Choice and Consequence

Thomas C. Schelling

• Verlag: Harvard University Press
• Jahr: 1985
• ISBN:
  9780674255975
• Thema: Economics
• Thema: Economic Theory

Thomas Schelling is a political economist "conspicuous for wandering"—an errant economist. In Choice and Consequence, he ventures into the area where rationality is ambiguous in order to look at the tricks people use to try to quit smoking or lose weight. He explores topics as awesome as nuclear terrorism, as sordid as blackmail, as ineffable as daydreaming, as intimidating as euthanasia. He examines ethical issues wrapped up in economics, unwrapping the economics to disclose ethical issues that are misplaced or misidentified.With an ingenious, often startling approach, Schelling brings new perspectives to problems ranging from drug abuse, abortion, and the value people put on their lives to organized crime, airplane hijacking, and automobile safety. One chapter is a clear and elegant exposition of game theory as a framework for analyzing social problems. Another plays with the hypothesis that our minds are not only our problem-solving equipment but also the organ in which much of our consumption takes place.What binds together the different subjects is the author's belief in the possibility of simultaneously being humane and analytical, of dealing with both the momentous and the familiar. Choice and Consequence was written for the curious, the puzzled, the worried, and all those who appreciate intellectual adventure.

1 | Economic Reasoning and the Ethics of Policy

POLICY JUDGMENTS are easier to come by, the farther we are from our goals. If there are only two directions and we know which is forward, and there are limits to how fast we can go, no fine discrimination is needed. If aid to the poor is far too little, highway traffic far too fast, building codes far too lax, teachers’ salaries far too low, or the rights of defendants far too little observed, we know what we need to know to get moving. We can worry about how much is enough when we get close, if we ever do. Meanwhile we can push on.

Knowing what to do is also easy if our capabilities are growing and our horizons receding, and yesterday’s goals will be outgrown tomorrow. Like a family on a rising income, we needn’t worry about overshooting: if we buy too big a house today, we’ll afford it tomorrow.

I have often been glad that I wasn’t in charge. It is easy enough to see plainly that there is too much inequality (or illiteracy, or ill health, or injustice) and to help to reduce it, knowing that despite all efforts too much will remain. But if it were up to me to decide how much inequality is not too much, or how much injustice, or how much disregard for the elderly or for future generations, I’d need more than a sense of direction.

Discomfort also arises when, intent on speeding toward an ever-receding goal, the goal suddenly stops receding and we threaten to overshoot. There appears to be a widespread belief that overshoot is what we’ve done.

Worse, there is retrospective disenchantment with the mood that motivated the effort and set the goals in the first place, back in the 1960s. There is chagrin at having been too enthusiastic about what could be accomplished. There is disaffection toward those whose demands are insatiable and whose gratitude is inconspicuous. Whatever the reason, there is a reexamination of policy, especially policy that reflects social obligation. There is retrenchment in the air and on the ballot, and second thoughts about what we can afford for ourselves and what we owe others.

It isn’t all sour grapes. Our projection of the possible has shrunk. Our economy is not behaving. Growing income no longer promises to make light of our burdens in another decade or two. We do not know what has been depressing our productivity and can’t be sure that, whatever it is, we shall recover soon. Inflation has a mind of its own. The demographics of the labor force are against us, and at the same time the rules of the game allow endless numbers of people from faraway places, once over the line, to touch base and be safe.

So it is not surprising that commitments are being reassessed, “tradeoffs” discussed, costs weighed anew against benefits, and even constitutional initiatives promoted to enforce a policy of containment. Techniques of policy analysis that recently were despised as mean spirited and stingy by people who preferred to base policy on vision and generosity are being superseded by what used to be called meat-axes and straitjackets.

These are not “hard times” in the old sense. In this country life is still good and getting better for most people. But it is not measuring up to expectations. They might better be called “difficult times”: it is the problems, not the times, that are hard. And among the hard issues are some ethical ones. They may not be the hardest or the most important, but they are important and they are hard.

I have been asked how economic reasoning can help, or how it misleads, in facing, solving, or avoiding the ethical components of policy. Does economic reasoning itself represent a particular ethic; or, if not the reasoning, the people who use it?

The Ethics of Policy

What I mean by the ethics of policy is the relevant ethics when we try to think disinterestedly about rent control, minimum wages, Medicaid, food stamps, safety regulations, cigarette taxes, or the financing of Social Security.

Farmers have an interest in price supports, laundry operators in minimum-wage laws, doctors in the financing of Medicare, and electric utilities in clean-air regulation; and until my youngest child is safely overage I shall have a personal interest in the draft. When people take sides on a leash law we don’t expect them to argue it the way they discuss the space shuttle. I want to define the ethics of policy as what we try to bring to bear on those issues in which we do not have a personal stake.

It is hard to find issues that are absolutely unsoiled with personal interest. On abortion and capital punishment our personal ethics usually dominate. Food stamps affect us, whether we qualify or not, because they cost money. Someone meticulously interested in his own welfare could find at least a minuscule personal interest in a UN program for alphabet reform.

Still, most of us on many issues want to think and to talk as though we are not interested parties. We want to discuss welfare and national defense and school construction and unemployment benefits and automobile-mileage standards as though we were not personally involved. There will be an unmistakable element of social obligation; nobody can discuss income-tax rates or welfare levels without a participatory awareness that the poor, the unfortunate, the disadvantaged, and the otherwise deserving have some legitimate claim on those among us who can afford to help. But although few issues are without financial impact somewhere, and most big issues involve big amounts of money, we can often confine our personal stake to an aggregate and nonspecific social obligation. Our position in the income scale affects our conditioning as well as our reasoning, but beyond that we can try to be neutral, removed, vicarious, impartial, judicious.

Incidentally, I say this only because I expect this book to be read by a special set of people. Most people probably devote most of their policy interest to the things that concern themselves and do it with a clear conscience. They do not get drawn into ethical abstractions. They may have strong ethical views on a limited number of subjects that do not flow from their stake in the outcome, but on matters called “bread and butter” they accept the ethic that in politics it is fair to look out for your own interest, expecting others to look out for theirs. People who read or write books like this one, though, usually try to take distributive issues seriously but not personally. Students, for example, rebelling against higher tuition are reluctant to say it is to save their own money; they join the picket line in behalf of somebody poorer. And professors concerned to protect their own salaries are thought not to be playing the ethical game. But the tobacco farmer concerned solely with his own family’s welfare is excused from scholarly disinterest.

The Ethics of Pricing

My students always like gasoline rationing. They believe in it on ethical principles. (They say they do, and they sound as if they do.) Evidently the principles lie deeper than rationing itself; the students must have some notion of what happens with rationing and without it, or with some specific alternative, and they must have a preference about the outcome. Students know that there are gainers and losers; their ethics appear to relate to who gains, who loses, and how much.

I can talk most of them out of it. It takes longer than fifty minutes, and I never try it if I have only a single class hour. They probably distrust my ethical principles and think I do not care about what they care about, or care as much. They very likely think my ethics are “process oriented” and the free market enchants me, while they are “consequences oriented” and don’t like the results.

Time permitting, I accomplish their conversion in two stages. I warn them in advance that I am going to show them that if they like rationing there is something they should like better. I join them in believing the free market needn’t be let alone, but I do propose what is sometimes called “rationing by the purse.” I suggest we let the price of gasoline rise until there is no shortage, and capture the price increase with a tax. Because that looks hard on the poor my students do not like it.

The first step in subverting their ethical preference is to propose that under any system of rationing that they might devise—and I take a little while to show them that it is not easy to design a “fair” system of rations—people should be encouraged to buy and sell ration coupons. This proposal has little appeal. The rich will obviously burn more than their share of gas, the poor being coerced by their very poverty into releasing coupons for the money they so desperately need. But eventually students recognize that the poor, because they are poor, would like the privilege of turning their coupons into money. Where gas coupons can only provide them gas at a discount, transferable coupons can buy milk at a discount. If it is unfair that the poor cannot drive as much as the rich, it is the poverty that is unfair, not the gasoline system.

That principle established, we observe that coupons are worth cash, whether you buy them, sell them, or merely turn in your own at the local service station. If gas at the pump is $1.25 and coupons sell for 75 cents, the net price of gasoline is $2.00; anyone who gets ten gallons’ worth of coupons from the Department of Energy is getting a clumsy equivalent of $7.50 cash. The station that sells ten gallons receives $12.50 in money and $7.50 in coupons that could have been traded for cash. What we have is a 75-cent tax payable at the pump in special money, and a cash disbursement to motorists paid in this special money. We could just as well do it all without the coupons.

There is more to it than that, but the “more” usually does not involve much ethics. It isn’t that we resolved an ethical issue. We merely lifted the veil of money and discovered that the ethical issue we thought was there was not. Or, perhaps better, the ethical issue that we associated with rationing was tangential to that procedure. Whatever the compensatory principle is that appeals to the students’ sense of fairness, there are many procedures that can achieve it, some better than others, rationing neither worst nor best; and once it is all converted to money, it is easier to see what some of the alternatives are and whether they are ethically superior. Superficially it may seem wrong to give gas coupons to people who don’t drive; but if the gasoline is taxed instead and the proceeds rebated to the public, we can judge the ethics of alternative distributions of the proceeds, not just those based on drivers’ licenses and car registrations.

Persuasion is a little harder with rent control, partly because students do not like landlords. We try to see whether there might be something better, even in principle; whether people seeking apartments are losers under rent control; whether some nonevictable tenants in rent-controlled apartments would like to cash in their precious property right but are locked in because their claim is to a specific apartment. Usually by the time we have identified all the interested parties and the likely magnitudes of their interests, and have considered a few alternative ways to accomplish the things rent control is intended to accomplish, the liveliness of the issue is undiminished but the ethical loading has mostly evaporated.

I dislike “counting coup” over vanquished students in order to display, and to hope you are impressed with, some of the ways that economics can contribute to the clarification of ethical issues. But at least the claim for economics is modest: it often helps diagnose misplaced identification of an ethical issue. And it does this solely by helping to identify what is happening. It is not clarifying ethics; it is only clarifying economics.

Let me give a few more examples. Minimum-wage laws are thought to have ethical content. But if their main effect, or even their purpose, is to keep the young and the old and the otherwise least valuable employees from working at all, the ethical issues may not be what the proponents thought they were. Making utilities pay the full cost of smoke abatement seems eminently fair, unless the costs are borne by consumers of electricity and the clean air enjoyed by whoever lives downwind, in which case we may want to know who lives downwind and who buys the electricity, the utility company not having much interest in the matter. (Even if the electricity is procured mainly by business, we don’t know yet who is paying until we know who buys the products, or who will settle for lower wages when the other costs rise.) Even our feelings about people who evade the income tax by not declaring tips or typing fees or truck garden sales will depend on whether the system mainly lowers wages and prices in bars and restaurants and reduces the cost of lettuce or of getting theses typed.

The Clash between Equity and Incentives

Policy issues are preponderantly concerned with helping, in compensatory fashion, the unfortunate and the disadvantaged. We have welfare for those who cannot work, unemployment benefits for people out of jobs, disability benefits for the disabled, hospital care for the injured and the ill, disaster relief for the victims of floods, income tax relief for the victims of accidental loss, and rescue services for people who find themselves in danger. Social Security is based on the premise that people will arrive at post-working age with inadequate savings to live on.

An unsympathetic way to restate this is that a preponderance of government policies have the purpose of rewarding people who get into difficulty. People are paid handsomely for losing their jobs; if you smash your car the IRS will share the cost of a new one; and if your injury requires hospitalization you can stay in an air-conditioned room as long as the doctor certifies that you will recover better if you don’t go home. By treating the absence of a “man in the house” as a special grievance for a woman with dependent children, families have even received a bonus for fathers’ leaving home.

There is no getting away from it. Almost any compensatory program directed toward a condition over which people have any kind of control, even remote and probabilistic control, reduces the incentive to stay out of that condition and detracts from the urgency of getting out of it. It is a rare ameliorative program that has no visible way, by its influence on behavior, to affect the likelihood or the duration or the severity of the circumstances it is intended to ameliorate. And most commonly—not always but most commonly—the effect on behavior is undesired and in the wrong direction.

To keep the issue in perspective we can observe that private insurance, even the informal kind that allows us to ask for help when we run out of gas, can have the same adverse influence on behavior. People more willingly drive on slippery roads the more nearly complete their collision coverage; back doors are unlocked if the homeowner’s policy is liberal in its provisions for burglary. I am more indulgent of my sore throat if my employer provides an ample quota of sick days.

There is no use denying it in defense of social programs. As is usually the case with important issues, principles conflict. On the one hand, we want to treat unemployment as a collective liability, sustaining the family at public expense when working members lose their livelihoods. And on the other, we want not to induce people to get conveniently disemployed or to feel no need when unemployed to seek work vigorously. What helps toward one objective hurts toward the other. Offering 90 percent of normal pay can make unemployment irresistible for some, and even a net profit for those who can moonlight or work around the home. Providing only 40 percent over a protracted period makes living harsher than we want it to be. There is nothing to do but compromise. But a compromise that makes unemployment a grave hardship for some makes it a pleasant respite for others, and we cannot even be comfortable with the compromise.

Decent welfare in a high-income state is bound to be at a higher level than in a low-income state. It induces migration. Even if we favor migration, the state that finds more and more migrants on its welfare rolls did not intend to reduce the poverty of other states by helping any and all who could get up and move. But to provide an unattractive level of benefits would condemn the intended beneficiaries to a level of living below what their home state wanted to provide them. Again two principles conflict.

There are exceptions to this tendency of inducing the wrong behavior. Federal deposit insurance was designed in the 1930s to provide restitution to people whose bank deposits were lost; by generating confidence, the insurance reduced precisely the behavior that caused the problem. And a benefit strictly related to age in years, though it may reduce efforts to save, at least can have no effect on the speed with which people grow older. But the tendency is pervasive. It accounts for a good part of the escalation of medical costs.

I do not know whether one of the principles, helping the disadvantaged, should be considered ethical and the other, not letting them get away with it, not ethical. Much of the discussion about welfare rights, about not proportioning medical care to the ability to pay, and about not producing a “work ethic” by threatening the unemployed with their families’ starvation, is in an ethical mode. To a lesser extent, ethical considerations are evoked over the encouragement of malingering, rewarding those who beat the system, or inducing dependence on the state. Once it is recognized, however, that two principles conflict, that two desiderata point in opposite directions and neither is so overwhelming that the other can be ignored, that both objectives have merit, and even that there is no ideal compromise because there is a diversified population at risk, the ethical contents of the principles begin to seem tangential to the inescapable problem of locating an acceptable compromise.

It is a universal problem. It won’t go away. It can’t be neglected. It isn’t even unique to public policy. The word “compromise” has those two different meanings. Compromising a principle sounds wrong. Compromising between principles is all right.

Valuing the Priceless

Among the poignant issues that policy has to face, explicitly or by default, are some that seem to pit finite cost against infinite value. What is it worth to save a life? How much to spend on fair trial to protect the innocent against false verdicts? What limits to put on the measures, some costly in money and some in anguish, to extend the lives of people who will die soon anyway or whose lives, in someone’s judgment, are not worth preserving?

These issues are ubiquitous. They arise in designing a national health program. They are directly involved in decisions for traffic lights, airport safety, medical research, fire and Coast Guard...