argument in favor of welfare economics.

As defined and championed by Kaplow and Shavell, welfare economics requires interpersonal comparisons of utility. (26) On a narrow view of the limits of economic analysis, economists can identify policy changes that would make everyone better-off, but possess no distinctive capacity to make value judgments about the desirability of actions that would make some people better-off while diminishing the well-being of others (unless well-being is implausibly equated solely with money or wealth or otherwise measured by reference to an imagined market in which the components of well-being are assigned a dollar value). (27) Kaplow and Shavell are more normatively ambitious. When some people are made better-off and others worse-off, Kaplow and Shavell insist that we need to make quantitative assessments, comparing the gains in well-being of the winners with the losses of the losers. But interpersonal comparisons are impossible without a substantive definition of well-being as a specific good or package of goods that each person possesses in measurable quantities--for example, one that equates well-being with an experiential state such as happiness, or with the overall satisfaction of desires over a lifetime, or with the possession of objectively valuable goods and opportunities. As I shall argue at length, once well-being is given the kind of substantive definition necessary to support meaningful interpersonal comparisons, a conceptual gap emerges between well-being and what everyone necessarily values most. On the most plausible substantive accounts, each of us might sometimes value other things more than our own well-being (as thus defined and measured). For example, we might rationally value moral or aesthetic ideals more than any experiential state, such as happiness, (28) or more than the maximal satisfaction of our changing desires over the course of our lives.

Part I also develops an important implication of the argument that well-being--once given the kind of substantive definition that welfare economics requires--is not...

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