And We Have a Winner

Jonathan Dingel of Exploit the Worker just won himself a donut. He points us to this to answer my challenge to find the obligatory broken window fallacy in the wake of the horrific tsunami. From the Daily Breeze:

The regions hurt most by the tsunami did not have much in the way of heavy industry, and many people there lived off the land as farmers and fishermen.

Still, while the cleanup from the devastation will be a daunting task, the resulting economic activity might actually be a boon for the region, said Kathy Bostjancic, a senior economist at Merrill Lynch. With the expected outpouring of economic aid for rebuilding, the economies of the affected countries could actually rise.

Many countries have already pledged millions of dollars in aid to the region. And the World Bank likely will redirect money from existing projects to provide immediate assistance for reconstruction.

(Note to self: never employ the services of Merrill Lynch.)

Jonanthan thinks maybe this isn't exactly the BWF because of all the foreign aid, but I disagree. It doesn't matter if the money comes from foreign aid or the villagers themselves; think of where they could be with all the aid and no destructive tsunami.

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Update: Chris Westley of the Mises Institute has more.

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At the risk of sounding

At the risk of sounding crass, I'd also add that you've lost the future productive output of over 60,000 people, at the last count I saw. That's part of the unseen that Ms. Bostjancic is neglecting.

Dingel is right, it doesn't

Dingel is right, it doesn't fit it exactly. Say that I'm in an accident. People feel bad for me and give me $1M. If I value the accident at less than $1M, I'm ahead. Yes, I'd be further ahead if I had the $1M and no accident, but without the accident I wouldn't get the money. This isn't to say the disaster will be good for the affected people, just that it isn't exactly the same situation as the BWF.

think of where they could be

think of where they could be with all the aid and no destructive tsunami.

Um, WHAT? Where would the aid come from?

Digamma, he's saying that

Digamma, he's saying that all things being equal, it is better to have "Aid+Live People" vs. "Aid+Dead People", which I find uncontroversial.

I agree with those who don't

I agree with those who don't think this is the BWF. Why would anyone send aid if there was no disaster? Obviously the world as a whole has lost value, but if you draw a little circle around the right area, and the net charitable inflow is greater than the damage in that area, then the area won. Its trivial, right? Where's the economic fallacy?

Patri, you're right only if

Patri, you're right only if the aid is greater than the destruction, in which case they come out ahead. That could be so, I guess, but you'd have a hard time convincing me those people are breaking even.

Shouldn't the button be

Shouldn't the button be about trade not aid? Microcapital highrisk loans?
Win/win rather than lose/win?

I highly doubt that the aid

I highly doubt that the aid could come as a net positive, given that every dead person represents a very large amount of money in terms of value lost to the community and human capital.

In the US, for example, the Value of a Statistical Life is around $7 million (if you assume the same value of a life regardless of age, background, etc), if 60,000 people died you'd need $4.2 trillion just to match the value of the dead. Granted the VSL of south asians is probably a lot lower given the lower productivity of their economies, but still.

But it is the BWF because the resources used to replace the damage will be bid away from some other area and purpose, which is itself a cost. The economic activity spurred by the reconstruction is essentially cancelled out by the lack of activity elsewhere (or, the increase cost of activity elsewhere), so in all cases a loss is a loss, a broken window is a bad thing regardless.

I suppose it is only not the BWF if you assume, ala entropy, that the "system" being studied is just the disaster zone and so therefore the costs imposed on the rest of the world are ruled out, and what remains is the aid on net vs the damage; in that case I suppose so, but I look more on the global "2nd Law" aspect (entropy must always increase, that which is unseen must be accounted for), a loss is a loss and is not a gain.

Jonathan and Patri are

Jonathan and Patri are right, there's no BWF here.

"Boon for the region" is highly problematic though as it requires weighing costs to some against benefits to others. Let's say everyone in the region was killed except for one person, then the rest of the world makes him a billionaire by charity. The average wealth of the region has skyrocketed, is that a boon for the region?

Brian - I wince at the

Brian - I wince at the hubris of this statement, but life is a lot cheaper over there. The mere fact of lower incomes means less resources invested in each person - considerably less.

On the other hand, it still works out to a big number.

On the third hand, can you really count those people as worth what was invested in them? They have already partly repaid that. They use up resources as well as earning them. What society has lost in a pure economic production sense is the difference between what they use up and what their work is worth, right? Which I'm guessing is going to pretty close to their annual income...

Patri, I think Brian agrees

Patri,

I think Brian agrees with you about the discrepency in the Value of a Statistical Life of an American and a person from a third world country.

Second, the value of a statistical life, which as Brian noted is somewhere between $5 and $10 million for an American, is not determined by income (as it is by courts when determining damages) or resources invested, but by people's willingness to take risks in exchange for monetary benefit. Although there are other ways to calculate this same figure, so you may be right...

Micha- yup on both

Micha- yup on both counts.

Patri & Micha VSL is indeed a risk-aversion valuation vs. more sophisticated ones that do model what Patri is getting at, sort of a "present value" of the remaining productive life of an individual and counting *that* for the value of life, etc. I don't think that a simple yearly income bit would quite cut it, but the risk models weren't my bag (or, rather, the principals/associates kept the fun work for themselves) so I'm not sure.

I tend to doubt the dead

I tend to doubt the dead people are better off even if their families recover more than you guys calculate they were worth.

I tend to doubt the dead

I tend to doubt the dead people are better off even if their families recover more than you guys calculate they were worth.

The trouble with the tsumani

The trouble with the tsumani is that it wiped out the main industry in many of these areas: ie tourism. It will take them quite a while to get back to where they were; whether we are talking man-power or the willingness of tourists to return.

All, In the US, for example,

All,

In the US, for example, the Value of a Statistical Life is around $7 million (if you assume the same value of a life regardless of age, background, etc), if 60,000 people died you’d need $4.2 trillion just to match the value of the dead. Granted the VSL of south asians is probably a lot lower given the lower productivity of their economies, but still.

In assessing the value of a human life from the production side, this approach has the fatal flaws of being both a non-marginal analysis and assuming that money and prices are an appropriate measure. In addition, treating people as a mass, rather than as individuals, is especially erroneous for this question.

The purpose of the real economy is the consumption of subjectively use-valued goods and service by individuals over time. It cannot be effectively aggregrated.

The productive value of a human life under these conditions is the loss of goods and services produced after the economy has adjusted to the loss of life of the particular individual.

If Tom Clancy is washed out to sea, his future book output will be replaced by one or more marginal authors of much less subjective value to readers.

If large scale entrepreneur Richard Branson were a victim, the loss would be very substantial and effectively irreplaceable.

If a company loses a $75K per year software engineer, it would be hard to argue that the company would give up much output in hiring his replacement except for his specific experience, and the dislocations of a transition period. If the SW engineer is 21, then he has acquired little experience to lose. If he is 65, there is little use left for his experience.

It is highly likely that more than 99% of the world population represent no significant productive loss compared to their replacements even to their individual employers, let alone to the world at large.

Of course, the value of an individual human life to his friends and family is not an economic question.

Regards, Don

Sure it's an economic

Sure it's an economic question. The live of one's friends and family, or even one's self are not of infinite value, or else we would never be willing to put the lives of their friends and family at risk. Are you willing to drive in a car with your friend or family? If so, you do not place infinite value on their lives.

And once you know what

And once you know what people are worth you can kill them in good conscience whenever the overall return outweighs the cost.

You are being intentionally

You are being intentionally dishonest, John. Stop it.

Micha, Why can't a

Micha,

Why can't a utilitarian murder with a clean conscience as long as the result is a net gain to society? And if we can set a value on the lives of others what reason is there to think the opportunity to murder them at a social profit will not arise?

Micha, Since you don't value

Micha,

Since you don't value your life infinitely we can assign it some finite value in dollars: $X.

Now is there anything wrong with Bill Gates taking your life at his discretion if he's willing to pay $X+$1 for it? Wouldn't it be economically efficient for your life to go to it's highest valued use?

Remember, there is no right or wrong, there are only good and bad results. Isn't your death a good result if Bill Gates values murdering you more than you value living?

Why can’t a utilitarian

Why can’t a utilitarian murder with a clean conscience as long as the result is a net gain to society?

I'm sure you already know the answer to this, which is why I said you were being deliberately dishonest, but I'll answer anyway for the benefit of inlookers. When libertarians like me talk about utilitarianism, we are almost always talking about rule utilitarianism, not act utilitarianism. We are analyzing rules (or meta-rules) on a social level. We are not analyzing a single person's act and whether or not that person did the right thing or the wrong thing. That kind of analysis generally doesn't interest me. (I.e., it only interests me when the answer to that question has far-reaching social implications.)

Now is there anything wrong with Bill Gates taking your life at his discretion if he’s willing to pay $X+$1 for it? Wouldn’t it be economically efficient for your life to go to it’s highest valued use?

Friedman already addresses this sort of question elsewhere:

Consider again your reaction to an offer of a million dollars for your life. Why do you refuse, and keep refusing even when the buyer offers to raise his price? The obvious answer is not because your life is of infinite value but because money is of no use to a corpse.

Suppose we switch to a probabilistic version of the same deal: Someone offers you a gamble based on the roll of a hundred-sided die. On any roll from 1 to 99 he pays you a hundred thousand dollars. If it comes up 100, he shoots you. You might still decline the offer, but not as fast. If he raises the offer to a million dollars and a thousand-sided die, you may change your mind.

The decrease in the probability of death from 100 percent to 1 percent or .1 percent explains why the price you charge falls, but not why it falls from infinity to a million dollars, perhaps much less. What explains that is the increase in the chance of being able to collect the money from zero to a near certainty. Zero times a hundred million dollars is still zero. Ninety-nine hundredths times a hundred thousand dollars is a substantial sum.

This way of looking at the problem also explains why people sometimes do accept a near certainty of death - charging into machine-gun fire in the First World War, piloting a kamikaze bomber in the Second, or giving someone dear to you the last seat in the lifeboat. Those are all cases where you can die and still collect. One can even imagine someone accepting a million dollars in cash for his life if there were some person or cause sufficiently important to him that could make good use of the money. What makes no sense is accepting a million dollars for your life with the intention of spending the money on yourself.

What would be wrong with a

What would be wrong with a rule that allowed a wealthy person like Bill Gates to take your life at his discretion so long as he appropriately compensated any parties harmed by this action, up to the finite value of your life, which he can well afford?

because he couldn't

because he couldn't compensate the one harmed most, the person he killed. again, money is of no use to a corpse. you moral libertarians are ridiculous.

When libertarians like me

When libertarians like me talk about utilitarianism, we are almost always talking about rule utilitarianism, not act utilitarianism.

Distinction without difference. Rules command or forbid actions.

- Josh

"because he couldn’t

"because he couldn’t compensate the one harmed most, the person he killed. "

So what? It's still a *net* gain if Bill Gates valued Micha's death more than Micha's life was worth to anyone else, isn't it?

Josh, what he means is that

Josh, what he means is that you can't look at the act itself independent of other acts of the same manner. You have to look at the effect of allowing the act in any possible circumstance.

John, you said the parties harmed would be compensated, however the party harmed the most could not be by defintion. Besides, it seems highly implausible that the benefit to Bill Gates is more than the loss to the person killed and that person's family and friends. Value is more than a monetary cost.

If Micha's life is of finite

If Micha's life is of finite value why can't we assign a monetary value to it? Or why can't we identify at least a ceiling if not a precise value? I mean it can't be worth $20 billion, can it?

it may be of finite monetary

it may be of finite monetary value, however you know that value is very subjective, and takes other forms. one person's value in other areas (love, emotional, etc.) may be "priceless" as it were. it is at least unquantifiable.

It makes little sense to me

It makes little sense to me to say the value of Micha's life is finite, but also say we can't even set any ceiling on it's value. Micha, is your life worth $20 billion or not?

again, there are different

again, there are different types of value.

Josh, The distinction is an

Josh,

The distinction is an important one, and it is what makes room for rights-based logic even among consequentialists. As Glen Whitman put it recently, "Performing a quick cost-benefit analysis in every moral, legal, or political situation would be a prescription for disaster (in cost-benefit terms!)." Natural-rights logic provides us with a convenient shortcut in most situations, without having to go through the costly process of cost-benefit analysis each time.

What would be wrong with a

What would be wrong with a rule that allowed a wealthy person like Bill Gates to take your life at his discretion so long as he appropriately compensated any parties harmed by this action, up to the finite value of your life, which he can well afford?

Would such a rule be a net gain for society? Only if we ignore the unintended consequences that could result. What would the families of the victim do in response? Maybe relatively poor people would preemptively attack Bill Gates to prevent him from taking advantage of this rule. Do you honestly believe that such a rule would lead to social harmony? Or would it be a huge net loss?

"Maybe relatively poor

"Maybe relatively poor people would preemptively attack Bill Gates to prevent him from taking advantage of this rule."

Why would they, if you're really not worth as much as he's willing to pay? Wouldn't they be better off taking the compensation?

"Do you honestly believe that such a rule would lead to social harmony?"

Why not, by your lights? If it doesn't work in this particular case doesn't that simply mean you misvalued life in the first place, that the life of the murder victim was simply worth more than you originally calculated? That doesn't fundamentally change the situation, it just means you're not as good as evaluating things as you thought. Surely there is some level at which Bill Gates can value your life which makes your murder a net win, isn't there?

Why would they, if you’re

Why would they, if you’re really not worth as much as he’s willing to pay? Wouldn’t they be better off taking the compensation?

Perhaps they are worried that they'd be next. Perhaps they place a premium on secuirity. I'm not sure where you get the idea that this is the appropriate use of the Value of a Statistical Life. You seem to be ignoring the Statistical part. Its use is mainly for determining how much people value their own lives based on the risks they are willing to take, and then using this value to determine trade-offs for things like healthcare, organ transplantation, automobile safety, road construction, etc.

Surely there is some level at which Bill Gates can value your life which makes your murder a net win, isn’t there?

Perhaps there is; I don't know. But that is not what the VSL is used for. As I said, the VSL is not what is currently used by courts to compensate victims' families, and I doubt it would be used by courts if civil law completely replaced criminal law.

Roderick Long already addressed your objections elsewhere:

Another worry is that the rich would rule. After all, won’t justice just go to the highest bidder in that case, if you turn legal services into an economic good? That’s a common objection. Interestingly, it’s a particularly common objection among Randians, who suddenly become very concerned about the poor impoverished masses. But under which system are the rich more powerful? Under the current system or under anarchy? Certainly, you’ve always got some sort of advantage if you’re rich. It’s good to be rich. You’re always in a better position to bribe people if you’re rich than if you’re not; that’s true. But, under the current system, the power of the rich is magnified. Suppose that I’m an evil rich person, and I want to get the government to do something-or-other that costs a million dollars. Do I have to bribe some bureaucrat a million dollars to get it done? No, because I’m not asking him to do it with his own money. Obviously, if I were asking him to do it with his own money, I couldn’t get him to spend a million dollars by bribing him any less than a million. It would have to be at least a million dollars and one cent. But people who control tax money that they don’t themselves personally own, and therefore can’t do whatever they want with, the bureaucrat can’t just pocket the million and go home (although it can get surprisingly close to that). All I have to do is bribe him a few thousand, and he can direct this million dollars in tax money to my favorite project or whatever, and thus the power of my bribe money is multiplied.

Whereas, if you were the head of some private protection agency and I’m trying to get you to do something that costs a million dollars, I’d have to bribe you more than a million. So, the power of the rich is actually less under this system. And, of course, any court that got the reputation of discriminating in favor of millionaires against poor people would also presumably have the reputation of discriminating for billionaires against millionaires. So, the millionaires would not want to deal with it all of the time. They’d only want to deal with it when they’re dealing with people poorer, not people richer. The reputation effects – I don’t think this would be too popular an outfit.

Worries about poor victims who can’t afford legal services, or victims who die without heirs (again, the Randians are very worried about victims dying without heirs) – in the case of poor victims, you can do what they did in Medieval Iceland. You’re too poor to purchase legal services, but still, if someone has harmed you, you have a claim to compensation from that person. You can sell that claim, part of the claim or all of the claim, to someone else. Actually, it’s kind of like hiring a lawyer on a contingency fee basis. You can sell to someone who is in a position to enforce your claim. Or, if you die without heirs, in a sense, one of the goods you left behind was your claim to compensation, and that can be homesteaded.

And of course, it is

And of course, it is interesting to note, his frequent reference to Randians (especially considering the fact that he considers himself one).

"Perhaps there is... If so

"Perhaps there is...

If so and your murder would result in a net win do you have any objection to a rule which approved murders resulting in net wins?

Your quotation of Long could be appropriate if I were defending the current system, but of course I'm not. And I don't object at all to a free market for law or enforcement. There's really nothing in the passage that would be an obstacle to efficient murder.

I'm not even saying that rules permitting efficient murder would be worse than what we have now. So what objections of mine do you imagine Long addresses there?

If so and your murder would

If so and your murder would result in a net win do you have any objection to a rule which approved murders resulting in net wins?

It's difficult to imagine a legal system in which murders are considered legitimate provided they are committed by a sufficiently wealthy person against a sufficiently poor person. As Long points out, even millionaires would have reason to oppose such a system because they would live in constant fear of billionaires.

Is it theoretically possible to imagine a system in which wealth is so concentrated that a small group of people has enough money to make such a system worthwhile? Perhaps, but I don't find such a result likely in a free market. Just as its possible to imagine all sorts of undesirable situations, like one in which a single corporation controls a monopoly of all industries and everyone is forced to work for subsistence wages. But such a result is also not likely to occur in a free market.

I'm sure someone with a good background in Law and Econ could say something intelligent here about property rules versus liability rules, but that person would not be me.

I’m not even saying that rules permitting efficient murder would be worse than what we have now. So what objections of mine do you imagine Long addresses there?

Long is only trying to argue that the wealthy would be less powerful under anarchy than they are now. He is not trying to argue that everyone would be equally powerful under his proposed system. Only that his proposed system would be better than the status quo. It's certainly possible to imagine undesirable outcomes in a state of anarchy. The question is only whether these outcomes are more or less likely than what we currently have.

"Long is only trying to

"Long is only trying to argue that the wealthy would be less powerful under anarchy than they are now."

In other words it doesn't address any objection I've raised. So why did you say it did?

And who said efficient murders were undesirable? Why isn't a net gain desirable?

In other words it doesn’t

In other words it doesn’t address any objection I’ve raised. So why did you say it did?

If your argument is that a consequentialist legal system fails to rule out some undesirable things in principle, I agree. My argument is only that it is better than the possible alternatives.

And who said efficient murders were undesirable? Why isn’t a net gain desirable?

Because I don't think such a rule would create a net gain when we take all of the unintended consequences into account.

It’s difficult to imagine

It’s difficult to imagine a legal system in which murders are considered legitimate provided they are committed by a sufficiently wealthy person against a sufficiently poor person.

Yeah, that's 'cause murder is wrong, see.

- Josh

Micha, "If your argument is

Micha,

"If your argument is that a consequentialist legal system fails to rule out some undesirable things in principle, I agree."

I never raised any such argument. My question is whether economically efficient murder is desirable, a question you are studiously dodging.

"Because I don’t think such a rule would create a net gain when we take all of the unintended consequences into account."

That makes no sense. The rule is that murder is permitted when it results in a net gain. Take everything into account that's relevant. Net gains cannot sum to anything but a net gain.

If the value of your life is finite then the harm done when murdering you is also finite, isn't it? And if the harm done is finite then surely econonically efficient murder must be possible, must it not?

As I said, it may be

As I said, it may be possible, but it doesn't seem likely.

So would you favor a rule

So would you favor a rule which permitted murders which actually produced a net gain?

Certainly, although I don't

Certainly, although I don't think your example is a good one. After all, if Bill Gates wanted to murder someone, it would be cheaper for him just to do it and deal with the consequences, rather than lobby for a law which legitimizes it before hand. A better example would be a case where murdering an innocent person saves the lives of a great many other innocent people. In such a case, I would strongly support the murder. On the other hand, just like in the Bill Gates example, there is an argument that murder should be illegal in general and exceptions should be made for exceptional cases.

Okay, so you'd favor a rule

Okay, so you'd favor a rule which permitted murgers which produced a net gain. Would you characterize such a rule as libertarian?

No, such a rule would not be

No, such a rule would not be very libertarian, at least in the way most people understand libertarian to mean something similar to principled non-aggression. My preferred meta-system for generating legal rules does not guarantee libertarian outcomes, but it does favor such outcomes, so long as people are willing to pay for them over alternative sets of rules (and they generally are so willing).

"No, such a rule would not

"No, such a rule would not be very libertarian, at least in the way most people understand libertarian to mean something similar to principled non-aggression."

But that's obviously not your understanding of libertarianism since you consider yourself a libertarian and yet discount such principles. So is there a way in which you understand libertarianism by which this rule is libertarian?

It seems to me that your endorsement of such a rule demonstrates that you are primarily a utilitarian and that any overlap with libertarianism is really coincidental. You are for the maximization of outcome for collective man, period.

I suspect that if we had

I suspect that if we had Micha come up with a list of people who it would be "economically efficient to murder" and had JTK come up with a list of "rights violators who needed to be killed to prevent further threats to individual liberty" the two lists would be pretty much the same.

I also suspect that the optimum strategy for "maximization of outcome for collective man" and the optimum strategy for "maximizing individual liberty" are the same.

It's almost as if we lived in a rational universe.

"Statistically, it's in everyone's individual best interests to begin behaving more decently towards others immediately." -- TJM

Under xeer ("hair"), a set

Under xeer ("hair"), a set of customs which serve as an alternative to formal law in ungoverned somalialand, the price of killing someone is 50 camels. This actually works pretty well most of the time. Few people, even annoying blog commenters, are worth 50 camels to kill. For those that are, there may have been some reason why they were worth killing.
Although bill gates can readily afford 50 camels, he doesn't go around killing somalis.