Bryan Caplan  

Hanson's Fallacy

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Robin Hanson is probably the most logical mind I know, so it pains me when he keeps insisting that:
As an analysis tool, economic efficiency is designed and well-suited to finding win-win deals that get us all more of what we want.
This is complete nonsense.  Economic efficiency is designed and well-suited to helping people who want the efficient outcome.   It is equally true to say that economic efficiency is designed and well-suited to hurting people who don't want the efficient outcome.  Some of us are clearly in the latter category.  How then can Robin keep saying that economic efficiency helps "get us all more of what we want"?!

Update: In the comments, Robin gives his standard "distributive problems tend to cancel out" response.  I ignored this argument this because my objection already takes it into account.  Yes, some distributive problems cancel out, increasing the fraction of the population that wants the efficient outcome.  But this hardly means that they cancel out for everyone - or even that everyone can reasonably expect to benefit from efficient reforms ex ante.  In the real world, there will always be some people who prefer the status quo to the efficient outcome.   It might be convenient to ignore their existence, but that doesn't make them go away.


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COMMENTS (17 to date)
Robin Hanson writes:

I explain the sense in which I mean that efficiency helps us find win-win deals in the post I link within that quote. There I say:

Big deals have portfolio benefits; while every deal contains “efficiency” aspects, regarding the size of the pie, and “distributive” aspects, regarding how the pie is divided, distributive problems tend to cancel as deals are combined across diverse topics. These cancellations lower costs of compensating transfers, allow more confidence that each party benefits, and let us focus on (inclusive early big deal) efficiency issues, where economists are strongest. In the limit, efficiency alone may ensure that deals are win-win.
Yes of course knowing where to find any X helps not only those who like X but also those who want to destroy X.

rapscallion writes:

Economic efficiency as social welfare is an incoherent concept that ought to be abandoned. People use it to argue that we’d be better off if constraints taken as exogenous were removed, but as soon as one allows that those constraints themselves are endogenous to a larger framework, the possibility of inefficiency vanishes. If we’re all maximizers, we’re all maximizers; the world we see is the best we can do. Nothing unobserved can be inefficient.

rapscallion writes:

Sorry, that should be "Nothing observed can be inefficient"

Jess Riedel writes:

I can't imagine that Robin Hanson and Bryan Caplan have a substantive disagreement here; this must be a matter of semanics.

Isn't it just that Robin Hanson is using "Economic Efficiency" to mean a economic system which considers all possible wants while Bryan Caplan is is using "Economic Efficiency" to refer to a more realistic implementation?

Norman writes:

I assume Bryan's objection is to the idea that movements from one Pareto optimal point to another could be considered an economically efficient move even though some people are made worse off? After all, if by "economic efficiency" Robin is referring to Pareto improvements, then these are "win-win deals that get us all more of what we want" by *definition,* right?

Perhaps Robin would be more precise to say "Pareto improvements, and any system which takes advantage of them, are designed and well suited to finding win-win deals that get some of us more of what we want, and make no one else worse off." But this is just the definition of Pareto improvements, so I fail to see how this understanding of efficiency could be in any way controversial.

nazgulnarsil writes:

The solution to conflicts in shared wants (ignorance, differing priors) is probably to live around and be governed by those who share your framework. This helps alleviate 1000 jews and 100,000 nazis problems.

Doc Merlin writes:

@Nazgulnarsil
"The solution to conflicts in shared wants (ignorance, differing priors) is probably to live around and be governed by those who share your framework. This helps alleviate 1000 jews and 100,000 nazis problems."

Not at all. The 100,000 nazis can always launch an invasion. Because of the problem that Bryan brings up (which is a general version of the Naz's) a bryan-esk efficient solution is impossible. If we establish a "your right to swing your arms ends where my nose begins" sort of libertarian framework, we end up with a fairly good, reasonably efficient policy (in the sense Robin seems to mean). I would go so far as to say that a libertarian framework is as close as we have come to being efficient in the sense that Robin Hanson means.

nazgulnarsil writes:

I didn't say eliminates. Hatred for jews started with germans and german jews. homogeneous societies also help prevent sovereigns from externalizing the costs of war.

Chris writes:

"It might be convenient to ignore their existence, but that doesn't make them go away."

Precisely, and if large enough and ignored for long enough they can destabilize the entire system. People are not going to accept being permanently denied the large material and social rewards they see others get, no matter how well fed.

Hanson seems to be treating humans as completely rational agents, instead of as, well, humans.

Doc Merlin writes:

"I didn't say eliminates. Hatred for jews started with germans and german jews. homogeneous societies also help prevent sovereigns from externalizing the costs of war."

So you are arguing that a less diverse society would breed less hatred? I don't think I agree here. A look at Iranian, Saudi (heck any muslim nation) society, almost 0 percent Jews, yet they have far more hatred for jews than societies that have far more Jews. Now this doesn't allways apply. For example, I find DC (90% black) more racist against blacks (from the native non blacks) than Houston (which has a smaller percent of blacks.) I can think of many examples of both situations.

Chris writes:

"homogeneous societies also help prevent sovereigns from externalizing the costs of war."

It also makes it a lot easier to dehumanize an external group.

Asymptosis writes:

Agree with Bryan: Increases in efficiency are not necessarily pareto-efficient--or even close.

Kurbla writes:

Interesting dilemma.

"I pledge to be an efficient economist, who helps clients find win-win deals to resolve social conflicts."

I am not sure about that. As a concept it can work, although I don't think Hanson can be neutral here. Even if he can, society cannot. Neutrality on the side, whole that goal of helping clients ... it sounds so boring ...

I think that Bryan is closer to the truth here, he doesn't want to be neutral. He wants to protect Jews, no matter of efficiency, by defining liberty as higher value than efficiency. I would agree about that, but I think that *liberty* is not good enough for that purpose.

Liberty can protect adult Jews against adult Nazis, but it cannot protect Jew orphans against their step-parents who just discovered Nazism and want to poison the child. Poisoning the child too young to understand the situation doesn't break any liberty of that child. Quite a contrary, one who doesn't allow such poisoning, breaks the liberty of Nazi step-parents.

nazgulnarsil writes:

well, if talking about "win-win deals" aren't we assuming respect for property rights? otherwise win-win deals can always simply include annexing the property (including life) of any minority.

Brian writes:

Hanson is only right in that if there is 100% change of change then the hurt party benefits from getting less hurt from economic efficiency. It is silly to assume they come out satisfied but they tend to be closer to that state than they otherwise would of been. So it true only in specific cases.

George X writes:

Doc Merlin wrote: For example, I find DC (90% black)...

Not even Gary, Indiana and Detroit are 90% African-American. D.C. peaked at about 70% in 1970, and dwindled to 55% in 2000 (according to Wikipedia). There's been some speculation among the political crowd about what will happen in a few years when African-Americans are a minority in the city (and no ethnic group is a majority).

I know a lot of white people who live in DC, but none who grew up there, so I can't comment on native racism, other than to say the native racists probably moved out a long time ago, and newcomer racists probably aren't looking to move in.

mulp writes:

The US spends 17% of GDP on health care with outcomes that are for the US worse than in dozens of nations that spend far less GDP on health care.

The US spends far far far more on health care with outcomes that are better than in dozens of other nations where the primary form of health care in coming from foreign charities and governments.

In the former case, the US is matched against nations that have nearly universal health care access with a basic level of payment assured.

In the latter case, health care access depends on luck, both the luck of foreign aid and the luck of being covered.

US health care is extremely inefficient whether compared to nations with government universal coverage, or to nations where government can't even try to provide universal access to health care.

Deming's message after years of dealing with people who wanted short cuts to efficiency was that trying to reduce costs would only make the quality of the output worse, but if the focus was on constantly and unceasingly increasing quality, costs would fall.

The reason for the change from "medical care" to "health care" was to focus on the quality of output. The quality of medical care is not what the patient wants; the patients wants the maximum quality of life.

The maximum quality of life is getting the least possible medical care to lead the best possible life.

That is maximum efficiency - the most for the least.

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