An Austrian criticism of smoking bans

Julian Sanchez has a brand-spankin' new article up on Reason discussing what Austrian economics can tell us about smoking bans. An excerpt,

[T]ampering with the natural market outcome makes the reallocation of spending inefficient. But "efficient" here isn't used in the colloquial sense of putting out more widgets per pound of aluminum. Efficiency in the economic sense is about using resources in the way that maximizes the satisfaction of subjective preferences. The problem with regulation isn't that it decreases the net amount of money floating around the economy?it doesn't. Rather, the problem is that it forces that money to be channeled suboptimally, into sectors less productive of customer satisfaction.

Economic arguments, arguments that look at the flow of cold hard cash, have a comfortingly scientific ring to them. You can appeal to objective-looking graphs and figures. That's why restrictions on, say, the color you're permitted to paint your house, are typically justified by an appeal to preserving "property values," rather than the simple majoritarian argument that most of your neighbors think that fuchsia with a puce trim is ugly. But, of course, all it means to say that such a color scheme would lower property values is that one expects a majority of potential buyers would find it ugly.

A smoking ban may or may not reduce revenue at D.C. bars relative to the status quo?that will depend in part on the willingness of smokers to leave the district for smoke-friendlier parts, an easier task than abandoning LA for a bar in Nevada. It will almost certainly be worse, economically, than the mix that the market would eventually achieve. But all that is just shorthand for saying that if we leave owners and customers to make their own choices, everyone can have the kind of experience that they most prefer. And while that's not the kind of argument that translates well to a PowerPoint slide, it has the virtue of being true.

Of course, Julian's fondness for Austrian economics shouldn't come as a surprise, for he has already made it clear that he is Not a Utilitarian.

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Of course, Julian's fondness

Of course, Julian's fondness for Austrian economics shouldn't come as a surprise, for he has already made it clear that he is Not a Utilitarian.

It sounds to me like he is making a utilitarian (perhaps consequentialist is a better word) argument.

Well, he's not aggregating

Well, he's not aggregating preferences. He's essentially making the same argument you like to make that this regulation is inefficient because it fails to satisfy subjective preferences a priori, rather than empirically.

Well, he's not aggregating

Well, he's not aggregating preferences. He's essentially making the same argument you like to make that this regulation is inefficient because it fails to satisfy subjective preferences a priori, rather than empirically.

Right. Is that not utilitarian?

I guess in a sense it is,

I guess in a sense it is, but not in the conventional sense. Utilitarianism is generally thought of as maximizing the greatest good for the greatest number, and therefore it is ok to cause pain to one person if it results in a greater amount of pleasure elsewhere. Austrianism seems to reject this method, and instead substitutes certain deontological claims in the place of utile aggregation.

I guess in a sense it is,

I guess in a sense it is, but not in the conventional sense. Utilitarianism is generally thought of as maximizing the greatest good for the greatest number, and therefore it is ok to cause pain to one person if it results in a greater amount of pleasure elsewhere. Austrianism seems to reject this method, and instead substitutes certain deontological claims in the place of utile aggregation.

That's not accurate.

1) For all the various reasons listed on Julian's website and more, prevailing views of utilitarian analysis are lacking. Act utilitarianism, the various forms of rule utilitarianism, hedonistic utilitarianism, etc all have shortcomings.

2) Under the Austrian formulation of utility, utility is an ordinal property of goods used to achieve subjectively defined end states of satisfaction. Utility is not a attribute of humans, who instead have states of satisfaction. The utility of any given means is dependent on how the individual believes it will help increase his state of satisfaction.

Utility cannot be compared across individuals.

3) Just becasuse interpersonal utility cannot be compared between individuals does not mean that utilitarianism is rejected.

4) Voluntary exchanges come with the expectation of mutual benefit. It is possible that after the exchange, one individual or the other might decide he did not in fact benefit from the exchange, but prior to the exchange, there is an expectation of benefit. In other words, both actors believe the exchange, in which they value each others' good in opposite rankings, will increase their own states of satisfaction.

5) Thus, voluntary exchanges are the best way to "maximize utility" so to speak, or probably better phrased, the best way to increase subjective states of satisfaction. The free market is utility maximizing. The free market is Pareto optimalizing. Yes, this goes against most people's (even hardcore free-market enthusiasts') intuition, but is based on the logical outcome of Austrian methodology.

This is a utilitarian analysis.

For a more rigorous explanation (and for anyone interested in the Austrian approach to economics, this is a *must* read), see:

Toward a Reconstruction of Utility and Welfare Economics - pdf, 133K.

You will notice that Rothbard makes no deontological arguments in the paper. You might even say that he indirectly gives a postive account of property rights, much like David Friedman does, although obviously the arguments Rothbard makes differ greatly from those of Friedman.

5) Thus, voluntary exchanges

5) Thus, voluntary exchanges are the best way to "maximize utility" so to speak, or probably better phrased, the best way to increase subjective states of satisfaction.

Actually, let me rephrase that even more strongly: voluntary exchanges are the only way to maximize utility.

In involuntary exchange, one person benefits at the expense of another because the aggressor is able to pursue his desired ends whereas the victim is not. In voluntary exchange, both can pursue their desired ends and hence, try to increase their own subjective states of satisfaction.

It seems to me that

It seems to me that Austrians begin with the same goal as neo-classical economists - maximizing utility - but then conclude that the best way (perhaps, as you say, the only way) to do this is by limiting all exchanges to only those which are voluntary. Thus, although the original intent was utilitarianism, the end result is nearly if not entirely identical to deontological libertarianism. If this is true, I do not think it is accurate to label Austrian economics "utilitarian" in the general sense of the word, because Austrians have already determined a priori which acts lead to efficient consequences and therefore tend to ignore any measurement of the consequences, instead analyzing the voluntary nature of the acts themselves. I may be wrong, though, because this is based on my admittedly limited knowledge of Austrian methodology.

I would say that Micha is

I would say that Micha is correct in this instance. Utilitarianism requires cardinal utility, which is verboten in classical and Austrian econ. Thus, Austrians aren't utilitarians. QED.

Utilitarianism requires

Utilitarianism requires cardinal utility...

Why?

Because utilitarianism

Because utilitarianism requires comparing A's utility to B's utility, and overall utility in scenario A to overall utility in scenario B.

These comparisons cannot be done in Austrian economics, since interpersonal utility comparisons are verboten. If one cannot do the comparisons, one does not have the basis for utilitarian analysis & conclusion.

These comparisons cannot be

These comparisons cannot be done in Austrian economics, since interpersonal utility comparisons are verboten. If one cannot do the comparisons, one does not have the basis for utilitarian analysis & conclusion.

It sounds like your argument is based on the subjectivity issue, not the ordinality vs. cardinality issue. These are related but separate issues. It might be possible that two individuals' ordinal utility rankings can be compared, manipulated, added, etc, if it was possible that some sort of relationship existed between the corresponding ordinal ranks. However, this is false, because the interpersonal utility of those ranks is subjective. The primary reason for the lack of interpersonal utility comparisons is not ordinality, but rather subjectivity.

Funny that Austrians would

Funny that Austrians would be opposed to smoking bands... ever been? Those guys smoke in movie theatres, aurplanes, you name it.

Jonathan's right. Austrian econ. is "want-regarding" Utilitarianism (i.e. Bentham's "pushpin as good as poetry, rather than Mill's "ideal regarding" "better socrates dissatisfied than a fool satisified") that permits no interpersonal comparisons of utility (a cornerstone of both philsopher's theories.)

Micha I think you are confusing the rationalist-utilitarian approach (of the Austrian school) with a rejection of utilitarianism. It's true that Austrians don't look to results of exchange (generally), but they don't because they think the philosophy described above doesn't require them to. So long as every exchange is a free one (and a "utility maximizing" one, as required) you don't need to know what happens afterward.

The limitations of such a thoery are obvious enough if you think about what that means, but sometimes it's fun to read about its applications. McKenzie and Tullock (proponents of the theory) wrote: "before stepping onto the grass he must quickly reflect on the benfits and then calculate the cost involved... consequently the calculated benefits exceed the costs, so he walks- and he does so rationally!" ugh.

This whole approach, incidentally, has been devastated by D.M. Nuti who claims that the Austrian school has nothing to do with capitalism at all. It describes either a slave society, or a "precapitalist" Adam Smith utopia in which labor power isn't bought and sold. I can give a quote but he bases it on the idea that there are no forward markets for free laborers.