Efficiency, Equality and Public Policy: With a Case for Higher Public Spending

197 Pages·2000·1.291 MB·English

by  Yew-Kwang Ng (auth.)

Efficiency, Equality and Public Policy
Also by Yew-Kwang Ng
INCREASING RETURNS AND ECONOMIC ANALYSIS (editor with K. Arrow and
X. Yang)
MESOECONOMICS: A MICRO–MACRO ANALYSIS
SOCIAL WELFARE AND ECONOMIC POLICY
SPECIALIZATION AND ECONOMIC ORGANIZATION (with X. Yang)
WELFARE ECONOMICS
Efficiency, Equality and
Public Policy
With a Case for Higher Public Spending
Yew-Kwang Ng
Professor of Economics
Monash University
Victoria
Australia
First published in Great Britain 2000 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
Acatalogue record for this book is available from the British Library.
ISBN 978-1-349-39897-3 ISBN 978-0-333-99277-7 (eBook)
DOI 10.1057/9780333992777
First published in the United States of America 2000 by
ST. MARTIN’S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-23208-5
Library of Congress Cataloging-in-Publication Data
Ng, Yew-Kwang.
Efficiency, equality and public policy : with a case for higher public spending /
Yew-Kwang Ng.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-312-23208-5
1. Policy sciences. 2. Economic policy. 3. Expenditures, Public—Decision mak-
ing. I. Title.
H97 .N5 2000
338.9—dc21
99–056733
©Yew-Kwang Ng 2000
Softcover reprint of the hardcover 1st edition 2000 978-0-333-67165-8
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with written
permission or in accordance with the provisions of the Copyright, Designs and Patents Act
1988, or under the terms of any licence permitting limited copying issued by the Copyright
Licensing Agency, 90 Tottenham Court Road, London W1P0LP.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work in accordance with
the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and sustained
forest sources.
10 9 8 7 6 5 4 3 2 1
09 08 07 06 05 04 03 02 01 00
To
Siang, Aline, Eve, and Tess
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Contents
Preface x
1 Introduction 1
1.1 A dollar is a dollar: a simple solution to the big
efficiency–equality tradeoff 1
1.2 A partial resurrection of the old ‘new welfare
economics’? 1
1.3 Introductory summary 2
1.4 A case for higher public spending 4
1.5 The misguided consensus 5
1.6 Three basic problems of social choice/public policy 7
1.7 Some specific points made 9
1.8 A methodological note 9
1.9 What this book is not about 10
Part I The Foundation of Public Economic Policy 13
2 The Necessity of Interpersonal Cardinal Utility 15
2.1 An intuitive explanation using a parent’s choice 15
2.2 Economists’ misplaced hostility against cardinal
utility 17
2.3 The impossibility of social choice based on ordinal
utilities 21
3 Welfarism 24
3.1 The Sen–Ng debate on welfarism: an appraisal 24
3.2 Another argument for welfarism 30
3.3 Rational individualism implies welfarism 32
4 Utility, Informed Preference, or Happiness 36
4.1 Non-affective altruism: the pure concern for the
welfare of others 37
4.2 Irrational preferences 45
4.3 Autonomous desires 52
4.4 Why is happiness fundamental? 54
5 Utilitarianism 57
5.1 Compelling arguments for utilitarianism 57
vii
viii Contents
5.2 Rational individualistic egalitarianism implies
utilitarianism 62
5.3 A defence of Harsanyi against some recent criticisms 66
5.4 A defence of using just perceptible increments 72
5.5 Utilitarianism and process fairness 76
6 A Dollar is a Dollar: Solution to the Paradox of
Interpersonal Cardinal Utility 82
6.1 The paradox of interpersonal cardinal utility 82
6.2 The proposed solution 83
6.3 Economists should be in favour of reversed weighting! 90
6.4 Some qualifications 92
6.5 Concluding remarks 97
7 Economics versus Politics 99
Part II How Much Should the Government Spend? 103
8 A Case for Higher Public Spending 105
8.1 Some simple theories of government spending 105
8.2 Inefficiency in public spending may increase its
optimal level 108
8.3 General taxation may be more corrective than
distortive 111
8.4 Diamond effects and burden-free taxes 111
8.5 Relative-income effects bias against public
expenditure 113
8.6 The unimportance of absolute income 115
8.7 Welfare-improving public expenditures 119
8.8 Concluding remarks 120
9 The Appropriate Benefit–Cost Ratio for Public Spending 124
9.1 The conventional view 124
9.2 Kaplow’s argument and the principle of ‘a dollar is
a dollar’ 126
9.3 Reconciling Kaplow and Feldstein 130
9.4 Concluding remarks 134
10 Concluding Remarks 135
Appendix A Electrical Brain Stimulation: a Case Showing the
Importance of Public Spending in Research 137
A1. Misconceptions on the costs of public spending 137
A2. Direct access to intense pleasure 137
Contents ix
A3. Enormous benefits 138
A4. Safe and long-lasting pleasure 138
Appendix B Pure Egalitarianism: a Critique 141
B1. Why is happiness the only ultimate consideration? 141
B2. Equality in the welfare weights 143
B3. The libertarians 143
B4. Rawls 144
B5. Pure and welfare egalitarianism 145
B6. Sen and capability egalitarianism 148
B7. Concluding remark 150
Appendix C Economic Growth Increases the Optimal Share of the
Public Sector 151
Appendix D Non-Affective Altruism: When the Pareto Principle is
Unacceptable 158
D1. The Pareto principle 158
D2. When the weak Pareto principle is unaccceptable 159
D3. The case of affective altruism 161
D4. Should voters be asked to suppress their non-affective
altruism? 162
Appendix E The Bergson–Samuelson Tradition Implies Individualism,
Independence, and Ordinalism 163
Appendix F Inefficiency in Provision May Increase Optimal Public
Spending 164
Notes 165
References 169
Name Index 184
Subject Index 188