Kaldor-Hicks

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The Good Society and the Common Good

I suppose, when humans reason about the character of the community they live in or would wish to live in, they, invariantly and independent of historic epoch, argue for a comprehensive, a greater good - for instance an arrangement that is pleasing to God, which, interestingly, does not necessarily imply the modern moral intuition that the desired benefit ought to accrue to every member of the community. 

In the world of Zwingli, I understand most people are condemned, and devising society and acting in godly fashion therefore will ultimately benefit only the elect few, while leaving the vast majority with the prospect and eventually with the reality of eternal damnation. 

Famously, Max Weber conjectured that the rise of capitalism was due to the psychological pressure put on people by this doctrine of predestination. If I remember my Weber correctly, under Calvinist regimes economic success was regarded as indicative of a person's otherworldly perspectives. So working hard and becoming a commercial success was a sign that a person might belong to the elect few.

At any rate, modern social philosophers seem wedded to the need to prove that their vision of society is on balance designed to be and capable of being a net benefit to all members of society. 

Or is this a specificum of a certain brand of liberal social theory? Marxists strive for a society that is good, even an improvement for all. But they are happy to kill anyone that is, in their view, obstructing such progress. And "progressives" do not pay too much attention to the Paretian egalitarianism, preferring to emphasise demands of specific groups in society for improvement. Accordingly, "progressives" tend to slant the idea of justice towards the needs of their clientèle and declare the revised distribution of benefits to be just and a proper instance of the common weal.

Enter welfare economics, which seeks to identify and measure, perhaps the latter more assiduously than the former, the common good as an advantageous state for all that cannot be improved upon.

It is a welcome humanistic reflex to seek states of affairs that are advantageous to all human beings, and I would say that it is uniquely characteristic of the liberal age - which I consider to be still current - to be considerate in that way of humankind at large.

Reminder - pareto optimum: it is not possible to improve any person's situation wwithout deteriorating the situation of at least one other person.

I concur that we should seek a Pareto optimal society - mind you, to the exclusion of anti-social anomalies like the situation where to improve the lot of the worst-off one would have to worsen the status quo of the most well-off, which, of course, is a step back from Pareto optimality.

However, I am exasperated when someone tries to pretend a Pareto optimal society is more feasible or indeed more present in reality than it really is.

I suspect this is a tendency to be found in Richard Epstein, whenever he gets to prop up his general social philosophy by references to Kaldor-Hicks that appear to me doubly untenable in that they are as fleeting as they are apodictic. 

Kaldor-Hicks

Pareto optimality is easy to shoot down as soon as it leaves the holy halls of academe and is presented to the implacable examination of the public: in reality preferences vary and conflict to such a degree that a common denominator that would make a Pareto calculation possible cannot be found. Put differently, even if we find a welfare optimum, people can say "you refer to welfare alone, but I am concerned with the environment too." And, of course, a welfare optimum easily becomes an impossibility when people differ on distributional expectations - as I have suggested in my above remark that one may not be happy with a Pareto optimal prohibition to improve the lot of the poor because this implies a deterioration of the wealthy. Ironically, it may well be the wealthy who object to the Pareto optimal status quo.

All these problems do not vanish, in my opinion, if we modify the Pareto measure by the Kaldor-Hicks measure.

Kaldor-Hicks simply suggests that there are cases when a certain distribution that is not by itself a Pareto improvement can be turned into a Pareto improvement, by redistributing appropriately.

Under scenario X, Person A has 4 units (loafs of Bread) and person B has 6.

Under scenario Y, A has 7 units and B 5. This is not a Pareto improvement - A has improved, but B has deteriorated.

But, Kaldor and Hicks argue, the pie has increased, economically the system has improved, though perhaps not socially.

However, it is possible to redistribute the pie (as now available under scenario Y) in such a way as to arrive at a Pareto improvement compared to X.

For instance, rearrange scenario Y such that one unit is taken from A, so he is left with 6 units (an improvement over 4 units), and transfer that unit to B, so that he also has 6 units (which does not make him worse off compared to the 6 units he used to have under scenario X). So a Kaldor-Hicks improvement is a Pareto improvement attained by redistributing a non-pareto-improved scenario.

What used to make me feel confused about Kaldor-Hicks is the standard phrasing about this procedure being hypothetically Pareto optimal.  Now I know, this is supposed to tell us that Kaldor and Hicks are neutral scientists, who take no sides on distributional issues, but simply point out, there is a way to bring about a Pareto improvement by negotiating a redistribution such that the winners, remain net winners, even though they sufficiently compensate the looser for their loss or lack of improvement.

A re-allocation is a Kaldor–Hicks improvement if those that are made better off could hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome.

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The problems of Pareto- and Kaldor-Hicks-improvements seem to have important implications for how we ought to think about freedom. If we cannot have unique and socially unequivocal solutions to the problem of the common good, a wide field for dissension opens up. This being so, it is much harder, in fact impossible, to tie freedom to any uniquely correct construction of the public good.